Why companies should adopt Creating Shared Value for sustained business growth
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Conventional wisdom suggests businesses that put a commitment to sustainability at the heart of their operating practices are, in some respects, going to be damaging their bottom line, while limiting their opportunities for accelerating growth or expanding in to new markets.
However, businesses also know that a blasé attitude to the environmental concerns of their consumers will impact on their own brand integrity, especially in the ‘always on social media era’ where information and knowledge transfer have been decentralised and democratised.
Therefore, since the 1990’s, we have seen companies all over the world rapidly increase their use of Corporate Social Responsibility (CSR) initiatives, a self-regulatory mechanism designed to take responsibility for the impact that their business activities are having on the environment.
This focus has enabled brands to show off their green credentials to their consumers, while appeasing shareholders by ensuring a limited impact on profit margins.
The limits of Corporate Social Responsibility
We have seen this process in action recently, as brands have sought to align themselves with a range of consumer hot topics, such as the Evening Standard’s important and timely The Last Straw campaign, securing a quick media hit and positive endorsement along the way.
It is my belief, however, that by focussing on their own CSR policies and by reacting to the latest media campaigns as they happen, brands are missing a brilliant opportunity to take stock of their own business activity, and to assess the social, economic and environmental impact they are having.
Indeed, the current media focus on issues such as the use of non-renewable materials, modern day slavery and income equality should act as a springboard for businesses to broaden their policies away from simple CSR measures, to a model that encompasses a wider set of issues.
Therefore, I am calling on businesses to adopt Creating Shared Value (CSV) for sustained and ethical business growth and to make 2018 the year of CSV.
What is Creating Shared Value?
The concept of CSV was proposed by Michael E. Porter and Mark R. Kramer in the Harvard Business Review as a response to trust in big business collapsing, as they were widely perceived by consumers and National governments alike to be ‘prospering at the expense of their communities'[i].
The argument goes that brands can begin to bridge this divide by bringing business and society back together through the creation of ‘shared value’ – this is a commitment to generating economic value in a way that also produces value for society by addressing its challenges, rather than mitigating or offsetting them through a traditional CSR programme.
As such, a holistic approach to value creation, and not just wealth creation, results in the well-being of suppliers, consumers and communities being placed at the forefront of any business operation.
Unlocking growth through Creating Shared Value
The practice of unlocking growth by focussing on sustainable initiatives that simultaneously improve businesses can seem counter-intuitive. However, there is plenty of evidence emerging that is challenging this narrative.
According to a recent report in the Financial Times, collective renewable energy and energy efficient initiatives by 190 of the Fortune 500 companies together “saved close to $3.7bn” in 2016[ii]. These corporations have realised that cleaner, more efficient energy is not only good for the environment but has also impacted positively on the bottom line.
Furthermore, the potential of CSV as a viable business model has been highlighted in a 2017 report by the Business Commission entitled Better Business, Better World[iii]. The report suggested that “Greater sustainability can help businesses overcome global burdens to growth and deliver trillions in new market value”, while helping to tackle the most pressing social, economic and environmental issues.
How smaller, independent companies can be at the vanguard
While the larger corporations may be generating the headlines, it is increasingly the smaller, independent businesses who are at the vanguard of the movement. This is because they can be nimbler and more responsive to the world around them.
Using smaller food and drink manufactures as an example, we have seen this manifest itself through the development of transparent supply chains, such as ‘direct trade'[iv], which connects suppliers and buyers together without the use of intermediaries, simplifying the route to market for farmers.
In the case of English Tea Shop, we have put CSV in to practice through our Love Care Change philosophy that manifests in a wide variety of environmental, social, financial initiatives that have a huge effect on the environment, farmers and their communities and factory workers.
For example, by pioneering new ways of working together, we can help farmers plan for the future, minimise over-cultivation and grow a better product, which in turn gives us access to better tea for our customers.
Furthermore, these closer relationships mean we are well placed to drive and meet the growing consumer demand for organic produce. This is not only better for the environment but also enables farmers to command higher premiums.
We also encourage our employees to think like business people. One initiative we manage, called The Big Game, sees 400 individuals who work in our Sri Lankan based manufacturing facility engage in a profit sharing scheme every quarter. The programme educates workers on programmes such as open book management and has helped to increase productivity by over 30% per employee.
This is just a small example of how CSV initiatives can be implemented and can be made mutually beneficial for consumers, producers and businesses alike.
Creating Shared Value for the future
There is a commonly held view that sustainability is anathema to growth and that the best way for businesses to ‘do their bit’ in the world is through their own CSR initiatives.
I couldn’t disagree more. I believe we are approaching a new age of business where sustainability-minded companies, who focus on the communities that they work with and sell to, will be the fast growing, high achieving stars of the future.
Suranga Herath is CEO of English Tea Shop, the leading independent speciality and organic tea company.
