Creating Shared Value on a Global Scale: Possibilities for the United Nations’ Engagement*

by

Michel Rixen1,2, Ingo Böbel1 and Claude Chailan1

mrixen@wmo.int

ibobel@monaco.edu (Contact address)

cchailan@monaco.edu

1 International University of Monaco, 2 Av. Prince Albert II, MC-98000 Monte Carlo, Monaco

2 World Meteorological Organization (WMO), 7bis Avenue de la Paix, CH1211 Genève, Switzerland

*We would like to thank Duncan Pollard, Sustainability Advisor to the Executive Vice President of Operations at Nestlé, for useful discussions and inputs about the CSV concept from a corporate perspective. The designations employed in this publication and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of WMO concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Opinions expressed in this article are the sole authors' opinions and do not necessarily reflect those of WMO or its Members.

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Abstract

The concept of “Creating Shared Value” (CSV) conveys the idea that a business must

do two things simultaneously to be successful in the long-term: create economic value

for both the company and the society. Current economic well-being indicators “beyond

GDP” integrate some CSV elements but are lacking a holistic two-way approach to

expose business practices and engagement in CSV principles to all stakeholders.

We investigate whether the United Nations (UN) (which is at the heart of CSV on all

fronts of society) can play a role in CSV through its Global Compact (UNGC) initiative

(complemented by the new UN Sustainable Development Solutions Network). This

initiative offers corporations a platform for commitment to sustainable principles by

reporting and exposing their engagement to the feedback of the public at large (for

example through social media). The UNGC public reporting exposes the effective

implementation of CSV strategy to the review and judgment of the rest of the world,

calling for an indirect feedback from all potential stakeholders, not just shareholders.

The UNGC hence defers the CSV metric issue to the wider public’s complex cost

function and the resulting companies’ financial statements.

This framework is not exempt of challenges. Corporations may not agree to a single

CSV reference point such as the UNGC. This goes then back to the eternal debate of

regulated versus free markets and the extent to which nations would then enforce the

rules of the game and adhere to the UNGC principles.

JEL classification: O19, M14, E01, E6, F5

Keywords: Role of International Organizations, Social Responsibility, Creating Shared

Value, Macroeconomics, Macroeconomic Policy, United Nations, Global Compact

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1. Introduction Since its recent inception, the concept of Creating Shared Value (CSV) (Porter and

Kramer, 2006, 2011) has gained a lot of attention both in academic circles and in

various sectors of the economy, especially within large corporations. Whilst the early

stages have seen the initiative been championed by some major multinational private

companies, CSV awareness is now starting to spill over to smaller private entities and is

gaining attention even in the public sector and civil society as well1.

There has always existed a deep interdependence and interconnectivity between

economic activity and societal advancement. The new CSV definition of the role of

business in society has emerged with a clear focus on long-term thinking and aligning

the interests of shareholders and societies for mutual benefits. CSV carries the idea that

– in order to overcome the profound and harmful disconnect between the needs of

society and business - a business must create value for society alongside creating

value for shareholders to be successful in the long-term. It intrinsically places societal

issues at the core of the companies’ strategy and operations. Corporations create

shared value when they simultaneously generate economic and societal value by

addressing social and environmental challenges. “Shared Value is a transformational

dynamic that drives the relationship of humanity with business and thus creates

continual broad shoulders for broader glocal outcome” (Tse and Esposito 2012, p. 7)

The CSV approach differs in many ways from the traditional “Corporate Social

Responsibility” (CSR) that focused on compliance with relevant regulations and

“philanthropy”, aiming primarily at improving a corporation’s reputation (Kitzmueller and

Shimshak 2012). Obvious limitations of the CSR approach lie in its reactive stance to

governments’ decisions and the regular disconnect between the core activities of the

business in question and target charities. Strikingly, companies often operate their

1 See the invaluable work and publications on CSR and CSV that FSG (a non-profit consulting firm) has made available on its website at www.fsg.org

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philanthropic redistributive activities through a separate foundation but recently, they

have been paying increased attention to the alignment of these activities with their

overall business philosophy and possible indirect returns. CSV would hence be a sort of

“optimized CSR” or “optimized philanthropy” whereby the business entities’ activities

performed in the value chain are symbiotically articulated with their beneficiaries

through positive feedback loops (McManus 2012).

Shared value can be created in many ways by tapping into several activities of a

corporation within the value chain, by redefining products and markets, by re-

considering productivity and by developing the necessary networks and synergies

around the corporation, hence requiring a sort of holistic approach to a corporation’s

overall environment (Bockstette and Stamp 2011). In other words, the corporate system

combines its broadest footprint extension and potential symbiosis with related actors,

market participants and stakeholders. The motivation for a corporation to expand its

business frontier and to adopt the perspectives of CSV might comprise the inclusion of

external and internal factors, such as an energy crisis, a change in leadership, a new

business opportunity, a change in the immediate business environment, its customers

and/or employees. Porter and Kramer (2011) believe that widespread adoption of the

CSV approach could reshape current business practices and market-based economies.

It would carry along a major innovation wave and associated growth by simultaneously

tapping unexplored ways of conducting business and meeting societal needs. It could,

in fact, reshape capitalism (Kramer et al. in Forbes India 2012).

As major corporations join the initiative (see, e.g., Nestlé’s long-term CSV initiative2 or

Campbell’s more recent contribution to CSV; Conant 2012; Schwarz 2010), it would

accelerate the potential for societal impacts at a pace and scale far beyond the reach of

the non-profit sector. It could ideally complement and leverage governments’ actions

towards quality of life and the provision of public goods and services. But it is probably

more the mindset of corporations (and corporate leaders) rather than their size which

2 The most comprehensive topical analysis of Nestle’s CSV-related efforts is available at http://www.nestle.com/Media/NewsAndFeatures/Pages/what-is-CSV.aspx?WT.mc_id=InsightCSV_alert_nf_25092012

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will dismantle and break the mentality of trade-offs and thus determine the amplitude of

this innovation wave which ultimately creates opportunities for win-win situations.

Many of the major societal, environmental and global development challenges involve

all components and actors typically mapped within the traditional Macroeconomic

Circular Flow Model (Gärtner 2009, p. 10). Such (an open- or closed economy) model

illustrates the regeneration of labor and manufactured capital goods along with provision

of basic stuff (such as food and other necessities). However, it is obvious that economic

circular flow models are unable to effectively deal with capturing societal value (Harris

and Codur, 2004) as they are rather represented by totally self-contained, static entities

operating through flows of equally sized pairs of leakages and injections into and out of

the circular flow. Another potential model for mapping the social opportunities within an

economy is provided by an extension of “Porter’s Diamond” (Porter and Kramer 2006)

which may be applied at various levels of analysis (both micro- and macroeconomic)

and may be viewed from different impact-angles: factor (input) conditions, context for

firm strategy and rivalry, related and supporting industries and, finally, local demand

conditions set the frame. Note that an industry’s footprint is “glocal”, that is, it ranges

from local to global, from a family business to a large multinational corporation (like

Coca-Cola or Nestlé). Governments act at local, regional, national or an international

scale. Supranational governments such as the European Union, MERCOSUR (in South

America), NAFTA (in North America), the African Union, and APEC (in the Asia-Pacific

region) are examples where countries join forces to increase the influence to steer the

societal system in their desired organizational direction.

A key question remains then how to explore the impact of CSV in order to get a more

thorough picture of its relationship with economic activity. The biosphere, mankind

included, is a provider of natural resources and also the receptor of various undesirable

costs of the production/consumption processes which feedback negatively on business

activities sooner or later. Global societal and environmental challenges call for an

increased integration of international governance and business practices (Sachs 2012).

Another central question relates to what could be the potential role of the United Nations

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system in the context of this growing CSV awareness?

In order to answer these questions the paper is organized as follows. In Section 2 we

briefly present relevant macro-economic aspects of CSV and limitations of current

metrics of economic value. Section 3 describes the UN system and associated entities

and their relevance for CSV. Based on Section 4 where we introduce the UNGC, we

then discuss in Section 5 some opportunities and challenges given the market forces at

play in the global economy.

2. Macroeconomics and Value-Metrics of CSV

Economists measure the economic output of a society using indicators such as gross

national product (GNP) or gross domestic product (GDP). GDP has become the main

tool for measuring the success (or failure) of a country's economy (see Stiglitz et al.

2009 for the most comprehensive study on the measurement of socio-economic

performance). It refers to the market value of all final goods and services produced

within that country in a given period of time. GDP per capita (adjusted for PPP –

Purchasing Power Parity) is mainly considered as a statistical indicator of measuring a

country's standard of living. GDP may serve as a zero-order CSV metric as it reflects

some of the business sector expenses to the resource market and investments which

generate household consumption. While it is widely recognized that such measures do

not quantify human well-being, both economists and policy makers often “assume” that

an increase in GDP corresponds to an increase in welfare. An understanding of what

GDP includes, and excludes, however, suggests that the relationship between

economic production, economic success and welfare is more complex (Stiglitz et al.

2009, p. 13; Rustin 2012).

There are many limitations to using GDP as a way to measure social impact through

shared value. GDP does not include a quantitative estimate of quality of life and the

environment. Human well-being depends on household income and consumption of

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goods and services, but on many other objective factors as well. Such activities can be

divided in two broad categories: those which imply a monetary flow and those which do

not. Only the first type is taken into account in computing wealth and GDP while other

(often more subjective) operations (such as domestic and family tasks, taking care of

children and elderly relatives, volunteer community work, and leisure time activities such

as reading, cooking, playing music, going to the beach) are not included in standard

economic indicators. The standard circular flow model does neither consider how hard

people work when they produce nor the quantity of affordable leisure time available.

Harmful side effects such as noise and air pollution, loss of wetlands and biodiversity,

family breakdown, unequal gender income, automobile accidents, commuting time, and

other non-economic aspects of peoples’ life are not included in GDP statistics either.

These “externalities”, not reflected in the cost of goods and services are deferred until

they feed back negatively to the system with some latency, for example, in terms of

sanitation or costs for medical care. Additional negative feedback mechanisms of

depleting resources have been stressed by Meadows et al. (2004). In the long-run, they

may materialize in higher taxes, investments or expenses. At a national level, GDP

would need to be adjusted to take these effects into account. A more reliable measure

of social performance would require a broader approach to include the sphere of human

activities, beyond purely monetary activities. One realizes the difficulty to quantify these

activities, as some become apparent only with a tremendous time-lag (often decades). It

also highlights the need for a cumulative approach to measure CSV (taking into

consideration that you have to be committed to CSV for the long term).

Many alternatives beyond GDP have been proposed so as to include these hidden

expenditures which eliminate, mitigate or avoid damages caused by other economic

activities (and thus to be deducted from GDP or GNP). For example, adjusting GDP to

account for the depreciation of “natural capital” yields “Environmentally-adjusted Net

Domestic Product” (EDP). When Adam Smith wrote “The Wealth of Nations” in 1776,

he was concerned not only about why some nations are wealthier than others in terms

of physical and financial assets. He was also concerned about the question of how

wealth is allocated among the people living in a nation. Today, many economists are

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starting to realize that a true measure of a nation’s wealth creation should consider

distributional aspects of income and consumption as well as more sophisticated types of

capital. The World Bank has expanded the measure of national wealth to include human

and natural resources. National net savings rates are calculated as the amount of total

domestic saving less the depreciation of produced capital. “The World Bank’s Genuine

Saving Indicator” (Everett and Wilks, 1999) adds a social and environmental element to

national saving rates (taking pollution damages, depletion of natural resources and

capital depreciation as well as education expenditures into account. Consequently, such

an indicator may even become negative!).

An ambitious effort to reform the calculation of an indicator of economic well-being and

welfare has resulted from the partnership between an economist, Herman Daly, and a

theologian, John Cobb. Daly and Cobb (1989) named their proposed substitute for GDP

the “Index of Sustainable Economic Welfare” (ISEW). Another more recent measure,

the “Genuine Progress Indicator” (GPI) (Hamilton 1999), resembles the ISEW but

includes additional factors such as the cost of underemployment, the loss of leisure

time, and the loss of virgin forests. A divergence of the GPI and GDP would

consequently suggest that economic growth is coming at the expense of other

contributors to well-being, such as environmental quality or leisure time. ISEW or GPI

have been calculated for a number of countries (Costanza et al, 2009). For example,

the growth in ISEW for Sweden closely follows the growth in GDP for the period from

1950 up to 1980. The divergence between GDP and the GPI for the United States is

more extreme over the same period (Harris and Codur, 2004), probably linked to the

different degrees to which these countries invest in environmental and social priorities.

Just recently, in response to this urgent need for new methods of wealth accounting, the

International Human Dimension Program (IHDP) devoted much of its work to the final

development of the Inclusive Wealth Report 2012 (UNU-IHDP and UNEP 2012). The

report (which was introduced during the Rio+20-Conference in Brazil in June 2012)

presents a promising economic index which offers a comprehensive analysis of a

nation's progress, well-being, and long-term sustainability. “The Inclusive Wealth Index”

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(IWI) assesses changes in a country's productive base, including produced, human, and

natural capital over time. Most importantly, as the IWI takes a holistic approach to

calculating a country's wealth, it provides national governments and planning authorities

with a valuable tool to support macroeconomic planning and to determine if investments

are targeted towards increasing society's well-being and sustainability.

Considering the global scale and the interactions between developed and developing

countries (which comprise our $70-trillion-per-year global economy), the financial

market plays a key role in shaping the multidimensional macro-economic circular flow

model (see Shiller 2012 for an excellent analysis of finance as one of the most powerful

potential tools for increasing the general well-being.). Just to pick one point: Economist

Susan George perfectly illustrated the “debt boomerang effect” of externalities and its

detrimental impact on development, conflicts and the environment (George, 1992).

Debt-induced poverty causes Third World constituents to exploit natural resources in

the most profitable but least sustainable way, with further consequences on global

warming and depleted bio-diversity. Such debt may create social unrest and war. The

United Nations High Commissioner for Refugees estimates that – because of war -

about 43 million people are displaced in the world today (UNHCR, 2012).

At the global and long-run time scale, another striking example is climate change and its

plausible impact on the world economy. Climate change should be treated as an

externality, i.e. a cost-to-the-environment component not reflected in the price paid for

goods or services. There have been numerous studies on the impact of climate change

on the global economy. The most comprehensive work on the subject is the “Stern

Review on the Economics of Climate Change”, a 700-page report published in 2006 for

the British government (Stern, 2006a). The report discusses the effect of global

warming on the world economy and concludes that the benefits of strong, early action

on climate change far outweigh the costs of no-action. It points to the potential wide-

ranging impact of climate change on natural hazards, water resources, agriculture,

health, and the environment (Sachs 2012). According to Stern, the overall costs of no-

action would be equivalent to losing at least 5% of global GDP each year, now and

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forever. The Stern Review proposed a 1% investment of global GDP per annum to

avoid the worst effects of climate change (Stern 2006b). In June 2008, Stern increased

the estimate for the annual cost of achieving stabilization to 2% of GDP to account for

faster than expected global warming as these estimates are also supported by

numerous similar national reports in many countries (Stern 2008; The Guardian, 2008;

on the mitigation of climate change see IPCC 2011 and the “Better Life Index”, OECD

2011).

From a historic point of view it is interesting to remember that already back in 1971,

James Tobin suggested to levy a tax (“Tobin tax”) to penalize short-term financial

transactions and to dissuade speculators active on highly volatile and irresponsible

markets. This idea has been relayed during the last decades by various non-

governmental communities to finance development and environmental programs but

has never been put into practice so far. During the current economic crises, the

European Union has envisaged to implement such a tax to sanitize the market and

protect the Euro from hostile speculations on its weakest member countries. By

matching the resources with the ambition, a worldwide implementation of such a tax

could act as a force-multiplier for the UN system so as to implement its mandate on all

economic, social and environmental challenges. Governments are at the heart of

maintaining an appropriate equilibrium between stabilizing forces within a country.

Dedicated taxes may offset some of these unaccounted costs ignored in the GDP (see

Weaver et al. 2003 for an extensive discussion).

Traditional monetary, fiscal and trade policies rely on various indices and indicators to

regulate or steer national economies’ sustainability. Most of these indicators are closely

related to the “Human Development Index” (HDI), a summary measure that aggregates

averages across objective domains (Stiglitz et al., 2009, p. 16). Adopting alternative

indices (such as the novel “Happy Planet Index” 2012) results in scenarios that lead to

different (local and global) glocal macro- and micro-economic equilibria. Measures of

human well-being and shared value require subjective multi-dimensional judgments

about what to include and how to value different impact variables. Room exists for

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disagreement about how to construct a relevant CSV-index-measure and associated

governing and control mechanisms. Yet the information provided by these measures

gives important insights beyond GDP. However, if each of these indicators has

outstanding virtues and remarkable qualities, they cannot stand on their own to fully

measure the interaction between economic activity and societal advancement. For this

reason, a pragmatic meta-approach, shared by all, is required. This is where the UN

could step in.

3. Description of the UN System The major international institution established to represent nations of the world is the

United Nations Organization (UN). It was build on the grounds of the League of Nations,

a precursor intergovernmental organization founded in 1919 as a result of the Paris

Peace Conference that ended the First World War. This first permanent international

organization, whose principal (political) mission was to maintain world peace, was

replaced by the UN in 1945, which currently comprises 193 nations. It aims at achieving

world peace through international cooperation on security, human rights, and economic

and social development.

Because of the UN’s wide-ranging (global) footprint on all societal sectors, our study

examines a possible unique role for the organization in facilitating, or even maybe

streamlining and leading CSV efforts worldwide.

The UN structure3 is composed of five principal organs - the General Assembly, the

Security Council, the Economic and Social Council (ECOSOC), the Secretariat, and the

International Court of Justice - each of which comprises a complex series of

institutionalized bodies, commissions, programs, specialized agencies, departments

and offices. The UN headquarters is based in New York with other main offices in

Geneva.

3 The UN structure is available at http://www.un.org/en/aboutun/structure/pdfs/un_system_chart_colour_large.pdf

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The General Assembly is the main deliberative body of the United Nations and is

composed of all United Nations member states. The United Nations Secretariat is

headed by the Secretary-General (currently Mr. Ban Ki-Moon) and assisted by a staff of

international civil servants worldwide. It helps resolving international disputes,

administering peacekeeping operations, organizing international conferences, gathering

information on the implementation of Security Council decisions, and consulting with

member governments regarding various initiatives. ECOSOC assists the General

Assembly in promoting international economic and social cooperation and development.

The United Nations Charter stipulates that each primary organ of the UN can establish

various specialized agencies to fulfill its duties. Many UN organizations and agencies

have been established to work on particular issues and benefit from some decisional

autonomy to fulfill their UN mandate. It is through these agencies that the UN performs

most of its economic, social and development work. Several of those subsidiary

organizations have an explicit economic or financial mandate such as the World Trade

Organization (WTO), the International Monetary Fund (IMF) and the World Bank (WB).

Others have a clearly defined mandate in the following fields: education (United Nations

Education, Scientific and Cultural Organization - UNESCO), labor (International Labor

Organization - ILO), industry (United Nations Industrial Development Organization -

UNIDO), development (United Nations Development Program - UNDP), environment

(United Nations Environment Program – UNEP), food and agriculture (Food and

Agriculture Organization – FAO, World Food Program - WFP), health (World Health

Organization), meteorology (World Meteorological Organization) or climate (e.g. United

Nations Framework for Climate Change Convention – UNFCCC, Intergovernmental

Panel for Climate Change - IPCC).

The UN is financed by assessed and voluntary contributions of its member states. The

UN General Assembly approves the regular budget and determines the assessment for

each member. Contributions are based on the relative capacity of each country to pay,

as measured by their gross national income (GNI), adjusted for external debt and per

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capita income. UN entities are represented and governed by their member states or a

subset of them.

In September 2000, 192 United Nations member states have agreed to try to achieve

eight Millennium Development Goals (MDGs) by the year 2015, which include:

• eradicate extreme poverty and hunger

• achieve universal primary education

• promote gender equality and empower women

• reduce child mortality

• improve maternal health

• combat HIV/AIDS, malaria, and other diseases

• ensure environmental sustainability

• develop a global partnership for development.

These MDGs can serve as examples of how CSV may materialize into societal benefits,

for both developing countries (in particular) and developed countries as well. The UN

estimated that the share of the world population living in extreme poverty fell from 42%

in 1981 to 20% in 2008 (Böbel 2007). This was rather stimulated by fast economic

growth and development in emerging countries than by development aid. Development

indeed favors sustainable growth, but, interestingly, it is usually impossible to establish

any significant correlation between foreign aid and the growth rate of GNP in developing

countries because development aid partially leaks to non-monetary sectors in the

economy. Similar conclusions can be drawn for philanthropy. However, at the micro

level, donor agencies regularly report the success of most of their projects and

programs. This contrast is known as the micro-macro paradox and illustrates the issue

of current economic indicators and questionable economic return at larger scale

(Boone, 1996).

Benefits from repatriation funds are large and dominate those from other sources such

as debt relief. It is estimated that if only a quarter of the stock of capital flight was

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repatriated to Sub-Saharan Africa, the region would go from trailing to leading other

developing regions in terms of domestic investment, thus initiating a ‘big-push’-led

sustainable long-term economic growth (Fofack and Ndikumana, 2009). Ironically, the

current global economic crisis in developed countries has triggered the first migrations

to the former developing nations, which the UN is watching carefully in terms of

economic and social development and associated geopolitical consequences.

4. UN Global Compact (UNGC) and CSV-Certification

Multiple UN entities have traditionally engaged with civil society, that is, external

stakeholders, the private sector and non-governmental organizations

- to better align their mission with the growing challenges of the global economy

and

- to secure additional resources not covered by member-nations’ contributions.

The private sector, for example, is an important ally for FAO in the fight against hunger.

A thriving private sector is key to economic growth and sustainable development of

agriculture, food, fisheries and forestry sectors. To that effect, FAO mobilizes CEOs of

companies of the agro-industrial sector from around the world during some of its high

level events. Another example is WHO which manages specific health related projects

directly funded by the Bill & Melinda Gates Foundation.

Recently, two more systematic approaches to UN-private partnerships have been

adopted through the (a) UN Sustainable Development Solutions Network (Sachs 2012)

and (b) the UN Global Compact (UNGC). Both are strategic policy initiatives for

businesses that are committed to aligning their operations and practices with universally

accepted principles in the areas of human rights, labor, environment and anti-corruption

(UNGC 2012). By doing so, business, as a primary driver of globalization, can help

ensure that markets, commerce, technology and finance advance in ways that benefit

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economies and societies everywhere. We focus on UNGC as it assists the private

sector in the management of increasingly complex risks and opportunities in the

environmental, social and governance realms, seeking to embed markets and societies

with universal principles and values for the benefit of all.

As social, political and economic challenges (and opportunities) — whether occurring at

home or elsewhere — affect business more than ever before, many companies

recognize the need to collaborate and partner with governments, civil society, and the

United Nations. This ever-increasing understanding is reflected in UNGC’s rapid growth.

With more than 8700 corporate participants and other stakeholders from over 130

countries, it is the largest voluntary corporate responsibility initiative in the world.

UNGC is a practical framework for the development, implementation, and disclosure of

sustainability policies and practices, offering participants a wide spectrum of

management tools and resources, all designed to help advance sustainable business

models and markets by mainstreaming its (ten) principles in all business activities

around the world and by catalyzing actions in support of broader UN goals, including the

Millennium Development Goals (MDGs). The initiative seeks to combine the strengths

of the UN, such as its global dimension, moral authority and convening power, with the

private sector’s innovation, agility, and the expertise and capacities of a range of key

stakeholders.

UN Global Compact is “glocal” (global and local), private and public, voluntary and

accountable. It is a complement to regulatory regimes, rather than a substitute for them.

It incorporates a transparency and accountability policy known as the “Communication on Progress” (COP). The annual posting of a COP is an important demonstration of a

participant's commitment to the UN Global Compact and its principles. Participating

companies are required to follow this policy, as a commitment to transparency and

disclosure is critical to the success of the initiative. Failure to communicate will result in

a change in participants’ status and even possible expulsion.

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The “Global Compact Differentiation Program” (represented as a general overview in

Figure 1a and as a close-up of the Leadership-level in Fig.1b) categorizes business

participants based on their level of disclosure on progress made in integrating the

Global Compact principles and contributing to broader UN goals. The various categories

imply various levels of engagement and benefits for companies and stakeholders.

The “GC Advanced”- level, for example, requires a description of plans to meet 24

criteria in their annual COP in the following areas:

• strategy, governance and engagement

• UN goals and issues

• implementation of Global Compact principles

• value chain implementation

• verification and disclosure.

These criteria decline the Global Compact key principles into further granularity.

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Fig. 1a: UN Global Compact Differentiation Program on implementing UNGC Principles (UNGC, 2012, p. 8)

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Fig. 1b: Close-Up of the UN Global Compact Differentiation Program on implementing UNGC Principles (UNGC, 2012, p. 8)

The UN Global Compact establishes local networks, which cluster participants on

specific themes and priorities in order to advance the Global Compact and its principles

within a particular geographic context. They perform increasingly important roles in

rooting the Global Compact within different national, cultural and social environment

scenarios. Their role is to facilitate the progress of companies (both local firms and

subsidiaries of foreign corporations) engaged in the UNGC with respect to the

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implementation of ten specific principles4, while also creating opportunities for multi-

stakeholder engagement and collective action. Whilst the “GC Active”-level bears some

similarity to Corporate Social Responsibility (CSR), the “GC Advanced”-level (in its

most extensive interpretation) would be a clear CSV engagement due to the required

long-term seamless and almost symbiotic relationship between the company and the

environment (partners, region, customers, providers, etc) in which it is operating.

The “GC Advanced”-level provides companies with a more visible platform to declare

their higher-level commitment to the Global Compact and demonstrates advanced

sustainability performance and disclosure, including:

• differentiation as “GC Advanced” participant in the Global Compact database

• publication of self-assessment results on the Global Compact website

• platform for leaders in the GC-initiative to identify and share global best practices

and continued advancement of their sustainability agenda

• best practice awards and rankings, globally and locally.

COPs are disseminated to Financial Markets thanks to a collaboration with Bloomberg

L.P, making COPs available to the financial community in order to mainstream the use

of environmental, social and governance (ESG) information in financial analysis. It is

expected that this will generate further incentives for companies to increase

transparency and disclosure.

This envelope has been pushed even further. In January 2011, UNGC launched a new

platform for corporate sustainability leadership – Global Compact LEAD. The 4 The ten principles are: Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; Principle 2: make sure that they are not complicit in human rights abuses. Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labor; Principle 5: the effective abolition of child labor; Principle 6: the elimination of discrimination in respect of employment and occupation. Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; Principle 9: encourage the development and diffusion of environmentally friendly technologies. Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

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approximately 50 companies currently participating in LEAD have been invited because

they have a history of engagement with UN Global Compact – locally and/or globally

(UNGC, 2010). This new platform is a reflection of the essential role that leading UNGC-

participants have already played in the field of corporate responsibility and

sustainability. At the same time, Global Compact LEAD responds to the critical need for

leading companies to step up and reach new levels of performance, engagement and

impact in order for the world to meet today’s social, environmental and economic

challenges.

The UN Global Compact hence provides a means for CSV-like certification. COPs

reporting process requires a fair level of details on how involved corporations deal with

the Global Compact criteria. These progress reports are then available to the general

public.

5. Conclusions and Perspectives Current economic value indicators clearly ignore important elements of the value chain,

which in turn may impact brand equity and economic activity on the long-term because

hidden costs will feedback negatively into the system. Alternative indices take some of

these elements into account but it is recognized that there is always a degree of

subjectivity associated with them.

One-way development aid and philanthropy have shown their limits in terms of

relevance, sustainability and efficiency. Nevertheless, certain countries have succeeded

to gain some return from the development aid. Yet, appropriate means for ensuring

shared value creation are required with their associated metrics.

The UN system has been at the heart of creating shared value on all fronts of society. It

has also engaged recently in building wide partnerships with both public and private

sectors, locally, regionally and globally through both its Global Compact Initiative and

the Sustainable Development Solutions Network.

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Of course, CSV carries its own lot of challenges and is not immune to issues.

Opportunities for growth in the noblest sense of CSV will by definition attract potential

competitors. If one does not cease an opportunity to capture some value, somebody

else will. Thus, the traditional “Five Competitive Forces” (Porter, 2008) are constantly at

play. CSV will not remove competition because the various CSV elements are

inherently competitive as well (for ex., through distribution clusters, etc). CSV is a way

to differentiate products against competitors. The value chain may exploit leverage

elements such as brand equity, customer loyalty, employee solidarity, distribution

channels, and many more. This has been the case for fair-trade already, which was

marginal and confined to NGOs and has now become wide-spread and adopted by the

big global companies as part of their branding strategy (see Nestlé’s CSV initiative

described in Schwarz 2010). CSV is also a fantastic approach to increase

competitiveness and enhance the robustness of the business portfolio by adopting a

holistic approach, integrating all potential risk factors and committed stakeholders into

the analysis and long-term strategy of a corporation (Tse and Esposito 2012).

Companies embarking since their inception on CSV (like Nestle, Cisco Systems, HP,

and IBM; see Kania and Kramer 2011 for a more extensive list of companies) may have

a first mover advantage. For others, the investment necessary to catch-up and adhere

to it might be beyond the typical time scale of the business or beyond a reasonable

break-even, especially in the case of SMEs. Large corporations might face less

overhead on managing UN Global Compact administrative matters with hence greater

returns. Whilst some executives have embraced the CSV concept, some remain stuck

on a balance to be achieved between social needs and corporate profitability. The CSV

approach is scalable to some extent, but the regional dimension requires a customized

implementation to best match the many factors such as culture, markets, history, and

climate.

Another promising perspective on CSV might be offered by the angle of a global game

concept following John Nash’s idealized model (Nash, 1950) where participating players

21

are individuals, corporations, governments, NGOs, etc. In short, Nash’s model solves

the question about a player’s optimal move knowing that the opponent “knows that he

knows that he knows that he knows, etc”. This may prove useful, for example, in the

CSV framework. Should a corporation engage and invest in CSV to gain some first-

mover or strategic advantage over competitors? How will the market react if a

corporation ignores the CSV principles? Can corporations create strategic alliances

around CSV agreements or is competition also inherent to CSV? Nash’s theory has

been re-visited and extended to comprise a competitive force canvassing the reasoning

behind the formation of strategic alliances such as governments or pressure groups

which are driving forces on the world market (e.g. boycotts of certain companies’

products following environmental disasters) (Brandenburger and Nalebuff, 1995). The

increased role of social media such as Twitter and Facebook has de-multiplied the

leveraging effect of these pressure groups. They represent serious threats and

opportunities for businesses nowadays. The UNGC public reporting exposes the

effective implementation of their CSV strategy to the review and judgment of the rest of

the world, calling for an indirect feedback from all potential stakeholders, not just

shareholders, which will impact the companies’ financial results5. The UNGC hence

would defer the CSV metric issue to the wider public complex cost function and the

resulting companies’ financial statements. Most sustainability work, such as reducing

CO2/energy, water and waste actually saves money. CSV, pragmatically, is about

optimizing the value chain, the side-benefit of it being environmental sustainability and

social development. CSV hence should not be viewed as a short-term cost, (which is

contradictory to the definition of CSV itself), but as a long-term investment.

A revised and comprehensive Economic Circular Flow Model which includes a UNGC-

CSV framework should include feedback-loops and links with all actors involved:

governments, (profit and not-for-profit) corporations, NGOs, households, universities

and many more. It may act through international governance on all – finance-, trade-,

5 A complementary institution is “The Global Reporting Initiative” (GRI) (a non-profit organization) which promotes economic, environmental and social sustainability. It provides companies and organizations with comprehensive sustainability reporting guidelines. See https://www.globalreporting.org/Pages/default.aspx

22

environment-, and development-related - aspects of today’s global economy.

Corporations may, however, not agree to a single CSV reference point such as the

UNGC. This goes then back to the eternal debate of regulated versus free markets and

the extent to which nations would enforce the rules of the game or adhere to the UNGC

principles.

CSV is not a new approach or a new reality per se (in fact, CSV-activities – then called

“blended value” - go back to the 1960s). It is what economic reality always should have

been in the best of all worlds. CSV is a new way of framing the fundamental role of

economic activity in society – to create mutual value. CSV offers a framework for an

original approach to create the conditions for a long-term strategy and business

sustainability. Historically, governments have been at the heart of creating shared value

because they usually have some 'constitutional mandate' to meet democratic and social

standards, with their competitive advantage to implement them (Porter 1998). However

disparities between nations have created social and environmental imbalances, creating

business opportunities, which corporations, especially large ones, can more easily

benefit from, for example through outsourcing, delocalization and market power.

The UN system is, and will probably remain, the only world-wide entity which may

address systemic imbalances on a global scale and guide and direct a CSV approach if

it has to be embraced by the global market (as being envisioned by Porter). The UN

Global Compact – complemented by The UN Sustainable Development Solutions

Network - may be the right universal tool to manage it if its oversight independence can

be guaranteed.

23

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