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From Mindset to Measurement

It was heartening to hear Peter Brabeck, chair of Nestlé, say this week at their most recent Creating Shared Value (CSV) forum, that Nestlé had not yet cracked the code on measuring CSV.

This comes from a man and a company that together with FSG and its co-founders has campaigned for years to advance the concept of Creating Shared Value. Nestlé’s leadership, as we do, strongly believes that a business that thinks through how each new investment can achieve economic and societal returns, will ensure its own future and a more viable planet in the long-term.

We need to pay attention to Brabeck’s candid assessment, because it reflects authentic engagement around CSV. Nestlé knows that CSV is not simply about good corporate practices or even efficient use of resource or good labor condition: it is about seeing the role of business in a different way. It is about changing why each person in business should go to work in the morning. Nestlé has invested an enormous amount of leadership time and communications effort to spread understanding on CSV.

What is this mindset shift about? As we study and work with dozens of corporations embracing CSV, we notice that there are degrees of mindset change. The “first degree” mindset shift tells managers to think beyond CSR, beyond the notion that you have to “Share the Value Created” and do good, to thinking that “Creating Shared Value” is an opportunity around every single investment to both advance the business and help address social needs. It’s about not thinking that there is always a trade-off between doing what is good for the business and what is good for society.

The “second degree” mindset shift goes much deeper and concerns the definition of the markets you compete in. When we see a company defining its industry around a word that describes both an opportunity and a problem-we know we are dealing with a powerful engine for Creating Shared Value. In those companies, people no longer go to work in the “food,” “appliance” or “car” industries, but in the “nutrition,” “ecoimagination,” or “zero-emissions mobility” industries.

So what happens when the mindset shift challenge is overcome? We just recently published a research piece on the building blocks of CSV and how to operationalize it. Pursuing new forms of collaboration is one of them, but the most important is undeniably CSV measurement.

During the same Nestlé Forum, the founder of JustMeans, said that “integrated reporting” had already been cracked by many companies and addressed that question. Wow-that was a comment that missed the point. No, CSV measurement is not about taking all the standard reporting metrics developed by the likes of GRI, and tucking them in with financials, nor it is about making more or less tenable links between ESG factors and drivers of economic value creation. CSV measurement is about identifying and aggregating the economic and social value created of each new corporate investment.

And that is a new minefield for companies who have seamlessly aggregated economic data across geographies, business units and different products and services. Social value creation only aggregates across the same change objectives: all CO2 reductions, achievements in educational outcomes, or farmer yields and incomes for example can be aggregated as distinct areas of change, but you cannot aggregate across those issues. And then some issues are more attributable to your investments than others (a technology sold that reduces water use is easy to measure; a nutritional outcome is much harder as people eat a lot more than one company’s products).

Shared Value measurement will be highly influenced by issue focus and objective clarity, the nature of the issues themselves, and aggregation requirements. Some companies will have any easy time with it (e.g. all they do is sell drip irrigation technology) while others will find themselves with a mosaic of returns.

What made Brabeck’s comment so unique and authentic is that it reflected deep understanding for the road ahead, and of the one that ultimately will provide the right information for tomorrow’s investors.

We will need many more such interventions, not least to come through the swarm of ill-guided thinking around “integrated reporting.”

 

Marc Pfitzer

Managing Director