By Justin Bakule, Executive Director, Shared Value Initiative
Our water supply is depleting. In the next ten years, two-thirds of the world’s population may face water shortages. And more and more we’re finding that it’s not big technological innovation that will save us from running out – it’s pricing. “In most parts of the [United States], water prices are simply too low,” writes Scott Moore of the Council on Foreign Relations in a New York Times op-ed last week. Without an economic approach, users will continue to have little incentive to conserve this vital resource.
But one company is turning that problem into an opportunity for growth: Veolia, a $13B water company with operations in 48 countries, was troubled by the fact that the more water consumers used, the more money they made. They foresaw that water shortages would eventually make that business model unsustainable. So they asked themselves a simple question: How do we align our business needs for profit with society’s need to conserve water?
They found their answer through a shared value model. Shared value, or creating value for both business and society simultaneously, is an intuitive concept that should make sense to most executives – it’s the ultimate win-win. Of course the devil is in details like forging cross-sector partnerships, leadership buy-in, and just how much it affects the bottom line. For Veolia, that meant being intentional, dedicating resources to each of these critical factors, and realigning their business with society’s interest.
It’s impossible to create shared value without thoughtful partnerships across the business, nonprofit, and government sectors. And from the start, Veolia knew they needed to partner with an international NGO (INGO) to act as an expert liaison between the company and the community. “We are open to meeting people with the same mindset, including new players,” says Johann Clere, who is the Global Director of Business Development and Individual Markets at Veolia Water Technologies.
Early on Veolia knew they lacked deep understanding of how to manage the needs of local communities and organizations – the very populations they were looking to serve. In this moment they found a trusted partner in Winrock International, who helped provide community training on water monitoring techniques to supplement the sales of Veolia’s water technology products, as well as techniques for efficient water use. Winrock has recently committed to improving its corporate partnerships by joining an INGO Shared Value Working Group run by our initiative.
Veolia has used this partnership model in improving water services across the globe. In South Africa, they partnered with the city of Durban’s municipal authority to recycle 98% of wastewater for industrial use. This ensured continuous supply for communities and because industries pay water at a lower price, Veolia is sharing part of its profit with the city. The company has also partnered with municipalities to achieve similar outcomes in Morocco and Spain.
Leadership buy-in is essential for shared value intrapreneurs like Clere to make initiatives like this work, and Jean-Michel Herrewyn, a key senior executive at the company, has taken on that task of being an internal business model disruptor. As shared value consultant Phil Preston explains: When Veolia was forming a project with a municipal body in the state of New York, Herrewyn’s leadership was essential to the mindset shift needed to align his company more closely with the customer. Instead of seeking a traditional style of contract that rewards greater volumes of water delivered, they turned this around to reward according to saving water. Herrewyn is also an outspoken advocate of the shared value approach and delivered a keynote at last year’s annual Shared Value Leadership Summit.
From a cost perspective, Veolia has also discovered deep risks in not addressing the global water issue. Water risks impact, particularly the financial performance of industrial companies usually in production setbacks – from water shortages to flooding, there are up to billions of dollars at stake. Some thoughtful research within the company indicated that they could monetize those risks. For example, improved water efficiency in their various power plants could save the company an estimated $40M annually.
This business-driven thinking led Veolia to develop the True Cost of Water measurement tool, a framework for more accurately pricing water. The tool is meant to help companies better manage risks and externalities, optimize costs associated with water management, enhance competitiveness, secure their social license to operate, and ensure long-term profitability. They now offer the tool as a sustainability solution for their customers.
Companies like Veolia recognize that as a society we face complex, world-changing problems like water scarcity. And because of that, it’s crucial for business to help people and profits. And that requires the hard mindset shift for businesses to answer those social issues—not as problems, but as opportunities for growth.
Justin Bakule is the Executive Director of the Shared Value Initiative. He and other shared value leaders will speak at the upcoming Shared Value Leadership Summit, May 12-13 in New York.