By Don Richardson, Managing Partner, Shared Value Solutions Ltd.
“Creating Shared Value is not about philanthropy. It is about leveraging core activities and partnerships for the joint benefit of the people in the countries where we operate and of our shareholders” - Nestlé
Reporting on Shared Value
More businesses are working to create “shared value”. They are finding that the approach outlined by Harvard business experts Michael Porter and Mark Kramer in Harvard Business Review (Porter & Kramer, January, 2011: “Creating Shared Value”) helps them go beyond simply being responsible corporate citizens.
Businesses create shared value when they target profitable business ventures where social and environmental needs intersect with the company’s unique corporate assets, expertise and market focus. This intersection is what our firm, Shared Value Solutions Ltd.. is all about. Through this blog we'll be sharing our thoughts about creating shared value, sharing news about new initiatives and approaches, and sharing examples of how shared value solutions come about.
Reporting on shared value is trending. Traditional reporting on corporate responsibility and sustainability focused on compliance with environmental laws and other regulations, while philanthropy and community involvement were typically dealt with through anecdotal stories of corporate good will. This approach to reporting is not necessarily tied to a company’s corporate strategic plans and overall profitability.
In reporting on shared value, a company assesses how its corporate strategic plans drive economic value and generate positive outcomes for societal and environmental needs and challenges.
A recent report from Deloite (July 2012), Drivers of Long-term Business Value: Stakeholders, stats and strategy. advises businesses to maximize value for a wide range of stakeholders—such as employees, business partners and community groups. The authors suggest that companies that navigate environmental, social and governance issues well can reduce risk and lower cost of capital by creating value:
- for employees through HR policies,
- for the community through investment,
- for suppliers through resource efficiency improvements, and
- for the environment.
The Deloitte report says that the interests of shareholders and other stakeholders need not be at odds because focusing on maximizing value for the long-term can increase market value. For example, in the case of mining companies, improvement of financial valuations and good corporate reputations are important factors in production and financing. An International Finance Corporation report delivered in October 2011 at the First International Seminar on Social Responsibility in Mining describes how including more stakeholders in land negotiations helped Newmont Mining build community trust in Ghana, saving time and money while gaining access to land for gold mining earlier than expected.
Corporate reporting on shared value is important, but cannot be left to public relations staff. Reporting on shared value requires corporate boards and senior executives to execute corporate strategies that actually seek to create shared value, and this requires informed dialogue and real collaboration with stakeholders. As the authors of the Deloitte report emphasize:
"Without a deeper understanding of stakeholder judgement, a company risks being adrift in a vast sea of information, facing difficulty in crafting a strategic response and mapping a course to long-term business value creation."
Two Examples of Shared Value Reporting
On July 11, 2012, Avista Corporation, a major energy utility in the western U.S. released its 2012 corporate responsibility and sustainability report titled “Together We Build Shared Value”. In announcing the report, Scott Morris, Avista Corp. chairman, president and chief executive officer said:
“"Our customers, investors and community members are increasingly more aware of the complexity of our utility business. This report provides increased transparency into all aspects of our operations and the impact we have on the triple bottom line -- the environment, the economy and society. Through the shared value perspective we are able to show how our strategic business interests align with the interests of our stakeholders, adding value to both our business and their lives."
Avista’s Shared Value Matrix
|Business Strategies||Shared Value||Society Need — Stakeholder Priorities|
|Invest in renewable generation & energy efficiency||Customer Experiences||Reliable Energy|
|Invest in the core utility with emphasis on our strategic priorities||Responsible Resources||Renewable Energy|
|Develop smart operational technology solutions||Preservation and restoration of waterways, shorelines, air, wildlife and other natural resources|
|Drive effective regulatory outcomes||Environmental Stewardship||Communication, education, fair rates, lessen energy burden, community support|
Avista's reports communicate concrete shared value goals that are measurable, easy to understand and based on objectives held in common between their stakeholders and their shareholders.
Nestlé is becoming a well known champion of the shared value approach to business and corporate reporting. Nestlé's global corporate website homepage features a tab for "Creating Shared Value" along with more traditional tabs for "About Us", "Brands", "Investors" and "Media". Nestlé captures the essence of creating shared value in a corporate statement on the concept:
"Creating Shared Value is a fundamental part of Nestlé's way of doing business that focuses on specific areas of the Company's core business activities where value can best be created both for society and shareholders. Any business that thinks long-term and follows sound business principles creates value for shareholders and for society through its activities, e.g., in terms of jobs for workers, taxes to support public services, and economic activity in general. But Creating Shared Value goes one step further. A company consciously identifies areas of focus, where: a) shareholders' interest and society's interest strongly intersect; and b) value creation can be optimized for both. As a result, the company invests resources, both in terms of talent and capital, in those areas where the potential for joint value creation is the greatest, and seeks collaborative action with relevant stakeholders in society.
At Nestlé, we have analyzed our value chain and determined that the areas of greatest potential for joint value optimization with society are Water, Rural Development, and Nutrition. These activities are core to our business strategy and vital to the welfare of the people in the countries where we operate.
We actively seek engagement and partnerships with outside stakeholders that optimize positive impact in these areas of focus. However, Creating Shared Value is not about philanthropy. It is about leveraging core activities and partnerships for the joint benefit of the people in the countries where we operate and of our shareholders."
An example of Nestlé's shared value approach in Canada is its partnership with TerraCycle, an organization which supports the collection of difficult-to-recycle packaging and ‘upcycles’ them into fun, innovative products. TerraCycle's motto is "Outsmart Waste". TerraCycle creates national recycling systems for previously non-recyclable materials. TerraCycle's products include park benches, fences, cutting boards, watering cans, yoga mats, handbags and coolers all manufactured from recycled materials and sold at major retailers such as Walmart.
Nestlé's corporate reporting goes beyond describing partnerships to help other businesses realize shared value opportunities. Through its website www.creatingsharedvalue.org businesses interested in the concept can explore Nestlé's experiences, thinking and strategies across the corporation.
At Shared Value Solutions Ltd., we expect to see more companies follow the examples of Nestlé and Avista. We will be tracking trends in how companies report on shared value, and sharing our insights in this blog.