Creating Shared Value: A Strategic Imperative for Companies
May 8, 2015
Creating shared value (CSV) is an evolution in how companies view their role in society. It encompasses social license to operate, corporate social responsibility, and corporate philanthropy by tying these activities to core business activities. The philosophy behind CSV is not revolutionary, so much as it is an effective way to reframe and consolidate a body of existing work and understanding around the role of corporations in solving social challenges.
CSV posits that the social function of the corporation should be closely linked to the core business of the company so as to maximize both profits and social value. Governments and civil society need to understand CSV because this is the lens through which a growing number of companies are viewing how and where they can make a contribution to solve societal challenges.
The CSV concept gained prominence with the publication of a 2011 article by Michael Porter and Mark Kramer in the Harvard Business Review. Since then, CSV has elevated the discussion around social investment to the strategic level and has generated buy-in from some of the largest companies around the globe, including GE, IBM, Nestle, and Walmart. CSV has helped successfully place the debate around social investments in the board room.
CSV’s key insight is that corporate policies and operating practices that enhance company competitiveness can simultaneously advance the economic and social conditions of the communities in which that company operates. In other words, profit and social good are not mutually exclusive pursuits, and an enlightened business sees economic opportunities in solving social challenges. Under the CSV paradigm, business and society should pursue mutually supportive activities. Businesses rely on healthy and strong communities to buy their products but also to provide the public goods and assets necessary for business to operate. Communities, in turn, rely on business for job creation and economic advancement.
Today, CSV’s value proposition can be framed along two broad parameters. First, business practices should not prioritize short-term profit optimization at the cost of long-term strategic vision. Companies that see their “social license to operate” as a good investment have the opportunity to reduce internal business costs over time. An environmentally responsible waste-management policy might be expensive in the short term, but it would result in healthier workers who are more efficient and less likely to miss time for illness.
Second, businesses that invest in local communities can expand their own markets and drive down internal business costs. Procurement policies that strengthen the productivity of local suppliers by increasing access to inputs, providing technical assistance, and greater access to finance are an example of market expanding investment. Nestle became one of the first global companies to apply the CSV model when it adopted a strategy to improve premium local coffee suppliers in Africa and Latin America. Through its new procurement strategy, Nestle was able to increase grower incomes, decrease environmental impacts, and drive forward its highly profitable Nespresso business line.
The CSV approach cuts across several sectors and can be particularly valuable for extractive industries. Extractive resource investment can provide income, technology transfer, and workforce development opportunities for developing countries, but they also present significant risks in terms of ecological impact and social disruption. Extractive companies that tackle these challenges head on with a CSV-based approach can limit negative externalities and amplify the benefits that their operations can bring to local communities. In Africa, 51 of 54 countries have ongoing or planned oil and gas exploration operations—extractive companies that employ CSV strategies can limit work disruptions, drive profit, and promote development in local communities.
There is little debate that private-sector engagement will be critical in addressing today’s most complex global issues, including creating broad private-sector employment, responsible and transparent public resource management, and the opportunities and challenges posed by rapid urbanization. Recognition that corporate participation is needed to broaden global prosperity was first formalized with the UN Global Compact in 2000. Today, public-private partnerships are central to the development agenda and are widely used.
Increasingly, governments, donors, and civil society see the private sector as a critical partner in addressing complex societal challenges. As these actors approach companies in an effort to drive forward development, it’s important for them to understand corporations’ strategic lens. CSV won’t change the conversation around partnerships and development so much as it will help facilitate mutual understanding between public- and private-sector stakeholders. CSV presents the opportunity for establishing a shared lexicon around development issues. This is critical for placing development issues closer to core business strategy.
Daniel F. Runde holds the Schreyer Chair in Global Analysis and directs the Project on Prosperity and Development at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Charles Rice is a research assistant with the CSIS Project on Prosperity and Development.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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