Tiffany C.H. Leung
Secretary of the General Assembly
Macau Institute for Corporate Social Responsibility in Greater China (MICSRGC)
Reflecting unprecedented social and environmental challenges, from the COVID-19 pandemic to global sustainability, the United Nations established 17 Sustainable Development Goals (SDGs) to offer a shared blueprint for the 2030 Agenda for Sustainable Development at the international level. Multinational companies (MNCs) are powerful and influential in business and society, and are expected to play an important role in proactively identifying their key SDGs, prioritizing and integrating them into their business operations, risk management and corporate strategies.
Other international standards and industry-based initiatives, established by entities such as the Sustainability Accounting Standards Boards (SASB), International Integrated Reporting Council (IIRC) and Global Reporting Initiatives (GRI), are highly recommended mechanisms to integrate sustainability issues into the measurement and evaluation of shared value in the coming years. Substantial pressure applied to integrate social and environmental achievements together with financial goals through innovation and synergistic value creation have increasingly become stronger drivers than traditional Corporate Social Responsibility (CSR), which may be too fragmented and disconnected from a company’s core competences and unique resources.
From Corporate Social Responsibility (CSR) to Creating Shared Value (CSV)
Two famous scholars, Porter and Kramer, published the creating shared value (CSV) paper in Harvard Business Review in 2011 and they proposed CSV to underpin policies and practices to improve corporate competitiveness while enhancing economic and social values in the community and society at large. These two scholars promoted CSV as having the potential to transform traditional business thinking, so as to offer sustainable solutions to overcome challenges and serve the needs of the local community, the wider society and the environment. This new concept of CSV has received attention from industry practitioners, senior management and managers. They suggested three major CSV pathways. First, creating new and affordable products or services that serve the needs of underserved groups in society. Second, creating efficiencies and saving money while reducing wastage or despoliation in the value chain. Third, developing resources and capabilities of local suppliers and distributors.
Other scholars tried to refine Porter and Kramer’s CSV framework which could be broadly divided into four different levels, each providing different definitions and directions.
- Level 0 (CSR) – Activities are expected to underpin social and environmental responsibilities
- Level 1 (CSV) – Reconceive products and markets
- Level 2 (CSV) – Redefine productivity in the vertical and horizontal value chain activities that could also contribute social and environmental benefits
- Level 3 (CSV) – Enable local cluster development
Porter and Kramer continued to contend a major distinction between the concept of CSR and CSV. First, the core value of CSR is doing good, while the core value of CSV is contributing economic and social benefits relative to the cost. Second, CSR tends to focus on the concept of philanthropy, citizenship and sustainability, while CSV appears to create shared value by collaborating with companies and the local community or the environment. Third, CSR tends to be separated from profit maximisation, while CSV is integrated with profit maximisation. Fourth, the major impact of CSR is confined to a corporate footprint and an internal CSR budget, whereas the major impact of CSV seems to realign the company’s budget as a whole.
The Potential Strengths and Weaknesses of Adopting Creating Shared Value (CSV)
Other scholars provide some potential opportunities to adopt and apply CSV, however the underlying risks should not be underestimated. There are advantages of adopting CSV, for example, it CSV successfully appeals to industry practitioners, managers and scholars; promotes social and environmental actions and targets strategy at the corporate level; expresses a clear role to governments in responsible behavior; and introduces the concept of “conscious capitalism”, which is different from the traditional concept of capitalism in the Anglo-Saxon model. On the other hand, the disadvantages of adopting CSV are that the concept itself is not new and overlaps with other related concepts (e.g. CSR, blended value or social innovation); it ignores the trade-offs between economic goals and social or environmental goals; there is less history of implementation, in particular the compliance challenge in the business environment; and is based on a relatively shallow concept of the company’s role in society in comparison with CSR.
Regarding CSV, some scholars make a nuanced distinction between integration and innovation. The former is about integration into the existing core business and tends to achieve social and environmental performance and improve the social and environmental aspects of core business operations. Innovation, however, enlarges or extends the core business and develops new businesses to focus on new products or service development for the purpose of alleviating social or environmental problems in the local community and society at large. More importantly, whether, and how, companies may derive economic benefits from such CSV activities.
Questions for Companies Adopting Creating Shared Value (CSV)
There are a number of questions for companies to consider. Could your product design or process design integrate greater social and environmental benefits? Could your products or services serve the local communities and society at large? How could your company advance the local community as a business location? There are a number of challenges of applying CSV in companies. First, senior management and managers must struggle to understand CSV, persuade the board members to integrate this concept as a core value, and translate the new mindset from top to middle management, and down to the bottom level. Second, it is difficult to measure CSV performance by using quantifiable indictors, as most CSV projects may have indirect impacts on the local community, society and environment in both the short-term and long-term. Third, companies need to identify partners to collaborate with, such as NGOs, industry associations, suppliers, major competitors and local government in order to have cross-sector social partnerships to enhance their CSV strategy in the longer term.
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