Sustainable Value Creation: The What, the Who and the How
"Sustainable value creation" appears in strategies, annual reports and certification scheme mission statements everywhere. Yet if you ask what exactly is being created, for whom, and how anyone would know, the answers quickly become vague.
A 2020 paper in the Journal of Business Models by Florian Lüdeke-Freund, Romana Rauter, Esben Rahbek Gjerdrum Pedersen and Christian Nielsen takes this problem seriously. The authors argue that even academic research uses the term without a clear definition. They propose a simple framework built on four questions. I find it useful well beyond academia, especially for anyone who governs or assures a sustainability claim.
From traditional value to sustainable value
In traditional strategy thinking, value is created at the moment of a sale. The customer gets something useful at a price below what they would be willing to pay, and the company earns a margin. Employees receive wages, and investors receive interest and dividends. Everyone else is, at best, a cost.
Sustainable value creation challenges this in two ways:
More kinds of value. Following the triple bottom line, value is not only economic but also environmental and social.
More stakeholders. Following stakeholder theory, value is created with and for a much wider group: employees, suppliers, communities, civil society and, through its representatives, nature itself.
The authors make a point that is easy to miss: neither view is neutral. Deciding to focus only on customers and shareholders is just as much a value judgement as deciding to include communities or the environment. The difference is whether that judgement is made openly.
Four questions that structure the debate
1. What is value, and where does it come from?
The paper proposes a stakeholder-responsive view. Value is the net benefit a stakeholder perceives, judged from their own needs and perspective. This means value is plural: what matters to a farmer, an auditor, a regulator and a consumer will differ. The source of value shifts from a company's resources to whatever actually satisfies those needs, whether a product, a relationship or a piece of infrastructure.
2. For whom is value created?
That depends on where you draw the boundary of the system: across which stakeholders, which places and which time horizon. Once the boundary widens, tensions and trade-offs between stakeholders become unavoidable. The authors suggest treating these as something to manage openly rather than to hide.
3. How is value created?
Not only at the moment of sale. Value is created in many relationships and moments, and stakeholders are both contributors and beneficiaries. The authors call this collaborative value co-creation.
4. Who captures value?
This is the most uncomfortable question. Who ends up with the value depends on power relationships, which are rarely balanced. The paper argues that any serious analysis of value creation needs to look at value capture from each stakeholder's point of view, alongside the power relations that shape it.
Why this matters for certification schemes
Reading the framework, I kept thinking of certification schemes. A sustainability scheme is, in effect, a promise of sustainable value: to producers, buyers, consumers and the wider environment. Each of the four questions maps onto something schemes already have to get right.
- What value? A scheme's scope and intended outcomes define the value it promises. If those are vague, so are its claims.
- For whom? Stakeholder engagement and balanced decision-making determine whose needs are actually reflected in the standard.
- How? The standard, the conformity assessment system and the relationships with certification bodies, auditors and certified operators are where value is co-created, or lost.
- Who captures it? This is a governance question. If the costs of compliance fall on producers while the benefits flow elsewhere, the scheme may be credible on paper but unbalanced in practice.
This is also why governance and assurance matter so much. Governance makes the normative choices about whose value counts, and makes them explicitly and transparently. Assurance checks that the value promised is actually delivered and that the claims made about it are truthful. I explored how assurance, co-creation and governance work together in an earlier article: Assurance, Co-Creation, and Governance for Sustainable Value Creation.
A useful discipline
The authors are clear that their framework is a starting point, not a finished theory. Still, the four questions are a practical discipline for any scheme or organisation that claims to create sustainable value. Before the next strategy, sustainability report or scheme revision, it is worth asking:
What value do we really create, and how would each stakeholder describe it?
Where have we drawn the boundary, and who sits outside it?
In which relationships is value created, and who contributes to it?
Who captures the value, and is that balance one we can defend?
Is your scheme working through these questions in its governance, standard or claims? Let's talk.