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I think we're all aware

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that the world today is full of problems.

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We've been hearing them

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today and yesterday and every day for decades.

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Serious problems, big problems, pressing problems.

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Poor nutrition, access to water,

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climate change, deforestation,

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lack of skills, insecurity, not enough food,

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not enough healthcare, pollution.

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There's problem after problem,

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and I think what really separates this time

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from any time I can remember in my brief time

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on Earth is the awareness of these problems.

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We're all very aware.

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Why are we having so much trouble

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dealing with these problems?

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That's the question I've been struggling with,

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coming from my very different perspective.

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I'm not a social problem guy.

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I'm a guy that works with business,

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helps business make money.

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God forbid.

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So why are we having so many problems

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with these social problems,

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and really is there any role for business,

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and if so, what is that role?

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I think that in order to address that question,

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we have to step back and think about

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how we've understood and pondered

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both the problems and the solutions

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to these great social challenges that we face.

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Now, I think many have seen business

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as the problem, or at least one of the problems,

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in many of the social challenges we face.

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You know, think of the fast food industry,

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the drug industry, the banking industry.

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You know, this is a low point

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in the respect for business.

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Business is not seen as the solution.

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It's seen as the problem now, for most people.

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And rightly so, in many cases.

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There's a lot of bad actors out there

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that have done the wrong thing,

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that actually have made the problem worse.

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So this perspective is perhaps justified.

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How have we tended to see the solutions

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to these social problems,

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these many issues that we face in society?

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Well, we've tended to see the solutions

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in terms of NGOs,

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in terms of government,

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in terms of philanthropy.

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Indeed, the kind of unique organizational entity

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of this age is this tremendous rise of NGOs

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and social organizations.

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This is a unique, new organizational form

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that we've seen grown up.

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Enormous innovation, enormous energy,

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enormous talent now has been mobilized

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through this structure

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to try to deal with all of these challenges.

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And many of us here are deeply involved in that.

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I'm a business school professor,

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but I've actually founded, I think, now, four nonprofits.

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Whenever I got interested and became aware

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of a societal problem, that was what I did,

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form a nonprofit.

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That was the way we've thought about how to deal

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with these issues.

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Even a business school professor has thought about it that way.

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But I think at this moment,

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we've been at this for quite a while.

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We've been aware of these problems for decades.

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We have decades of experience

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with our NGOs and with our government entities,

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and there's an awkward reality.

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The awkward reality is we're not making

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fast enough progress.

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We're not winning.

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These problems still seem very daunting

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and very intractable,

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and any solutions we're achieving

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are small solutions.

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We're making incremental progress.

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What's the fundamental problem we have

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in dealing with these social problems?

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If we cut all the complexity away,

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we have the problem of scale.

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We can't scale.

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We can make progress. We can show benefits.

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We can show results. We can make things better.

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We're helping. We're doing better. We're doing good.

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We can't scale.

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We can't make a large-scale impact on these problems.

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Why is that?

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Because we don't have the resources.

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And that's really clear now.

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And that's clearer now than it's been for decades.

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There's simply not enough money

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to deal with any of these problems at scale

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using the current model.

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There's not enough tax revenue,

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there's not enough philanthropic donations,

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to deal with these problems the way we're dealing with them now.

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We've got to confront that reality.

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And the scarcity of resources

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for dealing with these problems is only growing,

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certainly in the advanced world today,

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with all the fiscal problems we face.

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So if it's fundamentally a resource problem,

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where are the resources in society?

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How are those resources really created,

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the resources we're going to need to deal

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with all these societal challenges?

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Well there, I think the answer is very clear:

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They're in business.

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All wealth is actually created by business.

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Business creates wealth

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when it meets needs at a profit.

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That's how all wealth is created.

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It's meeting needs at a profit

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that leads to taxes

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and that leads to incomes

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and that leads to charitable donations.

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That's where all the resources come from.

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Only business can actually create resources.

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Other institutions can utilize them

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to do important work,

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but only business can create them.

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And business creates them

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when it's able to meet a need at a profit.

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The resources are overwhelmingly

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generated by business.

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The question then is, how do we tap into this?

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How do we tap into this?

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Business generates those resources

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when it makes a profit.

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That profit is that small difference

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between the price and the cost it takes to produce

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whatever solution business has created

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to whatever problem they're trying to solve.

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But that profit is the magic.

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Why? Because that profit allows whatever solution

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we've created

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to be infinitely scalable.

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Because if we can make a profit,

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we can do it for 10, 100, a million,

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100 million, a billion.

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The solution becomes self-sustaining.

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That's what business does

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when it makes a profit.

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Now what does this all have to do

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with social problems?

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Well, one line of thinking is, let's take this profit

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and redeploy it into social problems.

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Business should give more.

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Business should be more responsible.

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And that's been the path that we've been on

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in business.

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But again, this path that we've been on

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is not getting us where we need to go.

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Now, I started out as a strategy professor,

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and I'm still a strategy professor.

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I'm proud of that.

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But I've also, over the years,

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worked more and more on social issues.

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I've worked on healthcare, the environment,

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economic development, reducing poverty,

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and as I worked more and more in the social field,

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I started seeing something

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that had a profound impact on me

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and my whole life, in a way.

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The conventional wisdom in economics

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and the view in business has historically been

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that actually, there's a tradeoff

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between social performance and economic performance.

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The conventional wisdom has been

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that business actually makes a profit

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by causing a social problem.

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The classic example is pollution.

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If business pollutes, it makes more money

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than if it tried to reduce that pollution.

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Reducing pollution is expensive,

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therefore businesses don't want to do it.

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It's profitable to have an unsafe working environment.

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It's too expensive to have a safe working environment,

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therefore business makes more money

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if they don't have a safe working environment.

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That's been the conventional wisdom.

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A lot of companies have fallen into that conventional wisdom.

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They resisted environmental improvement.

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They resisted workplace improvement.

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That thinking has led to, I think,

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much of the behavior

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that we have come to criticize in business,

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that I come to criticize in business.

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But the more deeply I got into all these social issues,

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one after another,

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and actually, the more I tried to address them

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myself, personally, in a few cases,

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through nonprofits that I was involved with,

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the more I found actually that the reality

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is the opposite.

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Business does not profit

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from causing social problems,

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actually not in any fundamental sense.

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That's a very simplistic view.

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The deeper we get into these issues,

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the more we start to understand

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that actually business profits

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from solving from social problems.

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That's where the real profit comes.

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Let's take pollution.

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We've learned today that actually

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reducing pollution and emissions

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is generating profit.

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It saves money.

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It makes the business more productive and efficient.

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It doesn't waste resources.

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Having a safer working environment actually,

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and avoiding accidents,

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it makes the business more profitable,

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because it's a sign of good processes.

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Accidents are expensive and costly.

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Issue by issue by issue, we start to learn

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that actually there's no trade-off

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between social progress

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and economic efficiency

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in any fundamental sense.

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Another issue is health.

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I mean, what we've found is actually

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health of employees is something

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that business should treasure,

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because that health allows those employees

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to be more productive and come to work

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and not be absent.

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The deeper work, the new work, the new thinking

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on the interface between business and social problems

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is actually showing that there's a fundamental,

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deep synergy,

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particularly if you're not thinking in the very short run.

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In the very short run, you can sometimes

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fool yourself into thinking

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that there's fundamentally opposing goals,

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but in the long run, ultimately, we're learning

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in field after field that this is simply not true.

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So how could we tap into

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the power of business

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to address the fundamental problems

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that we face?

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Imagine if we could do that, because if we could do it,

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we could scale.

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We could tap into this enormous resource pool

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and this organizational capacity.

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And guess what? That's happening now, finally,

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partly because of people like you

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who have raised these issues now

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for year after year and decade after decade.

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We see organizations like Dow Chemical

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leading the revolution away from trans fat

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and saturated fat with innovative new products.

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This is an example of Jain Irrigation.

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This is a company that's brought drip irrigation technology

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to thousands and millions of farmers,

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reducing substantially the use of water.

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We see companies like the Brazilian forestry company Fibria

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that's figured out how to avoid

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tearing down old growth forest

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and using eucalyptus and getting much more yield

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per hectare of pulp

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and making much more paper than you could make

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by cutting down those old trees.

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You see companies like Cisco that are training

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so far four million people in I.T. skills

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to actually, yes, be responsible,

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but help expand the opportunity

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to disseminate I.T. technology

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and grow the whole business.

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There's a fundamental opportunity for business today

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to impact and address these social problems,

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and this opportunity

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is the largest business opportunity

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we see in business.

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And the question is, how can we get business

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thinking to adapt this issue of shared value?

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This is what I call shared value:

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addressing a social issue with a business model.

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That's shared value.

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Shared value is capitalism,

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but it's a higher kind of capitalism.

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It's capitalism as it was ultimately meant to be,

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meeting important needs,

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not incrementally competing for

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trivial differences in product attributes

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and market share.

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Shared value is when we can create social value

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and economic value simultaneously.

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It's finding those opportunities

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that will unleash the greatest possibility we have

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to actually address these social problems

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because we can scale.

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We can address shared value at multiple levels.

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It's real. It's happening.

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But in order to get this solution working,

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we have to now change how business sees itself,

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and this is thankfully underway.

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Businesses got trapped into the conventional wisdom

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that they shouldn't worry about social problems,

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that this was sort of something on the side,

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that somebody else was doing it.

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We're now seeing companies

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embrace this idea.

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But we also have to recognize business

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is not going to do this as effectively

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as if we have NGOs and government

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working in partnership with business.

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The new NGOs that are really moving the needle

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are the ones that have found these partnerships,

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that have found these ways to collaborate.

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The governments that are making the most progress

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are the governments that have found ways

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to enable shared value in business

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rather than see government as the only player

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that has to call the shots.

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And government has many ways in which it could impact

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the willingness and the ability of companies

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to compete in this way.

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I think if we can get business seeing itself differently,

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and if we can get others seeing business differently,

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we can change the world.

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I know it. I'm seeing it.

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I'm feeling it.

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Young people, I think,

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my Harvard Business School students, are getting it.

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If we can break down this sort of divide,

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this unease, this tension,

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this sense that we're not

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fundamentally collaborating here

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in driving these social problems,

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we can break this down,

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and we finally, I think,

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can have solutions.

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Thank you.

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(Applause)