As corporate social responsibility and environmental, social, and governance concerns are becoming more prominent, businesses are working to find a middle ground where they can both maximize their profits and social impact. This balance between financial growth and social impact has led to the emergence of more socially responsible business practices or a more narrowly defined set of principles. Three key pillars have evolved: CSR, ESG, and CSV. Although CSR and ESG are familiar terms and composites, CSV is a more novel and innovative framework - one that I especially like. This article aims to clarify the definition of CSV, its relationship with and differences from CSR and ESG, and how this tool has become relevant in the age of globalization and will continue to grow in popularity.
What is Creating Shared Value (CSV)?
Creating Shared Value (CSV) is a concept first articulated by Michael Porter and Mark Kramer in their Harvard Business Review article in 2006 and which was properly defined in 2011. It is a business strategy in which the company focuses on generating wealth and surmounting some societal issues. In other words, Porter and Kramer offered a rather loose definition of CSV as "policies and operating practices that make a corporation more competitive while at the same time improving the economic, social wellbeing of the host society in which it operates."
As the term suggests, CSV carries social value at the core of the business models tailored for corporations. It is not a side hustle comprising charitable activities or ethical operations. Within CSV, companies capitalize on social and environmental concerns for market growth. For instance, a company may introduce new products because it will target previously unmet demands in other markets or it could improve its operations through green supply chain management and cut its operational costs.
CSV vs CSR: What is the difference?
Although both CSV and CSR authorities pertain to a particular business and specific social needs, the differences in methods and results are more than striking. In its basic form, CSR focuses on issues complementary to the normal scope of the enterprise's business. These activities typically constitute charity work, fair working conditions, or ecological care strategies that are unconnected to the company's business focus. Corporations have mostly viewed CSR as a ridiculous activity to help restore their reputation, but it is not often geared towards creating value directly at the business unit level.
As mentioned earlier, CSV is taken as an embedded part of the company's business model. Therefore, the creation of shared value is not limited to marketing and the company's social responsibility, but also involves satisfying the needs and wants of the community along with business growth. Porter and Kramer have discussed the organization's aims in creating shared value and offered a quote that "is necessary to distinguish between the Shared Value but is not," The Company's donation of $10000 towards an educational program may be easier to appreciate. Instead of just offering funds to a community-based initiative, a CSV company can help local farmers improve their yield and sustainability in order to create a more dependable supply chain and higher incomes for the farmers.
CSV versus ESG: A Symbiotic Relationship
Another useful approach that organizations utilize to maximize their impact on the world includes the Environmental, Social, and governance (ESG) standards. ESG is a lip service and how best you can coordinate without breach. However, this term has been expanded as many investors consider it one of the factors to be used in evaluating the future sustainability of any given company.
The main distinction in strategy between ESG and CSV lies in objectives. ESG is, in most cases, the result of political or market pressures, inducing the firms to embrace certain practices to satisfy the mandates of the external environment, including investors. ESG is primarily reactive, mainly providing Canadians with means to protect themselves and their environments from harm caused by corporations. On the other hand, CSV is more of a proactive strategy. It consists of looking out for and seizing business opportunities that give rise to positive societal and environmental changes that are also advantageous to the organization. This proactive nature of CSV can inspire businesses to take the lead in creating a better world.
Although there are differences between ESG and CSV, the relationship between them can be beneficial. Often, any firm with a convincing CSV strategy regards its initiatives as fulfilling nearly all the ESG terms. This symbiotic relationship between ESG and CSV reassures businesses that their efforts towards shared value creation are not in conflict with existing ESG standards. For example, a firm that uses energy efficiency to lower operational costs (CSV) also achieves lower carbon emissions, which aligns with the ESG environmental approach.
Porter and Kramer described three levels in which businesses can apply Shared Value": The Three Levels of CSV
Reconceiving Products and Markets:
Companies can reposition their product lines in response to social demands while still earning bottom lines.
For example, selling inexpensive healthcare products to poorer markets will promote business growth and improve public health.
Redefining Productivity in the Value Chain:
Companies can cut expenses and raise output by enhancing operational efficiencies that address social or environmental problems.
For example, energy-saving measures in production plants eliminate unnecessary expenses and reduce negative pollution, which is beneficial for both the company and society.
Building Clusters and Strengthening Local Communities:
Understanding the need for local development and insourcing enables firms to enhance the reliability of their sourcing by contributing to the growth of local supplier industry clusters.
Why CSV Matters in Modern Business
CSV offers companies some of the most valuable ways to combat climate change or offer income-generating opportunities, furthering innovation and growth within the company. By focusing on social issues as factors that may help the organization realize options it never envisaged, companies have access to potential new markets, improved stakeholder engagements, and thus competitiveness.
CSV also enables businesses to achieve longevity. Given the increasing demand for corporate sustainability and responsibility, businesses using CSV will better respond to such trends. Building such a reputation also entails interaction with major stakeholders such as customers, employees, suppliers, and regulators, as they appreciate the efforts made towards creating a better society. This emphasis on the long-term benefits of CSV can instill a sense of optimism in the audience about its potential for business growth and sustainability.
Conclusion:
Today's customers, employees, and investors expect businesses to be active corporate citizens, and CSV makes this possible by combining profits with the welfare of society. For example, while CSR may be seen as an add-on to companies' operations, CSV seeks to create a business with embedded social values. In addition, although ESG assists companies in being good corporate citizens, CSV propels innovation by leveraging societal problems into business ventures. As business practices change and need a change, those businesses that take up CSV will thrive in the future.
Comments