IN AUSTRALIA A REPORT BY SOCIAL OUTCOMES

a report by

social outcomes Social Outcomes is a team of experienced practitioners in the design and implementation of programs for social and environmental impact. We develop collaborative partnerships across the business, government, not-for-profit and philanthropic sectors, to create dynamic and financially sustainable solutions to social issues. We work closely with those partners to identify and utilise the most appropriate mechanisms for impact, including: shared value, impact investment, social innovation, social enterprise development, social procurement, payment by outcomes, impact measurement, and collective impact. Anna Bowden Sandy Blackburn-Wright Imogen Tyndale 23 July 2015 Sydney, Australia

[email protected] [email protected]

www.socialoutcomes.com.au

Where otherwise noted, all material presented on this site is provided under a Creative Commons Attribution 3.0 Australia licence. The details of the relevant licence conditions are available on the Creative Commons website (www.creativecommons.org.au) as is the full legal code. This document must be attributed as ‘Shared Value in Australia’.

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@Social_Outcomes

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contents. Contents 1 Foreword 3 Introduction 4 What is shared value? 5 Models of shared value 7 Creating shared value through products and markets 8 Creating shared value through reconfiguring supply chains 20 Creating shared value through community partnerships and investment 22 The business case 26 Consumer preferences 27 People power: employee engagement 27 Investing in shared value 29 Measuring impact 30 Shared value in Australia: new horizons 32 What will drive shared value in Australia? 35 The opportunity for Australian companies 43 Appendix: Terminology 45 Acknowledgements 46 References and further reading 47

Social Outcomes has contributed an important piece of research that highlights the opportunities and obstacles for shared value specifically in the Australian market. This report provides tactile research for corporate Australia and practitioners on the next steps to invigorate and inspire the market, and to continue to drive towards the forefront of the global shared value movement.

Helen Steel Executive Director Shared Value Project

June 2015

Foreword. The challenges we face as a global society today have never been more complex. At NAB, we recognise the important role we play in addressing these challenges through aligning commercial and social success. Our guiding principle in corporate responsibility is to ensure that doing the right thing is at the heart at of every decision we make and that includes the strategic approach we take to delivering shareholder value. Shared value is an important part of NAB’s portfolio of corporate responsibility initiatives which opens up new market opportunities for delivering sustainable returns to our shareholders and creates new value propositions for our customers, people and communities. For us, creating shared value is about delivering strong business outcomes at the same time as strong social outcomes. It means generating economic value through our role as a financial institution while creating value for society by understanding and addressing key social challenges – such as climate change, unemployment, financial exclusion and hardship, Indigenous disadvantage, mental health and gender inequality. Social Outcomes’ report, Shared Value in Australia, is an investigation into how and why the time has come for Australian companies, small and large, to explore shared value. Drawing on multiple case studies from across the globe, as well as in Australia, the report shows that there is no limit to how businesses might achieve a significant impact on social and environmental wellbeing, at the same time as expanding their markets, revenue bases, competitive advantage and productivity. We also recognise that, as a relatively new practice, there will be much to learn, and we will need to embrace different ways of doing business. Partnerships which bring diverse competencies to the table will be the most successful in creating innovative products and services. We will also need to develop a strong and robust ecosystem for shared value initiatives to flourish. This will include everything from platforms which share information on best practices, to a language that describes and compares impact measurement approaches, to an enabling regulatory environment and government support to facilitate experimentation and exploration. As this report identifies, we are currently witnessing a clear shift in Australia. Government spending is under increasing pressure, yet our social and environmental issues are not diminishing. Shared value offers new models for meeting these societal needs through business innovation and harnessing the full power of capitalists markets. NAB, alongside other pioneers of shared value in Australia, is evolving our understanding and application of shared value across the organisation. We are committed to continuing to drive our own leadership and innovation in shared value and look forward to fostering broader discussions in Australia to drive further uptake.

Sasha Courville, Head of Corporate Responsibility Strategy National Australia Bank

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Introduction. Business is rapidly changing, fuelled by increased transparency, digital innovation, consumer engagement, finite resources and supply chains, and dynamic demographics and workforces. Traditional models that relied solely on public funding and services to address social and environmental needs, are clearly waning. Our societal challenges are not disappearing, and yet government’s ability to fund resolutions is diminishing. Against this backdrop, shared value has emerged as one tool in the toolbox of non-traditional partnerships between business, government, and civil society - that we might deploy towards social impact and sustainable business. Shared value creation is not another name for corporate social responsibility (CSR). While some overlap exists, the clear distinction between the two is that shared value programs emerge from core business operations and strategy, whereas CSR is typically an ‘add-on’ feature, originally developed for public relations purposes. In some ways, shared value represents a return to the original purpose of business – to serve a community’s needs. Some might go as far as to say it reflects an Adam Smith ‘invisible hand of the market’ type approach to resolving social issues. In other ways, shared value creation requires new, novel, and innovative approaches to business. By their very nature, programs that approach our environmental and societal issues as opportunities for impact, are challenging, complex, and messy. As the cases throughout this report demonstrate, their successful implementation will require new skillsets, unique combinations of existing skillsets, passion, commitment, and perhaps above all else, a driving sense of creativity and innovation. The most successful shared value initiatives come from companies who are never satisfied; who are constantly driving themselves, their partners, and their teams - to innovate, iterate, and improve.

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This report highlights leading case studies from Australia, and around the world, to demonstrate what works, and why. We are heavy on global examples of shared value for one simple reason: inspiration. We believe that seeing live examples of shared value creation, is the most effective way to envision the breadth and depth of what can be achieved. This report is also an exploration of the state of shared value in Australia, why the practice is expected to grow in the country, and what will drive that development. As the case studies attest, shared value creation is sector and industry agnostic. Pioneers from across broad industry sectors in the country, including financial services, professional services, extractives, and consumer goods, are exploring how they can turn social and environmental challenges into strategic business opportunities. Research for this report draws on dozens of interviews and discussions with stakeholders in Australia and abroad, as well as analysis of many more case studies in shared value. It is by no means a comprehensive assessment of all the activity underway, and there are hundreds of terrific examples we sadly could not include. We have tried to select a variety of cases which demonstrate both the enormous social impact that shared value programs can create, as well as the diversity and creativity in design of those projects.

What is shared value? A major Australian bank recognises the clear but complex value that biodiversity provides to Australian farms across the country; so they provide lending to encourage sustainable agribusiness models. A mother and father despair at the lack of healthy, sustainable food snacks for their children in the supermarket; so they start a business to produce easy, healthy, organic snacks. A partnership between a major bank, a large public hospital, a property development company and an innovative charity, identifies the need for patient and family accommodation, as well as supporting professional development of medical practitioners; so they develop a co-located residential facility for patients, their families, and visiting practitioners and staff. Each of these cases are real examples of Australian companies creating shared value. Shared value is a practice that describes the creation of business opportunities through intended efforts to have a positive social or environmental impact. This creation of economic opportunity as well as social impact 1, is what sets shared value apart from traditional corporate social responsibility (CSR). In traditional CSR, a large corporate might establish a foundation which donates a portion of profits to community organisations. Under shared value models, that corporation embeds social impact

programs into their very core business practices, because it makes financial and strategic sense to do so. When these activities are part of the company’s operational model, there are both business and social reasons for those activities to be sustained over time. The longevity of traditional CSR activities, on the other hand, often depends on individual staff members championing a cause, as well as the economic prosperity of the company at any given time. The concept of shared value has ascended rapidly since it was coined a few years ago by business gurus Michael Porter and Mark Kramer in the Harvard Business Review (Porter and Kramer, 2011). The practice now has the markings of a developing trend, accompanied by a global body (e.g. Shared Value Initiative), a stream of conferences (e.g. Shared Value Leadership Summit), and national chapters (e.g. Shared Value Project, Australia). In their 2011 Harvard Business Review article, Porter and Kramer argued that the idea that all businesses should be solely driven by maximising shareholder value or profits - was flawed. They showed that many businesses already pursue a much more comprehensive understanding of value creation, and for those companies, social and environmental concerns were an opportunity, not simply an externality or impediment to be overcome. By applying innovation and entrepreneurialism to

addressing key societal concerns, those companies are expanding their business and markets; they are creating business value for their shareholders, and social value for their community. As Porter and Kramer (2011) explain, “the principle of shared value...involves creating economic value in a way that also creates value for society by addressing its needs and challenges.” For Porter and Kramer, shared value is not about redistributing a finite ‘pie’ of goods towards the social sector, and away from the business sector; rather it is about creating a larger, more mutually beneficial, shared value pie. Society’s needs are huge—health, better housing, improved nutrition, help for the ageing, greater financial security, less environmental damage. Arguably, they are the greatest unmet needs in the global economy. In business we have spent decades learning how to parse and manufacture demand while missing the most important demand of all. Too many companies have lost sight of that most basic of questions: Is our product good for our customers? Or for our customers’ customers? - Porter & Kramer, 2011

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The concept of shared value is not particularly new, novel, or radical; although the term shared value has only emerged fairly recently. Rather, the simultaneous creation of social and economic value was, traditionally, the very objective of business. Modern economic society was developed by individual businesses meeting community needs: food, shelter, trade, transport, and so on. “If we want to know what a business is, we have to start with its purpose. And the purpose must lie outside the business itself. In fact, it must lie in society, since a business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer.” - Peter Drucker, 1955.

Porter and Kramer suggest that the fact that many businesses have moved away from the original purpose of meeting community needs, towards the goal of profit maximisation at all costs, has resulted in an identity crisis of sorts for the private sector. From Occupy Wall Street, to consumer boycotts of companies, multitudes have voiced their rejection of the notion that making money must come at the expense of environmental and community wellbeing. “In the ’90s you started seeing folks both within non-profit and for-profit communities confronting the limitations of what could be achieved through their particular way of thinking. You had entrepreneurs starting companies like The Body Shop and Ben & Jerry’s with a different vision of the role that business should play, and you had former social workers such as myself who were frustrated with the limits of traditional non-profit organisations.“

Indeed, while shared value creation is essentially industry agnostic, and as the case studies throughout this report will demonstrate, have been applied by a broad spectrum of companies and issues; the industries that have been most active in initial phases of sector development, are frankly, those who have the most to lose from ignoring the opportunity. For instance, a recent study by Oxford University and Arabesque (2014) listed the most costly social and environmental impacts and events for major corporations, over the past several years. Of the top ten most expensive episodes, four were in the financial sector, three were in pharmaceuticals, two in energy, and one in the industrials sector. As we will see in this report, these industries are now some of the strongest leaders in shared value creation. At its heart, shared value turns the idea that pursuing profit causes social damage, on its head, and asks; ‘what if we could find business opportunities in resolving social issues? What if the existence of social problems signify gaps in the market, and therefore business opportunities? What if addressing social concerns is in itself a business strategy?’ Companies engaging in shared value creation consider themselves to be tapping into ‘win-win’ solutions. Fortune 500 company, Whole Food’s Markets Co-Founder and CEO, John Mackey, with Raj Sisodia, explains:

Intuitively, the ‘win-win’ solutions of conscious business and shared value2, make perfect sense. A company might look to reduce its product packaging because it reduces their input costs. Their decision may be financially driven, but it also decreases plastics production, unnecessary waste, and carbon emissions associated with packaging production. For instance, multinational conglomerate Proctor & Gamble (P&G), has looked to innovative solutions to reduce the volume of waste from their supply chain that ends up in landfill. P&G arranged for a dedicated team to assess how waste could be reused or recycled into other products at over 140 of their manufacturing facilities. As a result of this program, only 0.4% of P&G input materials now goes to landfill as waste products, and a number of their global manufacturing sites now repurpose 100% of their waste. P&G estimates that it has generated about US$1.6 billion in cost savings and revenues from the program (P&G, 2014). With revenues of over US$83 billion in 2014, P&G is no small company. Indeed, many large multinational conglomerates are successfully leveraging shared value to reduce costs, increase profits, grow markets, meet customer demand, and achieve social impact.

“Conscious businesses recognize that each of their stakeholders is important and all are connected and interdependent, and that business must seek to optimize value creation for all of them…conscious businesses engage the limitless power of human creativity to create win-win-win-win-win-win... solutions.” - John Mackey & Raj Sisodia, Conscious Capitalism, 2014

- Jed Emerson, interview with Dumbo Feather, 2014.

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Throughout this report, we often use the term ‘social impact’ to refer in broad terms to social, environmental, cultural, and community impact. In instances where programs specifically create social and/or environmental impact, we will distinguish as such. 2

Note that Mackey and Sisodia prefer the term ‘conscious capitalism’ to ‘shared value’. For further details and analysis on their preference for the former term, see their book, Conscious Capitalism (2014). For the purposes of this report and for simplicity, we adhere to the term shared value creation.

Models of shared value. This paper deals fairly exclusively with the concept of shared value, primarily because this is the least understood practice within the broader corporate responsibility sector. In reality, small and large businesses tend to develop programs around community, social, and environmental impact, in diverse, and organic ways. As Kasturi Rangan and colleagues argue, business programs for social impact typically fall into three ‘theatres’. The first focuses on philanthropy (e.g. grants and employee volunteerism). The second relates to organisational effectiveness (e.g. reducing waste and associated costs). The third relates to transforming the business model (e.g. designing business models specifically to address a social issue) (Rangan et al, 2015). Models of shared value and corporate responsibility vary in their depth and breadth. Creating an established practice of shared value requires developments within and across, all of these models. Many of the most successful corporate responsibility programs integrate all three theatres. For instance, it’s not difficult to imagine the corporate foundation of a large technology company, providing grants for innovations in technologies

for health. Once a proof of concept has become viable, the product may then be produced and distributed through the main company. In the meantime, that company is also exploring how to reduce its waste, as well as comply with best practices around sourcing minerals from fragile states.

Likewise, we recognise that all three theatres are important for developing impactful products and services. To better understand how this works in practice, our analysis and case studies are broken down into the three models identified by Porter and Kramer (2011):

“Best-practices companies operate coordinated and interdependent programs across the CSR portfolio. Some of their initiatives indeed create shared value; some, though intended to do so, create more value for society than for the firm; and some are intended to create value primarily for society. Yet all have one thing in common: they are aligned with the companies’ business purpose, the values of companies’ important stakeholders, and the needs of the communities in which the companies operate.”

customers, products, markets, and consumer needs (for instance by creating a product that targets a neglected consumer group, while also solving a social issue).

- Kasturi Rangan et al, Harvard Business Review, 2015

• Reconceiving, and responding to,

• Redefining how value is created and sustained through supply chains (for example through repurposing or recycling products to reduce waste, while creating new cost savings or revenue streams).

• Facilitating local cluster and/or

community partnerships (for example by developing business practices that invest in community capacity and local economic growth).

Many innovative companies will create shared value at multiple points in their supply chain, or perhaps even all of them.

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Creating shared value through products & markets. Creating shared value through products and markets means producing and selling goods or services designed specifically to meet a social or environmental concern. Often these products fill a market gap by providing to an otherwise ignored or under-addressed consumer base, therefore generating a clear business opportunity. “The best way to become a billionaire is to help a billion people. Identify a product or service that can impact a billion people, begin with a near-term revenue stream and grow it using scalable, exponential technologies, gamification, crowd and community.” - Peter Diamandis, CEO & Chairman of Xprize innovation competition, cited in Ankeny, 2015.

Perhaps one of the largest underserved markets in the world lies in the more than five billion people living on less than US$10 dollars a day, and even those on less than US$2.50 a day, often referred to as the ‘bottom of the pyramid’. The term bottom of the pyramid was first described by C.K. Prahalad (2001), who argued that the large numbers of poor people throughout the world should not be seen just as passive victims in need of charity, but as an emerging market of consumers. Seen in this way, developing economies become home to billions of potential consumers who seek to buy tailored and appropriate goods and services. Products that are smaller, cheaper, and more accessible, will open up vast markets in Asia, South America, and Africa. Small and large companies that work to explore and cater to these consumer needs, stand to gain substantial markets for their products. Often it is the very lack of the provision of affordable goods and services that is significantly contributing to the social issues these groups face, therefore operating in these markets, can improve livelihoods, as well as create new customer segments.

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Forward-thinking, innovative companies are rejecting the idea that consumer bases are only found amongst the wealthy. Instead, they are exploring ways in which goods and services can be sold to billions more customers, by carefully shaping them to meet consumer demand, and purchasing power. This exploration of underserved markets is not confined to developing economies. Here in Australia, large multinational corporates like PwC are working to engage and support Indigenous Australians through their PwC Indigenous Consulting services, providing strategy advice on areas such as Indigenous procurement, policy, cultural issues, and business development. The program is also majority-owned by Indigenous leadership (PwC, 2015).

Consuming shared value; new products help to fill social and economic market gaps. Consumer goods companies are acutely aware of the social and economic value they can derive from developing products for previously underserved markets. These companies accrue shared value through filling market gaps with products for purpose, reconfiguring their supply chain to create value from more efficient and sustainable models, as well as investing in community partnerships which foster economic development and purchasing power in targeted regions.

Unilever: Creating shared value through health and hygiene products, and sustainable supply chains. Multinational conglomerate Unilever employs over 174,000 people across the globe, and generated sales of over A$73 billion in 2013. Every week, over two billion customers use one of Unilever’s products, including household names like Dove, Rexona, Surf, Omo, Lipton, Flora, and Vaseline. Unilever has emerged as a leader in shared value creation, having developed several impactful and innovative programs:

“Lifebuoy is a good example of how brands that help to address social challenges can drive business growth. It has achieved three years of sequential double digit growth to become the world’s number one anitbacterial brand. ” (Unilever, 2015)

• ‘Project Shakti’ in India works with

around 75,000 underprivileged female entrepreneurs to sell Unilever health and hygiene products to customers in over 165,000 small villages, and four million rural households. The impact is felt in multiple ways. Firstly, the program provides training, microcredit resources, and a source of income to women entrepreneurs. Secondly, consumers in these villages are able to access products on the market that contribute to their health and wellbeing. Thirdly, Unilever benefits by accessing hard-to-reach consumers and a larger market share.

• ‘LifeBuoy’ soap is designed to increase

handwashing among one billion people in Africa, Latin America, and Asia. The handwash changes colour in ten seconds, (the amount of time it takes to protect against 99.9% of germs), making handwashing effective, but also fun for children. According to one study on LifeBuoy in India, increasing handwashing led to a 25% reduction in diarrhoea, a 15% reduction in acute respiratory infections, and a 46% reduction in eye infections. Lifebuoy also runs the world’s largest hygienepromotion program, aiming to improve the handwashing behaviours of a billion people by 2020. Unilever partners with numerous NGOs for the program’s implementation, including Population Services International, UNICEF, and Water & Sanitation for the Urban Poor. “Lifebuoy is a good example of how brands that help to address social challenges can drive business growth. It has achieved three years of sequential double-digit growth to become the world’s number one antibacterial brand” (Unilever, 2015).

• Vaseline has partnered with

international NGO, Direct Relief to help protect and heal the skin of five million people living in vulnerable environments by 2020, including those affected by natural disasters, and in refugee camps.

• Sunlight, Unilever’s oldest brand,

is working to reduce the burden on millions of women who cumulatively spend 200 million hours every day, collecting and carrying water. In partnership with Oxfam, Unilever has now piloted two Sunlight Water Centres in Nigeria, where women can safely access clean water, wash their clothes and dishes, and buy affordable everyday products, without traveling long distances, and with less time consumed through the day.

Unilever also implements shared value through comprehensive sustainability practices. Unilever explains that, for them, it’s simple: it costs more to do nothing. As Hugo Verukil, Managing Director and VP of Marketing for Unilever Australia and New Zealand (ANZ), states, “if we don’t support our supply chain now, we won’t have one to source from in 30 years.” In November 2014, Unilever ANZ announced its commitment to source 100% traceable and sustainable palm oil for locally produced food products by the end of 2015. This adds to Unilever’s existing commitment to sustainably source 100% of its raw agricultural materials by 2020. The business impact and opportunity for Unilever is clear. Of the more than 400 brands Unilever sells, it is those with the strongest sustainability credentials, like Dove, Lifebuoy, and Ben & Jerry’s, which have the highest growth rates. According to Unilever CEO Paul Polman, “these brands accounted for half the company’s growth in 2014 and grew at twice the rate of the rest of the business.” The company also estimates it has saved over 600 million euros through their sustainability measures taken since 2008 (Reuters, 2015)

Photo credit: Unilever, 2015. http://goo.gl/hwEfaS

LifeStraw: Creating shared value through water filtration devices. Danish company, Vestergaard, has ingrained shared value into its very core. Among other innovations, the company produces a water filtration device called LifeStraw, a plastic straw that can filter out 99.9% of bacteria and parasites from around a thousand litres of water. The product seeks to address perhaps one of the most pernicious, but preventable, global health problems: 80% of illnesses in developing countries are linked to poor water and sanitation conditions, and the World Health Organisation estimates that 3.4 million people die from water-related illnesses every year. Each LifeStraw

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community device can purify 70,000 100,000 litres of water, enough to last, for example, several years at a small rural school in Sub-Saharan Africa. In 2008, Vestergaard added another innovation to help fund the distribution of LifeStraw filters, called ‘Carbon for Water’. Funding under the innovation is based on the reduction in carbon emissions that accrues from using LifeStraw filters, rather than gathering water from ground sources like lakes and streams, and boiling it over wood stoves to kill off the bacteria, in turn producing carbon

emissions. Vestergaard partnered with Gold Standard Foundation, to calculate out how much carbon emissions could be saved from each LifeStraw device. They then attached a price to it, and sold carbon credits to large corporations like Jaguar Land Rover, who state, “valuing and protecting the environment and the communities in which we operate is critical to a successful future” (Land Rover, 2015). The financing structure has facilitated the provision of LifeStraw filters to almost one million Kenyan homes.

M-Pesa: Driving shared value through mobile banking The mobile money transfer service launched by Vodafone’s M-Pesa program, now benefits over 18 million customers in Kenya alone. Initially a partnership between the UK’s Department for International Development (DFID) and Vodafone, M-Pesa was born out of an entrepreneurial interest in the fact that millions of consumers in East Africa were transferring mobile phone credit to their friends and family. M-Pesa was an innovative next step to provide millions of people in Kenya, and now dozens of other countries, with the ability to possess a ‘virtual wallet.’ The service provided a financial inclusion tool for millions of people, many who, for the first time in their lives, could now save money, smooth out their saving and spending rates to protect them against income fluctuations, and conduct transactions that are faster, speedier, and safer than traveling long distances to traditional brick and mortar branches for cash.

Both banks and telecommunication companies benefit since they can tap into a large market of users, and reduce customer churn. In developing countries, it is estimated that 20% of annual costs to banks are connected to the onboarding of new customers. Access to M-Pesa encourages customers to stay attached to telecommunications and banking companies, who realise around $2 to $6 of profit per M-Pesa user, as a result of increased customer loyalty. As more banking services are provided virtually, banks also benefit from reducing the cost of branches, as well as printed statements, which cost around $9 per person/per year (SMS statements cost around $1) (Gates Foundation, 2013). Several organisations, like the Bill and Melinda Gates Foundation, are now looking at innovative ways to expand the types of services available through these platforms, so that an individual’s mobile phone can also be used for microinsurance, micro-loans, paying school and health fees, and much more.

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Whole Kids: Creating shared value through healthy snack foods for children. In Australia, the number of overweight children has doubled in recent years, and one in four children is overweight or obese. Given current trajectories, it’s estimated that 65% of Australian children will be overweight or obese by 2020. Against this backdrop, emerged Whole Kids, seeking to fill a market gap for healthy snack foods for children. Their snacks use organic produce and there are no synthetic additives. “With the ever-increasing public concern over what’s in the food that we give to our children, and the parallel rise in childhood diabetes, obesity, allergies and other health concerns, we wanted to make a conscious decision to remove artificial

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inputs in products and provide a healthier, more natural and better tasting snack alternatives that kids enjoy and parents can trust.”

The business has developed quickly, fed by demand from time-poor parents who want access to quick and healthy snacks for their children.

- Monica Meldrum, Co-Founder, Whole Kids, May 2015.

“Everything we do at Whole Kids is driven by our core purpose. All our decisions, the products we make, the people we bring on board, the partners we deal with – everything is based on how we bring our purpose to life. By embedding our purpose deeply within the way Whole Kids operates, it becomes clearer how we can create positive social outcomes”

Whole Kids now sells over 1.5 million products per year in Australia, as well as exporting to Singapore and Malaysia. One of their first corporate customers was Qantas, who were looking to meet parents’ demands for healthy snacks for children on their flights. Child-friendly venues, play and aquatic centres, and supermarkets, were their next customers.

- James Meldrum, Co-Founder, Whole Kids, May 2015.

Banking on shared value in Australia. As the M-Pesa case demonstrates, providing financial solutions to those otherwise excluded, can generate clear social and economic value. Likewise, it is not surprising that banks are a major driver of shared value creation in Australia, and abroad. Banks are largely consumer-driven, and gaining and retaining customers is critical to their business model. Of course, they also bring an enormous amount of capital and resources to bear. In Australia, the ‘Big 4’ banks (NAB, Westpac, Commonwealth, and ANZ) all rank among the ten largest companies in the country. In 2014, their combined total assets represented around A$3.2 trillion, about double Australia’s GDP (KPMG, 2014). Banks are acutely aware that they need to be responsive to consumer demand and sentiment. Credit defaults connected to the 2008 global recession highlighted clear risks for banks, both in terms of financial governance, as well as consumer perception. New technologies and other disruptive innovations are also playing a key role in reshaping how financial services are provided.

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“Banks must choose a new path. They need to recognize that the health of their businesses is inextricably linked to the long-term prosperity of their clients and communities and to sustained local and global economic growth. They have to turn their tremendous capability for innovation to financing consumer, social, and environmental solutions that benefit society while increasingly representing good investment opportunities for private capital. Doing so is the only way to preserve their legitimacy and their competitiveness. This new path centers on creating shared value. “ - Michael Porter, cited in FSG, 2014

“They need to recognize that the health of their businesses is inextricably linked to the long-term prosperity of their clients and communities and to sustained local and global economic growth.”

There are at least three ways that banks can create shared value (FSG, 2014):

• Support the financial health of

customers, and provide banking services to those otherwise excluded. For instance, approximately 58% of people in emerging economies, and 11% in developed economies, still lack access to formal banking services, a potential market of 2.5 billion people.

• Spur growth in regional economies

by deliberately strengthening entire industry or community ecosystems. For example, through helping to fill the estimated US$2.1 trillion financing gap for small and medium-sized businesses (SMEs) in emerging markets.

• Creating social and environmental

impact through structuring and/or investing for impact. For instance, the annual value of global investment opportunities in health, education, and sustainable natural resources, is forecast to be more than US$3 trillion by 2050.

National Australia Bank (NAB) NAB Care

Natural Value

Concerned about the impact of the global recession on its customers, including the potential of loan defaults, NAB instituted a new strategy in 2009 called NAB Care, to provide advisory services to customers struggling with loan repayments or facing financial hardship. Distinct from traditional CSR financial literacy programs, NAB Care was developed as a core business operation, and integrated throughout NAB’s collections department.

In 2011, the annual economic value of the global ecosystem was estimated to be around US$125 trillion. Natural capital has an immense social and economic value for a multitude of reasons, not least: climate regulation; production of food and fuel; purification of water, soil, and atmosphere; and tourism and recreational services. Impacts on this ecosystem are, therefore, costly. For instance, over the past ten years, land degradation has resulted in around A$600 million in lost All NAB Care employees received training profits in Australia. 65% of agricultural from mental health organisation, Life Line, production in Australia depends on honey to help NAB staff recognise and manage bee pollination, contributing around A$1.7 financial challenges for customers. By billion in agricultural production value 2013, NAB Care had assisted 100,000 (NAB, 2015). vulnerable customers, and prevented 20% of loan defaults. 40% of NAB’s NAB’s Natural Value initiative recognises customers now voluntarily seek financial the economic value of natural capital, advice before experiencing a collections as well as the role that NAB - Australia’s event, saving NAB A$7.2 million in costs largest lender to agribusinesses - can (NAB, 2015; FSG, 2014). play in supporting customers’ valuation of natural capital. “Our purpose to do the right thing has driven our ‘Fair Value’ strategy, creating The emergence of the Natural Value value for our customers, employees, and program was an innovative and shareholders over the past five years. We responsive reaction to customer demand. know our purpose is not a barrier to profit, NAB surveys found that over three in but instead can be a source of profit and four customers had recently invested in we are constantly looking for ways to their natural capital, and over 80% were innovate our business accordingly.” concerned about water scarcity, soil health and energy costs. Addressing - Gavin Slater, Group Executive Personal these issues enhances the resilience of Banking, National Australia Bank, sited in farmer’s properties, that is, the capacity to FSG, 2014 resist environmental shocks, and recover from them (NAB, 2015).

“NAB has been in agribusiness for 155 years. We recognise that our long-term success depends upon our customers and their success depends, in part, upon the management of natural capital. By supporting our customers to invest in natural capital, they will be more productive, resilient and sustainable. This is in our customer’s best interests, and ours.” - James Bentley, Senior Consultant, Natural Value, NAB, May 2015

In January 2015, NAB launched a discounted asset finance program for agribusiness customers to purchase solar PV, helping them to manage their energy risk. NAB is now developing further products to support customers’ investments in broader energy efficiency and renewable energy.

NAB’s Natural Value strategy has five components: learning from customer insights about the links between good management of natural capital and financial performance; training bankers so they understand the opportunities; developing products to support customers; partnering with industry groups and research institutions to leverage the work they are already doing; and, NAB has signalled that, in three to five years, it will take natural capital management into account when making credit decisions.

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Bendigo and Adelaide Bank. After the closure of thousands of rural bank branches in Australia between 1993 and 2000, many communities were left disenfranchised.

To date, this growth has enabled Bendigo Bank to provide A$134.7 million in donations to local community initiatives.

The result is over 300 such branches with more than one million accounts, Bendigo & Adelaide Bank responded with an average growth rate of 18% over five a model that empowers local communities years, and A$25.4 billion generated in new business. Bendigo Bank has now to operate their own bank branches as grown to become Australia’s fifth largest franchises. Typically, around 300 to 500 bank (Bendigo Bank, 2014; Shared Value local shareholders own each franchisee Initiative, 2015). company under an independent one shareholder/one-vote constitution. Once the franchise is making a stable operating surplus, up to 80% of profits can be reinvested back into community projects and grants, or used to pay local shareholders a reasonable dividend.

“Had our founders known the term ‘shared value,’ I’m sure they would have used it. They certainly had an intrinsic understanding of the role that business plays in society; feeding into prosperity, not off it. And this has been fundamental to our success.” - Robert Johanson, Chairman, Bendigo & Adelaide Bank, cited in Shared Value Initiative, 2015.

Westpac Australia’s oldest bank, Westpac, has explored a number of programs designed to achieve social and economic value. The bank was originally founded as the Bank of New South Wales by Edward Smith Hall in 1817. A few years earlier, Hall had established Australia’s first charity, The Benevolent Society, to support widows, single mothers, and other vulnerable groups in the new colony. He went on to found the Bank of New South Wales in response to another community need – access to capital to help grow business and individual wealth.

Today, Westpac continues to explore multiple avenues of shared value creation. The bank is the principle partner with Many Rivers Microfinance, which provides remote and Indigenous enterprises with access to finance and capacity development, with Westpac providing the capital and Many Rivers providing the risk assessment and business support. Their Social Sector Banking initiative provides specialist banking services to not-forprofit and charity organisations, including capacity development, mentoring, and fundraising opportunities, as well as low or no-fee bank accounts (Westpac, 2015).

In October 2013, Westpac partnered with Commonwealth Bank and the Benevolent Society, to launch a A$10 million Social Impact Bond to help keep children safely with their families and reduce entry into foster care. The Bond targets 400 families that have been classified by the NSW Department of Family and Community Services (FACS) as at risk of having a child transferred into foster care.

“Westpac partnered with Commonwealth Bank and the Benevolent Society, to launch a A$10 million Social Impact Bond to help keep children safely with their families and reduce entry into foster care.”

Accommodating for shared value: providing shelter and affordable housing. We are approaching a critical turning point in Australia in relation to our housing and property needs. Our long-standing cultural affinity for property is increasingly challenged by the growing number of people who struggle to access housing in the country. A number of interesting programs are emerging to demonstrate how shared value might be deployed to address this growing gap.

Leukaemia Foundation

Lendlease

RNA

Westpac

Royal Brisbane Women’s Hospital

Image designed by Social Outcomes. Photo credit: The Greens Brisbane, 2015 http://goo.gl/fz0Sdb

Lendlease partners with the Leukaemia Foundation, Royal Brisbane and Women’s Hospital and Westpac. The Royal National Agricultural and Industrial Association of Queensland (RNA) is a large facility in Brisbane that has historically been used for the annual agricultural show, the Ekka, and other events. It is currently being redeveloped by Lendlease who are creating additional residential and retail space called The Green. In 2012, Social Outcomes’ Sandy Blackburn-Wright, then Head of Social Innovation for Westpac, identified an opportunity for this development to become a source of accommodation for families of Leukaemia patients, who were being treated at the Royal Brisbane and Women’s Hospital (RBWH), across the road from the RNA. The RBWH is the largest provider of blood cancer treatment in Queensland. Research indicates that if Leukaemia patients and their families are not supported with accommodation during their average six months to two years of treatment - they will most likely lose their family home, and be on welfare for the rest of their lives. To date, the Leukaemia Foundation had been accommodating RBWH patients’ families at Brisbane hotels, at large cost.

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The RBWH is located in Brisbane’s Herston Health Precinct which also contains the University of Queensland’s Centre for Clinical Research and the Queensland Institute of Medical Research. It is the largest teaching hospital in Queensland, with over 11,000 staff and student visitors every day. A shared value partnership was developed between the Leukaemia Foundation, Lendlease, Westpac, and the RBWH, whereby the Leukaemia Foundation purchased apartments at The Green to provide accommodation for patients and their families, as well as RBWH visiting professionals and new staff. Lendlease, who, as part of their contract to redevelop the RNA, had made contractual commitments around community development and affordable housing, sold the apartments to the Leukaemia Foundation at a discounted rate, to recognise a volume purchase, and to meet their community investment commitments. The RBWH will refer visiting health professionals to the Leukaemia Foundation’s apartments as opposed to Brisbane hotels, which are about six kilometres away. Those guests pay commercial rates, with profits reinvested into the Leukaemia Foundation’s patient care programs. Westpac Bank agreed to lend the required funds to the Leukaemia Foundation for purchasing the apartments, at a discounted rate as a social contribution.

The Green allows the Leukaemia Foundation to provide co-located accommodation to families, as well as creating a multi-purpose asset that can be fully leveraged, supporting the Foundation’s long term sustainability. Families and hospital staff can now access accommodation that is a short walk to the hospital. For Leukaemia patients and their families, patient support and out-patient treatment is significantly easier, improving patient care and health outcomes. Finally, Lendlease benefits as the Leukaemia Foundation became the largest single purchaser of apartments at The Green, and the property development company was able to create a unique engagement approach for residents and the local community of the Herston Precinct. “For Lendlease, the envision of a new business model addressing social impact for the delivery of allied services has realised tangible business value in meeting the needs of people, and long term investment. The partnership with Leukaemia Foundation of Queensland, allows us to create places where people want to be, places that contribute to communities, are productive and ultimately, valued by all involved.” - Andrew Hay, Project Director, Lend Lease

IKEA and UNHCR: Better Shelter Sadly, the need for crisis accommodation across the globe continues unabated. The April and May earthquakes in Nepal left hundreds of thousands of people without shelter. In Syria, over four million refugees have fled the country since 2011, with U.N. High Commissioner for Refugees, António Guterres, calling it “the biggest humanitarian emergency of our era.” With this continued need in mind, international furnishings company, IKEA, famous for its flat-packed products, partnered with UN Refugee Agency (UNHCR) to create shelters for refugee families. Through the production of these shelters, IKEA identified a critical product market gap, with an enormous potential for social impact.

The shelters are indeed flat-packed, and can accommodate five people. They are equipped with a solar panel that powers an internal lamp and a mobile phone charger, and walls are built from customdesigned plastic foam that provides thermal insulation and protection from the weather, which traditional canvas tents have not been able to do. The shelters, which last around three years (compared to an average of six months for traditional tents), cost around US$1,150 each.

While the cost is double that of the traditional tents, they are considered more cost-efficient given their longevity, as well as protection from the elements, which can threaten knock-on costs associated with impacts on refugee health. Immediately after the innovation was launched in March 2015, UNHCR purchased an order of 10,000 shelters, generating around US$11.5 million in sales for IKEA (Better Shelter, 2015).

Photo credit: IKEA, Better Shelter, Kawergosk, March 2015 www.bettershelter.org

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Creating shared value through reconfiguring supply chains. The quality of a company’s supply chain relies heavily on the quality of our atmosphere, biodiversity, oceans, and land. The 2014 World Economic Forum’s Global Risks report found that of the ten highest rated commercial risks, seven were sustainability related. In response to these pressing concerns, companies are evolving from a model of sustainability which sought to mitigate their negative impact, towards models of shared value which proactively seek out positive environmental and social outcomes, through core business innovations. When a company creates shared value through reconfiguring its supply chain, it is working to reduce or repurpose the waste and other negative outputs connected to its’ operations, and/ or adapt the inputs that go into their supply chain. By doing so, that business is creating an environmental and social impact by reducing the footprint of its supply chain, as well as creating revenues from a more efficient, streamlined, and cost-effective product lifecycle.

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Interface: transforming fishing net waste into carpets Interface is the world’s largest manufacturer of modular carpet for commercial and residential use. The company is also a world leader in sustainability and shared value innovation. In 1994, Interface Founder Ray Anderson launched ‘Mission Zero’, and set the audacious goal of becoming the first company to have zero negative impact, by 2020. The company has initiated a plethora of programs connected to reaching this goal, such as recycling flooring and carpet, including from its competitors. Its ‘War on Waste’ initiative has converted over 100,000 tons of potential landfill into new carpet tiles. The company additionally launched Australia’s first 100% recycled nylon yarn carpet tile, ‘Raw’, as well as Australia’s first Environmental Product Declarations to help consumers choose the most sustainable carpet tile.

“What business...does not utterly depend on the services nature provides: air, water, energy, materials, food and waste processing?... What will happen to that business (that economy) when finite nature finally is overwhelmed...What began as the right thing to do quickly became the smart thing, as well. Doing well by doing good is a better way to make a bigger profit… Pursuing sustainability has not made costs go up, they’ve gone down, and we are changing the game against our competitors with unprecedented products and new-found efficiencies. Our customers support us. We are gaining market share in a down market. Our competitors are pulling their hair out.” - Ray Anderson, Founder and Chairman, Interface, 2003 One of Interface’s most unique programs is ‘Net-Works.’ Net-Works emerged after Interface began challenging its yarn suppliers to innovate around sourcing, to reduce their suppliers’ dependence on virgin fossil fuels, and bring postconsumer nylon into the supply chain.

The program partners with fishing communities in developing countries to collect discarded fishing nets, which otherwise inflict widespread damage to coral reefs and marine life. The fishing community collects and cleans the nets, and then sells them back to Net-Works, via community banking groups. The nets are then transferred to one of Interface’s yarn suppliers, Aquafil, who recycles the fishing nets into nylon yarn for carpets. The recycled yarn, ‘Nylon-6’ performs exactly as virgin raw material would. Interface creates a demand for carpet yarn - purchasing the yarn made from recycled nets and other recycled nylon for use in the production of new carpet tiles. To date, over 41 thousand kilograms of nets have been collected from partner fishing communities in the Philippines, enough to wrap around the circumference of the planet. Net-Works is now looking to expand its program from its original base in the Philippines to other fishing communities, including in Africa.

“Pursuing sustainability has not made costs go up, they’ve gone down, and we are changing the game against our competitors with unprecedented products and new-found efficiencies”

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Creating shared value through community partnerships and investment By investing in community development, businesses derive social and economic value by improving local working conditions, capacity, education, and stability. As economic growth increases in these regions, local companies benefit from increased purchasing power, a local market for by-products, and a stable supply chain and input source. Particularly where companies work in volatile and unstable regions, this model of shared value can create dividends for companies for years to come. Companies invest in stability, improve their social license to operate, and deter against expensive backlash which could halt or suspend operations.

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Countering Piracy with Jobs in Somalia. In recent years, one of the world’s oldest crimes, piracy, re-emerged in one of the world’s most fragile states, Somalia. At its peak in 2011, over 1,000 seafarers were taken hostage by pirates, at risk of death, injury, and physical and psychological trauma. Hostages were held for an average of six months, though many were held for over two years (OBP, 2012). At this time, Social Outcomes’ Anna Bowden was working with US organisation, Oceans Beyond Piracy (OBP). OBP facilitates multi-sector approaches to countering piracy, bringing together international navies, foreign affairs departments, civil society organisations, and international shipping companies. At OBP, Anna Bowden developed the first international assessment of the economic cost of piracy. The study estimated that piracy cost US$7 billion in 2011, of which roughly 80% was spent by the shipping industry on deterrent and security costs. Of the total costs, less than 0.5% of spending was dedicated to long-term solutions. In other words, the global economy was paying dearly to stop individual hijackings from taking place, but not investing in preventative measures that would reduce the crime of piracy. International shipping companies understood that key to reducing piracy is creating alternative livelihoods and incomes for Somali people atrisk of turning to piracy. But they understandably felt that economic development programs were outside their core expertise. Over time, what emerged were innovative, shared value partnerships between international NGOs (INGOs) on the ground in Somalia, like UNDP, Save the Children, Norwegian Church Aid; and some of the world’s largest shipping companies.

In October 2012, on the back of a major international conference on Somalia hosted by UK Prime Minister David Cameron, the ‘Joint Industry Contribution to Support Community Projects in Somalia,’ was launched. Companies including BP, Maersk, Shell, Stena, and Japanese companies NYK, MOL and K Line, together pledged a total of USD$2.5 million to support INGOs to deliver livelihood building projects in coastal regions of Somalia. As Dr. Grahaeme Henderson, Vice President of Shell Shipping and Maritime stated on the commitment, “Ending piracy lies in part in helping the people of Somalia, and providing education and alternative livelihoods.” These shipping companies recognised that piracy could not be dealt with independently, and that they would need to partner with competitors to invest in solutions. They didn’t have experience on the ground, but local service providers did. In turn, if they could contribute to economic development and stability in Somalia, then they could help reduce the severe impact and costs of having their employees taken hostage, and spending billions of dollars preventing attacks. In 2011, one Danish-Somali social enterprise, called Fair Fishing, began looking at the possibility of developing a fishing supply chain in Somalia. Fair Fishing was provided with initial feasibility funding by OBP in 2012. The project came to be Chaired by Per Gullestrup, Chairman of Danish shipping company, the Clipper Group, who had one of his ships hijacked in 2008, and 13 of his crew held hostage for many weeks.

Fair Fishing set out to prove that a sustainable and economically viable fishing supply chain could be developed in Somaliland. To achieve this, Fair Fishing brought together a remarkable collaboration of otherwise competitors from the shipping industry. The world’s largest shipping container company, Maersk, provided containers which would be transformed into a fishing station in Berbera, Somaliland. A Polish fishing company donated used fishing equipment, nets, and processing materials. An Arab shipping company provided services to ship that equipment and containers to Berbera. The list went on. As at April 2015, Fair Fishing and their partner fishing organisations employed almost 500 skippers and fishermen, and over 400 tons of fish have passed through the Fair Fishing station since its opening in October 2013. Fair Fishing is now working on expanding the pool of jobs available to Somalis by improving infrastructure at sea, repairing fishing and boat equipment for the community, training and educating unemployed youth, and exporting fish to regional African countries (Thaarup, 2015). “In an escalated crisis, where pirates... are fought with military force, Somali Fair Fishing shows the world another way and identifies the reasons behind the conflict: the breakdown of Somali fishery and the major unemployment it creates. Somali Fair Fishing strives for a solution that can convert young would-be Somali pirates to fishermen and thereby show them, that fishery is a profitable and far safer livelihood than piracy. - LIVIA Award (posthumously) to Jakob Johannsen, Fair Fishing Founder, 2012.

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Extractives companies mine for shared value As this case of shipping companies collaborating to invest in Somali community development highlights, many multinationals operate in some in the most volatile and unstable environments in the world. This creates serious, and potentially very costly risks, for these companies. A similar situation faces extractives companies. By their very nature, extractives companies are enormous in scale, boasting huge revenues, operations, and numbers of employees. Their physical, environmental, and social impact is also immense, and they have had a tumultuous record on this front. Added to which, around half of the world’s known minerals, oil, and gas reserves are based outside of OECD and OPEC countries. Operations within developed economies like Australia, are often concentrated in remote areas.

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These companies know that negative environmental and social impacts are costly. For instance, the environmental damage associated with the Deepwater Horizon oil spill in 2010, was estimated to directly cost anywhere between US$42 billion and US$90 billion for clean up and compensation costs (The Economist, 2014; Financial Times, 2013). McKinsey estimates that Shell lost about US$10 billion in revenues over a decade, as a result of construction and development delays, of which about 65% were connected to community and stakeholder opposition (FSG, 2014). In Australia, financial services company Credit Suisse has estimated that the mining and hydrocarbons sector had about A$8.4 billion at risk due to environmental, social and governance (ESG) issues, with an associated average 2.2% impact on target share prices (FSG, 2014). These costs are of course, ‘damage costs’. They are costs lost by companies through the mitigation of impact. They do not take into account opportunity cost, or possible revenue that could be added to extractives companies looking to identify potential positive impacts.

Organisations like KPMG, are now generating work streams dedicated to measuring and valuing benefits flowing from such targeted business activities and community investment programs. Drawing on their experience in economic, sustainability, and social valuation methodologies, KPMG has identified a growing interest in determining how corporate investments translate into an expanded social licence to operate, as well as greater long-term revenues. “Responsible mining companies accept that simply not doing harm is not going to be enough to secure a social licence to operate in the future. Society’s expectations of the economic and social benefits that mining should bring are only increasing, and it is in the interest of mining companies to distribute as much value to host communities and economies as possible. Shared value through local procurement and hiring epitomize the idea of creating benefits for both companies and society at the same time.“ - Jeff Geipel, Mining Shared Value, Engineers Without Borders, Canada, 2015

Given that they are often based in remote locales, extractives companies stand to benefit significantly from investing in their staff, communities, and regional development. For instance, in Ghana, global gold mining company AngloGold Ashanti has developed an innovative community partnership to reduce rates of malaria infection among their workforce. In 2005, when the malaria program launched, the hospital located near AngloGold Ashanti mine was treating 6,800 malaria patients every month, of which about 37% were mine employees. Working with community providers, the mine set a goal of reducing malaria infections by half over two years. Within two years infection rates were down by 72%. By 2012, the rates of employee absenteeism at the mine had dropped a staggering rate, from 7,500 shifts lost per month, down to 90, saving the company about US$600,000 in costs per year (FSG, 2014).

To facilitate their efforts, the company has established a number of partnerships with community organisations. For example, in the Hunter region of NSW, Rio Tinto Coal and Allied Community Trust have funded capacity development programs and training to help establish dozens of Indigenous businesses in the region. Similarly, in the remote regions of the East Kimberley, Rio Tinto created the Argyle Participation Agreement (AGA) with Traditional Owners, in 2004. The AGA recognises local Indigenous communities as the traditional owners of the land, and in turn those communities allow Rio Tinto access to the mines. The AGA includes a facility for both parties to raise any concerns over, and partner on, land management issues. The agreement also incorporates training and employment services for Indigenous communities, who are given preference for any site-based employment contracts (Rio Tinto, 2014).

Similarly, with revenues of over US$48 billion, and more than 66,000 employees, British-Australian metals and mining company, Rio Tinto generates significant environmental, social, and economic impact. In Australia, the company operates in a number of areas with a relative concentration of Indigenous persons and Traditional Owners. Rio Tinto has worked to develop a series of programs that invest in economic development and local capacity building, especially among Indigenous groups. In particular, Rio Tinto mines are looking at ways to procure goods from Indigenous-run SMEs and hire Indigenous and other disadvantaged workers.

Australian-registered BHP Billiton, is also developing minimum level targets for Indigenous employment and procurement. For instance, the company has set a quota that at least 10% of their workforce at their Olympic Dam asset, are Indigenous employees. The program is supported with pre-employment training and apprenticeships. Since the program’s first intake of employees in FY2014, 130 Indigenous people have been hired at Olympic Dam, making it one of the largest Indigenous employers in South Australia (BHP Billiton, 2014).

In a particularly interesting step towards future-proofing business operations, in February 2014, Australia’s largest oil and gas company, Woodside, announced a partnership with the University of Western Australia’s Centre for Social Impact, to invest $A20 million over ten years into early childhood development, in communities where Woodside operates. By doing so, the Woodside Development Fund is investing to reduce vulnerability, and increase resiliency and capacity in communities – now – in order to foster robust and sustainable workforces in communities from 2025, and beyond. The initiative partners with early childhood experts to improve health, nutrition, safety, and education for children aged 0-8 years. Programs have been rolled out in communities in Western Australia, as well as the first international program in Myanmar (Woodside, 2015). ICMM is deeply committed to the notion of creating shared value through multistakeholder partnerships. We have developed an approach to bring together all parties- companies, communities, governments, academics, donors and NGOs, all with the goal of building mutual trust and creating a shared understanding of the issues and opportunities to maximise mining’s contribution to society through collaboration. Our ‘Mining: Partnerships for Development’ approach is used to enhance the economic and social contribution of mining operations. In Brazil, Chile, Ghana, Lao PDR, Peru, Tanzania, and Zambia we have already applied it to build the long-term partnerships that are critical to long-term solutions. - Claire Larner, Manager, Social and Economic Development, International Council on Mining and Metals (ICMM)

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The business case. Shared value is not simply about doing well while doing good. It’s often about doing better, while doing good. In very transparent terms, the raw numbers and evidence around the business case for shared value creation, are still surfacing. Evidence is currently based on businessby-business analyses, rather than sectorwide calculations. Given the relative nascency of the practice, we need to look to track records on complementary models to assess broader value creation. In this way, sustainability is a useful proxy. It is, of course, by no means a perfect proxy, and there are differences between the two practices. Sustainability looks at mitigating negative impact across all impact areas. Shared value tends to focus on proactively seeking a positive impact in select areas that intersect with a companies’ core operations. Nonetheless, given the relatively young state of shared value, it is important that we learn from trends in the development of similar sectors like sustainability. Evidence is growing that businesses that embrace long-term, sustainable approaches, and that truly understand customer need, are performing as well, if not better, than their peers. Securing environmental and social sustainability, can be good for financial sustainability, too. Take, for instance

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GE’s ‘Ecomagination’ commitment to technology solutions that reduce environmental impact and costs for both consumers and GE. Since GE launched Ecomagination in 2005, the program has generated over US$160 billion in revenue for the company (GE, 2015). GE now projects that over the next five years, revenues from Ecomagination will grow at twice the rate of total company revenues (GreenBiz, 2015). GE is not alone. According to management consulting company, McKinsey (2011), 70% of sustainability leaders believe they achieved increased market share relative to competitors, as a direct connection to their sustainable products. A 2010 survey of over 750 CEOs by Accenture found that 93% of these business leaders considered sustainability as crucial to their success (Accenture, 2010). Companies listed on the Ethisphere “World’s Most Ethical” companies, have consistently outperformed in several equity indexes. On average, those companies outperformed the S&P500 by delivering a nearly 27% return to shareholders between 2007 and 2011, compared to the S&P’s negative 8.5% in the same period (Ethisphere, 2011).

Similar performance is evidenced in responsible investment portfolios. The Responsible Investment Association Australasia (RIAA) Benchmark Report found that “core responsible investment Australian equities funds have outperformed the ASX300 index and the large cap Australian equities fund over 1, 3, 5 and 10 years” (RIAA, 2014). Global investment in renewable energy sources reached over US$270.2 billion in 2014, a growth of 17% from 2013. China and the USA led the world in investing in renewables, but there has also been a notable increase in investments from developing countries, totalling US$131.3 billion in 2014, up 36% from the previous year (UNEP, 2015). Each independent shared value program creates value on its own terms, and many of the case studies included in this report highlight the value accrued from those individual programs. However, companies also generate value in broader and more indirect ways, including attracting more consumers and brand loyalty, as well as through improving employee engagement and productivity.

Consumer preferences Internationally and in Australia, clear evidence is beginning to surface on consumer loyalty for brands that ‘do good:’

• The 2015 ‘Havas Meaningful

Brands’ survey which covers over 1,000 brands, 300,000 people, 12 industries, and 34 countries; showed that a brand’s ‘share of wallet’ (i.e. percentage a consumer spends with a brand as a portion of their overall expenditure in that general category) is between 46% and 700% higher for Meaningful Brands. The brands also outperformed the STOXX1800 stock index by seven times, delivering an annual return of 11.76%

• In one survey of over 1,000 consumers

in the UK, four out of five people said they were more likely to purchase from a brand with a positive approach to sustainability. 71% of participants stated they would prefer to buy goods with strong sustainability records. Only 18% said they weren’t concerned about sustainability, and purchased only based on price (SmartestEnergy, 2015).

• In the US, sales of organic products

grew by 11.5% between 2012 and 2013 to US$35.1 billion. That growth rate was the fastest in five years, and demand is now rapidly exceeding supply, resulting in product shortages and price increases (Organic Trade Association, 2014).

• According to Boston Consulting Group (2014), responsible consumption products are expected to account for 70% of growth in the grocery sector in the US and Europe over the next five years.

We also know that sustainable consumers tend to shop more frequently, and spend more on each trip. They are also more loyal to ‘green’ products after trying them (Deloitte, 2009). “Green shoppers are a great customer target, representing a high value segment who buy more products on each trip, visit the store more regularly, and demonstrate more brand and retailer loyalty in their purchasing behavior. They are active consumers who buy more and shop more often as opposed to the image of an austere minimalist. They are less price sensitive than the average shopper and they are generally not bargain hunters.” - Deloitte, 2009

People power:

employee engagement

Many companies implementing shared value approaches identify with the added benefit that these programs deliver in terms of attracting, and keeping talent. As one major company explained to us, “people don’t necessarily grow up wanting to work in this sector. They grow up wanting to have an impact on the world. This sort of work provides that. In the end, you’re only as smart as the people you have the room.” Strategy and organisational management expert, Karl Moore, has likewise argued in Forbes that, “creating shared value is vital for winning the war for talent” (Forbes, 2014). Many employees seek to derive positive meaning and impact in their work. As Austrian psychologist Viktor Frankl, wrote in his famous text, Man’s

Search for Meaning, happiness cannot be pursued. Rather, it follows from a life of meaning and purpose. What’s interesting here, is that increasingly we extract such meaning, and therefore happiness, from our work. In a key Gallup survey of what makes people happy in over 155 countries, the polling company found it wasn’t health, wealth, or even relationships - it was a good and meaningful job. In 2011, Jim Clifton, Chairman and CEO of Gallup wrote, “what the whole world wants is a good job. This is one of the most important discoveries Gallup has ever made” (Clifton, 2011). Similarly, Daniel Pink’s best-selling book, Drive: The Surprising Truth About What Motivates Us, is a careful and thoroughly investigated exploration into individual motivation. Pink argues that while a certain ‘base level’ of salary and remuneration is of course important, real motivation tends to come from three factors: autonomy, mastery, and purpose. Any forward-thinking CEO and business leader knows employee engagement pays off. Sustainable Business (2015) has estimated that employee engagement increases productivity by 16%. In the UK, it has been estimated that improved levels of engagement, along with reduced staff turnover costs, could save companies as much as £3 - £29 billion, every year. Another study estimated that replacing good employees costs the equivalent of between 70% and 200% of a position’s salary (National Environmental Education Foundation, 2010). Finally, a NetImpact study claims that employees engaged in creating environmental or social outcomes are more satisfied than their peers by a 2:1 ratio (NetImpact and Rutgers University, 2012).

Take, for instance, Interface’s move to keep employees engaged after their Australian manufacturing facility in Picton, NSW, burnt down in 2012. While Interface continued to pay the salaries of 150 factory employees while it was rebuilt, they were concerned that staff would feel professionally and socially isolated and disengaged during this time. So they found most of the staff who worked at the factory transitional positions. Around half came to work at Interface’s operations centre, and the other half secured voluntary community positions, assisting the rural fire brigade, disabled care, and multiple community maintenance programs.

The importance of tapping into key employee motivators will continue to become more important with changing workforce dynamics. For instance, millennials are expected to make up 75% of the workforce in the US by 2025. When surveyed about their career aspirations, 65% of those millennials said they would rather make less money at a job that they love. The same proportion would also prefer to work for employers that take action on social or ethical causes that they care about (NetImpact & Rutgers University, 2012). As Meghan French Dunbar, co-founder of USbased Conscious Company magazine explained;

“Companies die because their managers focus exclusively on producing goods and services and forget that the organization is a community of human beings that is in business—any business—to stay alive. Managers concern themselves with land, labor, and capital, and overlook the fact that labor means real people.”

“In our dozens of interviews with sustainable businesses, we continue to hear the same themes. Almost every company that we speak to cites employee retention as one of the primary values that sustainability brings to their businesses. Employees are happier, more engaged, and more productive as a direct result of feeling aligned with the mission and purpose behind their work. There is far less turnover, which directly benefits bottom lines. Especially when it comes to millennials. Companies that do not incorporate responsible business practices will be hard-pressed to find talented, young workers in the future.”

- Arie De Geus, 1997

- Meghan French Dunbar, CoFounder, Conscious Company Magazine, 2015

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Similarly, Marc Benioff, Chairman and CEO of Salesforce summarises, “the competitive advantage you gain from being a caring and sharing company is significant.” He adds, “It instils in your people a higher integrity level. In turn, stakeholders want to be associated with a company that has heart. Community service: You do it because it’s the right thing to do, but it’s also the profitable thing to do” - Marc Benioff, 2004

Investing in shared value. Appetite from investors to fund companies that intentionally create a positive social and economic impact, while also generating a financial return, is quickly growing. This field of ‘impact investing’ is expected to grow to between US$500 billion and US$1 trillion globally. In Australia, the impact investing market is projected to reach A$32 billion within a decade (Impact Investing Australia, 2014). In their latest annual survey of 146 major impact investors, representing US$60 billion in impact investments, J.P. Morgan and the Global Impact Investing Network (GIIN) discovered a 7% growth in capital commitments for those surveyed in 2013 and 2014, and a 13% growth in number of deals (JP Morgan & GIIN, 2015). Australia has demonstrated clear leadership in this sector, as reflected in it being the only country outside the G8 invited to participate in the Social Impact Investment Taskforce established by the G8. Several pioneering impact investments in Australia highlight strong interest and capacity in the sector. In addition to the Benevolent Society Social Impact Bond mentioned previously, in 2013 Newpin also launched a A$7 million Bond working to safely return children in out-of-home care, to their families. The two NSW Bonds are some of the first of their kind in the world. In April 2014, the World Bank partnered with Westpac to launch a A$300 million ‘Kangaroo’ Green Bond. Later in the year, NAB also released an A$300 million

Climate Bond, dedicated to funding renewable energy assets in Australia. Also in 2014, QBE pledged to commit US$100 million to Social Impact Bonds over the next three years. Impact investments are being deployed internationally, too. For instance, Australia’s LeapFrog Capital, now manages A$500 million in investments targeted at financial inclusion in developing countries. Likewise, Unitus Capital has raised over US$1.1 billion for more than fifty clients in India, Indonesia, Philippines and Australia for microfinance, renewable energy, healthcare, education and agriculture investments. Financial advisory and management firms specialising in impacting investing are also emerging, such as Australian Impact Investments and Ethinvest. Social Enterprise Finance Australia, Foresters Community Finance, and Social Ventures Australia provide impact investment financing to diverse enterprises, and have jointly received over A$40 million from both the Australian Government and private investors via the Social Enterprise and Development Investment Funds. NAB has additionally played an important role in setting the stage for impact investing in Australia. In 2014, NAB became the inaugural sponsor of Impact Investing Australia, Australia’s leading body seeking to facilitate a market for impact investment. In February 2015, NAB and Impact Investing Australia partnered to launch the A$1 million

Impact Investment Readiness Fund, providing grants to mission driven organisations to help them build capacity, and prepare for investments or contracts. The bank has also supported the development of domestic microfinance group, Good Shepherd Youth & Family Service, pledging A$130 million to nointerest loans for low-income earning families. Australian superannuation funds are also exploring impact investing. Super funds that have led in responsible and ethical asset allocations like Christian Super, Australian Ethical Super, Australian Super, Colonial First State, Good Super, Future Super and HESTA, are now considering how the ‘next step’ of impact investing presents opportunities for them to invest in long-term social and economic returns. Many investors see impact investing as a significant market opportunity, given that capacity for public funds to solve our social concerns, is waning. On the other hand, investments in social goods like education, health care, or affordable housing, tend to be non-correlated, meaning demand for them is not affected by volatility in core financial markets. Many impact investors are making strategic decisions to fund companies that are creating innovative products and solutions, for which there is pressing (and growing) social demand. This growing interest in impact investing will be a critical component in the growth the shared value sector.

Measuring impact. Shared value creation is defined by the intention to generate social impact through business models. In order to chart, compare, and increase this intended impact, companies developing these programs will need to measure them. Measuring mainstream business results is relatively much easier, and more developed, than social and environmental performance. Business analysts are immersed in common terms and models for assessing performance: profits, revenues, return on investment, and so on. On the other hand, measuring social outcomes can be complex. Obtaining data can be difficult. Comparing outcomes across different social issues is challenging. Isolating the effect of programs (the, ‘was this really our impact?’ question) can seem exasperating. It is important to reiterate here we are talking about outcomes (not inputs, or outputs). Indeed the movement from CSR to shared value, has occurred alongside a broader movement from tracking and measuring outputs to outcomes. For instance, whereas CSR programs might have quoted the dollars donated by their foundation, shared value looks to the rate the substantive change in human and environmental outcomes.

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Measurement tools and processes that assess the social outcomes of shared value programs will be critical for their success, as well as development of the broader movement. A variety of tools and organisations exist, that we can learn and draw from. The following tools were developed under the banners of sustainability, social enterprise, responsible investment, and impact investing. They may not be ‘plug and play’ for measuring shared value programs, but they do provide a broad range of possible metrics and performance indicators for social outcomes measurement.

• Global Reporting Initiative (GRI):

Created the Sustainability Reporting Guidelines in 1997. A comprehensive approach, requiring large amounts of company data to assess overall company disclosure on ESG performance. GRI partners with the United Nations Global Compact to help assess 5,800 global businesses (GRI, 2015).

• B Lab Impact Assessment and B

Analytics: over 20,000 enterprises have engaged with the B Impact Assessment to benchmark social and environmental performance, including large companies like Ben & Jerry’s, Etsy, and Patagonia. US-based Case Foundation partnered with B Lab to launch the ‘Measure What Matters’ initiative in March 2015 (B Lab, 2015; Case Foundation, 2015).

• Impact Reporting and Investment

Standards (IRIS): the Global Impact Investing Network (GIIN) created IRIS in 2008 to provide a standardised set of metrics to rate social, environmental, and financial performance. Created by B Lab in 2010, the Global Impact Investment Reporting System (GIIRS) also uses IRIS metrics, assessing four key areas: company, environment, labour, and governance.

• Results Based Accountability (RBA):

The RBA approach tracks progress against population-level outcomes and baselines. RBA encourages organisations to view their work in the context of the wider system. Many local governments, particularly in the US, have adopted the framework (RBA Guide, 2015).

The development of these tools over the past ten to 15 years provide a number of key lessons learned in social impact measurement:

• Transparency: At the heart of many

of these assessment tools is a drive towards transparency. Through transparency, companies are better able to rate and compare their impact, and receive feedback on improvement.

• Tracking performance: A shared

understanding of the importance of measuring impact throughout the organisation is critical. Part of this acceptance will depend on senior executives holding themselves and their teams accountable for social performance. A number of companies report that including social performance measurement in company dashboard reports can be an accessible format to track progress. For instance, some multinational companies like Shell, have elevated social outcomes KPIs to a specific technical discipline, alongside environment and safety. In this way, the company signals to leadership the importance of social performance (FSG, 2014).

• Comprehensive assessment:

For many companies, particularly industrial or manufacturing companies, measurement must occur across their entire supply chain, rating all forms of ESG performance. For example, in 2014, Patagonia dissolved its standalone sustainability department, instead placing sustainability experts within each department of its supply chain, ensuring that measurement and performance were integrated throughout the company’s operations.

• Innovate and iterate: Given the

diversity of issues addressed under shared value programs, businesses will need to create bespoke measurement systems that are context, region, and issue, specific. Measurement systems should also be iterative, for instance employing ‘developmental evaluation’ (constant reassessment of models and impact, based on the indicators and results that emerge) (Patton, 2010). Measurement is not just about proving impact, it’s about improving it.

“Social Impact measurement and reporting shows you care. It gets everyone on the same page as to what you’re trying to do and focuses their attention on doing it. It’s great to have some numbers for speeches and the annual report, but the real benefit comes from understanding the people your company serves and the way you change their lives. And the lives you change the most will always be those employed by you and your supply chain, so that’s where measurement should begin too. Then once you’ve measured, use that to improve. It’s cycles of measure and improve.” - Emma Tomkinson, Social Impact Analyst, May 2015

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Shared value in Australia: new horizons. As the case studies throughout this report demonstrate, there are excellent examples of shared value creation underway in Australia. Our potential for leadership in the sector was recently confirmed by Australia becoming the first regional chapter with the global Shared Value Initiative, in September 2014. B Lab Australia New Zealand (ANZ) was also launched last year, backed by a growing number of companies who have elevated social and environmental outcomes to their core mission. As of June 2015, over 60 companies have registered with B Lab ANZ. “B Corps have been adopted by a diverse range of businesses in Australia such as law firms, consultants, FMCG’s and the shared economy businesses. We currently have 62 B Corps and over 700 businesses that are using our tool to measure what matters for their business. B Corps have a competitive advantage over traditional businesses in their ability to attract and retain top talent, to differentiate themselves in a saturated market, and to protect the integrity of their brand’s commitment to mission. Our region also has two publicly listed B Corps leading the way for a public offering of businesses driven by purpose to be open to all for investment.” - Alicia Darvall, Executive Director, B-Lab Australia and New Zealand, June 2015

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These Australian entrepreneurs are innovating around how we can use business models to solve for our unique social and environmental concerns. Research and interviews for this report found that several Australian companies see creating positive social and environmental impact as not only the right thing to do, but frankly - the fiscally responsible thing to do. “Business is changing. You have to be cutting edge on these issues. We take a laser-like focus to reducing waste throughout the entire product lifecycle, because that’s the strategic thing to do. I’ve never known a customer who is willing to pay for waste and inefficiencies... This mission is bigger than us. We want to see competitors and other industry sectors follow us down this track too.” - Clinton Squires, Managing Director, Interface Australia, May 2015

These ground-breaking Australian companies are exploring remarkable ways to make solving for social issues a business opportunity. They are, however, some way from being considered mainstream in Australia. While only time will tell how the rapid the uptake on the relatively new model of shared value in Australia will be, as identified earlier, we can look to our record on sustainability as a kind of proxy. Shared value and sustainability have some common roots. Both build on the basis that companies depend critically on the health of their supply chains for long-term stability and revenue streams. So, what does Australia’s record on sustainability indicate?

Pioneers in sustainability are present in Australia. Over the last five years, ANZ, NAB, Teachers Mutual Bank, and Westpac, have all been listed on the Ethisphere ‘World’s Most Ethical Companies’ (Ethisphere, 2015). However, their efforts have not yet been reflected by coherent or coordinated leadership throughout the country. In December 2014, KPMG and the Global Reporting Initiative (GRI) released a comprehensive report on Australian sustainability trends of the ASX50. The report claims that Australian companies are generally lagging in awareness of, and risk-mitigation strategies around, sustainability issues. Australian companies are “not only falling short of demonstrating a sophisticated understanding of the [sustainability] megaforces, they are also failing to draw upon the significant value creation opportunities that these megaforces present” (KPMG & GRI, 2014).

For instance, the report claims that few companies within the financial services sectors had identified climate change as a risk to their businesses, despite the fact that fluctuations in climate and extreme weather events, are clear investment risks in their portfolios. Further, Australian companies have lagging behind international peers in recognising the value creation opportunities of sustainability. Of the companies surveyed, 80% identified with the ten major issues assessed (such as population growth, climate change, and energy and fuel). However, less than 40% could cite a single value driver for each issue (KPMG & GRI, 2014).

While Australian companies may have some way to go in terms of fully integrating consideration for ESG issues into their business operations; importantly, this does not suggest that Australian companies’ engagement with these issues will not grow. In our discussions with companies and leaders in shared value, there was an agreed perception that Australian companies may not have a choice but to explore this work, for the reasons we outline below. Further, given the relatively low level of activity currently underway in the sector, companies that seize this opportunity now, will reap significant benefits, today and into the future, surging ahead of competitors and leveraging the returns that flow from being first through the gate.

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What will drive shared value in Australia? Shared value activity is underway in Australia. We have seen that seeds of innovation are sprouting across sectors and industries, but that these seedlings are sporadic and sparse. What will drive the growth of a ‘shared value ecosystem’ in Australia? What is it about our specific context and environment that suggests demand will escalate for innovative business approaches which treat social challenges as opportunities, not risks? “Conventional wisdom…has historically been that there’s a tradeoff between social performance and economic performance. That business actually makes a profit by causing a social problem...The reality is the opposite… Business profits from solving social problems…” - Michael Porter, 2013

As more stakeholders seek to engage in shared value creation in Australia, what will be some of the common experiences, opportunities and challenges that everyone from the individual entrepreneur, to large corporate will face? How can we partner together to help these innovators connect and build a community around shared value? How can we collectively share information and tools that will facilitate our movement back to the original, societal purpose of business? Through our interviews and stakeholder engagement, we see a number of common themes that representatives of the practice feel will be key to its flourishing. 3

Growing market demand In Australia, we often call ourselves the ‘lucky country.’ In recent decades, Australia has indeed benefitted from relative economic strength and stability, and was fortunate to avoid the level of economic fallout experienced by other countries in the 2008 global recession. According to the 2015 Social Progress Initiative (SPI) (a growing movement to assess a nation’s social and environmental performance and wellbeing, in addition to its national income or GDP), Australia ranked tenth out of 133 countries assessed (SPI, 2015). 3 Australians also consider ourselves strong believers in equality of opportunity, generosity, and community (McCrindle, 2015). In 2012, Australia topped the World Giving Index (Charities Aid Foundation, 2012), and NAB estimates that the nation’s personal charitable giving rose 19% between 2010 and 2014 (NAB, 2014), but notably, that growth has slowed recently, down to 2% between 2014 and 2015 to 2% (NAB, 2015).

However, our social and environmental record is not perfect. The SPI shows we lag in ecosystem sustainability, as well as access to housing. Inequality is also on the rise. Incomes of the wealthiest 10% of Australians have risen at over double the rate of the poorest 10%. At the same time, marginal tax rates on the wealthiest fell from 60% in 1980 to 33% in 2010 (Chartered Accountants, 2014). According to Kate Pickett and Richard Wilkinson’s study, The Spirit Level (2009), inequality negatively impacts health outcomes, literacy, crime levels and prevalence of mental health issues across all levels of society. Compared to the largest 23 developed economies, Australia does not fare especially well on inequality, and is only beaten by the UK, US, Singapore, and Portugal (Aigner & Skelton, 2013).

Australia received an SPI score of 86.42. The highest performing country, Norway received a score of 88.36, the lowest, Central African Republic, received 31.42. Michael Porter, one the critical forces driving the shared value movement, has been a key leader and proponent of the development of the SPI.

Several groups in Australia face severe disadvantage, including Indigenous, long-term unemployed, homeless, those with chronic health conditions, and the aged. In April 2015, the Committee for Economic Development of Australia (CEDA) found that between 4% and 6% of the population (one to 1.5 million people), live in poverty (CEDA, 2015). In a separate survey by CEDA of over 900 members of the Australian business community, over half of the respondents believed Australia suffered from entrenched disadvantage (CEDA, 2014). Unfortunately, these needs are unlikely to subside in the near future. Rather, shifting demographics indicate that social need (and costs) will increase in future years. According to the Federal Government’s 2015 Intergenerational Report, in 1975, the ratio of ‘working age’ people aged 15-64 to those 65 and over was 1 to 7.3, today that ratio is 1 to 4.5. By 2055, it is expected to be 1 to 2.7. By that time, the number of Australians aged over 65 will more than double to around seven million people, two million of which will be over 85. This has important effects on our workforce, productivity, infrastructure and service needs.

Our health costs are also growing, and expected to increase from around A$2,800 per person today to A$6,500 in 2055. Australian Governments are currently spending about A$100 million more per day than they earn (Intergenerational Report, 2015). According to the Grattan Institute, on current trajectories, Australian governments would face a deficit of about 4.5% of GDP in less than ten years. Balancing the budget would require about A$70 billion per year in cost savings and revenue increases by 2024. Government spending on health is the biggest contributor to costs, having risen by over A$40 billion in real terms every year, for the past ten years. Welfare spending accounts for 22% of all Australian government’s spending (Grattan Institute, 2014). There is also strong economic need in our broader region. Like our domestic spending situation, our international aid spend is increasingly limited. Over the past year, Australia has undergone severe aid budget cuts, reducing our international development spending by more than A$11 billion over five years; the lowest level since recording began in 1960 (Oxfam, 2015).

In uncomfortably frank terms - the quickly growing scale of social needs and costs in Australia and our region, are not being met by a growth in our ability to pay for them. There is a clear and widening gap. While this feels initially disheartening, if there is one small silver lining to need, it’s that it can be the life source of innovation. Our social issues are growing. At the same time, gone are the days when we could solely turn to government to resolve them. What shared value creation offers us is a strategic opportunity to form exciting and innovative multi-stakeholder partnerships between government, business, and civil society that are effective, efficient, and impactful. Shared value will certainly not be a replacement solution for all needs and all contexts, but it is an additional, important tool, that encourages the private sector and all its associated wealth and acumen, to see resolving social issues as a business opportunity. “There are immense opportunities to make money by meeting social needs that have been overlooked before or addressed only by government and nonprofits. I think companies that are not exploring shared value opportunities are losing out to competitors that do ... it is raising the bar on competition.” - Mark Kramer, 2015

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People powered products We now know that environmental and social challenges impact our health, wellbeing, equality of opportunity, and the lives of future generations. Fundamentally, shared value creation is about responding to this social and consumer need. Shared value models have emerged on the back of significant and growing social issues, and the inability of the public sector alone to resolve them. Their rise also reflects a growth in disillusionment, and movement away from, short-term shareholder maximisation at all costs (Aspen Institute, 2014). At the very heart of shared value is an intention to do better for the consumer. To understand and empathise with their problems, and then create products and services to reduce that pain. Consumers will drive the proliferation of the shared value sector in Australia in two fundamental ways. Firstly, as highlighted previously, through being the purchaser of products designed to mitigate social and environmental issues (say, medical innovations). Secondly, consumers will drive greater adoption of shared value through their purchasing preferences, and commitment to sustainable and shared value brands. Growing transparency over products’ lifecycles, inputs, and supply chains, will further drive consumers towards companies that seek to improve people’s lives and environments beyond that specific product purchase. Proliferation and access to product ratings systems like ‘energy stars’ will also provide consumers with a greater source of information when selecting products, encouraging some companies in a race to the top in the quest for excellence.

Success in this sector will depend on being responsive to consumer interest. This means thinking about the purchaseready consumer, standing wallet-inhand at a retail store. It also means thinking about the future interests of that consumer. How will their changing environment and well-being affect the sorts of products they buy in the future, and how they pay for them? Finally, how do we fully understand the goods and services our consumer base wants? It is important that products are carefully tailored to be appropriate for their markets. For instance, here in Australia, large multinational corporates like PwC are working to engage and support Indigenous Australians through their PwC Indigenous Consulting services, providing strategy advice on areas such as Indigenous procurement, policy, cultural issues, and business development. The program is also majority-owned by Indigenous leadership (PwC, 2015). A similar example is demonstrated in a partnership developed in 2014 between Hitachi and Skill Hire. Skill Hire initially launched in Western Australia in 1992, with a mission of connecting unemployed individuals to jobs, skills, apprenticeships, and training. The company now has over 150 core staff, who on any given day, are placing over a thousand workers in temporary and permanent positions, and apprenticeships. Currently, the Federal Government provides those apprentices with an allowance to purchase tools for their trade. However, not all of this stipend is always invested in tools that are critical for the apprentice’s future career. So Hitachi partnered with Skill Hire to provide discounted Hitachi tools to registered apprentices, whose spending allowance for tools was administered by Skill Hire. Hitachi also provided dedicated training and supported services around proper use of the tools - ensuring that the apprentices were provided with the tools and capacity to thrive in their trade (Hitachi, 2014).

Shared value creation is about being good, not just looking good. The former translates into long-term revenues, the latter does not necessarily. The former leads to the latter, but not vice versa. Shared value creation is a core business activity, not just an ancillary CSR layering. As such, developing these goods and services cannot be left to the sole domain of the sustainability department. It will require involvement from product, customer relations, business development, strategy, finance, risk, and likely many more. “Shared value is not just an extension of CSR; it’s about core business, innovation and commercial returns. It’s a creative process, where addressing social needs provides the spark for identifying opportunities and feasible business plans. Collaboration and partnership building skills are essential ingredients in that process. You also need to be very clear, open and honest about what you’re setting out to achieve and why.” - Phil Preston, CEO, Performing with Purpose Network, May 2015

Striving for performance in this area will require constant iteration, improvement, and innovation around how best to address our growing and dynamic social issues. It will also require smart, cutting-edge thinkers and technologies which are adept at generating products that work for the consumer. Pioneers will leverage advances in consumer behavioural insights, as well as theories like ‘nudging’ to make products that are kind to society and environment, as well as intuitive to users (Thaler & Sunstein, 2009).

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Disruptive technology Australians have some of the highest technology usage rates in the world. In fact, we rank sixth in the world for PC and tablet usage, and thirteenth for smartphone usage (Google Public Data, 2015). Digital platforms will have two key impacts on the Australian market. Firstly, the ‘hyper transparency’ associated with rapid transmissions of information and social media content will mean companies are subjected to greater consumer insight and scrutiny, as detailed above. Secondly, digital platforms provide an innovative and accessible source for social impact. Take for instance, a partnership between the Australian Charities Fund (ACF) and PwC to develop ‘AskU,’ a digital platform for market research, where for each question answered in surveys, ten cents goes to Australian charities. Rather than pay a commercial contractor for market research, companies instead fund charities like Mission Australia, The Smith Family, Opportunity International, and Red Kite. The free app also incentivises survey respondents whose time corresponds to charity donations. As PwC CEO Luke Sayers states, “It’s a win – win situation. The bigger and more diverse the AskU community, the more people who benefit from the funds raised and the stronger the market research database” (PwC, 2013). “It’s simple. For us, the financial return of shared value programs comes from the very fact that this is a good business model. The role of business is going to change over time. Processes like digital innovation are creating opportunities for competing and disruptive models. Forward-thinking businesses have no choice but to be part of this. We need to create a nation of social problem solvers in Australia, and dedicate significant resources to that.” - Mark Reading, Partner, Corporate Responsibility, PwC Australia

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Similarly, tapping into the adage, ‘that which gets measured, gets managed’, fitness wearables like FitBit are counting every step taken by millions of consumers across the globe. FitBit, which represents over 50% of the wearables market, are a classic nudge to incentivise healthier living practices and better weight management. Organisations like UNICEF are now exploring how to partner with leaders in the wearable market, like ARM (a leading provider of technology to phones and wearables), to track and prevent health crises for young children in developing countries, keeping a ‘pulse’ on issues from nutrition rates, to the risk of viral or bacterial infections. Such technological innovations are also good business strategy. The fitness and health tracking industry alone, is projected to be valued at around US$1.8 billion by 2019 (Juniper Research, 2015). For these companies, who are opening the door to a suite of information about consumer movements, preferences, and potential connected markets the business value just begins at the wearable device.

Finally, take the growth of peer-to-peer (P2P) lending. In its simplest terms, P2P lending occurs when an online platform facilitates lending between a borrower and a lender. Both parties could be individuals, cutting out the role of banks. Figures are not yet available in Australia, but in the UK, P2P lending has been doubling in size in recent years, and in 2014, surpassed £1 billion. In the US, Goldman Sachs has estimated that P2P and other non-traditional lending could usurp US$11 billion of US$150 billion in annual US bank profits over the next five years (Bloomberg, 2015). What might this mean for the A$250 billion in consumer finance and SME loans, and A$100 billion in personal loans provided by Australian banks (SMH, 2015)? “The way that mobile companies are leveraging technology to enter the market—that’s a real threat to the business models of traditional banks. Not only does this represent massive business opportunity, but there isn’t an alternative. Banking is changing, and if we don’t think about how to serve these markets, then the market will find a solution that doesn’t involve banks.” - Mark Thain, Vice President of Social Innovation, Barclays, cited in FSG, 2014

Collaboration is key: dynamic partnerships and organisational cultures Creating innovative products and services that generate returns for both business and society, will require unique, non-traditional partnerships - externally and internally. Externally, successful shared value programs will seize the opportunity to bring together multiple forms of expertise, resources, and skills. Community and non-profit organisations will bring social acumen, and decades of experience working on extraordinarily complex social issues, to the table. Business will bring financial resources, market penetration, and product innovation skills. Governments can bring a wealth of social outcomes data, experience in social services, enabling approaches to the regulatory environment, and incentive schemes. “Coming together is a beginning, staying together is progress, and working together is success.” - Henry Ford, cited in Forbes, 2012

Often, these partnerships may feel unfamiliar and uncomfortable. While each sector may have common and mutually beneficial goals, their ways of operating, and even the language they speak, is unique. No one sector or employee can drive this alone, and undoubtedly capacity and communication challenges will persist. Here, the skills of intermediaries, neutral brokers, and ‘boundary riders,’ will be a critical contribution; as will open, transparent, relationships which genuinely seek to understand the motivations of each party. Innovation is key to addressing societal needs, and by harnessing the best of all sectors, more holistic, sustainable solutions can be explored.

“If we can break down this sort of divide, this unease, this tension, this sense that we’re not fundamentally collaborating here in driving these social problems, we can break this down, and we finally, I think, can have solutions.” - Michael Porter, 2013

As the parameters that define which issues belong to the business, government, and community sectors, become increasingly blurred, so too will our solutions to societal issues. This new complex and overlapping model will require partnerships across sectors, but also partnerships within sectors – often bringing otherwise competitors together, in novel ways. For instance, core to any insurance company’s business model is reducing risk. Negative social, environmental, and economic events, translate into costly payouts for these companies. For years, we have seen insurance companies across the globe developing risk mitigation strategies, such as health and safety programs for their individual members. Some companies are now exploring innovative partnerships that allow them to expand from reducing the risk of harm being experienced by an individual, to broader community and environmental resilience. In order to deliver on these initiatives, insurance companies need to partner with otherwise competitors. Like the example of shipping companies partnering to reduce piracy in Somalia above, certain externalities equally affect numerous companies within one sector, and cannot be resolved independently. This is why companies like Insurance Australia Group (IAG), which underwrites over $11 billion of premiums each year, is partnering with competitors, as well as government, and community organisations, to increase the resilience of communities to natural disasters, and forming partnerships like the Australian Business Roundtable for Disaster Resilience and Safer Communities. Australian governments and insurers currently spend multitudes more on disaster recovery than on prevention and resilience. According to IAG Managing Director and CEO, Mike Wilkins, “targeted resilience investments of $250 million per annum have the potential to generate budget savings of $12.2 billion and

reduce natural disaster costs by more than 50% by 2050” (IAG, 2014). Internally, businesses will face important cultural shifts, and need to embrace new understandings and methods of operating. We will all need to up-skill, as well as find effective ways to blend complementary skills. Creating shared value requires “leaders and managers to develop new skills and knowledge—such as a far deeper appreciation of societal needs, a greater understanding of the true bases of company productivity, and the ability to collaborate across profit/ nonprofit boundaries” (Porter & Kramer, 2011). “Our biggest challenge was an internal one: None of our people had ever contemplated our customers as being formal partners in our business. Now that Community Bank is successful, it is easy to forget how confronting its notion would have been...Not only did our staff need to learn a new way, they had in some respects to forget old ways. For this reason, we began implementing Community Bank in its own silo, to protect it from internal critics or doubters who might even unwittingly have sabotaged its development. It didn’t take long to win people over” - Robert Johanson, Chairman, Bendigo and Adelaide Bank, cited in Shared Value Initiative, 2015

Pioneers in shared value also highlight the importance of obtaining and retaining commitment at the senior executive level. Many shared value programs are initiated at the level of Founder, CEO, or Chair. Those that were not, survived because the idea resonated, or was (sometimes, eventually) embraced and championed by, those individuals.

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Richard Branson, for instance, has become an international champion for putting business at the heart of improving people’s lives, not only for his own company, Virgin, but also the wider, global business community. In 2012, Branson published Screw Business As Usual, a mission statement, and account of over one hundred companies using business “as a force for good”.

Transparent sharing of information about shared value programs, lessons learnt, and best practices, will be a critical resource for new entrants looking to explore this work. Of course, showcasing leading examples has the added benefit of driving greater consumer interest in shared value products, thereby creating a virtuous circle where companies race to the top against their competitors.

“My actions are always motivated in equal measures by my natural drive to turn old ways of doing things upside down and my insatiable curiosity – indeed, that’s how we built Virgin. But increasingly, what I do is driven by another core goal – to make business a force for good.”

For this reason, information sharing platforms such as the Shared Value Project in Australia, will be a critical piece of infrastructure to the sector. Through these platforms, and associated events, workshops and educational seminars, shared value pioneers can share their experiences, both positive and painful. They can also explore new opportunities and partnerships for future programs and market growth. It is only through the sharing of data, information and networks that we will be able to create a community of practice around this work; generating a common language, rating and comparing our performance, and increasing our collective impact.

- Richard Branson, 2013

As identified earlier, shared value creation will be more substantive and successful when impact is measured. Successful organisations not only create specific KPIs around their impact, they also hold their senior executive team accountable to them. For example, at Interface carpets, each manufacturing facility competes, and is rewarded for, reducing their waste by 10% year on year.

Highlighting and sharing best practices When asked what needs to be done to drive more shared value activity in Australia, almost every respondent answers along the lines of: “just get going; develop more programs and initiatives; and draw attention to it”. Shared value creation is, by definition, entrepreneurial and innovative. The best way to bring more participants along that journey may indeed be to lead, and to demonstrate the possibilities of this emerging practice.

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Finally, education, training, and partnership brokerage – from the grassroots to senior executives, on how these programs work, the challenges and opportunities that they provide, and documentation on best practices, will foster greater awareness and uptake in the practice. There will be an important role here, too, for media and communications professionals – who are adept at objectively reporting on the development of programs, the impact they achieve, and importantly, stories of success. These professionals and their associated platforms, will need to retain neutrality around programs, not only given their role in transparency and accountability, but also to facilitate necessary collaboration between otherwise competitors.

The role of government: enabling regulatory environments and fostering innovation From regulations around establishing new businesses, to levelling the playing field, and incentivising more activity in the space; governments will play an important role in the facilitation of shared value programs. “First, to the extent that business can come in and address problems and meet social needs in ways that would otherwise cost the government money, there is a strong case to be made for a subsidy or tax holiday, to encourage businesses to move in this direction. Second, government itself is a huge purchaser of services, and by building a shared value component into their requirements, they can encourage companies to move in this way.” - Mark Kramer, Shared Value Project, Melbourne, April 2015

In many cases, the economic benefit that an individual business accrues through shared value creation is relatively minor, compared to economic benefits at the macro level. Australian governments at all levels stand to economically gain from facilitating a greater role for business in addressing social issues. For example, one study on Australian homelessness estimated that person costs between A$900,000 and A$5.5 million throughout the period they are homeless (Baldry et al, 2012). The total economic cost of alcohol abuse in Australia is estimated to be more than A$15 billion each year (Manning et al, 2013). The Australian Institute of Criminology estimates that drug-related offences cost Australia A$3.24 billion per year (AIC, 2013). Reducing these issues decreases direct costs to governments, as well as adding a potential revenue base through expanded income tax. For government

bodies, shared value programs may be a more efficient and cost-effective means of reducing disadvantage. In Australia, our unique relationship with government will be a critical ingredient in the development of shared value practice. In the United States, where the uptake of shared value programs has been particularly strong, a longstanding ideology around the separation of private and public, has encouraged a growing sector of for-purpose business (as demonstrated in the proliferation of the B-Corp movement), and philanthropy. In many Western European nations, a history of (albeit, rapidly evolving) stateled social services provision has likewise provided a unique flavour to shared value creation. The role of Australian governments in facilitating shared value creation will not perfectly mirror either of these trajectories, but will reflect a specific combination of our historical and current contexts. In 2013, Geoff Aigner and Liz Skelton published the Australian Leadership Paradox, a thorough investigation into the unique elements of Australian culture and government. They suggested that our colonial roots have endowed us with a paradoxical sense of government as both the protector and provider, upon who we depend to resolve social issues; at the same time as being an entity we tend to mock, and essentially, distrust. Added to which is the reduced funding and capacity available to governments, commencing with the deregulation of the 1980s, and continuing to the fiscal constraints of today. On the other hand, while the gap between social funding demand and supply is undoubtedly growing, we continue to have a number of strong assets, not least stability, security, and relative resilience – all of which can be leveraged to deliver greater publicprivate collaboration for social impact. “Australia can use its privilege to model and practice leadership in the world beyond our shores. In how we lead we can show what it means to create a society, community and organisations that are fair, inclusive and resilient”

Ideologically, shared value is likely to resonate with many across the political spectrum. It makes sense to the political left, given its emphasis on actively mitigating social and environmental concerns, and for explicitly engaging disadvantaged and underserved markets. It makes sense to the political right, given its trust in business and the market to generate innovative solutions for social and consumer need. Indeed, Australian governments at all levels are exploring how to nurture and facilitate growing partnerships with the business community. For instance, in 2014, the Minister for Foreign Affairs, Julie Bishop announced a ‘new aid paradigm’, which placed commercial partnerships and trade at the core of international development policy. Likewise, the Prime Minister’s Community Business Partnership was recently re-established to explore options to increase philanthropy and social investment throughout the country. State and territory governments will also play a critical role in supporting the development of the sector, especially given their responsibilities for a wide range of social issues, not limited to health, housing, family support, education, crime prevention, and environmental protection. Local government, too, will be a critical catalyst, especially as a major procurer of goods and services. In nurturing the practice of shared value, governments play an important role in two major areas:

More specifically, there are a number of actions Australian governments can take to catalyse shared value creation, not least:

• Facilitate the formation of public-

private-community partnerships to publish and share data on social issues, and their associated costs;

• Consider developing a Shared

Value Innovation Fund to encourage and reward the exploration and development of, marketable products for social impact;

• Look to creating a single point of

contact within state and federal governments, for businesses to discuss and partner with, on potential innovations;

• Explore incentive schemes to

encourage greater investment and innovation in shared value. These may include tax breaks or incentives, mechanisms for reducing actual or perceived risks in investing, or rewards for best practices;

• Investigate legal and regulatory

structures that facilitate the growth of for-purpose businesses, including hybrid models that can receive forprofit and non-profit investment;

• As a major purchaser of services,

governments could consider options to include social and environmental criteria in procurement and contracting.

• Coordination: as a broker between

commercial and community interests, and facilitating whole-of-sector efforts to address a given social issue, and;

• Facilitating experimentation and

innovation: helping to fill the time and funding lag between product/ service research and design, and the generation of sustainable revenue streams; and bearing some of the risk to companies of exploring new products/services that could in turn provide governments with significant cost savings.

- Aigner & Skelton, The Australian Leadership Paradox, 2013

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The opportunity for Australian companies. Perhaps one of the clearest markers of the next decade will be a shift away from traditional spheres of interest, and instead towards unique multi-stakeholder partnerships that come together to share in the value creation process. Leading Australian companies will be driven to this work by market need and opportunity, but in many cases because they have no choice but to embrace the dynamic forces currently changing the way we conduct business at home, and across the globe. “[Shared value] is the largest business opportunity we see.” - Michael Porter, 2013

Shared value is not traditional CSR by another name. Nor is it marketing, or greenwashing. It is an opportunity. An opportunity to create social impact. An opportunity to take our growing and pressing social issues, and ask: “how can I turn this on its head? How do I grow my market share because I’m addressing these concerns?”

Shared value creation is just beginning in Australia. While our sector is not as developed as those in Europe, the US, or Asia, brilliant exploration and activity is certainly underway. The current environment and context provides an opportunity for companies to get ahead of the curve, stand out from competitors, and seize the opportunity to define themselves as leaders, and with excellence. The Australian economy and society is currently undergoing a clear shift. If we are to retain our namesake of the ‘lucky country,’ we need to think carefully about our vision for this nation, and its residents. We need to recognise that traditional models of business, government, and civil society playing discrete roles - is rapidly becoming outdated. Demand for products and services that create positive social and environmental outcomes, is quickly growing. This demand needs to be met by new models of supply. The question is; which Australian businesses will capitalise on this immense opportunity?

As we have seen throughout this report, shared value pays, often - well. These approaches can open new markets, create new customers, ensure the future of resources, and maximise internal operational resources. They can also help future-proof companies, by ensuring long-term sustainable supply chains, customers, and talented employees.

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IN AUSTRALIA A REPORT BY SOCIAL OUTCOMES

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Appendix: Terminology. Blended value

The evaluation of organisations based on their “triple bottom line”, or the combined financial, social and environmental value they create. Blended value encourages social and environmental impact organisations to consider financial sustainability, and mainstream business to consider the value it contributes outside of profit.

For-purpose/ social business

For-purpose and social businesses can cover a wide variety of cause-driven business models that are financially self-sustaining, yet function to increase social impact.

Shared value

A practice that describes when an organisation expands business opportunities and markets through intended efforts to have a positive social or environmental impact.

Social enterprise

A social enterprise is a social-purpose organisation which funds its operations through a trading or business model. There are three ways a social enterprise can generate shared value: through the people they hire; through the products or services they create; or through investing a portion of their profits into a specific social issue.

Social procurement

When buyers and contractors of goods and services select mission driven or social purpose, providers. For instance, contractors may utilise a social enterprise who hires from disadvantaged groups.

Sustainability

Activities that refine the operations of a business or organisation in a way that ensure it minimises environmental or social risk and harm. Sustainability tends to appeal to existing businesses to think about harm reduction in a wider context.

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acknowledgements Sasha Courville, and her team and colleagues at NAB are clearly placed at the forefront of social impact and shared value in Australia. Our sincere gratitude for their immediate recognition of the value of this report, and for their very generous support and commitment as its principal sponsor. Sonia Higgins, and the team at Lendlease, for their kind support as a sponsor of this report, as well as driving desire to create shared value and social impact for hundreds of people in Australia, and globally. Vanessa Lesnie, our colleague at Social Outcomes who remains the force that keeps us all steady, and keeps us loving this work every single day. To Imogen Tyndale, our Social Outcomes intern who diligently and generously took to researching a wealth of information for this report. Thank you also to Catherine Leach of Catfish Creative, for report design and layout. To Digital Storytellers, a talented group of creative professionals generating narratives around social impact models, for the video complementing the report. To all those who kindly gave us their time and insights on shared value, and other support, including: Luke Balleny, Sylvia Baumgartner, James Bentley, Sarah Buckley, Sandra Capponi, Sandra Carroll, Kylie Charlton, Leigh Coleman, Alicia Darvall, Shamal Dass, Meghan French-Dunbar, Jeff Geipel, Bernadette Harris, Toyah Hunting, Mikey Leung, Jeremy Mansfield, James Meldrum, Monica Meldrum, Avis Mulhall, Matt Perry, Phil Preston, Corinne Proske, Mark Reading, Annette Ruhotas, Clinton Squires, Helen Steel, Matt Taylor, Emma Tomkinson, Jason Twill, Andrew Tyndale, Lisa Wade, and Claire White.

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