Shared Value: The new meaning for sustainability?
Jonathon Hanks, Managing Partner at Incite, South Africa speaks on Shared Value
What does ‘Sustainability’ really mean? I personally love the word and the effect it has on people when I tell them that I am a consultant in the field of sustainability. Their eyes glaze over and they nod meaningfully, taking on a somber demeanour. Somehow ‘sustainability’ bigger and more important than your regular old consulting. And I am not alone this little display of significance. Many companies use the term ‘sustainability’ loosely to mean a wide range of activities within their organisations.
Corporate Social Responsibility (CSR) initiatives are the most popular. This is when a company responds to social needs through philanthropic – cash or non-cash – contributions. These include donations to community organisations and employee volunteer programs. Increasingly, however, sustainability is being taken to mean the actions around addressing 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. For example, 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.
However, according to Incite, a consultancy based in Cape Town, South Africa, it is more useful for organisations to determine the role of their sustainability strategy. I recently had a chat with their Managing Partner, Jonathon Hanks, who presented the concept of shared value (SV). This is a management strategy focused on companies creating measurable business value by identifying and addressing social problems that intersect with their business. In their experience, an effective sustainability strategy allocates resources to optimise the delivery of value to society, whether social or environmental. This is the primary role of the sustainability strategy. The shared value concept was perhaps first defined in the Harvard Business Review article “Creating Shared Value”, by Professor Michael E. Porter and Mark R. Kramer. The authors identified three ways in which shared value can be created: by defining markets in terms of unmet needs or social ills and developing profitable products or services that remedy these conditions, by increasing the productivity of the company or its suppliers by addressing the social and environmental constraints in its value chain and strengthening the competitive context in key regions where the company operates in ways that contribute to the company’s growth and productivity. In other words, developing a commercially-viable product that genuinely improves the lives of the poor, changing a manufacturing process to reduce energy or waste at a scale commensurate to your operations and a partnership that opens your supply chain to support large numbers of smallholder farmers are all shared value initiatives.
Shared value initiatives tend to be growth drivers, with measurable social and financial benefits. This makes shared value particularly relevant in fast-growing emerging or frontier markets.
For example is a partnership between Microsoft, Fit Uganda and GOAL, an NGO that has been working in the agricultural sector in northern Uganda engaging with conflict affected rural communities to improve food security and agricultural incomes. Since 2013 GOAL has facilitated agricultural businesses to increase productivity through access to improved agricultural inputs and services and link farmers to market and weather information, which is vital for production. A key component of this has been to increase the functionality of an existing agri-business mobile platform to a full trading platform (virtual market place) that includes, among others, commodity and weather information, farmer profiling, a farm management record system to increase farmers financial and trading history and credibility. GOAL worked with a local company, Fit Uganda in partnership with Microsoft who provided technical expertise, business planning and strategy skills as well as software and technical solutions. GOAL provided market linkages, increased access to farmers and marketing services. The results of the cooperation were a significantly increased and secured platform or virtual trading place with over 115,000 users. Also smallholder farmers have increased access to goods and services such as buyers, financial services, insurance, inputs and equipment. Fit Uganda has improved business performance and opportunity for growth and Microsoft benefits from direct market linkages and more use of technology.
The term sustainability has meant different things to different people for more than 20 years and it is likely that this will remain the case.
A sustainability strategy’s particular allocation – between CSR, ESG and SV – will depend on the way the company perceives the risks and opportunities arising from the societal context in which it operates. If the company aims primarily to manage risks, reduce costs and improve its reputation, it focuses on CSR and ESG. If it wishes to enhance growth through socially inspired innovation, it will tend towards shared value in its allocation. The choice depends on the company’s strategic positioning. Competencies developed through sustainability include value chain agility, product or market innovation and developmental partnership. These competencies are of increasing interest to investors who take a longer-term view on their investments.
As for me, I continue to be a ‘very-important-sounding’ consultant in Sustainability & Marketing.