Creating Shared Value: the future of capitalism

Environmental, social and economic issues. What if these problems were no longer a threat to businesses, but an opportunity for economic growth, and at the same time a chance to create a better world? This is what we call Creating Shared Value. We spoke about this and so much more at the recent 2017 Shared Value Leadership Summit of New York.

?Environmental, social and economic issues. Companies are increasingly seen as the guilty part when it comes to the great problems of our time, because common perception dictates that their growth surely must negatively affects the interests of the wider community.

Pre-existing notions of stereotypical capitalism are under stress. This is mainly due to decades of choices by companies that have separated their economic growth plans and sustainability, therefore ignoring the communities surrounding them.

What if these problems were no longer a threat to businesses, but an opportunity for economic growth, and at the same time a chance to create a better world?

The answer to this question is no longer a hypothesis, but a reality. This is called Creating Shared Value (CSV).

This concept has been central to the 2017 Shared Value Leadership Summit, which was recently held in New York. It's been a great chance for leaders from different sectors to meet and define new sustainable business strategies based on the CSV approach.

Restoring the link between businesses and communities

The basic concept of Shared Value lies in the discovery of business opportunities tied to solving social problems. It is about pursuing success in business, as well as creating benefits for society.

It is a disruptive scenario in its simplicity, because it challenges the preconceived notion of capitalism, where business growth is largely inconsistent with the idea of sustainability. It is seen as a zero-sum game, which in recent decades has worn out the link between companies and the communities within which they operate. Sustainability or economic growth: Both goals were never an option…But is this really the case?

Not according to Professor Mark Kramer and Professor Michael Porter of Harvard Business School, who introduced the concept of Shared Value about fifteen years ago, to study new solutions that could make philanthropy more effective. They quickly realized how companies could have a far greater impact on social issues than both charitable foundations and NGOs, if only they could redefine their relationship within the referenced communities (source: The Big Idea. Creating Shared Value. How to reinvent capitalism and unleash a wave of innovation and growth. By Michael E. Porter and Mark R. Kramer).

Source: Sharedvalue.org.

It’s an inclusive approach which allows communities to benefit from the ties with the company, instead of suffering underneath it, opening up new opportunities to both the local communities as well as the businesses involved. For companies, it is primarily a matter of identifying the social problems of the communities wherein they operate, and to meet these challenges head on with all their capabilities.

At Enel we decided to undertake this journey by focusing ourselves on our daily commitment: bring more and more energy to people across the world. That’s why we have been chosen as an example by the Harvard Business School and by the Prof. Kramer, who is writing a business case showing how Enel is trying to change the way a utility can stay and compete in the market.

Re-establishing strong ties between companies and society is a complex matter, which requires bold changes at all levels. It all boils down to finding a meeting point somewhere between sustainability and business targets, and the only way to do so is by completely integrating the Creating Shared Value (CSV) model within the processes of companies. If companies succeed in doing this, they will be able to take the first step towards resolving some of the greatest problems of our time.

Moving on from the concept of “aid” to that of partnerships

Companies can start defining their ties with the communities where they operate by radically changing their ways of doing business.

The concept of Shared Value is inextricably linked to business and society, but that does not mean that we are talking about social responsibility, nor does it have anything to do with philanthropy. The so-called Corporate Social Responsibility (CSR) is too often a trap within which companies are getting caught, as it tends to relegate sustainability to the margins of business strategies rather than at its core.

CSV on the other hand, is a combination of understanding social issues and designing profitable and sustainable business models. Above all else, it shows just how the social problems can be solved to the benefit of all the interested parts, only if this becomes a main goal for the companies.

The time has come to abandon the old concept of aid and compensation, because it creates limited value and it is short-timed. To develop long term prospects that are able to boost their social impact, companies will have to open up to the creation of partnerships aimed at addressing the common journey we all share towards sustainability. It’s an age-old saying, but it is certainly still true - it’s only by working together that great results are achieved.

At Enel, we’re working in close cooperation every day with institutions, civil society, communities and NGOs, as well as with universities, start-ups, up to our clients and investors. It’s only by opening ourselves up to dialogue that we’re able to continue to break ground on new ways to collaborate in addressing some of the world’s biggest challenges.

In 2016 we developed about 900 projects in the 31 countries wherein we work, totally involving over 6 million people. The projects were the brainchildren of the collaboration with the communities, and were brought forward thanks to local NGOs. It’s a symbiotic workload, that stems from a careful mapping and listening to the specific features of each location.

Just as it was with the Apiacás hydropower park in Brazil - which was only made possible thanks to the gathering of precise information on employment, health, education and all of the characteristics of life in the area - close cooperation is enforced with local communities and NGOs so as to preserve the surrounding environment.

Only through creating a network of partners who share our own vision of sustainability, can we unleash the full potential of each project. Communities are able to develop the local economy through the creation of new workplaces and job training, as well as the healthcare, education and local infrastructure. What this means for companies is that new business opportunities arise, like the exploration of technological solutions which will soon form a springboard to the future.

The role of energy in the creation of shared value

We’ve mastered the principles of Shared Value at Enel over the last few years, and this has given us a chance to think about the impact that energy can have on the creation of shared value.

According to the International Energy Agency (IEA) 1.2 billion people have no access or have limited access to energy, and more than 95% of them live in Asia and Sub-Saharan Africa. What we know for sure is that without energy there can be no progress. Without electricity children cannot study when the sun sets, mothers cannot store food for the family, and hospitals cannot provide the aid needed.

If expanding access to energy is fundamental, it’s also vital to ensure that this expansion happens in a sustainable way - avoiding a sharp impact on climate change, and with the full support of any local community. This is one of the reasons why we restructured the value chain here at Enel, and in doing so we have integrated CSV in every single phase, ranging from Business Development, to Engineering and Construction, right up to Operation and Maintenance.

This is exactly what we did, for example, when we completed Cerro Pabellon in Chile, the first ever geothermal plant in Latin America.

Small business flourished around the construction site, which offered services to the 800 workers involved in the project - like transport, food, as well as other convenient amenities; furthermore, carpentry workshops were put together so as to ensure minimum construction material waste, providing an economic return for the local community.

The role of energy utilities can be crucial in resolving major world issues. Making the use of energy more efficient, greener and more sustainable for everyone can have a tremendous impact on both the communities we work in, as well as the energy business itself.

Redefining the role of companies for the future of society

Changing the world. Three small words which contain all the weight of the challenges that companies are called to face these days. To overcome them, they will need to find new ways to create shared value.

The Shared Value Leadership Summit is not just an opportunity to reflect on the importance of the creating shared value approach, it is also an opportunity to think about how we can readdress the business action towards a more sustainable path.

When we look to the future we can no longer just consider the next five, ten, and even fifteen years. We need a perspective that looks far ahead, but at the same time closer than ever before, because the opportunities that we’re up to are not static, but are constantly changing with people, ways of thinking and technologies.

If we want to create value for everyone, not just for us, we need to completely innovate the processes. CSV now permeates all our business processes, from business development to construction phase, to how we handle our plants or to distribute energy. That is why in 2015 Enel was placed fifth in the standings of the 50 companies who can change the world. I'm honored, but I do think that we need much more.

If companies want to play a central role in the future of society, they will have to redefine their goals by widening their outlook. They need to open up and listen to communities and their needs, in order to create shared value. Sometimes it may seem difficult, but all it takes to start is one simple step. After all, as the proverb goes: instead of cursing the darkness, it is better to turn on a candle.