Shared value business model reshaping real estate
The purpose-driven or shared value business model is gaining significant traction as occupiers look to reinvent the way they do business in the midst of a prolonged Covid-19 pandemic.
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This trend, to set out goals to achieve success beyond solely making profit, is going to be a driving force in influencing real estate decisions over the course of 2022 and beyond.
In a 2021 KPMG CEO survey, 81% of CEOs said that their response to the pandemic caused their strategic focus to shift toward the social component of their ESG programmes. Furthermore, 87% said that purpose is now central to building their brand reputation. It is clear that around the world companies are evaluating what they stand for and reorienting around the goals of making a difference to society whilst still turning a profit.
Further evidence of the rapid adoption of purpose-driven business models can be found in the growing community of over 4,000 certified B-Corporations (As of April 2020 there were 3,000 certified B-Corporations). Becoming a B-Corporation requires evidence that a company is balancing profit with purpose. Certified B-Corporations are legally required to consider the impact of their decisions, not only on the environment but also on their workers, customers and community.
Finally, PwC, EY, Unilever and Infosys are among the companies that have joined The Purposeful Company – a not for profit organisation whose mission is to help firms to place people and planet on an equal footing with profit. Businesses signed up to the initiative will need to let key stakeholders, including staff and community members, have a “say on purpose”, outlining their wants and needs.
What is a shared value or purpose-driven business model and why is it growing in popularity?
A purpose-driven business model is one where a company has a clear purpose beyond short-term profit. It serves to benefit all stakeholders.
In 2011, Professor Michael E. Porter of Harvard Business School and Mark Kramer, co-founder and a managing director of FSG, coined the concept “shared value business model”. They defined 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.”
The move to the shared value business model is gaining traction due to a number of reasons, including:
The pandemic experience:
Covid-19 has put greater pressure on corporates to be active participants in creating solutions to the world’s societal and environmental challenges. It is also forcing corporates to have a moment of introspection, re-imagining how they operate and what they stand for in a changing world. According to the aforementioned 2021 KPMG CEO survey, 79% of respondents said they had to re-evaluate their purpose as a direct result of Covid-19.
Proven impact on employee attraction, engagement and retention:
Mercer’s Global Talent survey found that 1 in 3 employees would prefer to work for a business that shows responsibility towards all stakeholders, not just its shareholders.
Proven positive impact on brand image and customer attraction and retention:
A global study by the Zeno Group found that consumers are four to six times more likely to buy from, trust, champion and defend companies with a strong purpose.
Proven financial out-performance:
Analysis of “purposeful” companies by the Corporate Board/EY Global Leadership calculated that purposeful companies outperform the stock market by 42%.
Getting ahead of legislation:
In the UK, B Lab UK is seeking to modify part of the Companies Act 2006 to impose a duty on directors to advance the purpose of the company, rather than to solely promote the success of the company.
Ability to attract Investment:
Investors such as BlackRock are pivoting towards impact investment strategies, whereby investments are made into corporates that generate a measurable, beneficial social or environmental impact alongside a financial return.
Real estate supports business strategy:
Our (Y)OUR SPACE survey of almost 400 global real estate decision makers found that 90% regard real estate as a device that supports, facilitates or portrays business strategy. In light of this, purpose-driven occupiers will seek to reconfigure their global real estate portfolios and remodel their workplaces in order to align with this new purposeful strategic intent.
In practice this will mean occupying real estate that supports the achievement of the nine practices set out below. It could lead to companies locating in innovation ecosystems that enable open innovation and other forms of collaboration, or in an amenity-rich environment that addresses the wellness agenda and supports employees to be at their most creative. It will support the growing appetite for highly sustainable and inclusive buildings that reflect corporate ambition and culture. It may even increase focus on how the building or development a company occupies can integrate with and directly benefit the local community.
There are already examples of product being delivered to meet these requirements. The planned re-purposing of Blackfriars Crown Court in London, for example will deliver sustainable office, commercial and crucially community space. This will include an urban forest rooftop with extensive access for the local community and general public. Wider purpose and societal benefit are the centre of major masterplanning initiatives. The Earls Court and Canada Water schemes in London are two such examples.
On the occupier side an exemplar is AstraZeneca’s new HQ and R&D centre in Cambridge. The centre is designed to foster collaboration and interaction and enable open innovation. The ambition is that the centre will expand its reach across the local community, inviting all stakeholders to see the science within, amongst other community-driven initiatives. Another key “purposeful” feature of the building is sustainability. The design includes the largest ground source heat pump in Europe.
What do purpose-driven businesses look like?
The Shared Value Initiative have identified nine practices of a purpose-driven business. These are:
• Embracing an open innovation process.
• Selecting opportunities that create distinction from the competition.
• Developing strategies and allocating resources in line with aspirations. Establish a strong governance process.
• Bringing together players, resources and systems needed to deliver shared value in new and unexpected ways.
• Strong measurement and reporting against objectives.
• Guided at all times by company purpose and shared value.
• Creating a culture and organisational structure that embraces creativity, learning from mistakes and challenging the status-quo.
• Leading in diversity and inclusivity.
• Engaging people internally and externally through purpose and a commitment to shared value.
Companies are changing fast, pivoting towards balancing profit with doing good. It has long-been recognised that real estate is a strategic device for business. It should be no surprise, therefore, that greater corporate purpose will be reflected in properties that align with those goals and bring positive benefits to local environments and communities.