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Reduce social impacts – Enhance social value creation in the asset lifecycle

Brian Rains at OPEX MENA Abu Dhabi Oct 2014

When reading the daily headlines, it is not uncommon to find news about a company behaving badly. Check today’s top stories and there is probably an investigation, an executive gaffe or a serious disaster which has both business and societal costs. Increasingly, companies are being perceived as a major cause of our social, environmental and economic issues. Big banks, big oil, big mining, big insurers – companies in these industries are perceived to be prospering at the expense of others. The legitimacy of business is being called into question. This is compounded by increased industry oversight into business and management practices, both driven by regulation and expectation.

Communities increasingly expect companies to do the right thing – to act responsibly and keep societal well-being in mind. Consumers expect businesses to provide safe working conditions, respect the environment and support social development. Research shows people are more likely to engage with a brand or a company if it is doing something good for society.

We live in an era of new transparency and visibility. Now, consumers can turn to social media to provide feedback on a product or service. What’s more, a company’s integrity can be jeopardised by a Facebook post or tweet; consumers are eager to express their anger and dissatisfaction when companies are perceived to not be acting responsibly or in their best interest.

This poses an opportunity and a challenge for the business community. How should businesses be working with society, looking beyond profit, and focus on generating value for people and the planet?

Creating Shared Value

The ideal of building responsible business practices has been around for a long time. In 1962, Milton Friedman declared there was only one social responsibility of business – to meet shareholder expectations and profits. Businesses could pursue practices with a social good angle in mind, as long as they generated profit. Later, in 1984, Edward Freeman introduced his corporate management theory, which asserted that other stakeholder interests – like communities and employees – should be valued just as much as shareholder interests when considering best business practices.

In 2011, the Harvard Business Review published a thought leadership article by Michael Porter and Mark Kramer[1] that introduced the concept of “shared value,” which is “creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do, but at the centre.”

For companies to thrive, the communities in which they operate must thrive. Businesses must manage the risks and seize the opportunities associated with their activities, particularly within the context of developing countries – local communities are the customer base, the local suppliers, and the talent pool. Companies must be in tune with societal needs, and to be successful, companies must fully understand their impact on local society and execute a defined action plan to address them – in line with their business strategy.

To manage and to create shared value, companies must be able to measure it on all dimensions: business value and societal value, short and long-lasting effects, intended and unintended, positive and negative. Also important is a clear communications strategy, both for investors and the wider public, which articulates and promulgates the contribution to society, thereby facilitating the building of positive relationships with all stakeholders.

Understanding Impacts

In DuPont, we take a broad perspective, going beyond just inputs and outputs to evaluate long-term outcomes of company activities and its presence in essential domains of societal progress. Social value creation is pursued through a clear management process focused on understanding and driving the triple bottom line impact – ensuring that the long-term outcomes for local societies are considered and included when measuring business success.

The business contribution to society can be assessed according to six domains of societal progress:

  • Enterprise development
  • Infrastructure development
  • Governance
  • Community development
  • Quality of life
  • Ecosystem conditions

To gain further insight into determining impact, we worked with the World Business Council for Sustainable Development to build the Measuring Impact Framework and further developed a Societal Value Management Model. This model was created to help companies articulate local development strategies that best meet business and stakeholder expectations and includes a broad scope of analysis. The model is used as a management tool throughout the asset lifecycle to drive investment decisions and is instrumental in stakeholder engagement to improve transparency and communication. This model is currently rolled out internally and externally, to companies across a variety of industries with a desire to integrate the social value management in their business practices.

To measure and achieve maximum social value, companies should consider focusing on the four main pillars of the asset life-cycle:

  • Capital project management, to create competitive advantage by mitigating the social impacts and optimising local input;
  • Local procurement processes, to build economic and societal value in the local communities;
  • Supplier development, to create a sustainable local supply chain and equip local businesses for self-sustained economic growth;
  • Capability development, to integrate the indigenous workforce into business performance; and
  • Community development, to improve social infrastructure and access to services for the local population.

In each area, companies must define a long term strategic view, define objectives and set out clear implementation plans. The next step is to check these plans are being followed by consistent monitoring. Monitoring should take place both, quantitatively, with a series of targeted metrics, and qualitatively, through stakeholders consultation.

Putting Principles into Practice

There are countless opportunities to put social value into action. In several industries, social value management is considered an urgent, and sometimes even requisite, practice. In developing countries, oil and gas companies are under increasing pressure from local governments to provide solutions that are sustainable for society, in addition to their businesses. Mining companies also are anticipating increasing regulations and expectations to minimise impact on local communities.

In Denmark, DuPont was exploring possible energy savings when it discovered that during the production phase at its Grindsted plant, surplus heat was coming from the cooling towers. The energy team decided to leverage the surplus by distributing it to the Grindsted Electricity and Heating Plant (GEV). GEV delivers heat and electricity to private households and other buildings in Grindsted, where it is used for water and space heating during the winter. District heating is common in most cities in Denmark, as they are densely populated with little sprawl. This makes it possible to produce heat efficiently and subsequently supply this to customers through a network of insulated pipes. The project provided GEV an estimated heat energy supply of 12,627 MWh, enough to power 900 homes in the community. This generated savings of 1,200,000 Nm3 in natural gas at GEV and 195 MWh in electricity at the Grindsted plant. In terms of carbon footprint, this is equivalent to a reduction of 2,700 tons (MT) CO2 at GEV and 70 tons CO2 at the Grindsted site.

We have established Community Advisory Panels at nearly every global site we operate, ensuring that the frequency and type of community engagement are tailored to the individual conditions of each location. We also established wider mechanisms for funding local partnerships, such as the DuPont Community Fund. Founded in 1990, the fund has provided financial support to more than 500 global projects addressing sustainability, social progress, economic success or environmental excellence.

Managing a company’s contribution to society in a way that builds growth and well-being for present and future generations can only be achieved with a systemic strategic approach to social value creation. This effort and forethought can be translated into a significant competitive advantage, a stronger brand and improved reputation.

Angela Fratila is in the Sustainability and Social Value Creation Practice with DuPont Sustainable Solutions.

 

[1] Porter, Michael and Kramer, Mark. “Creating Shared Value”. Harvard Business Review. January 2011