Shared Value Creation
Lecture 1 – Shared Value Creation
Shared value creation
- This course examines the fundamental technological and organizational transitions
that are ahead of companies and that are required to deal with the grand challenges
of sustainable development. A shift from narrow profit maximization to shared value
creation seems eminent. But how is shared value created? With which stakeholders?
How does value creation change the way companies report to their stakeholder? And
how can (financial) policies accelerate sustainable transitions?
Sustainability
- Many definitions (not all helpful) but they all emphasize several aspects:
o Limits of growth
o Intergenerational aspects
o Transitions (behavioral, technological)
The concerns
- Industrial waste (e.g. pollution of rivers, etc.)
- Consumer and commercial waste (packaging; scrap, etc.)
- Non-regenerative resources (exhaustibility; oil, gas)
- Regenerative resources (e.g. fishing)
- Topics: climate change, air quality, geopolitical tensions, global dependencies,
inequalities (of access and ownership)
Towards a solution
- Care for future generations
- Central role for institutions (at local and global level)
- New ways of thinking and perceiving
o Seeing systems
o Collaborating across boundaries
o Creating beyond reactive problem solving
o Need for solid evidence base
Intermezzo – on collaboration
- True but also difficult
- See, for example, Dutch initiatives beta-gamma interaction
- Different languages
- Energy efficiency paradox
- Need to merge technology and behavior
The European and Dutch context
- Emphasis on smart, sustainable and socially inclusive growth
- Netherlands laggard (more details later)
- Policy highly volatile
- Several initiatives to foster technological change
,Growth, environment and technology
- Close connection with Grand Challenges course
- Need to understand link between growth, emissions, material use, etc.
- First step towards empirics: county or firm as a production function
- A simple decomposition
- So, emissions decomposed into:
o Volume
o Technology
o Sectoral composition
Key messages
- Limits to growth unless sectoral transformations towards less energy intense sectors
or improvement of energy productivity
- Drivers: innovation, prices, trade, changing preferences, etc.
Measurement – Data
- Combination EU KLEMS and IEA yielding consistent dataset
o EU KLEMS developed for productivity analysis
o IEA for energy data
o Long time series (1987 – 2005)
- Many sectors, including services
o Agriculture, 25 manufacturing industries; 23 service industries
- Energy use in ktoe relative to value added
- EU-15 plus four new member states, USA, Japan and South Korea
Towards explanations
- Less energy prices – Dutch disease type of explanation
- Uncertainty – partly caused by policy
- Advent of ICT – especially in service sector
- Specialization in response to international trade
Lecture 2 – Transforming the firm: Technology Adoption
Net present value framework
- Net present value
- Linked to internal rate of return (r for which NPV=0) – useful to rank alternatives
- Critical role of (critical) discount rate
- Adopt if NPV>0 or IRR > critical discount rate
, Dynamics
- Diffusion patterns of technologies
- Two important explanations
o Probit or rank models emphasizing gradual improvement of technology and
heterogeneity of firms
o Epidemic models emphasizing the gradual diffusion of information
Energy efficiency paradox
- Evidence that there are many technologies around that are not adopted while being
profitable at reasonable critical discount rates
- Calls for an explanation for which there are several candidates
o Measurement problems
o Barriers that rational model does not incorporate
- Explanations within the simple NPV framework
o Hidden investment costs
o Hidden annual costs
o Hidden benefits
o High critical discount rates
More advanced explanations
- Information as precondition
- Capital as precondition (SME’s)
- Uncertainty and option value of waiting (cf. Dixit-Pindyck)
- Non-rational behavior
- Complementarities / network effects
- Learning
- Vested interests
On information and capital constraints
- Particularly relevant for SME’s
- Role for banks, venture capitalists, pension funds, etc.
- Role for labelling, information campaigns, etc.
Investment under uncertainty – I
- The basic logic – the Net Present Value Framework again
Investment under uncertainty – II
- Key insights
Lecture 1 – Shared Value Creation
Shared value creation
- This course examines the fundamental technological and organizational transitions
that are ahead of companies and that are required to deal with the grand challenges
of sustainable development. A shift from narrow profit maximization to shared value
creation seems eminent. But how is shared value created? With which stakeholders?
How does value creation change the way companies report to their stakeholder? And
how can (financial) policies accelerate sustainable transitions?
Sustainability
- Many definitions (not all helpful) but they all emphasize several aspects:
o Limits of growth
o Intergenerational aspects
o Transitions (behavioral, technological)
The concerns
- Industrial waste (e.g. pollution of rivers, etc.)
- Consumer and commercial waste (packaging; scrap, etc.)
- Non-regenerative resources (exhaustibility; oil, gas)
- Regenerative resources (e.g. fishing)
- Topics: climate change, air quality, geopolitical tensions, global dependencies,
inequalities (of access and ownership)
Towards a solution
- Care for future generations
- Central role for institutions (at local and global level)
- New ways of thinking and perceiving
o Seeing systems
o Collaborating across boundaries
o Creating beyond reactive problem solving
o Need for solid evidence base
Intermezzo – on collaboration
- True but also difficult
- See, for example, Dutch initiatives beta-gamma interaction
- Different languages
- Energy efficiency paradox
- Need to merge technology and behavior
The European and Dutch context
- Emphasis on smart, sustainable and socially inclusive growth
- Netherlands laggard (more details later)
- Policy highly volatile
- Several initiatives to foster technological change
,Growth, environment and technology
- Close connection with Grand Challenges course
- Need to understand link between growth, emissions, material use, etc.
- First step towards empirics: county or firm as a production function
- A simple decomposition
- So, emissions decomposed into:
o Volume
o Technology
o Sectoral composition
Key messages
- Limits to growth unless sectoral transformations towards less energy intense sectors
or improvement of energy productivity
- Drivers: innovation, prices, trade, changing preferences, etc.
Measurement – Data
- Combination EU KLEMS and IEA yielding consistent dataset
o EU KLEMS developed for productivity analysis
o IEA for energy data
o Long time series (1987 – 2005)
- Many sectors, including services
o Agriculture, 25 manufacturing industries; 23 service industries
- Energy use in ktoe relative to value added
- EU-15 plus four new member states, USA, Japan and South Korea
Towards explanations
- Less energy prices – Dutch disease type of explanation
- Uncertainty – partly caused by policy
- Advent of ICT – especially in service sector
- Specialization in response to international trade
Lecture 2 – Transforming the firm: Technology Adoption
Net present value framework
- Net present value
- Linked to internal rate of return (r for which NPV=0) – useful to rank alternatives
- Critical role of (critical) discount rate
- Adopt if NPV>0 or IRR > critical discount rate
, Dynamics
- Diffusion patterns of technologies
- Two important explanations
o Probit or rank models emphasizing gradual improvement of technology and
heterogeneity of firms
o Epidemic models emphasizing the gradual diffusion of information
Energy efficiency paradox
- Evidence that there are many technologies around that are not adopted while being
profitable at reasonable critical discount rates
- Calls for an explanation for which there are several candidates
o Measurement problems
o Barriers that rational model does not incorporate
- Explanations within the simple NPV framework
o Hidden investment costs
o Hidden annual costs
o Hidden benefits
o High critical discount rates
More advanced explanations
- Information as precondition
- Capital as precondition (SME’s)
- Uncertainty and option value of waiting (cf. Dixit-Pindyck)
- Non-rational behavior
- Complementarities / network effects
- Learning
- Vested interests
On information and capital constraints
- Particularly relevant for SME’s
- Role for banks, venture capitalists, pension funds, etc.
- Role for labelling, information campaigns, etc.
Investment under uncertainty – I
- The basic logic – the Net Present Value Framework again
Investment under uncertainty – II
- Key insights
