Shared Value: a step towards doing well by doing good

By Thomas Wylob, Bachelor of Commerce (Honours) 
Current student at the University of Sydney Business School
 

After nearly two decades of globalization, privatization and free trade, the global economy has been left with mixed results. An economy still feeling the aftershocks of a global financial crisis, recession, poverty, increasing inequality, climate change and loss in biodiversity, has exemplified the interdependency of business and society, and the need to avoid returning to ‘business as usual’.

Klaus Schwab, Founder and Chairman of the World Economic Forum, proclaimed in the New York Times, “What we are currently experiencing with the financial crisis and its consequences is the birth of a new era - a wake-up call to overhaul our institutions, our systems and, above all, our thinking”.

In response to this political, social and corporate upheaval in systems thinking, corporations have shifted towards a more inclusive conceptualisation of value creation. Whereby sustainability has become the new source of competitive advantage, and the phrase ‘Doing Well by Doing Good’, historically perceived as beyond the scope of business, is now being investigated as a potential avenue forward for businesses moving into the 21st Century.

This shift towards a more sustainable mindset has been in part initiated by new programs and courses at top educational institutions. As the leaders of today challenge traditional perceptions of good business practice, they are helping to equip the business leaders of tomorrow with new skill sets to make a difference in the world.

The often quoted Mahatma Gandhi said, “Be the change you wish to see in the world”, which has heavily resonated with me, and I believe it can be quite representative of the outlook for many millennials.

Top graduates are beginning to look beyond just work-life balance, comparing and selecting companies based on the positive impact they are having on the world. The mission of companies, likewise, is increasingly becoming of great importance in attracting the top graduates from around the world, as the desire to make a difference and leave a legacy has become a key driver in directing the decisions of young millennials.

Even at the bachelor level, a greater emphasis is being placed on being a force of good. Increased research and resources have been directed at uncovering new and sustainable forms of value creation. Currently being researched in my honours thesis, shared value is one new concept that integrates this new way of thinking.
Adopted by big multinational corporations such as Nestlé, GE, IBM and Unilever, shared value looks to adopt the capitalist model in addressing and solving social needs and challenges.

What we look to contribute to is creating a theoretical baseline to this concept. By providing a more comprehensive and succinct definition, academic and businesses alike will be able to more effectively isolate it’s applicability to their organisations, eventually progressing research in the future to include the question – How can it be implemented? And how can shared value add value to my business? These are the key questions industry leaders and business managers seek to understand.

A difficult balancing act

Thomas Cleary is a current student at the University of Sydney Business School and participant in the 2015 New Combo Plan (Jakarta), an Australian Government initiative which aims to expand knowledge of the Indo-Pacific in Australia and strengthen institutional relationships through study and internships undertaken by Australian undergraduates in the region. 

Students from the University of Sydney Business School had an opportunity visit Sinar Mas, one of the largest conglomerates in Indonesia, which has subsidiaries in pulp and paper, agriculture, financial services, property, telecommunications, energy and infrastructure. Interestingly, the visit came about through a chance meeting a one of our transport academics had with an employee at a bus station. The company is the largest producer of palm oil in Indonesia (accounting for roughly 10% of total production) and the second largest globally (Sinar Mas, 2015)



So why is this an issue?
Palm oil can only be successfully grown in tropical regions along the equator, meaning deforestation for the purposes of palm oil often occurs in areas rich in biodiversity. The expansion of palm oil poses a serious threat to a number of species, including the orang-utan, Sumatran tiger and rhinoceros (World Growth, 2011). Sinar Mas has been in a constant battle with environmental groups. The company was criticised in 2010 when it began cleaning land for plantations without receiving approval, and more recently, for hazing operations across the Raiu plane of Sumatra, which caused significant pollution in Singapore (Guardian, 2013)



The economic argument
In 2013, palm oil accounted for 11% of Indonesia’s total export earnings, generated $5.7 billion in taxation revenue and employed an estimated 3.5 million people, particularly the rural poor living in Sumatra (Guardian, 2013). Globally, the demand for palm oil is expected to increase, given it is used in the production of popular cosmetics, soaps, pharmaceuticals and retail foods. To meet this demand, the Indonesian government plans to increase palm oil production to 40 million tonnes annually by 2020 (World Growth, 2011). This raises a number of questions about the prioritisation of economic interests over the sustainability of natural resources. Moreover, there seems to be reluctance on behalf of purchasers to buy palm oil certified by the Roundtable for Sustainable Palm Oil (RSPO). Unilever purchases 100% of their palm oil from certified producers, whereas other multinationals such as McDonalds (13%) and PepsiCo (17%) are seriously lagging behind. (Guardian, 2014)

So what is the solution?
I don’t think there is one. With Indonesia so dependent on palm oil as a source of revenue and provider of jobs, it’s hard to foresee any serious change. Environmental groups often urge consumers to boycott brands – but an individual’s brand loyalty can often override their environmental conscience. Is a consumer really going to boycott Garnier Fructis shampoo for containing palm oil when the majority of its competitors do as well? Are people really going to boycott McDonalds or the myriad of products owned by Proctor and Gamble? The marketing power of FMCG companies will always outweigh that of environmental groups. I think the way forward is for changes to be made to the Indonesian regulatory environment, to ensure that companies purchasing palm oil are doing so from the 40% of Indonesian producers that are certified by the RSPO - this way the responsibility is shifted from the consumer toward the companies actually purchasing the product.



References
Balch, O. 2014, ‘Palm oil: WWF name and shame top global buyers’, The Guardian, 28 January, viewed 5 February 2015

McClanahan, P. 2013, ‘Can Indonesia increase palm output without destroying its forests?’, The Guardian, 11 September, viewed 6 February 2015, < http://www.theguardian.com/global-development/2013/sep/11/indonesia-palm-oil-destroy-forests>

Sinar Mas 2015, Agribusiness and food, Indonesia, viewed 6 February 2015, < http://www.sinarmas.com/en/agribusiness-and-food/>

World Growth 2011, The economic benefits of palm oil to Indonesia, viewed 4 February 2015, < http://worldgrowth.org/site/wp-content/uploads/2012/06/WG_Indonesian_Palm_Oil_Benefits_Report-2_11.pdf>

This blog was originially published on Sydney Life: Student experiences at the University of Sydney.