Sustainability and Shared Value: FAQ

By Jonathon Hanks and Nicola Robins

Q: Is ‘shared value’ the same as ‘sustainability’?

A: No. Although the terms are often used loosely together, and generally share the same intended outcome (a more equitable society living within ecological boundaries) they differ in scope and application.

  • Shared value is overtly about business strategy and the decisions that companies take in pursuit of profit. It refers to a particular kind of business strategy – one that that delivers competitive advantage by addressing societal challenges. It works explicitly within the business framework, seeking to engage business in addressing societal challenges.
  • Sustainability, while admittedly meaning different things to different people, takes a broader perspective. It highlights the need for transformative, systemic change, informed ultimately by a values-based lens. As John Elkington has put it: “If Shared Value is essentially about creating new types of win-win outcomes, then sustainability—in addition—is about identifying and handling the inevitable win-lose and lose-lose outcomes that will cascade from the… grand challenges that the global economy will face in coming decades.”

Shared value is unapologetic in framing the response to societal challenges through the ‘win win’ lens of business. While recognising the need for broader system change, shared value proponents recognise that achieving such change will take more than business alone. But by framing societal challenges in the language of business, we are more likely to have greater business engagement, tapping into their capacity for innovation and their influence to create a positive impact, both for their own businesses and for society.

Mark Kramer neatly sums up the difference between the two concepts: “Although less visionary (than the sustainability agenda), shared value is perhaps easier to put into practice – a limitation that has its virtues.”

 

Q. What is a corporate ‘sustainability strategy’?

A. Many organisations profess to having a sustainability strategy. In practice, few of these strategies focus explicitly on ensuring that an organisation endures into the future, and even fewer sufficiently address the systemic issues that underpin our currently unsustainable growth path. Most sustainability strategies tend to focus on managing risk and optimising the value delivered to society within the current business model. Typically the strategy is used as means of protecting the current business model, rather than promoting broader business model innovation.

 

Q. What is a ‘shared value strategy’?

A. Shared value is a business strategy that creates an improved profit formula or new market opportunity by addressing societal challenges (such as unemployment, climate change, inequality or resource scarcity). The strategy is usually activated through selected business units or product lines that put into operation one or more shared value initiatives. An example of this is Nestle’s drive to be the leading Nutrition, Health and Wellness company, which it seeks to achieve through a range of initiatives such as its launch of micronutrient-fortified foods in markets with high levels of nutrition deficiency. Similarly, GE’s decade-old ecomagination initiatives seek to drive product innovation as means of addressing societal challenges around resource efficiency and pollution. Ecomagination grew at twice the rate of GE’s other business units, indicating that the strategy was timely and well positioned. In each case, the strategy is geared directly to market growth or penetration, as well as delivering positive societal impact.

 

Q. What are shared value initiatives?

A. Shared value initiatives are innovations that deliver measurable social and financial value, at scale, as part of the company’s business proposition. According to Porter and Kramer in their seminal HBR article on the subject, Shared value initiatives deliver value by redefining productivity across the value chain, reconceiving products and markets, or creating enabling local environments. Examples include:

  • Global brewer SAB Miller, redefining productivity through inclusive supply chains and local sourcing;
  • Kenyan mobile phone company Safaricom, developing new products (such as M-PESA) that target low-income customers traditionally excluded from the formal market system; and
  • Norwegian fertilizer company Yara, creating an enabling local environment by establishing agricultural growth corridors in Southeast Africa.

 

Q. Can shared value initiatives form part of a company’s sustainability strategy?

A. Yes. Sustainability cuts across business silos to highlight any initiative that delivers value to society. A sustainability strategy might include:

  • Corporate social investment (CSI) initiatives that respond to social needs through philanthropic contributions;
  • Environmental, social and governance (ESG) initiatives that typically seek to work within the company’s existing business model, promoting efficiencies and managing risks; and
  • Shared value (SV) initiatives that deliver measurable social and financial value, at scale.

This is not to suggest that the sustainability team is responsible for all these initiatives: it simply means that they contribute to the organisation’s social value proposition.

 

Q. What is a shared value enterprise?

A. Where the entire business model is geared to deliver shared value, the organisation may be called a shared value enterprise. Arguably, Discovery and Unilever are examples of relatively few peer-recognised shared value enterprises. As shared value strategies prove themselves in the market, we would expect to see more shared value enterprises positioning as market leaders in their sector.

 

Q. Can sustainability be integrated into the business strategy instead of being a separate strategy?

A. In theory, this is possible and most organisations already claim to do this. In practice, societal issues tend to be side-lined in a business strategy because we live (and compete) in a business world that is illogical; it tends to reward behaviour that is ultimately self-defeating:

  • Shareholder returns are prioritised over everything else;
  • We do not sufficiently value the natural and human resources on which these returns depend; and
  • Our discount rate is too high: we value the short-term more than the future.

Companies develop separate sustainability strategies to highlight these challenges associated with business strategies and to counteract the persistent trends associated with them.

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