The concept of value creation has undergone significant evolution in recent years. Traditionally, companies have relied heavily on financial metrics to measure success, often overlooking the broader spectrum of value that extends beyond profit and loss statements. However, as regulatory frameworks evolve and societal expectations shift, this traditional approach may not capture the multifaceted nature of value organisations can generate and arguably need to.
While efforts to redefine the concept of value are not new, the rise of Environmental, Social, and Governance (ESG) factors as critical drivers of shareholder value have grown in recent years as investors seek long-term value and alignment with sustainability and climate-related objectives. The European Union’s Sustainable Finance Disclosure Regulation marked a significant step toward integrating ESG factors into the value creation paradigm. This regulation, along with the EU Green Taxonomy and the Corporate Sustainability Reporting Directive (CSRD), underscores the importance of a “double materiality” approach, where risks and opportunities are evaluated from a financial perspective and environmental and social standpoints.
Despite regulatory advancements, the backlash against ESG efforts, particularly in the US, highlights the need for a nuanced understanding of how these initiatives contribute to shareholder value. Recent research by Aaron Yoon and Kyle Welch highlights management’s pivotal role in driving value through ESG initiatives. Their findings emphasise the importance of leadership in steering organisations towards sustainable practices that maximise shareholder value. Furthermore, their research also highlights the impact of ESG considerations extending beyond individual companies to encompass their entire supply chains. Companies with robust supply chain ESG practices consistently outperform their peers, emphasising the necessity of holistic sustainability strategies in today’s competitive landscape.
There is a growing recognition of the need for business model innovation to drive sustainable performance. Traditional approaches to sustainability often fall short of delivering complete value across economic, environmental, and social dimensions. Business model innovation presents an opportunity for companies to reimagine their value proposition, aligning it with the diverse needs of stakeholders and fostering collaboration for mutual value creation.
To facilitate this transition, the value mapping tool (Bocken, Short, Rana, Evans, 2013) offers a structured framework for companies to assess the impact of their operations on various stakeholders. Companies can delve into their value-creation processes and drive meaningful change by conducting a deep dive for each stakeholder group and:
- Gain insights into the positive and negative impacts of value within their network of stakeholders.
- Identify conflicting values where a benefit for one stakeholder creates a negative consequence for another.
- Explore opportunities for redesigning the business model, mainly focusing on enhancing societal and environmental impacts.
The following questions can support efforts to reevaluate approaches to value creation:
- Mission and Purpose: What is your business’s overarching purpose and mission and its network of stakeholders? Beyond profit generation, what unique value proposition does your business offer, and why should stakeholders be invested in your continued success?
- Stakeholder Engagement: Who are the primary organisations or individuals involved in or impacted by your business operations? Consider both direct and indirect stakeholders within your value chain.
- Value Proposition: What tangible and intangible benefits do your business activities create for each stakeholder group? How does your business mitigate or address any negative impacts or externalities associated with its operations?
- Negative Externalities: What adverse effects or negative outcomes might arise for any of your stakeholders due to your business operations?
- Opportunities for Value Enhancement: In what ways might your business be missing opportunities to maximise value creation or address stakeholder needs more effectively?
Redefining value creation presents an opportunity for companies to thrive in an increasingly complex and interconnected world. As regulatory landscapes evolve and stakeholder expectations rise, businesses must embrace innovation and sustainability to unlock new sources of value and secure long-term success.