The Concept of Creating Shared Value (CSV):
Business gains and the advancement of social and environmental causes need not be pitted against one another, with the latter viewed as a cost that engenders goodwill, not profitability. Corporate endeavors that benefit society can and should be a boon to business.
The formal concept of CSV is generally credited to Michael Porter and Mark Kramer, who, in 2006, published the article “Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility” in Harvard Business Review.
Today, Nestlé is among the foremost practitioners of CSV. The concept is not philanthropy or an add-on for Nestlé. The company has been integrating the improvement of the lives of workers, families, and communities into its core business strategy since the company’s creation in 1866.
Nestlé spends billions each year buying and processing raw materials like milk, coffee, and cocoa. At the farthest reaches of its supply chain, you find rural farming villages. Nestlé’s business interests and the welfare of these communities are wholly interdependent, so it’s not altruism that motivates Nestlé to help them produce higher-yield, higher-quality crops with less water and environmental resources. It’s good business. Optimizing supplier practices and catering to the growing number of sustainability-conscious consumers who care about corporate responsibility is better for shareholders.
Nestlé believes that to deliver long-term value to its shareholders, its approach to corporate social responsibility must go beyond a commitment to complying with laws, sustaining the environment, and conserving energy. It must also improve the health and well-being of its employees, its consumers, and its suppliers in rural communities around the world. This is Nestlé’s commitment to Creating Shared Value (CSV).
To help illustrate the CSV concept, consider waste-water treatment facilities. Nestlé operates them around the world, all subject to different local regulations. What environmental standards should be applied? Many companies opt to be compliant, nothing more. Nestlé mandates all plants to comply not just with local requirements, but also with Nestlé Environmental Requirements, which are often far more rigorous. Think of it as a continuum, as illustrated below. Plants comply with all applicable laws, but also with their own standards for sustainability and rural development and assistance.
||The Sustainability Continuum: Adherence to local and tougher environmental requirements leads to environmental and business sustainability. This, in turn, creates value for suppliers, customers, and ultimately, shareholders.
Building a waste-water treatment plant to Nestlé’s specifications may be more expensive, but that’s precisely how they strike a balance between short-term profitability interests and longer-term environmental interests, which could have a material effect on the company’s supply chain. Environmentally responsible practices mitigate risks associated with dwindling resources. While others may relocate plants to areas with lower environmental or social standards to save money, Nestlé invests in rural areas for the long term. Total shareholder returns over the past few decades show that economic value creation and long-term development can co-exist. This is the very embodiment of CSV.
The Way Nestlé Does Business
This view toward the future is the guiding principle for operational activities at Nestlé.
Nestlé actively reviews and audits its supplier base, which encompasses the thousands of farming entities, indirect suppliers and traders, and manufacturers of packaging materials. Each is rated relative to Nestlé criteria, and Nestlé has programs to help those suppliers that don’t make the grade to institute more sustainable environmental practices into their operations.
Again, ensuring environmental sustainability is all part of a broader CSV philosophy. It’s to the shareholders’ advantage to establish long-term, socially and environmentally responsible supplier relationships. It ensures a company is a good long-term investment, and a short-term one as well.
Today, there is mounting pressure for supply chain participants to demonstrate that their products are developed and delivered in a sustainable way. Nestlé demands it of its suppliers. Leading retailers to which Nestlé sells goods, including Wal-Mart, are doing the same.
Nestlé believes that its approach to corporate social responsibility must also improve the health and well-being of its employees, its consumers, and its suppliers in rural communities around the world.
Consumer Engagement: The Most Powerful Driver of All
Having married social and environmental responsibility to the operational and supply sides, why not bring consumers into the fold and help them reduce their individual environmental footprints with regards to eating?
This is not to suggest that everyone dispense with home cooking, eat only Nestlé products, and thereby lower their environmental footprint. But there are some compelling environmental economies of scale to be considered.
Nescafé makes for a great example. Every single second, thousands of cups of Nescafé are consumed. Now consider that most people heat more water than they need to prepare their cup of instant coffee. If consumers could be sensitized to this and boil just the needed amount of water, the energy savings would be substantial.
Expanding CSV principles into the consumer domain and helping to lower the environmental impact of their consumption may be the most powerful value driver for social responsibility and shareholders.