MSc. Thesis - Alejandro Freund - A Proposal for Sustainable Development in Rural Latin America

Università Comerciale Luigi Bocconi
Faculty of Economics
Master of Science Economics and Management of
Innovation and Technology
A Proposal for Sustainable Development in Rural Latin America
through the Deployment of Renewable Energies Technologies
under a Shared Vision Approach
Advisor – SDA Professor Davide Reina, MBA
Second Advisor – SDA Professor Silvia Vianello, PhD.
Master of Science Thesis of:
Alejandro Freund
Matricola - 1459981
Academic Year: 2010-2011
Milano, Italy - June 17th
, 2011

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Table of Contents
Abstract .....................................................................................................6
Key Words and Concepts: .......................................................................................................6
Acknowledgements........................................................................................7
Introduction..............................................................................................10
A General Overview of Renewable Energies and Sustainability ...............................15
Historical Context .................................................................................................................15
Green Movement and Sustainability .....................................................................................18
Renewable Energy.................................................................................................................21
Renewable Energy and Sustainable Development.................................................................26
Review of the Literature and Theoretical Framework ...........................................30
Creating a Shared Value (Porter and Kramer; 2011) .............................................................30
Creating Shared Value in Practice ..............................................................................................33
Green and Competitive: Ending the Stalemate (Porter and van der Linde; 1995)..................35
Cradle to Cradle: Remaking the Way we Make Things (Braungart & McDonough; 2008)......37
Sustainability as the Key Driver of Innovation (Nidumolu, Prahalad, Rangaswami; 2009)....40
A Natural-Resource-Based View of the Firm (Hart; 1995) .....................................................42
The Big Idea: The Sustainability Imperative (Lubin and Esty; 2010).....................................46
Global Sustainability and the Creative Destruction of Industries (Hart and Milstein; 1999).48
Business Cases / Data...................................................................................52
Micro-Solar Power Implementation in Africa.........................................................................52
“How the Poor May Boost Clean Tech” ..................................................................................52
Astonfield..............................................................................................................................53
Creating Shared Value (CSV) ................................................................................................54
Urbi: “rent-to-own” ............................................................................................................54
Water Health International: an innovative financing model...............................................54
Waste Concern: hybrid profit/non-profit...........................................................................55
Nestle / Nespresso: CSV vs. Fair-Trade.............................................................................55
Global Sustainability and the Creative Destruction of Industries .........................................55
Daewoo..............................................................................................................................56
Grameen Bank: “The Village Bank” ...................................................................................56
Problem Statement......................................................................................58
Problem Statement................................................................................................................58

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Prior Work.............................................................................................................................59
Justification of this Paper .....................................................................................................59
Motifs for Geographical Location...........................................................................................62
Problems and Potential Hindrance in Latin America .........................................................64
Presentation of Work and Methodology ............................................................66
Business Model / Framework ...............................................................................................70
Conclusions...............................................................................................74
Bibliography .............................................................................................76
Braungart & McDonough. 2008. Cradle to Cradle: Remaking the Way we Make Things.
London: Vintage....................................................................................................................76
Appendix..................................................................................................78
References ................................................................................................82

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Abstract
Sustainable development and renewable energies are strongly linked together. The basic
condition for any kind of economic development rests greatly on the availability of energy
sources. High electricity transmission costs have much impeded the connection of rural areas to
national grids. The possibility of deploying clean technologies for alternative fuels that can
circumvent the centralized energy grid can provide an interesting alternative for the production
of energy. Additionally, the combustion of traditional fossil-based fuels produces hazardous by-
products that further deteriorate the environment and pose health threats on local communities.
Multiple theoretical frameworks have portrayed an upgrading of our current economical system,
under which the preconceived trade-offs between business and environment/society can actually
become mutually benefiting. A „shared-value‟ approach depicts the groundwork for including
previously peripheral aspects to strategic business planning – environment and society – into the
core vision of a firm.
The aim of this paper is to incorporate the principles of the „shared-value‟ approach into a
business model that can assist in the sustainable development of the rural areas of Latin America
through the enabling of local clusters. The main premise of the project is to harness the potential
of renewable energies to create a virtuous cycle for development and build-upon the
opportunities that should spur from the improvement of local conditions.
Key Words and Concepts:
Energy; renewable energy; alternative energy/fuels; environment; sustainable development;
sustainability; clean-technologies; green movement; local clusters; business model; strategic
planning; shared value; and innovation.

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Acknowledgements
Before moving forward with this essay, I would like to clarify why various parts of this paper
will be written in the plural form. In first place, I would like to point out that the many unseen
contributions by my mentor, SDA Bocconi Professor Davide Reina, merit in their own right the
plurality prose. The rapport began when I took Professor Reina‟s course - Green Marketing -
during my second year of my Master of Science degree in Economics and Management of
Innovation and Technology at Università Bocconi (MSc. EMIT). The multiple examples given in
class, the literature we reviewed and the insightful after-class dialogues, motivated me to put on
paper the flow of disjointed ideas I have had for several years and employ this essay as a means
to organize the initiative into a coherent business model for future implementation (which for the
purpose of this research will occasionally be referred to as “the project(s)”).
In addition to this source of insight, I had the opportunity of having a very inspiring exchange of
ideas with SDA Bocconi Professor, Boris Durisin, who is a specialist in technology innovation
management and analysis of new market innovation. I thank him for encouraging me to use the
opportunity of writing my graduation paper to construct a business framework with practical
future implications. This conversation deeply altered my approach to this paper as my intentions
evolved from writing for the purpose of contributing to knowledge and fueling debate, to truly
motivating me to seize this occasion to construct the scaffold for this project as Wendy Kopp did
with “Teach for America”i
.
Moreover, Bocconi Professor Stefano Pogutz, Director of the Master in Economics and
Management of Energy and the Environment and coordinator of the Green Management and
Sustainability major for the MSc. EMIT, advised me as to the conceptual and theoretical
approach that should prelude this research.
I would also like to show my appreciation to SDA Bocconi Professor Silvia Vianello, for her
collaboration in this essay as my second advisor. Professor Vianello assisted me a great deal in
determining a proper marketing approach for this paper.
Additionally, I have the great fortune of having the support from my father, Kurt, who has
extensive experience and knowledge on topics of technology, social and economic development,
i “As a college senior, Wendy Kopp proposed Teach For America's creation in her Princeton University
undergraduate thesis. She was convinced that many in her generation were searching for a way to assume a
significant responsibility that would make a real difference in the world and that top college students would
choose teaching over more lucrative opportunities if a prominent teacher corps existed.” -
http://www.teachforamerica.org/about-us/our-history/

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politics and energy, based both on his academic background (PhD. DIC Chemistry from Imperial
College of Science and Technology, London) and professional experience (entrepreneur,
columnist, speaker, and developer of renewable energy projects).
I am also thankful to the contributions and discussions I constantly engage with my cousin,
Pablo Freund, with whom I share many passions as well as the intentions of undertaking this
project and putting in practice our ideas for sustainable development in the region where we
grew up. Currently he is pursuing a Master of Science degree in Sustainability Management at
The Earth Institute, Columbia University in New York.
Furthermore, there are several people with whom I have avidly interacted during the past several
years and continue to do so regarding this idea and that are some way or another linked to this
endeavor. Several of these persons have expressed their eagerness to engage in this venture once
we decide to move forwards. Accordingly, I want to thank my two friends, Martin Jara (MSc.
Business Development and Internationalisation; Umea Universitet, Sweden) and Jason Byron
(MA. Public Policy with a focus in Local and Territorial Development; Facultad
Latinoamericana de Ciencias Sociales, Ecuador) for their input in this paper.
I would also like to express my gratitude to my mother, Barbara, and to my grandmother, Ingrid,
for providing me with emotional support during my Master‟s degree and especially in these final
months which have been fully dedicated to producing this research paper.
Therefore, taking into account all the intellectual contributions I received, occasionally I have to
recur to the plural form.

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“Companies that persist in treating climate change solely as a CSR issue, rather than
a business problem, will risk the greatest consequences.” (Michael Porter; Harvard)
“What Defense [industry] has been to the world’s leaders for the past 40 years, the
Environment will be for the next 40. “ (The Economist)
“Corporate environmentalism is not philanthropy but an indispensable new
approach to the business model.” (André Hoffmann; Roche / WWF)
“Access to energy is a precondition for the function and development of society.”
(Vattenfall)
"We are seeing the birth of a new perspective of the world, where ecology and
economics are two sides of the same coin." (Leif Johansson; CEO Volvo Group)
"The definition of insanity is doing the same thing over and over again and
expecting different results." (Albert Einstein)

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Introduction
The case for human-caused climate change can no longer be refuted. The scientific community,
in addition to the most recent report from the Intergovernmental Panel on Climate Change
(IPCC) – the „AR5‟ (Fifth Assessment Report) - has reached a consensus based on extensive
empirical evidence.1
This paradigm shift opens up a plethora of opportunities to engage in projects under the Porter
and Kramer (2010) “Creating Shared Value” framework (CSV here in after)2
. The guiding
principle of this concept is that companies can boost their competitiveness while at the same time
contribute to the social and economic context in which they operate. This might seem trivial to
many, as classical neoliberal economics explains that the simple act of producing profits results
in collective improvements for society. However, this classical view of capitalism has been
disputed recurrently over the last several years, as many of the private benefits generated by
firms have not necessarily translated to improvements for society; from the financial crisis to
ongoing environmental catastrophes, this benevolent view of capitalism continues to be
challenged. The point is not to challenge the capitalist model; on the contrary, capitalism has
proved to be the most proficient approach to improving standards of living and catering to
human needs.3
The main premise behind the CSV view is that it is in accordance with the
self-interest of the firm to broaden its narrow-scoped vision and re-learn to connect with
society in ways that will truly benefit both the firm and society as a whole in a “win-win”
scenario by enlarging the pool of value.
The previous status quo exposed irreconcilable and contradicting positions between nature
(ecology) and business (economy). However, under this new paradigm, we are seeing multiple
examples where the trade-off between social benefits versus private costs can actually follow a
mutually beneficial relationship; increasing public welfare whilst decreasing costs incurred by
industry (thereby increasing its profits). The reduction in costs can be mainly reflected as an
increase in efficiency of production, better use of materials, reduction of waste and tax levies,
and decrease in liabilities, while concurrently adding value to products and improving brand
image and relationships with stakeholdersii
. On the other side of the coin, better air quality,
reduced water pollution, cutback in carbon dioxide (CO₂) emissions and green house gasses
(GHG‟s), and reduction of landfills are some of the collateral benefits for society and
ii
The Stanford Research institute defined stakeholders as "those groups without whose support the organization
would cease to exist."

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environment. “Pollution prevention may save not only the cost of installing and operating end-
of-pipe pollution-control devices, but is also may increase productivity and efficiency (Smart,
1992; Schmidheiny, 1992 – extracted from Hart, 1995). Less waste means better utilization of
inputs, resulting in lower costs for raw materials and waste disposal (Young, 1991).”
The objective of this essay is to review existing literature and business cases that fit
harmoniously with the general CSV mindset and construct a business model, based primarily on
the implementation of renewable energy technologies that can be deployed and replicated in
rural areas of developing nations, focusing primarily on the Andean Region in Latin America.
Another principle that conducts this project is following and incorporating different sustainable
development and sustainability guidelines. For example, integrating various principles from
“One Planet Living”4
initiative by the World Wildlife Foundation (WWF), whose main axiom is
that “living sustainably should mean a better quality of life,” will be an important basis to
improving the quality of life of the people directly or indirectly linked to this project.
Reasons are not short behind the decision to base this business model in this geographical area.
A more detailed analysis of these motivating factors will be covered in its specific section.
However, to have a rough idea behind the location selection, the following reasons are presented.
Firstly, my core network of contacts and potential collaborators is mainly based in the region due
to the fact that I was born and raised there. Moreover, Latin America has experienced a decade
of strong growth, improvement in institutions, political and economical stability, and has showed
a strong will to have a voice in the world‟s affairs.
Many rising global actors tend to adhere to best global practices by benchmarking to exemplary
legislation, as well as the incorporation of latest technologies. If we consider that the Green
Movement is here to stay, we can optimistically assume that this phenomenon will continue to
create a contagious effect. The rationale behind a more stable outlook for the move towards a
clean-energy future and sustainable business model and all its implications on politics, society
and economy will be presented further along this essay. Nevertheless, it is important to point out
that a combination of crucial catalysts – such as price volatility of hydrocarbon resources, pursue
of energy sovereignty, political support for clean technologies, and growing public awareness of
environmental issues – have created a new long-term stable business landscape.
Finally, to a great extent, the economical benefits of this decade of growth in Latin American
have not translated accordingly to the more marginal and rural areas. This is not only a pivotal
motivation for this essay and series of projects; it is a clear motivator of our decision to target

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Latin America. We also see this as an unattended market with vast potential where we have the
opportunity to enjoy a „first mover advantage‟.5
The paper developed by C. K. Prahalad (2004),
“The Fortune at the Bottom of the Pyramid” (BOP) shows that there is an enormous opportunity
to serve this mass market. Bangladeshi professor Mohamed Yunus took it a step further and
proved that the apparently riskier lower-end market actually had higher repaying rates than the
vast majority of financial institutions around the globe through his „micro-credit‟ organization
(and this is even contemplating that these loans were made without direct collateral).
Schumpeter understood that economics and capitalism should be analyzed in an evolving and
disruptive context.6
Accordingly, the objective of this business model is to tackle various issues
regarding the development of the rural Andean region in a series of stages that evolve as these
communities advance and progress. The idea is to lay out a scheme with different stages of
implementation that will closely follow the development of the location in which it operates.
Somewhat following what Abraham Maslow (1943; 1954) proposed in “A Theory of Human
Motivation” and furthermore in “Motivation and Personality,” my idea is to have this business
model adapt and evolve in parallel with the community it serves and implement projects that
cater to the contextual and growing needs.
As a result, the first stage of the business model – being the core stage covered in this paper, as
we cannot fully contemplate the multiple paths that will spur – is based on the installation of
renewable energy technologies. The decision to concentrate on renewable energy is based on the
following pillars: compatibility of this industry with economical, environmental and societal
sustainability; energy and electricity as the basis for any kind of potential development; and the
availability of funding due to government and business commitment to a cleaner future.
However, it is not the intention of this paper to scrutinize and rigorously favor one technology
over another. The selection of the technology mix (tidal/current, wind, solar, geothermal, algae
biofuels, waste to energy, etc.) will be subject to case by case analysis, depending on the inherent
and relative conditions of each location, as well as other circumstances such as, connectivity to
the local or national grid and cost effectiveness of energy production. Additionally, the path to a
cleaner energy future will not depend exclusively on one technology, but actually on the
diversification of the energy matrix and continuous improvements and new developments. For
example, wind and solar energy are not necessarily competitors, but actually great complements.
During the summer periods, the solar panels have better yields. However, the windy conditions
of the winter result in more energy generation for eolic (wind) energy. The selection of

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technology to be deployed in each area, therefore, can seen to be subject to specific conditions of
the particular case and the specific partnerships we develop with suppliers.
One of the main challenges encompassing this business model will be to find an appropriate
method or strategy to include and bind stakeholders. The objective is to align interests that a
priori could seem conflicting and incorporate their input from the beginning of each project. This
will probably require intense public relations and lobbying before we can get the projects up and
running. It will be essential to get the different stakeholders (primarily the local community and
the cooperatives, government, investors and suppliers) on board by communicating with them
our goals and making sure they understand that we will embrace their perspectives, without
violating our vision and principles. In the chapters regarding the actual business model and
methodology, we will review a business model proposed by “Corporación Empresarial Indigena
del Ecuador” that addresses this issue through an equity-stake division that includes all of the
related parties.
Two strategies that could assist us in this area are the ones exposed by Hart (1995) in “A Natural
Resource Based View of the Firm”7
:
“Proposition 2b: Firms that adopt product-stewardship strategies will evidence inclusion of
external stakeholders in product-development and planning process.
Proposition 2c: over time, a product-stewardship strategy will extend beyond the preemption of
firm-specific resources and use of Life Cycle Analysis to become a stakeholder-oriented
(legitimacy-based) process.”
LCA or Life Cycle Analysis is used to assess the environmental burden created by a product
system “cradle to grave” (Davis, 1993; Keoleian & Menerey, 1993).
Furthermore, in the same academic paper, Hart (1995) cleverly points out that our economic
models and management practices have omitted the inherent biophysical constraints of the
planet. Based on extensive literature, a clear connection between resources, capabilities and
competitive advantage can be pointed out (Andrews 1971; Hofer and Schendel 1978; Snow and
Hrebiniak 1980). The theory based on the Resource-Based View of the Firm explains that
competitive advantages developed by a firm can be sustained if the resources are not readily
available and the capabilities are not easily replicable. Additionally, the most important aspect in
order to achieve a sustained competitive advantage is that the resources should be tacit and
socially complex (Teece 1987; Winter 1987). Therefore, based on the fact that we are trying to
construct a difficult-to-imitate, but easily-replicable and for-profit business model, we also have

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to identify key capabilities that will translate into the competitive advantages for the company
carrying out the projects. Consequently, the main competitive advantages of this model will be
based on: long-term oriented partnerships with different stakeholders; the development of
internal competences and specific know-how; and a flexible and adaptable business model that
we can replicate throughout the region.
One final clarification before moving forward; the vision of the business model is to contribute
to the advancement and improvement of communities through a sustainable development
approach while utilizing a for-profit business model. Hence, a vital axis of this business structure
is employing one of the three key ways in which companies can „create shared value
opportunities‟ – “enabling local cluster development.”
The fact that we need to build upon our previously mentioned competitive advantages does not
imply the idea of creating for ourselves a situation of monopolistic – inefficient - competition.
We understand that for a true situation of sustainable development and progress to spur in these
communities, a wide range of needs will need to be covered by multiple organizations, i.e.:
private (business), public (governmental or municipal) and non-governmental.
Thus, it is in our own self-interest that other players (both complementary and competitors) enter
our intended geographical markets. Nonetheless, by acknowledging the harsh realities of the
business world, it is clear we must also approach the situation through a pragmatic frame and
produce a business model that can sustain itself and endure in time by preventing an imitation of
our business approach.

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A General Overview of Renewable Energies and Sustainability
This section will provide an overview of concepts related to sustainability, sustainable
development, and renewable energies, as well as a revision of the historical context and
conditions under which these issues have evolved. The idea is to revise key aspects of industrial
development, the origination of the „green movement‟ and the reasons that point to a positive
and stable outlook for these interrelated topics.
Historical Context
Even though retrospective analysis can never alter the past, the technique is important for
reviewing the lessons of history and understanding the implications it had on the subsequent
events. Through this analysis, we can better grasp the mistakes we made and be better prepared
to avoid them in the future. With no intention of stimulating a debate or reminiscing on what
could have been, I feel it is still necessary to briefly examine some of the factors that led us to
the complicated environmental crisis we face nowadays.
The Industrial Revolution marked a pivotal point in human history that provoked a series of
profound changes and effects on the social, cultural and economic aspects of life.8
Beginning in
the United Kingdom and expanding at different rates to continental Europe and the rest of the
world, the Industrial Revolution radically transformed production techniques in a series of
sectors, such as: metallurgy, mining, chemicals, textiles, glass making, and machinery. Its effects
were so deep that it affected the social and demographic configurations of civilization by
enticing a massive urbanization motivated by the better income opportunities that the new
factories provided. In parallel, the productivity enhancement urged the need for more efficient
methods of transportation that could cater the expansion of markets. This was greatly enabled by
the construction of inland waterways, railways and upgrading of roads.9
The reconfiguration and
improvement in methods of trade and commerce further amplified spillover effects through the
transfer of products, technology, and know-how. The construction of factories and the ability to
send goods to distant places demanded more efficient methods of shipping. The impressive
increase in production yields and commerce was possible in great part through the
implementation of steam power, coal-powered machines, the use of water wheels, and, further
on, petroleum-based vehicles.
Furthermore, the exponential population increase in the last 150 years that was made possible
thanks to the Industrial Revolution has added a great deal of pressure to the natural cycles of

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resource replenishment. According to the British newspaper, the Guardian, we will need to
produce more food during the next fifty years than what has been produced in the past 10,000
years combined.10
Since the end of WWII, our population has almost quadrupled and is on pace
to reach nine billion people before 2050.11
It is true that technological advances have increased
the crop yields many times over; nevertheless, scientists argue that there is an inherent limit to
this expansion.
Though these drastic changes resulted in an extended period of increase in incomes and
arguably, improvement in standards of living12
, many of the destructive consequences were not
fully contemplated a priori. In the book “Cradle to Cradle” (C2C herein forth), Braungart and
McDonough (2002) describe in a very eloquent manner some of the implications of the
Industrial Revolution and the evolution towards a carbon-based economy. They begin by arguing
that the continuous push for economic growth brought about by technological change lead to an
ever-growing thirst for energy, which in turn set in motion the development of the coal mining
and petroleum industry. During this time, a common notion of “conquering the wild” reigned, as
natural resources seemed unlimited. Mother Nature was not only seen as the provider of
resources, but also as a “perpetually regenerative” body. An interesting extract from poet and
philosopher Ralf W. Emerson grasps the general perception of the natural world at that time,
“essences unchanged by man: space, the air, the river, the leaf.”
This leads us to think that people were naïve or ignorant to the fact that their actions were having
negative effects on nature. Nonetheless, we shouldn‟t judge them in such a harsh manner, as
even today, with vast proof and consensus from the scientific community, as well as multiple
reports by intergovernmental panels, many people still refute these claims and discard them as
„green-party‟ or environmentalist propaganda.
Despite accusations and controversies behind the legacies of Henry Ford and John D.
Rockefeller, both have been exceedingly influential characters in the history of American
industrial development and capitalism in general. Ford is more famously known for developing
the assembly line technique for mass production and for creating a situation of “welfare
capitalism” or “industrial paternalism”13
by more than doubling going salaries to „$5-per-day‟
with the idea of attracting talented human capital and increasing the demand for his cars.iii
On the
iii
Henry Ford understood that with the current salaries at that time, his mass produced automobiles would eclipse
the potential demand. Thus, by increasing the salaries of his employees (and indirectly forcing other companies to
do so as well), in essence, he created his own market.

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other side, Rockefeller‟s petroleum business, already controlling over 85% of the extraction and
commercialization of oil at the beginning of the twentieth century14
, continued to grow aided by
the expansion of Ford‟s business throughout the United States due to the fact that his company,
Standard Oil, had the capability of supplying the necessary ingredient for fueling the cars.
Through its discriminatory control of railways and oil pipelines, Standard Oil operated under a
monopolistic configuration that was much enhanced by the mutually benefiting relationship with
Ford15
. Consequently, this situation heavily impaired the development of innovations based on
electricity, hydrogen and other sources, such as inventions from Nikola Tesla16
in the
electromagnetic field which, arguably, could have altered the outcome of the energy industry. In
addition to this, a series of likely improvements could have potentially reconfigured the oil
industry from its origins if competitors would have had the chance of surviving, possibly
yielding in a cleaner and more efficient oil industry right from the start. To avoid engaging in
what could be a thesis of its own, it is better to simply state that the configuration of the oil
industry and its influence on American and global politics greatly impeded the development of
financially viable clean technologies for many decades.
Aside from all the positive things that emerged from the Industrial Revolution – better
healthcare, increased lifespan, superior literacy rates, and improved standards of living - a
retrospective review of history depicts it as a system of production that actually resulted in:
severe air, soil, and water pollution; production of hazardous materials; vast landfills filled with
valuable materials; erosion of biodiversity and cultural practices; and depletion of natural
resources at unsustainable rates.17
It is safe to infer that these negative outcomes were not premeditated and that the orchestrators of
such a system– if we assume that it was actually pre-designed - simply behaved according to the
principles of classical economics, implying that an improvement in personal welfare (acting in
one‟s self-interest) would result in general welfare. People were merely ceasing the
unprecedented opportunity of profiting from what seemed like an ever-expanding boom.
The obsession for growth could lead us to ponder upon an interesting perspective of this
economic model: why do we so blindly measure progress through Gross Domestic Product
(GDP) indices? It is true that there is a strong positive correlation between improvements in
standards of living and increase in GDP. However, a wide array of variables are not being
properly measured and contemplated. As the American novelist and environmental supporter,

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Edward Abbey, wrote in „White Water Ramblers‟, “Growth for growth‟s sake is a cancerous
madness.”18
The book “Cradle to Cradle” shows a very good example of misinterpretation of
economic progress by demonstrating how the Exxon Valdez oil spill in the state of Alaska
actually improved the local economy, by stimulating local businesses due to the amounts of
people that were coming to assist in the cleanup efforts. It is clear that GDP measurement is very
practical for general comparison of economic wellbeing, but it can become a dangerous tool if it
is myopically driving public policy and using its central objective.
The rationale behind including these aspects of the Industrial Revolution and twentieth century
economics is to assist us in the construction of a framework that incorporates the benefits of
economic growth, while simultaneously minimizing its negative aspects. One of the main
reasons of why the intended business model will be carried out in the rural areas of the Andean
region is because we have the opportunity of actually designing and planning the developments
in „greenfields.‟iv
We can use this opportunity to develop these projects with thorough planning
from the start and avoid having to „unlearn‟ what are commonly thought to be conventional
byproducts of economic prosperity. The fact that these towns and rural areas have relatively little
contact with intense economic activity means that they have immense room for progress.
More importantly, based on the premise that these areas have not been influenced by business
activity, we can benchmark right from the start to the best practices and implement proper
sustainability guidelines with the expectation that they will translate into a economic prosperity
under the theoretical frameworks briefly reviewed in the introduction of this paper („Shared
Value‟; „Bottom of the Pyramid‟; „Natural Resource-Based View of the Firm‟; „Sustainability as
the Key Driver for Innovation‟; and „Cradle-to-Cradle‟). In the „Literature Review‟, a summary
of the more important concepts will be presented in a manner that will attempt to guide the
reader into understanding how each of these frameworks plays a role and fits together to provide
the proper support for addressing the main problem of this academic paper – contributing to the
prosperity of rural areas of the Andean region through the implementation of renewable energy
technologies under a „shared value‟ approach.
Green Movement and Sustainability
iv
Greenfields are projects that lack constraints imposed by prior work; there is no need to bulldoze or remodel any
existing constructions.

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There are multiple issues and circumstances that have influenced the development of the topics
mentioned in this heading. Enlightenment philosophers such as Thoreau and Rousseau planted
abstract thinking ideals for the basis on environmentalism.19
However, it was not until the
proliferation of the Industrial Revolution that a more organized approach towards ecology and
conservationism was conceptualized and put in practice as a reaction to the evident negative
side-effects of the economic bonanza.20
The concepts of „Green Economics‟ began to take shape
by contemplating the concerns regarding the well-being of the biosphere and humans in general.
Furthermore, „Green Politics or the Green Movement‟ began to take shape around the idea that
classical capitalism is myopic in that it only focuses on pure economic growth, while isolating
the „full costs‟ (environmental conditions and social problems) of economic expansion.21
One of
the guiding ideals behind the green movement is the idea that economic progress should not
focus strictly on materialism, but also deeply examine its impact on quality of life through a
holistic lens. Also, the globalization of markets and supply chains has been a focal point of
debate for Green Politics, as it is thought to threaten cultures and the natural world by producing
a situation of „global economic monoculture‟.22
One additional key turning point was during the
1970‟s „energy crisis‟ which brought attention to the reality that the modern socio-economic
configuration depended too closely on the oil industry, which in turn depended overwhelmingly
on petroleum produced in the politically unstable region of The Middle East.23
As these issues were beginning to draw more attention from the media and the public, scientific
investigation began to examine some of these claims and improved its impetus. Moreover,
Rachel Carson‟s (1962) “Silent Spring” is generally recognized for laying the groundwork for
the environmental movement24
by exposing evidence regarding the vicious effects that pesticides
produced by the giant chemicals industry were having on nature. According to Braungart and
McDonough (2002), prior to this point, environmentalism was a narrow synonym for protests in
lure of the evident harm produced by current manufacturing and trade practices.
The 1992 Earth Summit in Rio collected representatives from over 150 nations and dozens of
global leaders to find solutions to tackle the now-obvious indications of environmental
destruction. Despite the fact that no tangible agreements were accomplished, a very positive
aspect emerged – „Eco-Efficiency‟, which C2C defines as doing more with less. Five years later,
the Kyoto Protocol was acclaimed as a big success – despite the fact that the most pollutant and
consuming country (United States) did not sign nor ratify the accord. The United Nations

- 20 -
Framework Convention on Climate Change (FCCC or UNFCCC) prepared the protocol on the
main premise of targeting „global warming‟.
The objective of this international treaty was to stabilize the concentration of greenhouse gases
(GHG‟s) in the atmosphere at a level that would not translate into further man-inflicted climate
changes. The Protocol devised three main mechanisms to enable this plan: „Emissions Trading
Scheme (ETS)‟, „Clean Development Mechanisms (CDM)‟, and „Joint Implementation (JI)‟.25
These tools resulted in the creation of „Carbon-Credits‟, which have been one of its most
concrete, and to some extent, fruitful results of this treaty. The basic idea is that „Annex I‟
countriesv
can buy GHG emission credits from other countries in the accord. These „credits‟ can
be either traded through financial exchanges, projects in „non-Annex I‟ countries that reduce
emissions, and from other countries in Annex I category that have emitted less than their allowed
quota.26
Even though it took many decades of intense debate and struggle to create a broad awareness on
the importance of measuring the impacts of our un-sustainable economic model on the
environment and on society, we reached a point where this consciousness gained enough
momentum to make academics, politicians, businesspeople, and society challenge traditional
business practices and generate innovative solutions to tackle these issues. The theoretical
frameworks selected for this thesis have been greatly facilitated by this broad awakening.
To finalize this subsection, the main components, concepts and definitions of sustainability and
sustainable development are presented. In order to avoid confusion and debate among the varied,
and sometimes, contradicting interpretations, we will use the more accepted definition enacted
by the „Brundtland Report‟ (1987) of the United Nations (UN) which defines sustainable
development as “development that meets the needs of the present without compromising the
ability of future generations to meet their own needs.”27
The three main pillars of sustainability
are: environment, society, and the economy.
Another interesting way of exposing sustainability is based the C2C framework which implies a
“biomimetic approach to the design of systems.”28
The conjecture is that industrial production
systems should mimic the natural processes of the biospherevi
by replenishing the system through
the same materials it produces, in an enduring cyclical manner instead of the conventional
v
Annex I countries are classified as industrialized countries and countries in transition. They have agreed to reduce
their collective GHG emissions by 5.2% from the 1990 level
vi
Biosphere - the global addition of all the ecosystems

- 21 -
„cradle to grave‟ blueprint. This approach explains that the industrial processes should protect
the ecosystems through the manufacturing of high-quality and environmentally safe products that
allow a closed-loop flow of synthetic and organic materials. For example, instead of producing
traditional plastic bags, we can produce organic bags made out of agricultural byproducts that
when discarded, can actually biodegrade properly and contribute to nature‟s metabolism.
The World Wildlife Fund (WWF) created a guideline titled, “One Planet Living” which provides
ten principles for sustainability based on „ecological footprint‟ as its key indicator:29
I. Zero Carbon
II. Zero Waste
III. Sustainable Transport
IV. Local and Sustainable Markets
V. Local and Sustainable Food
VI. Sustainable Water
VII. Natural Habitats and Wildlife
VIII. Culture and Heritage
IX. Equity and Fair Trade
X. Health and Happiness
Additionally, we expose the four system conditions for a sustainable society presented by the
“Natural Step Framework‟s”vii
; nature is not subject to systematically increasing:30
1. “concentrations of substances extracted from the Earth's crust (reduction in our
dependence on fossil fuels and metals);
2. concentrations of substances produced by society (reduction in the use of synthetic
chemicals that persist in nature);
3. degradation by physical means and, in that society (reduce our destruction of nature);
4. people are not subject to conditions that systematically undermine their capacity to meet
their needs” (ensure that we are not stopping people from meeting their needs)31
Hence, there are multiple definitions for sustainability. However, for the purpose of this essay,
we will center on the ones presented earlier in this section.
Renewable Energy
The most essential ingredient for the proper functioning of the planet is energy.32
Modern
economies and businesses fully depend on energy. The system would not be able to operate
vii
The Natural Step (a non-profit organization) was founded in Sweden in 1989 by scientist Karl-Henrik Robèrt in
which he laid out the conditions for the sustainability of mankind activities on the planet based on the laws of
thermodynamics. - http://www.thenaturalstep.org/en/canada/our-story/

- 22 -
without an uninterrupted supply of affordable energy. Humans have understood that through the
implementation of energy, we can increase our productivity many times over. Energy is crucial
for all of our activities; for further development, increases in productivity, and improvements in
standards of living. The main problem is that we have been depleting the existing energy sources
that take hundreds of thousands of years to form at rates that do not allow the cycle of
replenishment to do its‟ task appropriately.
Moreover, burning of fossil fuels - the main sources of our energy consumption - produces toxic
byproducts that the biosphere cannot properly digest and that affect the health of the ecosystem
and human beings. The political and cultural shifts during the past few decades have paved the
way for a new energy paradigm in which technological advances have allowed renewable energy
sources to contribute at a continuously growing pace in the energy matrix.
Renewable energies derive from natural resources – wind, rain, water tides, and geothermal heat
– which originate or fully depend on sunlight or the earth‟s core. The term renewable implies
that they are naturally replenished, meaning that they are constantly regenerated through the
natural cycles of the planet. Traditionally, civilization has always depended on renewable energy
for its needs; primarily using firewood (biomass) for heating and cooking. Thus, renewable
energy is not an invention of this past century; it has been around since the beginning of man.
During the first century of the current era, Heron, a Greek engineer from Alexandria employed a
„windwheel‟ to power a machine.33
Three centuries later, a depiction of a „prayer wheel‟ is
shown below.34
Furthermore, it has been said that Hammurabi, the emperor of Babylonia had the
intention of harnessing wind power for an irrigation project over 3,500 years ago.35
viii
viii
Image source: http://www.top-alternative-energy-sources.com/images/watermill_Medieval.jpg

- 23 -
Jumping ahead in the historical timeline, we find some limited uses of wind power before WWI
in places like Denmark, Scotland, USSR, and the USA, but their competitiveness was largely
overshadowed by more efficient fossil-fuel vapor plants.
The most common renewable energy technologies are: biomass, hydroelectric power, wind
(eolic), solar, geothermal, and ocean (tide). In 2008, these types of renewable energies provided
roughly 13 per cent of global energy supply.36
However, we are still in a situation where coal,
gas and petroleum represented 85 percent of world energy production.ix
All of these methods of
producing energy can be properly complemented and do not need to compete for resources.
Biomass implies the burning of biological material such as waste, plant and animal matter,
timber, hydrogen gas and alcohol fuels. Hydroelectric power uses the gravitational force of
water to rotate turbines at the bottom of a damn turning potential energy into kinetic energy, thus
producing electricity. Hydroelectricity accounts for roughly 20 per cent of world electricity
production in 200637
and also accounts for over 80 per cent of electricity derived from renewable
energy sources.x
Wind energy involves the rotation of eolic turbines through the passing of wind. Wind energy is
a very promising technology, as extensive research and development (R&D) has lowered its
costs almost to a point where it can compete with conventional energy sources. Being the basis
for all energy forms, it is somewhat bizarre that we have not been able to effusively harness
solar energy. An interesting fact is that the sunlight that hits Earth‟s surface could represent up
to 10,000 times the amount of energy consumed by humans.xi
Solar energy has taken many
decades to develop and is still relatively far from reaching „grid-parity‟xii
. Nonetheless, solar
energy is gaining momentum mainly through mass production and higher efficiencies. Twoxiii
main technologies exist: photovoltaic panels (PV) – which directly convert sunlight into energy –
ix
Nuclear energy represented about 2% of global energy production
x
It is important to understand that electricity production is only a part of total energy production. Biomass is
directly converted into heat without passing through an electrical state. Nevertheless, new technologies have
enabled the production of electricity through the incineration of biomass, creating heat that produces vapor,
which in turn causes turbines to rotate (electricity production is based on the rotation of turbines through the
conversion of potential energy into kinetic energy, and using the kinetic energy to produce mechanical energy)
xi
According to ‘SolarCentury’, Solar PV has the potential of generating up to 10,000 times the amount of energy
humans directly use on Earth. This claim might pose as highly exaggerated, but it still implies that the potential
energy we could convert from sunlight is massive.
xii
Grid-parity refers to the point where electricity derived from renewable energies is equal to the cost of
traditional electricity extracted from the grid.
xiii
Third-generation technologies have produced interesting advances. Within the Solar Energy we find CSP or CST –
“Concentrated solar power (CSP) systems, also known as concentrated solar thermal (CST) systems, are systems
that use mirrors or lenses to concentrate a large area of sunlight, or solar thermal energy, onto a small area.” -
http://en.wikipedia.org/wiki/Concentrated_solar_power

- 24 -
and photo thermal – for water heating, cooking. Photo thermal can produce very high
temperatures to produce pressured-steam-driven electric generators. Due to its relatively simple
installation requirements and its off-grid operability, solar energy is gaining much impetus in
projects for remote under-developed and developing areas.
Geothermal energy uses the thermal energy that is stored within the planet‟s crust. The manner
of employing its inherent energy is by drilling holes in the Earth‟s surface – usually near tectonic
areas – and using that heat to convert it into energy. Lastly, one of the more debated technologies
is tidal or water energy. The principle is employing the kinetic force exerted by the movement
of water to produce the already mentioned effect of propelling a turbine.
A final note on biofuels to conclude this section; liquid fuels such as, ethanol and biodiesel are
usually analyzed under a different scope that the other sources of renewable energy. This is
mainly due to the fact that it is still heavily debated whether they have an overall positive impact
in our transition towards a clean and sustainable landscape as they compete with food crops
(which might fuel a „food crisis‟) and also further incentive the depletion of natural areas such as
the jungles in Indonesia and the Brazilian Amazon. However, it is worth mentioning that there is
a gigantic window of opportunity for the development of algae-derived fuels to replace
hydrocarbons and crop-usage. Algaculturexiv
has two great advantages: it has the capacity of
replenishing at a very fast pace and it can use land that is not suitable for food crops.
Another highly positive aspect of renewable energies is there is much room for improvement and
further reductions in costs. The positive effects of economies of scale and technological
innovations have greatly improved their yields and reduced their production and operational
costs. On the other hand, non-renewable energy sources are more prone to fluctuations in prices
due to their limited availability and exposure to politically unstable countries/regions, such as:
Venezuela, Libya, and The Middle East. Furthermore, the potential technological improvements
for traditional energy sourcesxv
are rather marginal, as they have already been through extensive
periods of industrial and commercial applications. In “Our Choice: A Plan to Solve the Climate
Crisis” (2009), Al Gore points out three main factors why renewable energies can further
improve their performance and decrease their costs:
xiv
Algae farming
xv
For the purpose of this paper, we will sometimes refer to fossil-fuels or hydrocarbon resources as “traditional
energy sources.”

- 25 -
1. The sources that fuel renewable energy technologies are limitless and free – air, water
flow, wind, sunlight, etc. – therefore, once the infrastructure is in place the relative
operational costs are quite low.
2. To reiterate on what has been said already, fossil fuels are at a stage of maturity that
somewhat hinders the possibility of potential improvements. In contrast, renewable
energies have vast potential room for advancement.
3. Clear political, business and civil commitments to clean energies are allowing production
volumes to increase rapidly through incentives for Research and Development (R&D)
and also through concise policies and goals.38
The latest United Nations Report on Climate Change (May 2011) from the „Working Group III:
Mitigation on Climate Change‟ stipulated some very promising conclusions.39
The Report states
that some technologies have already reached an efficiency level that allows them to contend non-
renewable energy sources in isolation of policies and subsidies. Furthermore, it points out that
renewable energies are part of a broad portfolio of climate mitigation efforts and that dedicated
national policies are imperative for rapid deployment of technologies. According to an
Australian newspaper – The Sydney Morning Herald - a leaked draft from the report estimates
that up to 80 per cent of the world energy supply can be fulfilled with alternative energies by
2050.40
More importantly, it clearly states the potential of renewables to provide the much
needed power for development to poor regions and also enhance energy security for countries
that heavily depend on foreign oil from unstable regions of the world, with the aim of reaching
energy independence and curbing carbon dioxide (CO₂) emissions into the atmosphere.
Even though it is not the main objective of the thesis to provide a deep examination of the pro‟s
and con‟s of renewable energies and the differences among them, it is nonetheless necessary to
understand the dissident perspectives. It is worth pointing out again that this approach is in
accordance with the implementation of the business model we are creating, which will state
inclusion of different opinions regarding all matters as a guiding principle.
A first downside of renewable energies is that they are mainly targeted at producing electricity,
which does not even fuel half of our global energy consumption.xvi
The problem with electricity
is that the current technologies for energy storage in its electrical state are not cost-efficient.xvii
However, there is a good prospect for further advances in technologies for energy storage
transformed into different forms of hydrogen (as gas or metal hybrids). Hydrogen has the great
advantage of producing water (hydro) as its residual matter. Furthermore, intermittence of
xvi
For example, transportation industry primarily depends on petroleum based liquid fuels such as diesel and
gasoline.
xvii
Nonetheless, there are other ways of storing the energy. For example, ‘pumped-storage’ hydroelectricity stores
energy in the form of elevated water. When demand is low, the electricity generated from the turbines is used to
pump water into reservoirs or storage facilities and release it in periods of ‘peak-demand’.

- 26 -
sunlight and wind currents does not provide a proper „baseload‟ capacity.xviii
However, wind and
solar energy can be compatible, as during the low-sunlight seasons (winter and autumn), the
wind blows stronger. Conversely, during the opposite seasons, sunlight shines during longer
periods and at a higher intensity. One additional disadvantage for renewable energies is the
amount of land needed for producing one unit of energy (possibly except for algae derived fuel).
This means that large-scale projects tend to be located in distant places – due to cheaper land
availability – and therefore require expensive transmission lines (which have the problem of
losing a percentage of electricity in proportion to the distance it must carry it).
A final critique to the renewable energies sector is their dependence on public policy in the form
of incentives, translating to subsidies which are derived from fiscal income. However, this
assessment looses validity when you contemplate two points: firstly, the UN Report states that
many of the technologies are at a stage that allows them to compete with traditional hydrocarbon
resources. Additionally, it clarifies that room for improvement is immeasurable. Secondly, the
non-renewable energies industry (nuclear, petroleum, coal, and gas) has been and continues to be
subsidized.41
Renewable Energy and Sustainable Development
Renewable energies are not only important for their potential in assisting our energy needs that
feed our industrial model in its thirst for growth, but also in providing a new energy paradigm
which does not involve the depletion of natural resources and the damage of the environment. In
conjunction, clean energy sources have the capacity of meeting the needs of almost 2 billion
people that have little to no access to electricity.42
For example, solar panels can provide
energy to distant rural areas by leapfrogging the traditional centralized grid systems that
many times are not even connected to these remote areas. According to the UN (2005)
Report: The Millennium Development Goals Report, renewable energy has the capability of
assisting in achieving some of the eight chartered goals in the report:
1. Eradicate Extreme Poverty and Hunger
2. Achieve Universal Primary Education
3. Promote Gender Equality and Empower Women
xviii
“Baseload demand is the minimum amount of power that a utility or distribution company must make available
to its customers, or the amount of power required to meet minimum demands based on reasonable expectations
of customer requirements.” (Energy Dictionary) -
http://www.energyvortex.com/energydictionary/baseload__base_load__baseload_demand.html

- 27 -
4. Reduce Child Mortality
5. Improve Maternal Health
6. Combat HIV/AIDS, Malaria and other Diseases
7. Ensure Environmental Sustainability
8. Develop a Global Partnership for Development
Even though some of these may seem completely unrelated to renewable energy, they are all
intertwined and mutually enhancing. For example, by providing renewable energy in the form of
electricity to low-income households, women can complete house chores more efficiently and
have more time to take better care of their children and also engage in a commercial activity,
thus improving the household income, which can be translated into better nutrition and
healthcare.xix
Moreover, the availability of electricity can provide house illumination – basic
lighting for houses – that enables people to study during the night and work during the day,
which provides opportunities for further improvements in human capital and personal and
professional development.43
Another great advantage of renewable energy sources is their capacity to create or boost
economic activity. As we saw in the previous chapters, energy has the capacity to increase
productivity and yields many times over. For example, by providing electricity to these remote
areas, crop yields can increase substantially, improving the prospect for the entire community
through better salaries, increased commerce, attraction of investment, and development of
parallel businesses.xx
To reiterate on what has been already discussed in previous sections, the replacement of fossil-
fuels with clean energy sources helps tackle some of the myriad of problems regarding climate
change. Renewable energy sources have incomparably lower GHG emissions during their life
cycles, while at the same time producing the same intended benefit: energy provision. The
deployment of renewable energy sources can provide additional sources of incomes to
developing nations by selling „carbon-credits‟ to other countries. A great advantage of these
„credits‟ is that they can be traded prior to the launch of a carbon-free project, thus providing part
of the needed capital to finance them. For example, a project for converting municipal solid
waste (MSW) into energy (be it electricity or eco-diesel) is eligible for trading these credits
xix
It is a harsh reality that in most of the developing and under-developed world, the women are in charge of the
household chores such as cleaning, cooking, and taking care of the children. Therefore, there is no intention of
gender-discriminating when assessing the situation from this angle. Mohammed Yunus’ micro-credit model
(Grameen Bank) is mostly based on providing financing to women instead of men.
xx
Increased incomes translate into improvement in standards of living

- 28 -
through a broker that discounts the expected „credits‟ produced during the lifespan of project and
sells through the ETS.xxi
Alternative or renewable energies also have the faculty of making electricity generation less
reliant on natural gas or coal, which assists any community or country in securing its energy
needs through the local production of energy and avoiding dependence of foreign natural
resources and its inherent volatility.44
Up to this point, many people have proposed nuclear power as a non-renewable, but relatively
clean energy source. However, the recent disasters at the nuclear facilities in Fukushima, Japan,
made clear the extremely harmful potential that a „nuclear meltdown‟xxii
poses. The world was
quickly reminded of the catastrophic effects of the „Chernobyl Disaster‟ in the mid 1980‟s,
where according to a Russian publication almost one million excess deaths resulted from
radioactive contamination and clean-up efforts have taken up billions of dollars, as well as
years.45
Even so, vested interests and political commitments will continue to leave the window
open for nuclear energy.
Many countries, including Germany, were quick to reaffirm their commitment to renewable
energies and to plan a thorough re-examination of existing nuclear power to determine effective
dates when nuclear facilities are to be retired. According to the BBC, “Germany's coalition
government has announced a reversal of policy that will see all the country's nuclear power
plants phased out by 2022.”46
In addition to this, uranium and plutonium – key ingredients in
nuclear power – pose an additional threat as they can potentially be enriched to levels where they
can produce weapons of mass destruction. For example, most of the global community is highly
concerned with Iran‟s true intentions behind the development of nuclear power.47
Finally, the enhancement of a country‟s reputation can be greatly derived through commitments
to clean energy. Not only companies, but also governments can attract foreign investments and
improve development prospects. According to the UN Report, renewable energy is considered
one of the more future-oriented and innovative sectors and it can provide a good basis for
business opportunities. Countries can easily win trust from international companies and
organizations through the implementation of solid, long-term oriented, public policies that create
a stable panorama for investment.
xxi
Emissions Trading Scheme
xxii
Nuclear meltdown is an informal term for a severe nuclear reactor accident that results in core damage from
overheating.

- 29 -
To conclude this part of the essay, I would like to indicate that all these factors point in one
direction: the formation of a “perfect storm”xxiii
, of sorts, through concrete political support,
hydrocarbon resources instability, and broad „green‟ awareness. According to the UN
Environment Programme48
, “climate change concerns, coupled with high oil prices, peak oil, and
increasing government support, are driving increasing renewable energy legislation, incentives
and commercialization.” Nonetheless, further expansion of clean energies is not relentless and
still has to overcome many obstacles displayed in vested interests, improper public policies and
incentive structures that harness technological developments and improvements, and subsidies to
traditional energy sources.49
xxiii
“A perfect storm is an expression that describes an event where a rare combination of circumstances will affect
a situation drastically.” - Andrew Stern (2008). "Wordsmiths, avoid these words." Reuters.

- 30 -
Review of the Literature and Theoretical Framework
The review of the literature will allow us to formulate a proper theoretical framework that will
serve as the basis for the business model that we aim to construct, which optimistically will serve
as a means of achieving sustainable development in the Andean region through the
implementation of small-scale renewable energy technologies. This section will provide an
examination of seven academic papers and business reviews that provide insight, research and
implications of the topics related to sustainability and environmentalism from the business and
economic perspectives.
Creating a Shared Value (Porter and Kramer; 2011)50
In “Creating a Shared Value” (CSV hereafter), Porter and Kramer describe a situation in which
capitalism is being heavily attacked by society and by politicians due to its inefficiency in
translating concrete benefits to society; benefits such as, health and wellbeing. This conflict is
causing politicians to hinder further economic growth efforts through the implementation of
inadequate policies and regulations. These policies have been institutionalized through the
misconception of a supposed trade-off between business efficiency and social prosperity.
Traditional business practices are seen as misaligned with social goals and this has caused the
legitimacy of the private enterprise to descend to unprecedented levels in contemporary times.
Two main problems arise: the first is that political leaders understand that society depends
heavily on the prosperity of business; and secondly, “capitalism is an unparalleled vehicle for
meeting human needs, improving efficiency, creating jobs, and building wealth.”
All being said, the authors suggest that capitalism has to reinvent itself and redefine itself around
the concept of “Creating Shared Value” – a concept that will be further explored in the
following paragraphs. Porter and Kramer argue that through this new configuration of capitalism
a wave of innovation and growth will be unleashed and that the true potential of capitalism will
be exploited, thus enabling it to flourish while simultaneously meeting societal needs without
further deteriorating the environment.
Strategic analysis and academic theory have contributed in the molding of economic models in
the past century; the concern is that the actual extent of creating economic value has diminished,
thus impeding businesses from harnessing their full potential, and with this, the possibility of
tackling widespread social challenges. The article explains that many companies are

- 31 -
profiting at the expense of society by boosting their revenues through „demand-push‟ and
marketing-amplified approaches that shorten product life cycles (PLC) and stimulate
consumerism and materialism without considering its drawbacks. Therefore, companies are
inflating their short-term profits without seeking ways that truly benefit society. The rise of
environmental concerns and sustainable development challenges led companies to start tackling
reputational problems through the „Corporate Social Responsibility‟ (CSR)xxiv
lens. Even though
this has been a good preliminary initiative for businesses to revise harming corporate practices, it
has placed societal concerns as peripheral issues. The CSV approach explains that social and
ecological concerns should be at the core of strategic thinking and incorporated into the
firm‟s operating guidelines.
The authors propose that the solution lies in the principle of shared value. This novel
methodology implies that companies should create economic value while addressing social
challenges and needs. CSV does not entail charity work or the founding of NGO‟sxxv
to solve
these needs; it suggests a major redirection in the way companies should achieve success.
Companies need to understand that issues such as, nutrition, education, health, environmental
destruction, and more recently, the mortgage crisis, are highly related to its activities and that
they affect its own long-term viability.
“Shared Value can be defined 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. It focuses on identifying and expanding the
connections between societal and economic progress.”
The article backs its findings through examples of companies as, General Electric, IBM, Intel,
Google, Johnson and Johnson, Nestle, Wal-Mart, and Unilever, which have begun to redesign
their business models by redefining the interrelations that mutually enhance social and corporate
performance. We will further explore some of these examples in the „Business Cases‟ section of
this essay.
Porter and Kramer explain that classical economic theory supposes that the mere act of
producing profits through self-interest will yield the most efficient economic combination and
xxiv
“CSR policy functions as a built-in, self-regulating mechanism whereby business monitors and ensures its active
compliance with the spirit of the law, ethical standards, and international norms.” - D Wood, 'Corporate Social
Performance Revisited' (1991) 16(4) The Academy of Management Review (extracted from Wikipedia).
See Annex 1 for a comparison chart between CSR and CSV.
xxv
NGOs are defined by the World Bank as "private organizations that pursue activities to relieve suffering,
promote the interests of the poor, protect the environment, provide basic social services, or undertake community
development" Operational Directive 14.70 - Duke University Libraries. (extracted from Wikipedia)

- 32 -
that general welfare will increase correspondingly. Nonetheless, decades of empirical analysis on
capitalism show that the State must institute policies that reallocate economical gains in the form
of public goods. CSV goes further along this path by pointing out that the concept of “sharing
value” does not imply the redistribution of private profits, but actually enlarging the total pool of
social and economic value. The authors are not proposing to eliminate capitalism and create a
new system of economic configuration. On the contrary, they simply demonstrate the
weaknesses in our current conception of capitalism by showing that this is the most efficient
model to produce economic and social welfare. However, companies need to expand its scope
and produce benefits for the entire society. The writers illustrate that working within the CSV
framework is fully aligned with the capitalist mindset in which seeking our best interests will
produce the best outcome and that these actually result in producing better tangible benefits for
society. The suggestion is to re-think the traditional business approach and understand that
“what‟s good for society is actually good for business” and not the other way around.
Companies have long-missed many opportunities to enhance their profits by actively lobbying
and avoiding policies instead of embracing these changes and regulations as opportunities to
challenge their business practices. Furthermore, social issues and internal inefficiencies translate
into costs for companies – for example: wasted resources, accidents, and need for further
employee training to counterbalance lack of prior education or coaching. As Schumpeter cleverly
pointed out, economic analysis should be performed in its dynamic context and not in a static
one. Companies shouldn‟t bluntly consider that remedial efforts will either reduce revenues or
increase costs, but should understand that through innovation, exploration of new markets and
increases in productivity they can offset some of the short-term expenses mentioned and improve
their own competitive position.
As managers have the bad habit of treating social concerns as peripheral, they have been blind to
spotting the inherent connections and mutually benefiting relationships between the social sphere
and the business world. This is greatly due to the fact that businesses have not used the same
approach towards the analysis of value as they have with their operations. Economic progress is
addressed using value principles which define it as „benefits minus costs‟. CSV proposes that
social and economic progress should be measured using the same metric. To aggravate the
situation even more, thinking in terms of value within the political and social spectrum is far
more uncommon. Porter and Kramer advocate that collaboration between firms and governments
and NGO‟s would highly rise if this simple concept is homogenized.

- 33 -
Creating Shared Value in Practice
If companies begin to treat environmental issues as productivity drivers rather than obligations to
succumb to policies and outside pressure, important innovations will spur. Paradoxically, most
shared value practices have emerged from social entrepreneurs and companies with more limited
resources. A common trait is that these small firms have understood that “not all profit is equal”
(in direct reference to opportunistic, short-sighted profits). The authors propose three key ways
in which shared value opportunities can arise:
1. Reconceive products and markets
2. Redefine productivity in the value chain
3. Enable local cluster development
These three approaches form a virtuous cycle of shared value that acts as a catalyst by enabling
new opportunities through the improvement in value in each area. Based on the premise that the
objective of this paper is to stimulate progress in under-developed areas, we will focus mainly on
the third avenue for accomplishing shared value. The inception for this approach arises from a
deep revision of all societal needs and benefits, as well as harms that can be incarnated in the
firm‟s products and business model. Due to the dynamic aspect of this framework, new
opportunities will constantly appear as the prosperity of the market grows. Therefore, an open
perception and keen sensitivity through the constant exploration of evolving social needs will
allow companies to discover new opportunities to increase their market presence. This
reinforcing cycle will allow entrepreneurs to continuously open new markets and redefine their
growth potentials.
The idea that companies are autarchic and self-contained is incongruous. Nevertheless, if we take
the view of traditional economic theory to the extreme, we could say that this has led many
companies to believe that they can act in their own self-interest without considering exogenous
variables. Innovation and operational efficiency are both highly influenced by „clusters‟.xxvi
Clusters are enhanced by the presence of trade associations, educational institutions, public
policies, transparency, health systems, and infrastructure, among other factors. Firms should
recognize gaps and deficiencies in the systems and analyze which aspects affect its operability
the greatest and find innovative solutions to collaborate with local authorities and communities
to disentangle such constraints.
xxvi
Clusters are “geographic concentrations of firms, related businesses, suppliers, service providers, and logistical
infrastructure in a particular area – IT in Silicon Valley, flower cutting in Kenya, and diamond cutting in Surat,
India.” – extracted from CSV (Porter and Kramer, 2011)

- 34 -
CSV can be reflected when companies contribute in the improvement on local conditions that
actually enhance its own productivity. These initiatives will be much more effective than
traditional CSR programs that often try to target broad and unrelated issues without using a value
lens. If companies work together with local partners, they can enable transparent and efficient
markets that allow them to secure the provision of much needed resources for production and
position themselves better in relation to the competition. By collaborating in the improvement of
local conditions, companies can find ways to assist in the upgrading of products and would be
more willing to pay higher prices for better quality inputs. As societal needs progress and local
incomes increase, a self-reinforcing cycle of economic and social development becomes
empowered. Similar to the example of Henry Ford‟s „$5 per day‟, where he realized that he
could enlarge his own market by increasing people‟s incomes, the CSV approach takes this many
steps further.
Traditional procurement practices in the last few decades have striven to find the cheapest
suppliers and exert power to further lower costs. „Fair-trade‟ purchasing was conceived as an
innovative approach to CSR. However, this technique is a redistribution approach that does little
to enlarge the pie. In the „Business Cases‟ section we will examine how Nestlé/Nespresso
redesigned its procurement through a CSV scheme. It is worth pointing out that early studies on
cocoa farming in the African nation of Cote d‟Ivoire showed that the „fair-trade‟ approach can
increase farmer earnings by 10 – 20 per cent. On the other hand, a shared value approach can
actually increase farmer incomes by over 300 per cent! Through the provision of technology and
financing, as well as by assisting local producers in accessing inputs – i.e.: energy, machinery,
and fertilizers – firms can secure increasing volumes of higher quality products.
Porter and Kramer stress the importance of „Social Entrepreneurs‟ – category under which our
„Project‟ will probably be labeled – in their ability to scale up at a much faster pace than non-
profit organizations, as their social programs are usually incapable to continue operating or
expanding due to their inability to self-sustain. In addition to this, social entrepreneurs produce
new product concepts that tackle societal needs through the implementation of feasible business
models. Their advantage is represented in their capacity to analyze problems through a broad
perspective that is not subject to constricted corporate mentality. Through this, they can explore
new business opportunities in a more proactive manner, as well as change more agilely in an
ever-evolving context.

- 35 -
Creating a shared value blurs the divisory line between the for-profit and the non-profit models.
A new species of hybrid business model appears and many of the issues shown in the diagram
below are central in the strategic objectives of the firm.
xxvii
Under-developed nations and developing nations with extensive rural areas have an
immeasurable space for progressing and advancing.xxviii
To construct a business model that
targets these areas one must first understand that majority of the needs that are common in the
developed world are far up the hierarchical pyramid of needs. These areas, or markets if you
will, still lack basics such as - proper housing, electricity, running water, balanced nutrition, and
primary or secondary education. Companies that target these basic needs as part of their business
proposal are in an optimal position to expand their offerings in parallel to the development of
their markets. As we saw, catering to these needs does not necessarily entail a trade-off. CSV can
unravel the “next wave of business growth and innovation” through the reconciliation societal
and enterprise success. “CSV represents a broader conception of Adam Smith‟s invisible hand; it
is not philanthropy but self-interested behavior to create economic value by creating societal
value.”
Green and Competitive: Ending the Stalemate (Porter and van der Linde; 1995)
xxvii
Extracted from CSV (Porter and Kramer, 2011)
xxviii
In many parts of this essay I will avoid using the word ‘growth’ due to its deep affinity to classic capitalism.

- 36 -
The academic paper presented in this section clears-up a misconception in the idea that there is a
fixed and inherent trade-off between economy and ecology; where increased social
(environmental in this case) benefits necessarily reduce a firm‟s profits (i.e.: prevention and
clean-up costs). It is important to place this essay in its context, as it was written in 1995 when
public policy regarding the environment was not as advanced as today. Nonetheless, this paper
poses an interesting framework with prescriptions that will suit the purpose of the essay.
Politicians have pursued stringent policies that businesses have perceived as threats that will
necessarily increases costs and erode competitiveness. This situation has resulted in a stalemate.
Through theoretical analysis and empirical research, the authors argue that “tougher
environmental standards actually can enhance competitiveness by pushing companies to use
resources more productively, and managers must start to recognize environmental improvement
as an economic and competitive opportunity, not as an annoying cost or an inevitable threat.”
By incorporating the environment into strategic and operational thinking, companies can
innovate to increase resource productivity. Properly designed public policies have the possibility
of inducing creative thinking that can result in innovations that improve resource efficiencies
reflected in - better usage of raw materials, labor capacity, and power management. The
enhanced productivity should easily offset the increased direct costs of compliance to
environmental standards.
Once again we see that business managers, environmentalist, and politicians analyze economic
impacts of environmental regulation through a myopic and static lens, instead of embracing the
opportunities that enhanced operational efficiencies can produce in their dynamic context.
If we accept the premise that pollution is equal to inefficiency, then we can consider that
pollution can be seen as economic waste. Regulators and business leaders have the bad habit of
focusing on the short-term effects that environmental remediation efforts have on their balance
sheets instead of considering the opportunity costs of pollution. These costs refer to inefficient
use of resources, reduced quality of products, and wasted efforts. Customers usually bear the
extra costs when buying products that waste energy or contaminate the environment.
Recalling the „Quality revolution‟ in the 1980‟s, we can hardly question today the idea that
innovations can simultaneously improve the quality of products while decreasing the production
costs. Porter and van der Linde propose that the new view on pollution as a result of resource
inefficiency is much related to the previous idea. Nevertheless, before the „Quality movement‟,

- 37 -
business executives believed that this was a situation of fixed trade-off. The reasoning for
sustainability follows the same guidelines:xxix
 “Use inputs more efficiently
 Eliminate the need for hazardous, hard-to-handle materials
 Eliminate unneeded activities”
The authors illustrate that a new breed of environmentalists – “The New Environmentalists”xxx
–
have the capability of working dexterously with businesses by promoting the best practices and
acting as educators. Rather than spending so much time and resources on litigations and „anti-
business campaigns‟, these groups could accomplish much more by cooperating with business
leaders to further investigate environmental issues and spread useful information to consumers
and companies.
Aside from the debate regarding the accurate extent of the damage of the environment, from the
profit-maximizing agent point of view, there is no reason to operate under the current framework
where private costs are much in excess of what they could be. Business leaders should not waste
so many efforts through intense lobbying and expensive environmental lawyers in order to find
legal-loopholes. Instead, they should ask themselves – “what are we wasting and how can we
enhance customer value?” Possible explanations to this irrationality could be ignorance and
rigid mental frameworks.
Cradle to Cradle: Remaking the Way we Make Things (Braungart & McDonough; 2008)
“The way we raise our children would do more to change the world than empire-builders and
new industries.”
Braungart (a German chemist) and McDonough (an American architect) propose a radical
change in the linear – „cradle to grave‟ – industrial production system that put us in the very
delicate environmental situation we currently face. Cradle to Cradle (C2C hereinafter) takes the
basic operating principles from nature, in which waste equals food, and incorporates them into
an industrial system that functions in a cyclical manner. The book explains how vast amounts of
valuable materials end up in our heavily polluted landfills with little possibility of re-
employment. Traditional agricultural practices understood that they need to repay the fields in
xxix
Please see Annex 2 for the following table – “Environmental Improvement Can Benefit Resource Productivity”
xxx
Please see Annex 3 on an extract from the article regarding “The New Environmentalists”

- 38 -
exchange for what it extracted. C2C puts forward the idea of translating the principle of “the law
of return” to our industrial and commercial practices. For example, by using vegetable-derived
instead of plastic-derived bags we are providing nutrients for future crops once these are
disposed.
The traditional linear exploitation of natural resources that fuels our economic model is very
much like depending solely on your savings for your daily expenses – it is simply not viable.
This model is affecting climate changes and environmental degradation and we are experiencing
a situation of more drastic weather variability – hotter summers, colder winters and stronger
storms.
Our planet is mainly composed of two discrete metabolisms: the biological and the technical.
The first one refers to nature‟s cycles. The latter alludes to the technosphere; these are the cycles
within the industrial system. The technical metabolism depends on the biosphere for extracting is
technical materials (resources). The authors‟ argument is that through a reconfiguration of the
design in the industrial cycle, goods manufactured by industries can safely feed both
metabolisms, thus providing proper nutrition for their perpetuation.
Through reconnection with all the natural cycles that harmoniously function under the sun, we
can reorganize our economic systems by combining ancient practices with the latest technologies
to produce environmentally-friendly designs that yield better outputs for everyone (the same
principle proposed by the CSV view in the previous section, where it is not a matter of
redistribution, but a matter of enlarging the pie). The following diagram proposes a balancing of
the three main components that co-exist in this planet:
As Albert Einstein cleverly pointed out, "the definition of insanity is doing the same thing over
and over again and expecting different results.” The C2C approach exemplifies this statement

- 39 -
by showing that even though our instincts would tell us that „eco-efficiency‟ is good, it does
nothing more than simply curbing our speed of ecological decay, as it belongs to the same
system that led us to this complicated situation. “Efficient destruction is harder to detect and
thus harder to stop. Efficiency is a valuable tool when conceived as a transitional strategy to
help the current system slow down and turn around.” Braungart and McDonough assimilate
their C2C approach to a „Community of Ants‟:
 “Safely and effectively handle their own material wastes and those of other species;
 Grow and harvest their own food while nurturing the ecosystem of which they are a part
of;
 Construct houses, farms, dumps, living quarters, and food-storage facilities from
materials that can be truly recycled;
 Create disinfectants and medicines that are healthy, safe, and biodegradable;
 Maintain soil health for the entire planet”
Probably the example of how ants engage their world cannot be directly translated into our
reality. However, it serves its purpose as to challenging people to question the current industrial
paradigm and seek innovative solutions that benefit all of society.
To close this chapter on the Cradle to Cradle methodology, the guiding principles for a proper
implementation of this system are presented:
1. “Signal your intention – Commit to a new paradigm, rather than to an incremental
improvement of the old;
2. Restore – strive for “good growth,” not just economic growth;
3. Be ready to innovate further – no matter how good your product is remember that
perfection of an existing product is not necessarily the best investment one can make;
4. Innovation requires noticing signals outside the company itself: signals in the
community, the environment, and the world at large. Be open to “feedforward,” not just
feedback;
5. Understand and prepare for the learning curve – the ability to adapt and innovate
requires a “loose fit” – room for growing in a new way;
6. Exert intergenerational responsibility – In 1789 Thomas Jefferson wrote a letter to James
Madison in which he argued that a federal bond should be repaid within one generation
of the debt. “The earth belongs… to the living… No man can by natural right oblige the
lands he occupied, or the persons who succeeded him in that occupation, to the payment
of debts contracted by him. For if he could, he might, during his own life, eat up the
usufruct of the lands for several generations to come, and then the lands would belong to
the dead, and not to the living.”

- 40 -
Sustainability as the Key Driver of Innovation (Nidumolu, Prahalad, Rangaswami; 2009)
Much in line with the previous articles presented, the authors of this paper argument that there is
a general misconception regarding the idea that “making our operations sustainable and
developing green products places us at a disadvantage vis-á-vis rivals in developing countries
that don‟t face the same pressures.” Additionally, business executives keep treating issues of
sustainability and environmental decay as if they were exclusively jurisdiction of their CSRxxxi
departments.
The authors seem to think that voluntary actions to promote stronger regulations are not going to
be enough to make businesses „sustainable‟ (meaning environmentally and socially conscious in
this context). They also say that educating consumers so that they coerce companies to become
more sustainable is good, but may not be enough to fully solve the problem. Therefore,
companies need to re-think their approach towards sustainability and grasp the idea that
sustainability can drive innovations that will benefit them in the long-term.
Research from thirty large enterprises showed that sustainability initiatives are a mother lode of
technological and organizational innovations, and that they increase the financial returns, as well
as reputation, which also contributes to the viability of the business. Here are some of the ways
in which these initiatives can be translated into tangible results. In first place, tackling
sustainability challenges can lead to innovations that can decrease costs and boost revenues. By
promoting an environmentally-friendly attitude, companies optimize their inputs, which in turn
decreases costs. Accordingly, this raises revenues due to the commercialization of better quality
products that should result from this process. Likewise, new products and business divisions can
offshoot from this creative process. The authors go as far as stating that “in the future, only
companies that make sustainability a goal will achieve competitive advantages.” This will result
in a profound re-shaping of business models, technologies, processes, and products. If companies
treat sustainability as a main component of strategic planning, they will be able to enjoy early-
mover advantages that can translate into competencies that will further raise barriers of entry.
Considering that ecological issues are here to stay, these competitive advantages will permit
companies to be at the forefront of sustainability strategies and better positioned than the
competition.
xxxi
Corporate Social Responsibility

- 41 -
To accomplish a business framework within a sustainability approach, there are five stagesxxxii
that will assist companies in reaching this perspective:
1. “View Compliance as an Opportunity
2. Make Value Chains Sustainable
3. Design Sustainable Products and Services
4. Develop New Business Models
5. Create „Next-Practice‟ Platforms”
The first stage proposes that companies view environmental standards and public reforms as
opportunities to gain first-mover advantages that might foster innovation. By meeting new
norms, companies have time to experiment with new technologies and materials. For example,
Hewlett-Packard (HP) realized that lead was a toxic material and that eventually it would be
banned. Therefore, it started eliminating its usage years before it became compulsory. This
situation allowed HP to be ahead of competition and promoting new standards to the industry
through encouraging suppliers to abide to their requirements. The indicated also enabled HP to
enjoy great relations with politicians, which empowered them to be part of commissions for
creating future environmental regulations in the European Union. Firms in the front line of
regulations can more easily identify new business opportunities.
The second stage talks about making value chains more sustainable and training suppliers and
local providers to become more environmentally-aware. This can improve the image of the
company through enhanced reputation and also reduce procurement costs.
The next step examines how to re-design products and services to make them sustainable. If
companies can understand the public‟s concerns, they can use them to examine the „product life
cycles‟ and learn new ways to merge marketing knowledge to improve their value chains.
Procter and Gamble (P&G) and Clorox have been at the vanguard of innovation regarding the
use of eco-friendly products for households. Even though the public relations (PR) benefits have
been immense, the competencies they have developed through these processes will surely help
them dominate tomorrow‟s markets.
The fourth stage describes the situation where companies develop new business models to
nourish their sustainability strategies. Sustainability is much more than simply polishing-up
the „customer value proposition‟. In order to develop new business models, companies have to
challenge their operational practices. Companies must act in a more entrepreneurial manner to
xxxii
See Annex 4 for the original table

- 42 -
identify new ways of delivering value to customers. Firms that manage to incorporate these
principles can use their experience to achieve profound innovation within this framework
(sustainability), where the positive side-effects of their actions result in exponential gains that
trickle their way to broader markets.
The final stage implies the creation of „next-practice‟ platforms that can create radical
innovations that alter the market conditions in favor of the daring companies. For example,
ideas such as, developing waterless detergents, breeding rice that grows without water, or using
biodegradable packaging that helps seed new plants and trees?, should be part of the creative
brainstorming that should yield in new paradigms.
The transition to a low-carbon economy requires much leadership and talent. The current
economical system has exerted too much pressure on our natural habitat, while only tending to
the needs of about a quarter of its continuously growing population. With the advent of emerging
economies and their populations into the „economic structure‟, we will need to find creative
ways of co-existing with the ecosystem.
A Natural-Resource-Based View of the Firm (Hart; 1995)
The first two paragraphs will serve the purpose of introducing the reader into the theory of the
„Resource-based-view of the Firm‟ (RBV) and allow him/her to understand the importance of
developing strong internal competencies. Ergo, we move to the main topic of this paper which
takes the view of the RBV, but incorporates a new dimension – „nature‟ to the theory.
Management theory explains that „competitive advantages‟ enable companies to endure in time.
The „Resource-based‟ theory proposes that the essential elements for „sustainable competitive
advantages‟ derive from „costly-to-copy‟ firm capabilities and resources (Barney, 1991;
Wernerfelt, 1994). The diagram below explains the interrelations between resources, firm
capabilities, and competitive advantages:

- 43 -
xxxiii
Decisions regarding the time of entry in a market and the intensity of commitment with which a
company enters a market are essential to securing the proper competitive advantages
(Ghemawat, 1986; Lieberman & Montgomery, 1988). As we reviewed previously, „first-mover
advantage‟ can assist in raising the barriers to entry, through the implementation of standards for
the industry or privileged access to supplies, clients, among other factors. Through a preemptive
strategy or „preemptive commitment‟, a firm can increase its chances in dominating a specific
market or niche within the market (Porter, 1980). Additionally, employees, as well as physical,
financial, and intangible assets - which constitute the resources of a firm - should facilitate
efforts to raise the „barriers to imitation‟ (Rumelt, 1984). Specific combinations of strategically
important resources also contribute in the viability of a company in the long-term (Barney,
1991; Reed & DeFillippi, 1990).
Hart points out that circumstances such as an exclusivity deal with suppliers or brand image and
reputation can also contribute in this task. Ultimately, and possibly more importantly, these
resources should be hard to clone due to their „tacit‟ (casually ambiguous) or „socially complex‟
character. Tacit refers to resources that are “skill-based and people intensive,” and are
accumulated through a process of „learning-by-doing‟ which camouflages them in the eyes of
competition (Itami, 1987; Polanyi, 1962). On the other hand, socially complex resources are
xxxiii
Extracted from the A Natural-Resource-Based View of the Firm (Hart, Stuart), 1995.

MSc. Thesis - Alejandro Freund - A Proposal for Sustainable Development in Rural Latin America

MSc. Thesis - Alejandro Freund - A Proposal for Sustainable Development in Rural Latin America

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