A Sustainable Investment in Journalism

A sustainable business requires diverse revenue streams. ESG Investor now operates a subscription service as of Tuesday 14th May. To find out more please get in touch with our subscription team on subscriptions@esginvestor.net

Commentary

Why Shared Value is Here to Stay

Dr Henning Stein argues that we can learn much from natural ecosystems in the development of collective responses to collective problems.

In late 2020, in the face of Covid-19’s escalating ravages, a survey in the UK set out to find the most hated phrase to enter daily use during the pandemic. “We’re all in this together” duly topped the charts.

Cynics might infer from this that there is a strictly limited appetite for collective responses to collective challenges. I prefer to believe it merely proves the old adage that familiarity breeds contempt.

I take this optimistic view for two reasons. First, I happen to have faith in humanity. Second, there is growing recognition that the best way to build a better future is to involve as many stakeholders as possible in shaping the way ahead.

This idea lies at the heart of ‘shared value’, an approach that is increasingly influencing the thinking of investors and the businesses they support. It is not an especially new concept, but it is rightly gaining more attention in light of the urgent need to bring about change on a global scale.

Harvard Business School academics Michael Porter and Mark Kramer first showcased the benefits of shared value in 2011. They billed it as a way to “reinvent capitalism and unleash a wave of innovation and growth”.

Many of the pair’s underpinning arguments have since become widely accepted. Perhaps foremost among them is the contention that companies should no longer operate in a manner that invites perceptions of prospering at the expense of broader society.

“The purpose of the corporation must be redefined as creating shared value, not just profit per se,” Porter and Kramer wrote. Business Roundtable, an association of around 200 CEOs representing the largest companies in the US, officially adopted almost precisely such a definition in 2019.

Yet shared value is about much more than the acknowledged shift from shareholder capitalism to stakeholder capitalism. It is about understanding the enormous importance of uniting diverse stakeholder groups that too often – even if unwittingly – work in opposition to each other.

A systemic search for solutions

I recently experienced this kind of alignment at first hand. It was the principal aim of the Protein Lab, an event hosted by Zurich-based not-for-profit organisation Sentience.

A leading campaigner for the rights of non-human animals, Sentience is committed to revolutionising food systems worldwide. As I do, it regards the status quo as dangerously untenable and advocates a pivot to cultivated meat and plant-based protein sources.

So how are such ambitions most likely to be realised? A vital step is to appreciate the existence of an ecosystem – one comprised of various stakeholders that are working towards much the same goal but are almost inevitably zeroing in on it from many different directions.

Bringing all these stakeholders together is imperative – yet this is only the start of the process of delivering shared value. It is also crucial to determine the dynamics of the ecosystem – the underlying conflicts, the potential trade-offs, the scope for consensus or compromise, how responsibility is apportioned and where the power resides.

This demands genuine engagement and the candid exchange of knowledge and opinions. Only then is it possible to leverage and optimise the combined insight, expertise and experience – not to mentioned the will – of all concerned. The key to progress is to eliminate silos and undertake what Porter and Kramer called “mutually reinforcing activities”.

I participated in the Protein Lab to provide input from an investment perspective. The event strengthened my belief that businesses – and, by extension, their investors – have much to gain from close collaboration with governments, NGOs and communities.

After all, a business that does not collaborate with government is more likely to fall foul of policy decisions. A business that does not collaborate with NGOs distances itself from established catalysts of positive change. And a business that does not collaborate with communities risks turning a blind eye to the significance of social and cultural norms.

Such is the nature of any ecosystem: all the elements must function in harmony. If this does not happen – not least today, amid unprecedented fears over sustainability – the corporate sphere can very likely neither satisfy investors’ growth expectations nor tackle the extraordinary problems confronting our planet and its inhabitants.

Market support is likely to keep growing

It is right to say shared value has its detractors. One of the main criticisms levelled against it is that not everyone or everything deserves to share in the far-reaching value to which it gives rise.

This accusation is directed principally towards businesses that free-ride on the achievements of their competitors. Why should they enjoy the rewards of positive change when they have not borne any of the costs?

Imagine, for instance, that Company A collaborates with governments, NGOs, communities, investors and so on to completely disrupts its sector – thereby benefiting an array of stakeholder groups around the world. Is it fair that Companies B, C, D and E should be able to seize on the resultant opportunities?

Maybe not, but the reality is that laggards seldom catch up with trailblazers. Competitive advantage counts for a lot and frequently endures. In the end, as investors know only too well, the market decides – and it is normally a pretty good judge.

Relatedly, it is essential to concede that what is routinely touted as stakeholder capitalism does not always work. This is usually because some stakeholders simply do not take it seriously.

We all know stories of wafer-thin commitment have become depressingly commonplace. Looking ahead, it will be fascinating to see whether shared value can at last end the blight of talking the talk without walking the walk.

I think it can. I am particularly encouraged by the fact that some of the most respected and innovative firms in investment, asset management and insurance are now placing this ethos at the centre of their long-term strategies – a trend that suggests the co-creation of collective responses to collective challenges is no fad.

“We’re all in this together” may have become a cliché – and a despised one at that – but the sentiment remains true. It is an idiom that investors, along with stakeholders of every sort, must now transform from a lazy slogan into a sincere call to impactful action. 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap