Creating shared value to tackle climate change
Today we are fully aware that climate change is a threat to human society. And for this reason, it is of vital importance that the energy system changes. Many companies are still tied to the old paradigm, but there is a new approach that is gathering momentum: the model of shared value. In essence, the creation of shared value means pursuing business success by benefiting society.
The creation of shared value (CSV) is different from philanthropy and corporate social responsibility in that it emphasises collective well-being as a source of innovation that can lead to greater profitability and competitive advantage. Instead of asking companies to compensate for the damage they cause or redistribute profits earned at society’s expense, the goal is to earn those profits by benefiting society.
While some believe that capitalism is a zero-sum game in which a win for companies means a loss for society or vice versa, the model of shared value is the exact opposite. Shared value means that everybody wins: companies need a healthy society and society needs healthy companies. In this sense CSV can be interpreted as a substantial extension of Adam Smith’s concept of the “invisible hand”, according to which the pursuit of personal gain within the free market naturally creates benefits for society.
Attempts to create shared value enable companies to expand their business and become more attractive to investors. This is the case, for example, with the South African insurance company Discovery which offers its life or health insurance customers a wide range of incentives to engage in healthy behaviours, such as reimbursements for the costs of gym membership and the purchase of fresh fruit and vegetables. The company is therefore contributing to improving the health of its members, which has substantially reduced the medical costs they incur, boosting Discovery’s profits at the same time.
Protecting the climate is also an opportunity
The creation of shared value also offers great opportunities when it comes to tackling climate change. The main route is that of renewable energies which, thanks to technological advances, have rapidly become cost competitive with thermal power generation. Today, clean energy doesn’t only bring benefits to the environment, it can also make good business sense for companies. Furthermore, renewables offer great potential for resolving another important social problem: bringing electricity to the areas that have little or no access, thanks to small-scale solar plants that can provide power to help improve services, education, employment opportunities and health, especially in developing countries.
But creating shared value does not only concern the generation of electricity: improving energy efficiency, thereby reducing waste, can provide economic benefits to companies, as well as to the environment. The digitalisation of the networks and smart grids are among the best tools for doing this.
A growing number of businesses have begun to understand clean energy and reduced emissions as an opportunity rather than a cost. Especially when it comes to environmental issues, many companies are well ahead of their own national governments in taking action because they recognise the economic benefits that accrue.
Reinventing capitalism
In order to take full advantage of shared value creation, however, it is necessary that companies, governments and NGOs work together. Private investment has an irreplaceable role but can only solve problems if it is part of a wider action. There are many problems of trust and language in bringing these different sectors together, however, we are seeing significant progress in the collaboration between the three afore-mentioned types of organisation. This is partly thanks to the United Nations’ 17 Sustainable Development Goals (SDGs), which have created a common framework.
For companies, resisting change may be due to a mindset anchored in the old paradigm that emphasises the achievement of short-term results over investments that are more profitable in the long term. Other get caught up responding to media coverage that focuses on single negative event, and are unable to communicate effectively their stories of long-term progress in creating shared value.
Nevertheless, things are changing. Businesses are opening up to the future and civil society and governments in many countries are beginning to understand that companies are not just the problem but must be part of the solution. When this model has gained traction and been embraced by the world’s leading companies, then we will be able to say that we have reinvented capitalism, and we will see progress being made in resolving social problems in a new, unprecedented way.