The past few decades have challenged our perception of growth, with the side effects of our current model growth showcasing its toll on our natural environment, neglecting other external stakeholders in favour of monetary gain. It’s also these same fantasies of eternal economic growth that human nature neglects something we take for granted everyday, our planet. HBS professor Mark Kramer proposes Creating Shared Value as a sustainable growth model that balances financial gain with corporate responsibility.
The acceleration of urbanisation in densely populated countries around the world, particularly in Asia, has resulted in a steady 1.6% global annual increase in greenhouse gas emissions over the last three decades. Since the 2007 Intergovernmental Panel on Climate Change report that revealed a strong relationship between average global temperature and GHG emissions, the understanding of economic growth and its relationship with environmental deterioration has become an increasingly popular area of research amongst economists. This has caused many to reevaluate our current governmental systems and wonder if there are better ways to enable sustainable growth without sacrificing monetary gain.
Creating Shared Value: Gaining a Competitive Advantage Sustainably
First introduced in 2012 by Mark Kramer in the Harvard Business Review, Creating Shared Value (CSV) is an economic framework for creating economic value for a firm whilst simultaneously addressing societal problems and challenges in their business model. While it’s predecessor corporate social responsibility (CSR) entails corporations holding themselves socially accountable for their actions to its stakeholders and the public, CSV goes beyond CSR in the sense that it directly addresses societal needs and problems with a business model that also enables sustainable economic growth at the same time.
Enabling an economic model that allows for a two-way give-and-take relationship between the corporate world and the environment, which Kramer has dubbed to be the ‘modern day CSR’. CSV also doesn’t just mean promising to plant a tree for every sale at a store but it can also mean ensuring that fair trade is practiced and that everyone at each level of the production process is fairly compensated. This leaves us with a business model that prioritises its people and the environment above all else.
While CSV may sound good in theory, firms have to invest large amounts of time and resources for something they have close to no incentive to do. Although CSV in of itself is a relatively new idea, the concept of incorporating social benefit into the local community and environment has been around as early as the mid 20th century.
The most prominent example of CSV in practice can be seen with Patagonia, an American clothing company that is valued at over $1 billion USD, which comes to a surprise to many who realise that the brand promotes anti consumerism, fair trade and efforts to mitigate the climate crisis, all traits that many assume would usually negatively influence company revenue as it will significantly increase operational costs . Yet these same values were the secret behind the brand’s success, according to the VP of Environmental Initiatives Rick Rideway, who says that the company’s history has demonstrated that decisions made “in favor of environmental reasons always proved to be a good business in subsequent years.”
Fig 1: Advertisement from Patagonia’s ‘buy less demand more’ campaign
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Different Forms of CSV
Shared value is created from practices and policies that create a competitive advantage while simultaneously strengthening communities and external stakeholders the company operates with.The Harvard Business Review has classified three main forms of incorporating CSV: redefining productivity in the value chain, re-conceiving markets and products and strengthening local clusters. While all three forms can vary significantly in nature they all directly address a societal need whilst remaining economically sustainable. Redefining productivity in the value chain often entails improving the quality, cost and ensuring quality of sourced materials whilst maintaining a sustainable use of natural resources consumed. While reconvening markets and strengthening local clusters aims to identify target markets that are overlooked or poorly served by the industry and rethinking business models to tackle unsolved consumers concerns or problems.
CSV in Practice
Patagonia has incorporated many elements of creating social value in their business model, ranging from donating 10% of its profits or 1% of its sales (whichever is greater) to over 900 international grassroots environmental organisations, to more unorthodox examples. One of these unusual methods is their ‘Don’t buy this jacket’ campaign, which features the brand’s flagship R2 jacket and the environmental waste that is generated from producing said jacket. They promote anti-consumerism and directly tell people to only buy their products if they actually need it, repairing them if they are broken. Utilising unorthodox marketing methods Patagonia stayed true to its corporate values and reinforced their image of being a socially responsible brand who puts the environment and their customers above all else, including making profits, which in turn increased customer loyalty by reinforcing their brand’s image. Another example of a company going above and beyond to incorporate CSV into some of their initiatives can be seen from the American food company H.J Heinz. Launched in 2007, their ‘micronutrient campaign’ was introduced with the goal of fighting iron-deficiency anemia as well as mineral and vitamin malnutrition in the youth of less economically developed countries through producing and selling micronutrient packets for less than 10 cents a sachet which can provide the average child’s required micronutrient intake in a year for less than HKD$10 . Despite low profit margins, by identifying an area where they can utilise their resources to directly make a difference, Heinz proved that the campaign wasn’t only one that directly benefited 10 million, but also a good economic venture making use of its large production qualities and economies of scale to turn a profit which they pledge to reinvest into similar initiatives.
Featured image by: Unsplash