‘Shared value’: Buzzword or the future of business?

What is “shared value”? 

Ryan Short: It’s a business approach that values profit and purpose equally. A shared value strategy is a pathway for businesses to create and share positive value not only among shareholders, but other stakeholders too, including consumers, employees, communities, the environment or society at large. Unlike CSR activities, which are external to core business operations, shared value models see the creation of positive social, economic and environmental impact as a profitable business opportunity for the core business.

There is no trade-off — doing positive business leads to positive long-term returns. Shared value is a much-needed conceptual link between the power of the profit motive and improvements in society and the environment. But it’s not the only concept out there punting a new role for business — you may also hear about corporate impact, social business, inclusive business, business at the bottom of the pyramid, or conscious capitalism — and they are all part of the same family. 

Surely the purpose of business is just to make profits?

Profits have been and will continue to be a core purpose and measure of success for business, and shared value gets this. However, a pure profit purpose is not enough. Despite the huge productivity and prosperity gains across capitalist societies, the pursuit of profit appears also to have become divorced from the outcomes it creates for society and the environment. 

Trust in the classic capitalist model is broken, with about 56% of the world’s people now thinking capitalism does more harm than good. As capitalists, that’s not a future that we can ignore. Consumers, governments and staff want to see a wider purpose for companies that is harm-free, inclusive, self-aware, positive and useful, repositioning the company as a helpful corporate citizen, open to partnerships and joint solutions. This represents a profound philosophical shift because it adds a second metric of success to business: the impact of companies on society, both positive and negative. I have no doubt that our children and their children will view the company and its role completely differently from how we do today.

Isn’t shared value a buzzword useful for greenwashing, for instance? 

It’s true that many companies use impact as a marketing and branding play without making any meaningful change to the core of the business. There’s a lot of suspect communication and greenwashing going on. But we also work with many strategic, progressive companies that see which way the wind is blowing — and see the business opportunity — and are changing meaningfully. 

What does this change look like in practice? 

The first step is a conscious change in philosophy and purpose. Leaders need to stand up and say, “We want to be a positive force, our company is committing to a valid purpose in society, and this is what that purpose is”. Without leadership, shared value is dead in the water. 

The second step is to truly understand and internalise the impact — both positive and negative — that you are creating. This means measuring impact and being brave enough to report transparently on that.  

The third step is to improve impact, first by stopping certain practices (harm mitigation), then by improving positive impact (creating shared value). This means looking at the world strategically to identify social, economic or environmental needs, and then aligning the business consciously to serve those needs. In practice, this might mean innovation in a new product or service, rethinking hiring and supply chain inclusivity, taking an informed interest in what people and customers do with your products, developing new funding mechanisms, or integrating an impact measurement and reporting framework throughout a company to ensure the company’s operations and services produce a net positive impact. 

Is this the same as environmental, social and governance (ESG)?

Similar but different. ESG is a useful framework for assessing potential long-term risks to investments, and it came out of the investment community. But there are two weaknesses in ESG. First, ESG is essentially concerned with harms or risks. ESG investors ask, “What social, environment, and governance risks are there in this company?” This misses half the picture. What about the positives the company is creating? Shared value and impact are concerned with mitigating harms plus creating positive value. 

Second, ESG completely excludes the biggest impact of any company: its economic impact. The “G” is really out of place: good corporate governance is an enabling factor of positive impact, not an area of impact itself. When we’re helping companies improve their impact, we advise that they replace the “G” (for governance) with an “E” for economic impact.  This allows them to capture the full impact picture.

Can you give some examples of how companies are implementing shared value?

Sure. Let’s start with measurement. We’ve worked with banks including Standard Bank and Standard Chartered that want to understand, measure and report accurately on their impact on the economy, on society and on the environment. We’ve also advised companies making genuine attempts to understand how their business model affects society, including Airbnb, which wanted to understand and improve on inclusion of their model, and Facebook, which wanted to measure and improve how digital tools and social media can empower small businesses across Africa. 

Beyond measurement, there’s impact strategy. We’ve helped Sappi put environmental sustainability and socioeconomic support of the forestry communities in which they operate, at the heart of their business. We’ve seen Anglo American reframe the relationship with mining communities to move away from charity to developing mutual economic projects and AB InBev create emerging farmer programmes to diversify supply chains.  

Absa has taken a leading role in trying to expedite land reform constructively and sustainably. We’ve seen banks channelling resources towards the housing shortage, setting up funds to create alternative building tech to bring down the cost of affordable housing; and insurance companies and banks introducing products aimed at financial inclusion. Other companies have also launched affordable healthcare products and services. 

Many companies have introduced more inclusive hiring practices or developed more inclusive supply chains. Some are more environmentally focused: almost everyone wants a carbon plan, and many are concerned about water usage, protecting biodiversity or the adoption of circular models of resource use. 

Importantly, none of this is charity: it’s all driven by new business opportunities.

Are shared value businesses substituting the role of governments?

No, they are complementary partners. But the data is clear: stakeholders want businesses to act on societal issues without waiting for the government. For instance, in the 2021 Edelman Trust Barometer, 60% of respondents globally even reported that they believe that the most significant societal issues (e.g., climate change, racism and the infodemic) will only be solved with private sector involvement. 

So rather than viewing business as substituting government, shared value empowers businesses to work with governments to deliver what we call “Joint Solutions” — inclusive solutions co-designed by all impacted stakeholders. Shared value companies are typically open to all manner of partnerships with the state, NGOs, and other companies – a more systemic and solutionist mindset.

Which societal challenges should business be thinking about?

The role of business in society inevitably varies across countries based on the unique developmental context in each country. For example, while the focus of responsible businesses in “developed” countries is more about carbon reduction, encouraging diversity and eliminating racism, businesses in Africa will likely need to focus on addressing  the three predominant forces shaping the continent’s future: 

First, with approximately 800-million young people in Africa where the average age is 19, businesses and governments will need to work together to find educational and economic opportunities for the youth population, while taking advantage of their innovative thinking and energy. 

Second, with eight in 10 Africans making a living from agriculture and therefore being at risk of more frequent and impactful natural disasters, strategies for preventing and adapting to climate change and environmental degradation will need to take centre stage.

Third, as access to opportunities is increasingly channelled through digital tools and technologies, the public and private sectors will need to drive significant investment and policy change to address the digital divide.

What trends should companies look out for?

First, impact outcomes will increasingly be added into the KPIs of C-suite executives, with greater pressure on activist CEOs to provide global leadership on social justice and environmental challenges. We predict the rise of the Chief Impact Officer. Additionally, executive compensation may more commonly be linked to impact metrics. As companies commit to listening to all stakeholders, we’re also likely to see more cases of worker representatives being appointed on company boards.

Second, tackling the climate crisis will rise in importance. This will be supported by national commitments, including mandatory climate risk disclosures in the UK, emissions reduction measures in the Biden-led USA, or the release of the EU’s first green bond earlier this year.

Third, given the ever-expanding plethora of impact measures, standards and principles, sustainability networks will continue to support the harmonisation of impact standards, making it harder for companies to greenwash or report financial accounts without an impact weighting. 

Fourth, companies will need user-friendly tools that can measure impact and produce customised reports in a way that comprehensively takes account of the multitude of international impact standards, something that we have been developing with our partners at Paragon Impact+.

Overall, addressing societal challenges is not only the right thing to do; it’s great business and it builds great companies. Who doesn’t want a positive purpose in their work?  However, reshaping capitalism to serve the world has a long way to go. I’m confident that the only path for doing so will be one that is collaborative, innovative and purposeful, creating shared value for all.

This interview was conducted by members of the Shared Value and Impact (SVI) practice at Genesis Analytics. The SVI practice works at the intersection of the market, state and society to design and implement shared value strategies, impact assessments and public policy analysis for governments and companies. Read more about their work here.