Can Profits And Impact Coexist?
Historically, the answer is no.
By their traditional definition, businesses are established to maximize shareholder value and return profit to investors. At the other end of the spectrum, philanthropy is about doing good work – maximizing social impact with no financial return. In the past several decades, there has been a major push for greater transparency and responsibility for both businesses and philanthropy – more measured and accountable results on impact. This has yielded more responsible businesses that better understand stakeholder value as opposed to simply shareholder return. As well as philanthropies that are considering more creative funding models such as program-related investments and mission-aligned portfolios.
It has also introduced debate around the very nature of profit. Is profit merely a financial definition? Is not value/profit also a social and environmental variable? Do businesses not also create employment, pay wages, purchase raw materials, etc. that all have tertiary impact within communities? The traditional approach completely ignores the interconnectedness that exists and that cannot simply be ignored or justified away. What has emerged is a more robust and holistic approach to business and a more complex and impactful approach to philanthropy that has the potential to create sustained and exponential value for all citizens within communities.
When we at Access Ventures speak about “non-traditional capital” and “creative and holistic solutions” it is because we seek answers to these complex questions at a core level. We are seeking to properly understand community strengths, needs, and wants and then provide solutions that are integrated and sustainable. Can we leverage capital, both human and financial, for blended value in order to see people and communities thrive?
It’s exciting to be a part of a new society that desires to create positive social and environmental impact while building better businesses and communities. This is the great opportunity before us, known as impact investing. The reasoning goes: “My investments can create positive social and environmental impacts, while building better businesses. I can create profits and help my community. It means I can get a return on my investment, and I can also do good in the community.”
For others, impact investing elicits skepticism. This group doubts the need for blending for-profit and for-purpose. They reason: “Impact investments seem like half-charities and half-businesses that try and serve two masters, and so they fail on both accounts. They make neither hard business decisions nor hard philanthropic choices.”
The skeptics rightfully wonder whether it makes sense to sacrifice profits to save the world. In trying to be good for the world, they reason, impact enterprises usually just end up being bad businesses. We disagree.
We don’t believe you have to sacrifice profit in order to realize social and environmental value.
Despite the skeptics objections, we don’t believe you have to sacrifice profit in order to realize social and environmental value. We do think that impact investing is an area that needs greater definition, but it holds great promise. Our belief about impact investments is simple: We want strong investments focused on solving the toughest social and environmental problems. This won’t be simple, and it will press against the status quo. Yet everything that has fundamentally shifted our collective perspectives on business, transparency, community flourishing, and the role of government and philanthropy has not been without it’s challenges. But it has always been well worth the struggle.
We also believe that philanthropic capital should be the riskiest and most innovative capital creating value within communities. We know we won’t get it right every time, but we believe we have a responsibility to try; and in the process, hopefully learn something about ourselves and our communities along the way.
Written by Bryce Butler @brycebutler