Nexii’s Justine Raschio attended the “Creating Shared Value: Making the Case for Your Company,” webinar to learn a bit more about this private sector trend and spent time in discussion with Nexii’s Advisory Board member, Abigail Noble, to consider whether and how Shared Value may differ from CSR and what role it has to play in taking positive impact to scale.
“Shared value” is growing in favour as the latest iteration of business engagement with society, and represents a corporate vision that not only addresses social and environmental challenges, but simultaneously improves profitability, long-term competitiveness and financial sustainability.
Corporate Social Responsibility (CSR) has been around in various iterations for nearly 30 years but the concept of “Creating Shared Value” (CSV) is relatively new – having been first introduced by Michael Porter and Mark Kramer in the Harvard Business Review in 2006.
“Creating Shared Value” for many appears indistinguishable from CSR, though Porter and Kramer emphasise that whilst they are “overlapping concepts” the difference is real and lies in the fact that “Corporate social responsibility is widely perceived as a cost center, not a profit centre whilst shared value creation, In contrast, is about new business opportunities that create shared value beyond the specific corporate entity whilst simultaneously establishing new markets, improving profitability and strengthening competitive positioning.”
Google defines creating shared value as “an approach to Corporate Social Responsibility based on the idea that corporate success and social welfare are interdependent.” This demonstrates “win – win” idea that Porter emphasises emanates from creating shared value outcomes that can serve two purposes and two masters though in different ways.
To assume though that CSV is better than, or that it should replace CSR would be shortsighted, however. Instead CSV should be considered as a subset of CSR and as a strategy that may not necessarily address the full range of activities considered to be the realm of CSR overall because CSR traditionally has taken on a broader range of activities including those that may not add to corporate success in measurable profitability terms. As John Elkington (Volans Executive Chair and SustainAbility co-founder) eloquently summarises:
“Aiming for a target no-one else can yet see doesn’t mean that we should kick over visible targets designed for those still trying to improve their aim. Recognize, too, that CSV is unlikely to pick up some of the really thorny CSR issues, including human rights or bribery and corruption, and – in that context – we should beware of kicking out the bottom rungs of the evolutionary ladder just as emerging market companies are waking up to CSR.”
Nexii Advisory Board member, Abigail Noble grounds us with the thought that “the answer comes with implementation. If you design the CSR program to be part of the core corporation, and if it is beneficial to both the corporation and the social enterprises, then it also fulfills the CSV mission. Both are valuable visions: CSR and CSV”. Noble adds that “how the relationship is managed over time and how it is implemented will determine it’s impactfulness.”
Relationship management covers a wide ambit and all matter of sins, and Noble’s comment reminds me of my father’s statement that “It is what you choose to make of it that matters. You have a rope of opportunity before you and you have three options: 1) you can swing from it; 2) you can hang from it, or 3) you can cut it”.
Of course there may be more options beyond these three, but the metaphor speaks to the individual responsibility that each of us has – as a corporate, as a non profit or as an individual committed to a course of action. It will be what the individual or entity chooses to make of the social, environment, political and economic relationship it has with its stakeholders, employees, customers and community that will determine whether it is committed to creating shared value or whether it is more simply fulfilling instead a corporate responsibility to society.
Corporations have the freedom to design and communicate their own unique intent to contribute to the socio-economic and environmental priorities that they deem to be important, and to determine their particular strategy for its execution and measurement. Based on such interventions, SMART indicators (specific, measurable, attainable, realistic, and timely) can be used to demonstrate and reflect how social impact in their business model improves their profitability and sustainability.
However, adopting or developing indicators pose both rewards and risks. Rewards in the sense that each corporation sets their own inidividual targets and monitoring systems, and risk in the sense that as demand grows for comparability, corporations may artifically select inidicators that do not reflect their unique theory of change. In this regard Noble comments that:
the factor that underlies such an initiative and its impact is the level of transparency. To the extent that [evidence of positive impact or change] is opaque, there is a need to monitor, measure and report. It could go one of two ways, either everything will have to be reported and it will become very data driven or there will be high levels of transparency and it will be clear who is achieving what and who isn’t”.
Porter and Kramer suggest that successful identification of the particular set of societal problems that a corporation is best equipped to help resolve and from which it can gain the greatest competitive benefit is key to determining the potential for creating shared value. Synder adds that, “it it is also essential to find those who get it, can communicate it and to embrace those people”. This comment resonated with participants, specifically with Stannard-Friel who pointed out that the highest hurdle remains for change agents within the private sector to pragmatically convince those in business who still hold the belief that pursuing social or environmental returns detracts from business value. This misalignment of value and the failure of financial market tools of evaluation and reporting to capture the simultaneous creation of profitability and impact as dual components of value within the private sector has lead us to the current failures in capitalism – failures that reward financial profitability over social and environmental sustainbility.
Impact investing, on the other hand is working to re-purpose capitalism and build an investment market that places equivalent emphasis on financial, social and environmental returns. Through impact investing, corporations, individuals, and investment entities can realize both financial and social returns according to personal risk and reward profiles on three dimensions. Impact investing is fundamentally premised therefore upon creating shared value. However the difference to corporate social responsibility as shared value effort is that in impact investing the value is largely determined by the high impact business which has control over the application of impact capital invested in it as opposed to being purely a beneficiary of CSV/CSR activities of a corporation.
High impact businesses are defined as those endeavours that have a positive intention to produce a positive impact on social and/or environmental dimension as a primary reason for their existence, a sustainable business model, market orientation and clear impact strategy and a well articulated theory of change that enables impact measurement and monitoring systems to be developed and performance reports of impact return to be delivered.
It matters not whether the business’s strategy is impact-first, finance-first or a combination thereof. It simply matters that it has an intention to deliver a positive impact and a commitment to measure its performance in doing so. In other words, it has a commitment to delivering shared value to all its stakeholders.
This flexbility encourages high impact businesses to design and measure their profitability in both financial and impact and to demonstrate to investors the shared value that they proactively created through determined action. It allows individuals to direct their resources toward a mission that rewards financial, social and/or environmental returns according to their specific risk/return profile, thus giving control to both the investor and the high impact business as opposed to having control managed by the corporation and its unique desire for shared value suited to its own ends.
The question then revolves around how individuals, corporations or institutional investment entities compare the options available to decide which one matches their risk/return profile if there is flexibility in mission and measurement?
This requires that investors spend more time getting to know their priorities and getting to understand the priorities of their potential investments. Each investment opportunity must be audited for both financial and impact performance. Investors will have to compare and weigh their options based on both the financial and impact risk and reward profiles and their proclivity for impact investment overall. Impact investing brings a human element of resolving societal problems through business back to the market – requiring investors to get up and close personal with the true cost and impact of the businesses they are investing in.
However, “inherently, as a new realm of corporations defining individualized theories of change develops, there will be new data sets and new benchmarks that will become the new standards of measuring activity” These data sets will apply as much to impact investing as they will to shared value creation and indeed the move even within traditional markets to look at “full cost” integrated investment reporting is already demonstrating this trend. As these new frameworks, performance indicators, feedback cycles and internal business development systems expose new opportunities for stakeholder engagement from the private sector, the focus should be more on the impact delivered and less on the semantics of whether it is CSR, CSV or impact investing.