The Shared Value business model
Creating Shared Value (CSV) is the business model that will accelerate the achievement of the Sustainable Development Goals (SDGs). The trailblazing researchers and business strategists Michael Porter and Mark Kramer first introduced Shared Value in an article they wrote for the Harvard Business Review in 2006. They drew a distinction between the common activities related to the well-established model of Corporate Social Responsibility (CSR) and their new business concept of Creating Shared Value (CSV). They explained that “Shared Value is not social responsibility, philanthropy, or sustainability, but a new way for companies to achieve economic success.” Since its introduction in 2006, CSV has been adopted by a wide spectrum of companies and industries around the world and is currently a business-driven, sustainable model pervading global business and capital. The Shared Value model supports a positive impact for society, environment, finance, and for all parties involved. It is characterized by the principle: Doing well and doing good are not mutually exclusive. Meaning financial success does not need to come at the expense of society or the environment. And creating a positive impact on society and the environment does not need to come at the expense of profit. Financial, societal and environmental benefits can be achieved simultaneously. In fact, at the core of CSV are societal and environmental issues which serve as the drivers in propelling profitable Shared Value business cases. In this regard, Shared Value is the ideal business model to support the realization of the SDGs in solving the world’s societal and environmental problems.
Shared Value and the SDGs
Mark Kramer explains the link between the Shared Value model, and the SDGs as “a new revenue model for business.” And he sees potential in the guidance of the SDGs. In a recent interview with Devex at the Shared Value Leadership Summit[1], Kramer said: “We look at the SDGs and say, ‘There is a market here’. You can actually quantify the market potential of for-profit business to meet the needs of the SDGs. Getting business to understand that this is about new markets, new business opportunities, and new business models — instead of charity or the mandate of the development agencies, the government, and the NGOs is a fundamental shift that can be very empowering." This shift is as much about mindset as it is about business and capital strategy. For a long time, positive societal or environmental impact and positive financial results have been considered two separate things. It has been generally accepted that you could have one or the other, but not both. CSV is all about having both. CSV is a synergy of positive social and environmental impact and positive financial results. It combines positive impact and profit by creating economic value and societal value at the same time. I believe, as Porter and Kramer do, that “Shared Value could reshape capitalism and its relationship to society. It could also drive the next wave of innovation and productivity growth in the global economy.”[2] Since its introduction, companies have been adopting Shared Value as a guiding model.
Nestlé is one such company that has made shared value a priority in their business strategy and has embedded CSV principles across all parts of its business, listing an impressive 169 examples on their website of how they are creating Shared Value and thus helping to realize the SDGs. Their endeavors include: “pursuing innovative solutions to farmer welfare with the expansion of their ‘AAA Farmer Future Program’ through a retirement savings plan for farmers in Colombia” thus creating ‘Decent Work and Economic Growth’ (SDG 8); and ensuring Sustainable Consumption and Production patterns (SDG 12) by accelerating efforts and developing effective solutions to help reduce food loss and waste globally, which has resulted in significant yearly savings of $1.5 billion for the company.[3] The company’s strong track record in innovation has supported volume growth, with 30 percent of sales coming from products introduced or renovated in the last three years. By creating efficiencies and reducing waste, for example, Nestlé factories employed new techniques that saved an estimated 144 million gallons of water annually starting in 2015. Nestlé Chairman Peter Brebeck-Letmathe and CEO Paul Bulcke have stated: “We have always believed that in order to prosper we need the communities we serve and in which we operate to prosper as well, and that over the long term, healthy populations, healthy economies and healthy business performance are mutually reinforcing.”[4]
Creating and maintaining healthy populations is a leading sector in which CSV is highly relevant, with multiple examples of business success. The link between health and sustainable development is more relevant than ever and presents prime examples of Shared Value success. Both from a human and economic perspective, good health yields high returns on investment; good health reduces poverty and and supports economic development. Becton Dickinson (BD), for example, developed the world’s first needleless injection systems to protect millions of health workers from contracting and spreading HIV and other infections. This innovative technology is not only a $2 billion business for BD, accounting for 25 percent of the company’s revenue, it also created a shared health and safety value among the communities in which it operates. Pharmaceutical innovator Novo Nordisk is also ramping up its CSV approach. Working with local communities in China on diabetes prevention initiatives, the company has trained more than 55,000 physicians while also growing its insulin market share in the country from zero to 59 percent with revenues reaching USD 1.28 billion in 2013. Both of these examples work towards realizing ‘Good Health and Well-Being’ (SDG 3). They are achieving positive social benefits, financial profit, and SDG impact simultaneously.
Achieving success
Achieving the SDGs requires this shift in mindset and deed. As our world still revolves around money, achieving the positive goals set out in the SDGs, such as ending poverty and hunger and promoting good health, education and decent work conditions, will only happen if financial profit is recognized and achieved as well. For this reason, companies of all sizes throughout the world are beginning to embrace the Shared Value model. They are recognizing the benefits they can create for society and the environment while maintaining and growing their financial gain. They are also becoming ready to move forward from recent models of negative impact avoidance or reduction to positive impact creation.
Although the awareness and acceptance of CSV and its implementation into business has been growing, the Shared Value business model still needs to become common practice. To accomplish the Sustainable Development Goals by 2030, the adoption of the Shared Value model must scale-up and spread at a faster pace.
The incorporation of the CSV model is not only profitable for businesses and investors, it is also good business sense and at the same time helps save the world and meet the Sustainable Development Goals. Creating Shared Value and the Sustainable Development Goals are complementary ambitions. Both CSV and the SDGs are focused on solving the world’s problems and creating societal benefits and environmental stability. CSV is the sustainable business model which I am convinced is the future.
[1] https://sharedvalue.org/groups/unexpected-market-potential-sdgs
[2] https://hbr.org/2011/01/the-big-idea-creating-shared-value
[3] http://www.economist.com/news/business/21713832-its-fightback-includes-chocolate-lower-calorie-hollow-sugar-crystals-and-healthier-frozen
[4] http://storage.nestle.com/nestle-society-full-2015/files/assets/common/downloads/publication.pdf