Leveraging Sustainability, Social Value Creation for Improved Business Results

When reading the daily headlines, it is not uncommon to find news about a company behaving badly. Check today’s top stories and there is probably an investigation, an executive gaffe or a serious disaster which has both business and societal costs. Increasingly, companies are being perceived as a major cause of our social, environmental and economic issues. Big banks, big oil, big mining, big insurers – companies in these industries are perceived to be prospering at the expense of others. The legitimacy of business is being called into question. This is compounded by increased industry oversight into business and management practices, both driven by regulation and expectation.

Communities increasingly expect companies to do the right thing – to act responsibly and keep societal well-being in mind. Consumers expect businesses to provide safe working conditions, respect the environment and support social development. Research shows people are more likely to engage with a brand or a company if it is doing something good for society.

We live in an era of new transparency and visibility. Now, consumers can turn to social media to provide feedback on a product or service. What’s more, a company’s integrity can be jeopardized by a Facebook post or tweet; consumers are eager to express their anger and dissatisfaction when companies are perceived to not be acting responsibly or in their best interest.

This poses an opportunity and a challenge for the business community. How should businesses be working with society, looking beyond profit, and focus on generating value for people and the planet?

Creating Shared Value

The ideal of building responsible business practices has been around for a long time. In 1962, Milton Friedman declared there was only one social responsibility of business – to meet shareholder expectations and profits. Businesses could pursue practices with a social good angle in mind, as long as they generated profit. Later, in 1984, Edward Freeman introduced his corporate management theory, which asserted that other stakeholder interests – like communities and employees – should be valued just as much as shareholder interests when considering best business practices.

In 2011, the Harvard Business Review published a thought leadership article by Michael Porter and Mark Kramer that introduced the concept of “shared value,” which is “creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do, but at the center.”