Creating Sustainable Value Framework
Over the past decade, Stuart Hart has developed, along with colleague Mark Milstein, a sustainable value framework that directly links the societal challenges of global sustainability to the creation of shareholder value by the firm. The framework shows how the global challenges associated with sustainability - viewed through the appropriate business lens - can help identify strategies and practices that contribute to a more sustainable world while simultaneously driving shareholder value. This "win-win" approach is defined as the creation of "sustainable value" by the firm.There are four core dimensions of sustainability strategy with different linkages to firm performance and value creation (see Exhibit):
Pollution Prevention: minimizing waste and emissions from current facilities and operations;
Product Stewardship: engaging stakeholders and managing the full life cycle of today’s products;
Clean Technology: developing and deploying “next-generation” clean technologies; and
Base of the Pyramid: co-creating new businesses to serve the unmet needs of the poor and underserved.
Taken together as a portfolio, these strategies and practices hold the potential to: reduce cost and risk (pollution prevention); enhance reputation and legitimacy (product stewardship); accelerate innovation and repositioning (clean technology); and crystallize growth path and trajectory (base of the pyramid) — all of which are crucial to the creation of shareholder value. The challenge for the firm is to decide which actions and initiatives to pursue, and how best to manage them. Companies can begin by taking stock of each component through what I call their sustainable value portfolio. This simple diagnostic tool can help any company or business determine whether its strategy has the potential to truly create sustainable value. For those interested in doing an initial analysis of their organization’s sustainable value portfolio, kindly consult the attached downloadable PDF file.
Programs in pollution prevention and product stewardship are well institutionalized within most corporations today, and have saved hundreds of millions of dollars over the past decade. US-based companies have been especially focused on the efficiency gains and cost savings associated with pollution prevention. Highly publicized crises — like those of Monsanto and Nike that failed to successfully engage the views of stakeholders — have also caused growing numbers of firms to explore strategies for product stewardship. European companies have been particularly active in engaging in stakeholder dialogue, extending producer responsibility for products, and adopting more inclusive forms of corporate governance.
Research and consulting experience, however, suggests that few firms seem to recognize — let alone exploit — the full range of sustainable business opportunities available. Most companies focus their time and attention primarily on the bottom half of the matrix (short-term solutions tied to existing products and stakeholder groups). Focusing on incremental improvements to existing products and businesses is an important step, but it neglects the vast opportunities associated with clean technology, and the largely underserved markets at the base of the economic pyramid. Indeed, addressing the full range of sustainability challenges can help to create shareholder value, and may represent one of the most under-appreciated avenues for profitable growth in the future.
Assessing Your Organization's Sustainable Value Portfolio
As a first step, assess your company’s (or your business unit’s) capability in each of the four quadrants of the Sustainable Value Framework by answering the questions in the above Exhibit. Next, rate your capability within each quadrant on the following scale: 1-non-existent; 2-emerging; 3-established; or 4-institutionalized. An Unbalanced portfolio spells missed opportunity—and vulnerability. A bottom-heavy portfolio suggests a good position today, but vulnerability tomorrow. A top-heavy portfolio indicates a strong future vision for sustainability without the operational or analytical skills needed to implement it today. A portfolio skewed to the left side of the chart indicates an inward focus that may lead to myopia, thereby ignoring important perspectives from external constituencies. Finally, a portfolio skewed to the right side, although highly open and public, runs the risk of being labeled “greenwash” because underlying plant operations and core technologies still cause significant harm.
To download a PDF of the The Sustainable Value graphic, please click here.
To download a PDF of The Sustainable Value Portfolio, please click here.
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