What is impact business and why is it a new economy trend

In today’s market, companies are thinking more about the positive impact on the environment and social life. Why should commercial brands be mindful and what is impact entrepreneurship?

Impact and social project: what’s the difference?

Impact is a significant positive change in the world, people’s lives, the public sphere as a result of entrepreneurial activity. The mission of impact business is to work not only for the sake of money, but also to help solve important world problems.

The main difference between an impact project and a social enterprise is that impact implies a sustainable and long-term change in social processes, and not just the creation of a public good. The goal of an impact enterprise is to change the state of the public sphere, to make it more favorable for society. For example, if a social project helps animals, then the impact project will offer solutions so that new homeless animals do not appear at all.

Sometimes entrepreneurs use the concept high impact, it means a positive change that can be scaled to a large number of people, the territory of a city, region or wider.

Both NGOs and commercial organizations can set impact goals. But in reality, it is very difficult for the latter to combine them with the interests of shareholders to maximize profits. Therefore, the concept of Public Benefit Corporations has recently been developing – commercial corporations (with shareholders, the ability to attract investments, issue shares, make a profit), but having the ability to fix in the charter not only financial goals.

In the UK, such companies were first mentioned in the Health and Social Care (Community Health and Standards) Act 2003, and in the US, regulation of these organizations is at the state level (the federal government does not deal with the issue) and was actively developed in several states in the early 2010s years.

When did the business awareness trend start?

The development of ideas of corporate philanthropy in the XNUMXth century led to the emergence of Environmental, Social and Corporate Governance (ESG) – the practice of responsible development of organizations. A great contribution to their development was made by trade unions, which in the middle of the XNUMXth century began to actively protect workers in factories in industrialized countries (for example, in the USA). From there, in the second half of the XNUMXth century, concepts corporate social responsibility (CSR) и socially responsible investment (SRI). Over time, socially responsible investing has evolved into the notion of impact investing, which differs from conventional investing in that it is always done with the intention of having a measurable, beneficial social or environmental impact along with a financial return (definition by GIIN, one of the largest organizations that popularizes this term and approach) .

Rights movements and litigation forced corporations to care more about workers, consumers, and the environment. Investors were forced to invest in more responsible companies for the sake of their reputation.

During the boom of Internet companies in the 2000s, the usual image of an entrepreneur began to transform towards a person capable of changing the world for the better (the slogan “make the world a better place”). A generation of entrepreneurs emerged who publicly prioritized not making money, but positive change.

Their companies proved to be popular with buyers and, as a result, financially successful. Famous examples: Apple during the leadership of Steve Jobs or the KickStarter service. The founders of the latter not only created entrepreneurial crowdfunding, but also voluntarily limited their profits by agreeing with the shareholders (realizing the idea of ​​the Public Benefit Corporation). The experience of these companies has led more entrepreneurs to create new products and develop companies not for the sake of wealth, but for the sake of changing the world for the better.

Why companies need to think about society

Organizations are forced to consider social and economic effects because they are increasingly taken into account by buyers and shareholders (deciding to make a purchase or invest your money). Their decisions are influenced by the availability of information about environmental and social catastrophes in the world. No one wants to be involved in poisoning people with water from a river polluted by a factory or wearing a T-shirt sewn by the hands of a hungry child. Thanks to the availability and openness of information, it is becoming increasingly difficult for corporations to remain in the shadows, destroying nature and not respecting the rights of people.

Another important reason for the development of social responsibility is the general increase in the well-being of people in the world. Over the past 30 years, the number of extremely poor people has decreased from 2 billion to 600 million. If basic needs are covered, then the population begins to think more about health, education and quality of life.

This generates a demand for conscientious manufacturers who care about the environment and the social environment. In its annual reports, GIIN notes that socially responsible investors, on average, have a higher return on investment. This is due to the fact that consumers, taking care of their health and well-being, try to buy healthy products whenever possible.

Consumers are learning to make better choices. Every scandal involving manufacturers who deliberately made a harmful product in order to make more money shifts people’s attention towards conscientious and open.

The 2020 pandemic has also forced people to rethink their habits towards conscious consumption. Many have noticed that they do not need a large number of things, the world as a whole has rallied around something more than uncontrolled consumption.

Modern cases and barriers to impact development

One of the most important problems in the field of impact is that it is difficult and expensive to measure. This is due to the fact that organizations create positive and negative effects at the same time, forming complex relationships between them. If we talk about impact entrepreneurship (companies that have been able to create sustainable changes in society), then several groups can be cited as an example:

How to start your journey into the impact business?

First of all, you need to evaluate the desired changes. Answer the questions in detail: why are we creating a technology, a product or a company? How will it make people’s lives better? You need to have a good understanding of how people (including those who are not like you) make decisions, and what “better” means to them. It is important to study history and find inventions and organizations that significantly changed the world in the past (and what prevented them).

Follow those who are doing really important things today: Elon Musk, Pavel Durov, Lieberman Brothers, Max Roser, Jeff Bezos, Otto Sharmer. And separately for the topics of quantum computers, artificial intelligence, post-capitalist economy, climate change, education, space exploration and overcoming violence and aging.