Creating shared value
In a society where over-consumption and excessive production have become the norm, there has been a shift away as global sectors search for the next big thing. Many believe it could lie in innovative ways of “Creating shared value (CSV)”, a means for business success while having a positive environmental impact. An exploration of doing more with less has begun.
At the recent UBS European Conference senior UBS economists and analysts gathered in London and presented a microcosm of the Q-Series® at a panel discussion on “Sustainable Innovation™” which discussed the ongoing challenges surrounding this topic.
Given shifting demographics, complex politics, difficult economics and heightened scarcity of resources, it was highlighted that innovation has never been more important for a wide range of sectors. The discussions supported the views of Professor Michael Porter of the Harvard Business School and creator of the Five Forces Framework that “Creating Shared Value” will potentially unleash the next wave of global growth.
So what has brought about this shift in thinking?
Paul Donovan, UBS Managing Director, Global Economics, described the twin credit crunches, asking whether the shock of the financial credit crunch would be enough to change behaviour in such a way as to alleviate the emergent environmental credit crunch. “Credit is, simply put, the ability to borrow from tomorrow's standard of living in order to enhance today's standard of living. Financial credit uses future income (potential consumption) to pay for increased consumption today.” Environmental credit is similar. “Today’s human demand on ecosystem services is exceeding the annual renewable supply,” making it critical to address this.
Julie Hudson, UBS Head of Sustainability Equity Research (and, with Paul, co-author of "From Red to Green?," the book in which the twin credit crunches are discussed), followed on by citing no less than three potential paradigm shifts referred to in the October Q-Series® conference in New York. Professor Michael Porter declared the old approach to corporate strategy as needing to give way to the new, CSV (Creating Shared Value); Rebecca Henderson (also a Harvard Professor) described traditional economic models (which assume infinite environmental resources and inifinite sinks) as dead; and the portfolio manager panel described traditional narrowly focused approaches to financial analysis as no longer relevant.
What sectors are innovating sustainably?
Gbola Amusa, UBS Head of European Pharmaceuticals Research and Global Pharmaceuticals Co-Ordinator, said that the global pharmaceutical culture is adopting a “shared value” approach and is finding that the companies are increasingly “doing well by doing good.” They are taking societal needs into the account in driving business forward. One such example is GlaxoSmithKline which has embraced a tiered pricing, local reinvestment of profits, and risk-sharing arrangements through its emerging markets group. Gbola highlighted that 70% revenue growth in the pharmaceutical sector in the coming decade will come from emerging markets. Issues like poverty, pollution, and poor health are not externalities to be dismissed, but rather core business concerns that have a substantial impact on growth and operational efficiency if pharmaceuticals companies address them.
Philippe Houchois, UBS Head of European Autos, concurred that in terms of sustainability the automotive industry is doing “pretty well” – partially due to the fact that government legislation requires stringent CSR credentials, but also because innovative ideas are emerging within the sector. The use of composite materials to reduce weight in autos, such as BMW’s electric vehicle concept an example of driving growth and competiveness through the creation of ‘shared value’. Other sectors embracing shared value are moving in the same vein, involving re-conceiving products and markets, redefining productivity in the value chain, and enabling local cluster development.
Moderator, Erika Karp, UBS Head of Global Sector Research, encapsulated the session by drawing on Shakespeare: “If to do were as easy as to know what were good to do, chapels had been churches, and poor men’s cottages princes’ palaces - Portia, The Merchant of Venice, Act 1, scene 2.” She drew from ideas discussed in the working paper “The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance" by Professors Robert Eccles and George Serafeim, Harvard Business School, in highlighting that business needs to take full responsibility and actually act upon the sustainability issue.
In suggesting that we need to move towards greater transparency regarding performing metrics, even in industries that might not be inherently sustainable today, Erika disagreed with Mercedes’ recent advertising campaign, “The best or nothing” and stated that “it is not about perfection” in the nature of the sectors that were covered, it is about “doing what we can now and continually building on that process for a sustainable future. What is key is moving from vision and mission to execution.”
Erika Karp, UBS Head of Global Sector Research
Paul Donovan, UBS Managing Director, Global Economics
Julie Hudson, UBS Head of Sustainability Equity Research
Gbola Amusa, UBS Head of European Pharmaceuticals Research and Global Pharmaceuticals Co-Ordinator
Jarrod Castle, UBS Co-Head of European Transport Research
Philippe Houchois, UBS Head of European Autos
Patrick Hummel, UBS Global Sector Strategist Renewable Energy
Eva Quiroga, UBS Research Analyst HPC and Luxury
Greater China conference
Looking ahead to the Greater China conference taking place on Tuesday 10 January where the "Sustainable Innovation™" discussion will continue. The above panellists will be joined by:
Sir David King - Scientific imperative of Sustainable Innovation
Nick Smithie - GEM Markets and Corporate Governance
Philip Finch - Global Banks - Governance and the Regulatory Environment
Kim Wright - Global Real Estate - Advancements in Sustainable Real Estate & Building
Nik Modi - Global HPC - Innovation across Consumer Products
Jim Hillier - Global Tech - "Cloud Computing"
Fred Stahl - Global Industrials - Role of industrials in innovation & Smart Grid
Peter Hickson - Global Basic Materials