Corporate social responsibility (CSR) is certainly good practice for any oil and gas company, but a business would be wise to go one step further and pursue a model of creating shared value that results in practical, economic benefits for both the community and corporate entity, says Bishop William Lawrence University professor Michael Porter.

“It pays for itself. It doesn’t require government funding. It doesn’t require higher taxes. It doesn’t require more donations. That’s the shared-value opportunity, and the question is: How can we bring more of that thinking into the extractive sector?”

The Harvard Business School-based professor told this week’s Next-Gen Forum, for which JuneWarren-Nickle’s Energy Group was a sponsor, that companies should see themselves as entities that create value to meet society’s needs in ways that reinforce growth and prosperity.

“When we think of our purpose in that way, and that is what our mission statement says, all of the sudden it opens up all kinds of new thinking about what we might do, not as a charitable donor, but as a business.”

As an example of the difference between CSR and shared value, Porter cited the ‘fair trade’ practice of companies paying poor cash-crop farmers in developing nations more money than market dictates, which he said it an example of CSR. While a good practice he certainly does not condemn, Porter said fair trade does not actually resolve underlying social issues impacting cash-crop communities. It just takes upstream money to pay some of the farmers more.

“Creating shared value is a capitalist solution…. It is about raising the fundamental value being created, and then that value can be divided in a way that is really very good for the players.”

A shared value approach, he said, might see a company instead give farmers the means to boost their productivity 300 per cent, allowing those farmers to expand their lands and profit more from their agricultural practices. At the same time, the company’s bottom line improves.

“Do you see the difference? It’s not about whether one or the other is more worthy or better, but it is a question of value outcomes, and results, and impact.”

Companies are pursing CSR and striving to minimize any negative impacts they might have, Porter said, in part to build trust and reputation within communities so as to gain the social licence to operate. While this is an improved model to simply offering endless corporate donations, he suggests, it does not get to the root of society’s ills.

“Is [CSR] good? Yes. Is this a step forward? Yes. Can we do it even better? Probably.”

According to Porter, if a company starts thinking about underlying problems in a community and really looking into them, then the company will soon realize that those problems are actually impacting the business, which he sees as a particular problem for those in the extractive sector.

“You start to get at such things as how much you’re spending on the fly-in, fly-out workforce, which is huge and a real cost. You start getting at things like how much money you have to spend on getting suppliers to fly in at egregious costs to meet your basic contracting and other needs.

“You start to get at the enormous costs of not having an available workforce, and having to go through gyrations and enormous costs to assemble a workforce and get people to temporarily live near operations who have the skills that you need.

“You start to realize that a community where there is poor health, social strife and political instability is a very expensive community in which to do business, in many ways.”

Porter said when a company is able to look at the underlying problems of a community in which it operates as an economic cost for the company, a business model will arise, and this is why a shared-value model is a step up from a philanthropic model or CSR model.

“That is truly magic, because we can start seeing the right approach to dealing with the societal problems and needs through the lens of shared value, where addressing a societal challenge, need, deficit or weakness actually enhances the underlying fundamental performance of the business.”

If a business can see its role in a community through this lens of shared value, he said, it becomes scalable and does not require endless donations.

“It harnesses the very best of our organizations as businesses, which is what we are.”

Following his presentation, Porter told the Bulletin that even though shared value is economical and practical, and the assumption in economics is that business will pursue any opportunity that maximizes value, since it is outside the scope of how many in business have thought up to this point, it has not been pursued as it should, and there is room for the concept to prosper.

“The famous expression in economics is that if there is a $20 bill on the ground, then someone would have already picked it up, but that assumes that businesses are aware of all the opportunities, they have the time, energy and focus to pursue all the opportunities.

“What we find over and over again is that whether opportunities are pursued has to do with how people think, how they look at problems, and how they prioritize issues.

“One of the powerful things about shared value is that this is an area where people just haven’t thought about business in this way, and they don’t have time to do everything and so they do the things that they have thought about that are more obvious or typical.”

Fortunately, according to Porter, the oil and gas sector in Alberta is an example of a jurisdiction and business community that is a world leader with many of the opportunities presented in a shared value approach.

“In terms of how we should do this well, let me just go on record and say that I think the Alberta region is actually a shared-value leader,” he said during the forum’s concluding panel discussion.

“As we travel around the world and look at other places, there are a lot great things going on here.”

Shared value is a collaborative approach involving multiple stakeholders, Porter said, and Canada’s Oil Sands Innovation Alliance is a great example of competitor companies coming together for shared-value purposes. He noted that companies such as Suncor Energy Inc. and Statoil are tackling environmental, safety, workforce and First Nations issues for the mutual benefit of both corporate shareholders and community stakeholders.

“There are lots of efforts here that really are shared value. We haven’t necessarily had the words to describe it, and so one of the purposes of what we have been doing is to try and create the framework to more clearly articulate what we are doing and the different distinctions between what we are doing.”