Can you explain how and why Nestlé adopted the Shared Value approach?
JB: We feel that if you can embed a social purpose deep within an organisation it will begin to deliver the returns that society needs it to make.
But to do that requires an end to the short-term thinking that has led to the loss of public confidence in business over the past 10–15 years, and a conscious re-engagement with the communities that the business serves.
We have actively conceptualised that as Creating Shared Value, because it means the social issues we seek to have an impact on become integral to our global business strategy – they’re not just an add-on. Having said that, we’ve got a huge journey to go on before we can have the sort of impact on society we want to have, but we think we’ve made a positive start.
Also, going back to the roots of Shared Value for Nestlé, we had a particular view. Our chairman was a little bit concerned at the whole premise behind Corporate Social Responsibility (CSR). Because it was predicated on the notion that you have to give back to society, it implied something had been stolen – and we don’t really share that view.
We want to identify social issues that we can positively address through our business propositions. If you look at these issues purely through the lens of philanthropy, at a certain point you have to ask your shareholders’ permission to get involved. Whereas if you’re looking at solving social issues through business solutions that also allow you to grow your business at the same time, then that represents future investment and becomes part of your growth strategy.
As a company we’ve had a long history of recognising that there is a shared benefit for communities that comes directly from our business activities. If you look at Nestlé as a milk producer you can see that all the way back to the 1920s.
But this all came to a head at the World Economic Forum in Davos, in about 2005/2006. About that time we began talking to Michael Porter who fundamentally disagrees with the belief that the aims of business or its shareholders need to be at odds with those of society. We think there’s a third way – and we began calling it Creating Shared Value (CSV).
CSV was born at Nestlé because we were the first company that Porter and Kramer analysed.
How does this all fit with CSR and other approaches to sustainability?
JB: Shared Value is only part of our engagement with society.
We have consciously looked to build our corporate business principles in alignment with the UN Global Compact’s 10 principles. We then look to make sure our impact on the natural environment – on which we depend greatly – is as beneficial as possible. We’ve increased our production output by 50 per cent over the last 10 years, but all of the environmental impact indicators are going in the opposite direction.
With traditional CSR, it’s principally about mitigating risk and limiting impact, not about creating new opportunity. When you’ve fulfilled your responsibilities, then you can talk about creating shared value, but only then. We don’t see the approaches as mutually exclusive, we actually see them as mutually reinforcing.
How much convincing did you needto take the Shared Value route, given how complex a business Nestlé is?
JB: Well, fortunately, our CEO and chairman bought into it straight away, so we had top management enthusiasm for this. Then of course it’s about making sure that you’re communicating that across the organisation. We’ve systematically brought it into our annual global raining courses, covering our 3,000 top performing and high potential managers.
We’ve also created some high profile external opportunities to help move the concept of CSV forward through a global forum that we’ve been running for the past five years. This is an idea that’s gathering momentum in sectors we didn’t think it would take off in. Its time has obviously come.
Can you talk a bit to the commercial drivers and case for CSV?
JB: I’ll give you one very good example. We’re a significant producer of chocolate products, and that depends on cocoa, clearly.
About 40 per cent of global cocoa supply comes from the Ivory Coast, where there was major confl ict from around 2003 -2010. The average life of a cocoa tree is 25 years, and as you can imagine, during that time of confl ict not much replanting was done. So something had to be done to secure future cocoa supply.
Before the crisis ended we were developing our Nestlé Cocoa Plan, giving $110 million worth of support to cocoa farmers. The plan is principally focused on the Ivory Coast, but also looks to open new cocoa growing communities around the world. This involves a lot of R&D – breeding drought- and disease-resistant strains, for example. And we give the cocoa plants to the farmers, who are under no obligation to supply to us. So we’re investing in growing the long-term supply of cocoa but we can also address social issues while we do that.
How are your shareholders responding?
JB: Almost exclusively positively. There is a great deal of confidence in our business and in our ability to deliver our financial plan, whilst still being able to address some of these social issues.
Does CSV fit specific markets particularly, or is it an all-encompassing concept?
JB: If you look at the diversity of the organisations in the Shared Value Initiative, you can see this is an approach that can be applied to many different kinds of businesses and sectors.
The thing we learnt very early on is to focus. And the reason we chose nutrition, rural development and water is because we know we can have an impact in these areas. If Nestlé wants to be the leader in nutrition, health and wellness, it’s pretty obvious why we go there. You know, over one billion Nestlé products are sold every day of the year. So if we can’t have an impact on nutrition, it’s hard to imagine who can!
We choose water because of all the environmental impact indicators, we feel that it’s the most relevant in terms of our business, but it’s also the least understood.
Again, in rural development, we not only source about $25 billion of agricultural raw materials each year, but we have these 465 factories, and half of those are in developing countries, and two-thirds of those are in rural locations. So whether we want to or not, we have an impact on rural communities. We focus on the areas where we believe that we can make the largest difference.
We have talked about lots of the positives about CSV, did it throw up any internal challenges that you hadn’t foreseen?
JB: It has been said that while it is very easy to see where the benefit can be created from CSV in developing countries, it’s not quite so apparent in developed countries. But we’ve actually found that there are some good initiatives in developed economies, including great examples surrounding sustainable farming in France, Italy and Poland.
And while we have our CSV focus areas, it doesn’t stop us from engaging with other social issues when we see the opportunity. One of the areas we’ve been addressing recently in Europe is the huge problem of youth unemployment. We have pledged to create 10,000 direct jobs for people under 30, and 10,000 more apprenticeships, and we’re also going out to our network of suppliers and customers to encourage them to join a movement. This is very exciting. So yes, you want to focus, but you also need to be aware of other chances to engage.
Where do you see CSV going in the future? Not just for your organisation but on an international scale?
JB: Three things that need to happen. We need to fi nd a reliable way of measuring mutual benefits. We’re beginning to detect signs in financial markets that CSV is going to move out of the socially-responsible investment community and into mainstream investors. We need them to understand and buy into CSV. And then we need to think about how CSV will be taught and propagated within business education and training.
Read more insights on sustainability from leaders around the world with our report Directions 2014: New Sustainability Thinking
John Bee is Communications manager at Nestlé, a flagship brand in the adoption of Creating Shared Value as a central tenet of their sustainability strategy.
Jim Peacock is a Director, Consultancy and Communications at Salterbaxter MSLGROUP. Follow him on Twitter: @jecpeacock