Despite heightened attention to environmental, social, and governance (ESG) issues, surprisingly few companies are making meaningful progress in delivering on their commitments. Most firms are not integrating ESG factors into internal strategy and operational decisions and are giving investors little to no explanation of the impact of ESG performance on corporate earnings. To integrate ESG efforts into their core business models, firms should take these steps: (1) Identify the ESG issues material to the business; (2) factor in ESG effects when making strategic, financial, and operational decisions; (3) collaborate with stakeholders; (4) redesign organizational roles; and (5) communicate with investors.
ExxonMobil, the world's fifth largest source of carbon emissions, remained committed to aggressively expanding its oil & gas business despite global warming. During the COVID pandemic this strategy resulted in massive losses as the price and demand for oil declined. In the summer of 2021, a start-up impact investing hedge fund, Engine No. 1, invested $38 million in ExxonMobil stock and mounted a proxy fight to change the company's direction by electing Directors experienced in renewable energy. Over fierce objections by management, Engine No. 1 won 3 board seats. By then, demand for oil had resumed and Exxon's strategy had begun to pay off. The case raises provocative questions about whether maximizing shareholder value required Exxon to use its existing resources to drive short term profits without regard to future consequences and environmental impact or, alternatively, to move beyond its core capabilities into initiatives suited to a low-carbon future. Voted best case by first year MBAs.
Can a social purpose and stakeholder capitalism confer a powerful competitive advantage in the age of COVID-19? For PayPal, the answer is yes. After spinning off from eBay in a 2015 IPO, the company declared its purpose as "democratizing financial services" by ensuring that low-income consumers and small businesses can efficiently and inexpensively manage their money. The company fully lives into this purpose, sending employees out into communities to experience firsthand the indignities and high fees imposed on the unbanked, dramatically lowering the cost of international remittances, enabling small businesses to access working capital without credit checks, and facilitating cross-border purchases for small merchants. The company takes the welfare of each stakeholder group seriously: achieving racial and gender pay equity, raising hourly worker pay and benefits to ensure a living wage, and building a diverse and inclusive culture; working closely with regulators and law enforcement to unearth signs of sex trafficking and terrorism; aggressively removing hate-group transactions; providing $4 billion in credit to hundreds of thousands of small businesses that would never have qualified for bank loans, especially those owned by women and people of color. Together these actions have built a high degree of trust that creates a competitive moat in the otherwise commodity business of online payments. During the pandemic, the company was able to get stimulus funds to individuals and small businesses far faster and less expensively than banks or the SBA, and committed $500 million to investments in black-owned businesses. In the 5 years since its IPO, despite intense competition from major banks and credit card companies, Google, Apple, and countless VC-backed fintech players, the company has more than doubled its users, increased profits and boosted the stock price 500%.
Unilever subsidiary Dove soap became a "brand with a purpose" and created shared value when the company decided to launch a Campaign for Real Beauty to combat the artificial media-driven stereotype of female beauty that causes appearance anxiety in women and girls around the world. From as young as 6 years of age, girls develop concerns about their body image that affect their self-confidence, relationships, health and careers. Through research and evidence-based practices, Dove developed a global campaign including advertisements, school curricula, online resources, public events, policy advocacy, and training sessions that reached more than 35 million girls and women across 140 countries. Rigorous evaluations demonstrated positive impact in self-esteem and body image while driving a decade of consecutive sales growth for Dove, ultimately becoming Unilever's biggest brand. Yet the challenge of deciding how to allocate funds between advertising the product and conducting educational programs to deliver social impact remained. The company also faced criticism about other Unilever brands, such as Axe or Fair & Lovely, that contradicted the Dove campaign.
Becton, Dickinson and Company (BD) was a medical technology firm headquartered in Franklin Lakes, New Jersey, with 43,000 employees and 2016 revenues of $12.5 billion. For several years, the company had pursued development of products that created shared value, defined as those that both generated profits and created positive social impact. One of the primary ways the company advanced such products was through establishing and maintaining public-private partnerships (PPPs) with governmental or non-governmental organizations. In June 2017, Gary Cohen, an Executive Vice President of BD, and Renuka Gadde, Vice President of BD's Global Health function, were deeply engaged in a six-year PPP to bring a new low-cost labor and delivery tool called the Odon Device to market. This device had the potential to avert hundreds of thousands of maternal and newborn deaths, primarily in low-resource settings. Although they had faced many challenges in bringing together multiple organizations to develop and launch the device, Cohen and Gadde were convinced that BD's ability to collaborate with governments and international agencies to address urgent global health needs was a source of competitive advantage for the company. Through these collaborations, BD had strengthened important external relationships and developed a distinctive corporate strategy for its expansion in emerging markets. Cohen, Gadde, and the BD Global Health team were also working to construct a framework for measuring both the social and financial impact of the company's shared value initiatives, starting with the BD Odon Device. Cohen believed that creating shared value was "fundamentally a better way to do business," but he wanted hard data to demonstrate the full economic and social benefit of BD's shared value initiatives. The competition for internal capital and the challenges of taking on new types of products meant that any shared value initiative required a rigorous business case and clear indicators
Enel has transformed from the Italian state-owned energy monopoly into a global leader in renewable energy and shared value creation. Through its open innovation model, the company has catapulted to the cutting edge of electric mobility and distributed power generation, partnering with the likes of Google and Tesla. Under the leadership of Mr. Francesco Starace, the company has gone through a significant change in organizational culture and structure, committing to 100% renewables while placing an emphasis on growth in middle-income countries and capturing new revenue sources from energy management services. At the same time, Starace has had to balance stockholder pressure for short-term earnings with a legacy of coal and gas fired power plants against its futuristic vision.
Governments, NGOs, companies, and community members must all be involved in programs to create shared value, yet they work more often in opposition than in alignment. A movement known as "collective impact" has facilitated successful collaborations in the social sector, and it can guide businesses in bringing together the various actors in their ecosystems to help remedy some of the world's most urgent problems. In the process, companies will find economic opportunities that their competitors miss. Five elements must be in place for a collective-impact effort to achieve its aims: (1) a common agenda, which helps align the players' efforts and defines their commitment; (2) a shared measurement system; (3) mutually reinforcing activities; (4) constant communication, which builds trust and ensures mutual objectives; and (5) dedicated "backbone" support, delivered by a separate, independently funded staff, which builds public will, advances policy, and mobilizes resources.
This case explores the origins and current practices of DBL, a San Francisco-based venture capital fund and one of the first impact investment funds to achieve significant financial returns to scale. This case allows for a competitive analysis of DBL's investment strategy as it seeks to deploy $400m, as well as the opportunity to evaluate a specific investment in a solar power company targeting low-income consumers in Tanzania.
Discovery Ltd. is a South-African based insurance company. Started in the early 1990s, Discovery used behavioral economics and data collection to innovate in the health care insurance industry. Its founder Adrian Gore believed that the company's products needed to not only make money but have a positive impact on society. Using its Vitality Wellness program as its strategic lynchpin, Discovery expanded into other insurance areas and financial services products and also entered new markets abroad. In late 2014, Gore and his team had to decide how to further develop the company and prioritize among many growth opportunities.
Late in 2013, Novartis CEO Joseph Jimenez was considering how and whether to deepen the company's investment in Arogya Parivar, its profitable program that sold Novartis medicines in rural India, while expanding access to medicine and health information to millions of Indian villagers.
Leading fertilizer producer Yara International demonstrates the concept of creating shared value through the Southern Agricultural Corridor of Tanzania (SAGCOT) initiative, which brought together multiple organizations to enhance agricultural development in rural regions.
Dow had adopted the "Breakthroughs to World Challenges" (BWC) program as part of its ten-year 2015 Sustainability Goals. BWC was an internal award recognizing products that effectively addressed one of five world challenges: energy and climate change, sustainable water supply, decent affordable housing, personal health, and food supply. By late summer 2014, two products had been designated as BWCs and two others were set to be announced in the fall. Dow senior executives believed that Dow was creating shared value through its BWC products. As management began drafting the company's sustainability plan for 2015 and beyond, CEO Andrew Liveris confronted the question of whether to maintain, modify or terminate the BWC program.
This case provides a sample of Walmart's social engagement activities and asks students to categorize each as philanthropy, corporate social responsibility, or creating shared value.
The capitalist system is under siege. Recently business has been criticized as a major cause of social, environmental, and economic problems. Companies are widely thought to be prospering at the expense of their communities. Trust in business has fallen, leading governments to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle. A big part of the problem is firms' narrow approach to value creation. Focused on short-term financials, companies overlook the broader influences on their long-term success. Why else would they ignore the well-being of their customers, the depletion of vital natural resources, the viability of suppliers, and the economic distress of the communities in which they produce and sell? It doesn't have to be this way. Companies could bring business and society back together if they redefined their purpose as creating "shared value"-generating economic value in a way that also produces value for society by addressing its challenges. Firms can do this in 3 ways: by reconceiving products and markets, redefining productivity in the value chain, and building supportive industry clusters near their locations. A number of leading firms have already embarked on such initiatives. Nestle, for example, redesigned its coffee procurement, providing small, impoverished farmers advice on agricultural practices; helping them secure plant stock, fertilizers, and pesticides; and paying them a premium for better beans. Higher yields and quality increased the growers' incomes, the environmental impact of farms shrank, and Nestle's reliable supply of good coffee grew significantly. Shared value was created. Shared value could transform capitalism. It could also drive the next wave of innovation and growth as it opens managers' eyes to immense human needs to be met, large new markets to be served, and the internal costs of social deficits-as well as the competitive advantages available from addressing them.
Governments, activists, and the media have become adept at holding companies to account for the social consequences of their actions. In response, corporate social responsibility (CSR) has emerged as an inescapable priority for business leaders in every country. Frequently, though, CSR efforts are counterproductive, for two reasons. First, they pit business against society, when in reality the two are interdependent. Second, they pressure companies to think of corporate social responsibility in generic ways instead of in the way most appropriate to their individual strategies. The fact is, the prevailing approaches to CSR are so disconnected from strategy as to obscure many great opportunities for companies to benefit society. What a terrible waste. If corporations were to analyze their opportunities for social responsibility using the same frameworks that guide their core business choices, they would discover, as Whole Foods Market, Toyota, and Volvo have done, that CSR can be much more than a cost, a constraint, or a charitable deed--it can be a potent source of innovation and competitive advantage. In this article, Michael Porter and Mark Kramer propose a fundamentally new way to look at the relationship between business and society that does not treat corporate growth and social welfare as a zero-sum game. They introduce a framework that individual companies can use to identify the social consequences of their actions; to discover opportunities to benefit society and themselves by strengthening the competitive context in which they operate; to determine which CSR initiatives they should address; and to find the most effective ways of doing so. Perceiving social responsibility as an opportunity rather than as damage control or a PR campaign requires dramatically different thinking--a mind-set, the authors warn, that will become increasingly important to competitive success.