Although they refer to quite different things, the terms sustainability, corporate social investment (CSI), corporate social responsibility (CSR), environmental, social & governance (ESG) issues and shared value (SV) tend to be used interchangeably.
This is technically incorrect. It makes the terrain very confusing to navigate. And we risk losing the value of each of the different elements.
The following diagram clarifies our use of these terms:
The term sustainability will always mean different things to different people. It has been this way for more than 20 years and it is not going to change.
It is more useful for organisations to determine the job of their sustainability strategy. In our experience, an effective sustainability strategy allocates resources to optimise the delivery of social value through the business. By social value, we mean value to society, whether social or environmental. This is the primary role of the sustainability strategy.
How an organisation optimises social value determines the extent to which its strategy contributes to competitiveness, risk management, employee inspiration and resilience. These outcomes – commonly listed as the ‘business case for sustainability’ – should in fact be on the radar of every functional team in the organisation. They are not the primary role of the sustainability strategy; nor are they the sole responsibility of the sustainability team.
So, how does the sustainability strategy optimise social value? It allocates resources to three types of initiatives: CSI, ESG and shared value.
Corporate Social Investment (CSI) initiatives respond to social needs through a philanthropic – cash or non-cash – contribution.
- Donations to community organisations are part of CSI
- An employee volunteer programme can contribute to CSI
ESG initiatives address business risks and challenges by promoting good practice on a range of environmental, social and governance (ESG) issues. These may include human rights, ethics, worker health and safety, corporate reporting and environmental management.
- An initiative to screen suppliers on environmental, ethical, empowerment or other social criteria is part of ESG
- Initiatives that save energy and reduce waste are part of ESG
- Disclosing your carbon emissions or listing on a socially responsible investment index, such as the JSE SRI, is part of ESG
- Engaging your stakeholders on environmental and social issues is part of ESG
These initiatives give rise to a large body of data that is made available to investors, whether they want it or not.
Although the term is widely used in a general sense, shared value (SV) is a technical term. It refers to innovation that addresses social challenges – at scale – as a business proposition. Shared value initiatives re-orient value chains for efficiency and access, introduce products that have a social purpose, seek entry points to underserved markets, and explore longer-term developmental partnerships that improve societal conditions. Shared value metrics include an explicit social and financial element.
- Developing a commercially-viable product that genuinely improves the lives of the poor is a SV initiative
- Changing a manufacturing process to reduce energy or waste at a scale commensurate to your operation is a SV initiative
- A partnership that opens your supply chain to support large numbers of smallholder farmers is a SV initiative
Shared value initiatives tend to be growth drivers, with measurable social and financial benefits. This makes SV particularly relevant in fast-growing emerging or frontier markets. A sustainability strategy that includes a significant shared value component can be called a shared value strategy.
A sustainability strategy’s particular allocation – between CSI, ESG and SV – will depend on the way the organisation perceives the risks and opportunities arising from the societal context in which it operates. If the organisation aims primarily to manage risks, reduce costs and improve its reputation, it focuses on CSI and ESG. If it wishes to enhance growth through socially-inspired innovation, it will tend towards SV in its allocation. This choice is referred to as the organisation’s strategic positioning. Organisations that make this choice consciously tend to have more effective strategies.
An organisation develops different competencies depending on how their strategy is positioned. Competencies are a mix of organisational skills, knowledge and behaviours that enable an organisation to deliver on its strategy. They are cross-cutting (in other words, not linked to a particular issue or department) and form the building blocks of organisational resilience. Organisational competencies that are developed through ESG initiatives include compliance, optimisation, governance and stakeholder engagement. Competencies developed through SV initiatives include value chain agility, product/market innovation and developmental partnership. These competencies are of increasing interest to investors who take a longer-term view on their investments.
Read our reflections on the Shared Value Leadership Summit held in May 2014, in New York, here.
To book a one-day masterclass on shared value, email Nicola or contact her on +27 (0)82 572-9684.