Lecture 3: Tensions: Sustainability And Financial Value Flashcards
What is the definition of shared value (Porter & Kramer, 2011)?
“Policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.”
Why is shared value different than corporate social responsibility?
While CSR focuses in ethical behavior, and sustainability as separate from profit maximization, creating shared value integrates social and economic value into the core business strategy, leading to sustainable growth and benefits for both the company and society.
How to create shared value (Porter & Kramer, 2011)?
1- reconceiving products and markets: this entails redesigning products to meet societal needs and creating competitive advantage by addressing unmet needs while generating economic value.
2- redefining productivity in the value chain: optimizing operations to address societal issues, reduce internal costs, and improve productivity (resource use, procurement, distribution, employee productivity)
3- enabling local cluster development: fostering collaborative ecosystems where businesses, institutions, and stakeholders work together
Why the shared value approach failed (Barnett et al., 2021)?
1- easy wins: promoting short term gains over long term impact, neglecting systemic change, limiting innovation leading to greenwashing practices
For example, a company switches to recyclable packaging for a product line to showcase sustainability efforts. While this change may lead to positive publicity, it may not address deeper sustainability issues like resource intensive production processes.
2- techno centric solutions: the overroeiende on technological solutions in addressing sustainability challenges can limit the effectiveness of the shared value approach by neglecting broader social and environmental considerations, and overlooking the importance of stakeholder engagement and long term systemic change.
For example, electric vehicles reduce transportation related carbon footprint, but they exacerbate soil toxicity through battery production that involves dirty minerals.
3-Consumerism at the core
Rising green consumerism strengthens business cases, but it is a problematic solution for environmental sustainability.The 1992 Rio Earth Summit, which brought corporate sustainability to prominence, identified unsustainable levels of consumption as a fundamental threat to sustainability, yet green consumerism is based on increasing consumption. Even if that consumption is more efficient, rising levels of it do not decrease environmental harm.
For example, as jet airlines have become more fuel efficient and the price of air travel has decreased the amount of air travel has increased massively.
what are the criticism of creating shared value (CSV)?
1-Unoriginal idea: recycling of old ideas such as strategic responsbility and social innovation.
2-Tensions between social and economic aims missing: focuses on win-win siuations
3-Superficial conception of corporations’ role in society: does not tackle deeply rooted problems: e.g. old strategy models; the sanctitiy of shareholder capitalis and corporate self-interest
does it pay to be green?
there are multiple perspectives:
“stricter environmental regulation can lead companies to innovation and differentiation.”
“improved relations with primary stakeholders improve profitability, but using resources for social purposes unrelated to primary stakeholders reduces profitability.”
what are the criticsm for “does it pay to be green”
1- the chicken or the egg (endogeneity)
firms with a lot of spare money can afford to engage in sustainable management
2-difficulty of measuring benefits
costs usually easy to measure; benefit over longer horizons & causal ambiguity –> harder to measure
3-are we even asking the right question (ambec & Lanoie, 2008)
when does it pay to be green? under what conditions does it pay to be green?
According to Ambec & Lanoie (2008) under what conditions does it pay to be green?
this could be seen through increasing revenues or reducing costs
to increase revenues:
1- better access to certain markets
(For example, IBM asks potential suppliers to evaluate their environmental performance before selection. By prioritizing suppliers with satisfactory environmental scores and conducting on-site evaluation of practices IBM demonstrates a commitment to green practices in its supply chain.)
2- differentiating products
(For example, Patagonia launched new lines of clothing made of recycled PET and organic cotton in the 1990s. Despite the higher price of these environmentally friendly products, they were a commercial success.)
3-selling pollution-control technologies
(For example, Chiba Geist, a chemical company, created a new type of bio reactive dye. This innovative dye had a higher fixation rate, requiring less dye to color textiles. As a result, rinsing was simpler and less expensive leading to lower wastewater treatment costs for firms using the dye. The company protected this new tech with a patent and commercialized it despite its higher price.)
to reduce costs:
1-risk management and relations with external stakeholders
For example, DuPont lobbied to ban chlorofluorocarbons and other ozone-depleting substances. Dupont took a leadership role in researching substitutes for these harmful chemicals, positions itself ahead of regulatory changes.
2-cost of material, enery and services
For example, adobe systems made several changes at its HQs to improve energy efficiency and reduce cost. These changes include installing automatic faucets and motion sensors to optimize water and energy usage.
3-cost of capital
Better environmental performance can be associated with a lower cost of financial capital. Greener firms may have easier access to capital market through the proliferation of green or ethical mutual funds.
4-cost of labor
Manager at Ciba Geiger highlighted the potential benefits of better environmental performance on labor costs. They emphasized that an improved company image resulting from strong environmental practices can lead to a positive work environment, higher employee productivity, and increased employee satisfaction. This in turn can attract and retain talented employees who prefer to work for socially and environmentally responsible companies.
Give some examples of brands establishig news, higher-value markets for environmetally friendly goods
body shop, patagonia, ben & jerry’s, tony’s chocolonely
