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

Impact and social project: what is the difference?

Impact is a significant positive change in the world, people’s lives, and the public sphere as a result of entrepreneurial activity. The mission of Impact Business is to work not only for money, but also to help solve important global 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 an impact project will offer solutions so that new homeless animals do not appear at all.

Sometimes entrepreneurs use the concept of high-impact, which 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 been developing recently — commercial corporations (with shareholders, the ability to attract investments, issue shares, and make a profit), but having the ability to record 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.

When did the trend for business awareness begin

The development of ideas of corporate philanthropy in the 20th century led to the emergence of Environmental, Social and Corporate Governance (ESG) — the practice of responsible development of organizations. A major contribution to their development was made by trade unions, which in the middle of the 20th century began to actively protect workers in factories in industrialized countries (for example, in the USA). From there, in the second half of the 20th century, the concepts of corporate social responsibility (CSR) and socially responsible investment (SRI) emerged. Over time, socially responsible investing evolved into the concept of impact investing, which differs from conventional investing in that it is always made with the intention of producing a measurable, beneficial social or environmental impact along with a financial return (as defined by GIIN, one of the largest organizations popularizing this term and approach).

Rights movements and lawsuits 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 Internet boom of the 2000s, the traditional 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 put positive changes first, not profits.

Their companies turned out to be popular with customers and, as a result, financially successful. Famous examples: Apple under 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 shareholders (implementing the idea of ​​a Public Benefit Corporation). The experience of these companies has forced more and 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 (when deciding to make a purchase or invest their money). Their decisions are influenced by the availability of information about environmental and social disasters in the world. No one wants to be involved in poisoning people with water from a polluted river or wearing a T-shirt sewn by a hungry child. Thanks to the availability and openness of information, it is increasingly difficult for corporations to remain in the shadows, destroying nature and not respecting people’s rights.

Another important reason for the development of social responsibility is the overall growth of human well-being 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, the population begins to think more about health, education and quality of life.

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

Consumers are learning to choose products better. Each scandal associated with manufacturers who intentionally made a harmful product to earn more money shifts people’s attention towards conscientious and open ones.

The 2020 pandemic also forced people to reconsider their habits towards conscious consumption. Many have noticed that they do not need a large number of things, the world as a whole has united around something greater 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 simultaneously, forming complex connections between them. If we talk about impact entrepreneurship (companies that have been able to create sustainable changes in society), then we can cite several groups as an example:

1. Bringing the world closer to openness, accessibility of information and knowledge: Wikipedia, Khan Academy, OurWorldInData, Facebook, Google Search, TED, YouTube, Lambda School, HackClub, 42 school. Many will say that some of these companies make people dependent and shape their worldview — there is some truth in this. But there is a simple way to check: what kind of world would we like to live in, where these companies are or where they have never been?

2. Create new effective ways and tools for collaboration: Skype, KickStarter, Google Suite (shared documents and storage), GitHub — all of them create constant support for millions of other important projects around the world, promote mutual learning between people, disseminate knowledge and best practices.

3. Form the foundation of a society without violence: Telegram, Blockchain, 23andMe, HeadSpace. Overcoming violence is one of the most important next frontiers and challenges for humanity. An important role in this will be played by: self-identification of people around the world, technologies of information transparency and equalization of access to it, technologies of ensuring symmetrical interaction, decentralization, provision of basic needs (including mental ones).

4. Create technologies for significant reduction in the cost of everyday consumer goods: McLean, Tesla, SpaceX, AirBNB, Uber, Impossible Food, Amazon, Apple iPhone / iTunes / AppStore — all of them are pushing their industries to a complete restructuring, and all of them already have or will inevitably have millions, tens and hundreds of millions of users every day.

5. Preventing an ecological catastrophe: Stripe, Pachama, Impossible Food, Tesla, Patagonia, OurWorldInData — after overcoming need and violence, ecology will be a priority for humanity.

Where to start your journey into impact business?

First of all, you need to assess the desired changes. Answer the questions in detail: why are we creating a technology, product or company? How will it make people’s lives better? You need to understand how people (including those who are different from 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, the Lieberman brothers, Max Roser, Jeff Bezos, Otto Scharmer. And separately follow the topics of quantum computers, artificial intelligence, post-capitalist economy, climate change, education, space exploration and overcoming violence and aging.