Creating Shared Value in the Energy Sector

In light of next week’s Shared Value Leadership Summit in New York, we thought we’d revisit the concept of Creating Shared Value and how it applies to the energy sector.

Since we first explored this topic almost five years ago, much has evolved in our sector. Opportunities for and examples of creating shared value have expanded rapidly in line with the pace of energy development and its far-reaching impacts.

Creating Shared Value, a concept popularized by Harvard’s Michael Porter and Mark Kramer, expands on the idea of corporate social responsibility to recognize that broader contributions to society can also enhance corporate value. Porter and Kramer define shared value as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates.”

While traditional notions of corporate responsibility focus on the role of business in creating positive and negative impacts, a shared value approach places society in the center and corporations as one of several players in the overall development picture. As corporate responsibility functions and activities evolve from a compliance and risk-management basis, the ability to create shared value is the next frontier for business.

FSG’s 2014 report,  Extracting with Purpose, details opportunities for oil, gas and mining companies to align their business interests with community needs and priorities. The report highlights the business value to solving societal issues and presents examples of companies that have taken this approach.

Energy poverty is one of the most obvious issues where energy companies can add value to society. An estimated 1.2 billion people lack access to electricity, which has corollary impacts on health, nutrition and food security, education, employment, and women’s empowerment, among others.

What might a shared value approach for energy companies that seek to address this problem look like? Oil and gas companies, for example, could strategically capture, rather than flare, gas generated as a byproduct of their operations. This would not only reduce pollution, it would mean that valuable energy resources once lost as waste could be made available to local communities lacking reliable energy access. For renewable energy companies, there are enormous opportunities for improving energy access in emerging markets through distributed energy systems such as community solar projects delivered through innovative public-private partnerships.

Social value and corporate value are not mutually exclusive. By facilitating access to energy for local communities, energy companies can not only achieve a social license to operate but also reduce costs, develop new business models, and enhance long-term asset value.

At Equitable Origin, the idea of shared value is integral to our overall approach and is reflected in the design of the EO100™ Standard for Responsible Energy Development, both in its specific objectives  and in its tiered performance targets that allow companies to demonstrate that they meet, exceed, or lead on standards of social and environmental performance. Through our work to measure and manage sustainability impacts of energy projects on local communities, we also hope to help energy companies find opportunities for creating shared value so that all stakeholders benefit from energy development.

This blog post was adapted from and expanded on our original post, Creating Shared Value in the Extractive Industries, November, 2012.