Impact businesses: Combining social benefits and financial success
A thin line divides the central concept of “impact businesses”. On the one hand, they are created to solve social and environmental problems arising from the market, and on the other hand, they are aimed at making money while having positive impacts on society. Is this possible? That is what Edgard Barki, a professor at the Fundação Getulio Vargas’ Sao Paulo School of Business Administration (FGV EAESP), set out to investigate in a paper titled “From impact businesses to the impacts of businesses,” published in business journal GV-Executive.
Believing that doing good can be good business, many enterprises have emerged in Brazil and in the rest of the world in areas such as education, health, housing and financial services. Successful organizations have been created, which have managed to influence not only their direct beneficiaries, but also public policies, positively impacting society and improving the well-being of millions of people.
However, despite having good intentions as a theoretical basis, there are several criticisms of the concept and results of impact businesses, which deserve to be discussed. In his paper, Barki highlights five aspects for reflection:
- Weak conceptualization: There is no certification or clear rule to define impact business. Classification depends on self-declaration and a subjective view of the intentionality of the business and its generated impacts.
- Definition of impact: In addition to the fragility of the impact business conceptualization, there are difficulties in defining, evaluating and measuring impacts themselves. These difficulties pose the risk of undermining the concept, as in many cases it is not clear what the generated impacts are or how an impact business differs from a traditional company that seeks to maximize shareholder returns through market opportunities in areas such as education, health and housing.
- Homogeneity of entrepreneurial profile: Impact businesses emerged as an alternative way of mitigating social and environmental problems and creating a more inclusive type of capitalism. However, most entrepreneurs who set up impact businesses come from wealthier sections of society, while trying to solve problems at the base of the social pyramid.
- Limits of social entrepreneurship and the role of the state: Impact businesses benefit millions of people and have the power to improve the lives and well-being of many people. However, there is a limit to impact businesses, especially when it comes to the most vulnerable groups (such as black people, people with disabilities and people in the lowest socioeconomic classes) and communities in remote locations. Many social changes are hard to monetize and it can be difficult to scale up the benefits to the levels that are actually needed. Thus, it is important to reinforce the idea that impact businesses do not replace civil society organizations, much less the state.
- Maintenance of status quo: As a result of the previous issues, what we see is a contradiction: impact businesses seek to solve problems created by capitalism, but they do so through the same mechanisms that led to these problems. That is, there is no holistic or systemic vision for more radical change. What we see, in general, is the use of the same pillars of capitalism to mitigate negative impacts or promote incremental improvements.
In the context of the issues mentioned above, the professor lists some key points to make impact businesses effective in practice:
According to Barki, the increase in social inequality and the climate and environmental crises call for radical transformation movements in society. Companies have a fundamental role to play in this process and, despite all the limitations, they can change many social and environmental indicators. For this to happen, it is important for them to act in a timely manner in line with each situation, to collaborate with other sectors, such as the social and political reams, to have compliance policies, to consistently pursue their goals, to address topics coherently and to put their plans into practice courageously.
Expectations and possibilities
The study makes it clear that an inflexible mentality needs to be replaced by a broader concern for social impacts to enable change in the foundations of structures. The objective is to transform society in a more radical way, making it possible to alter the capitalist system itself rather than making merely superficial changes.
“Impact businesses have been and can continue to be relevant in building this narrative, but more inclusive impacts, purposes and visions ought to be central to all organizations and companies. Therefore, we have to move from discussion of impact businesses to a broader reflection on the impacts of businesses, taking a more systemic, holistic and integrated view across different sectors and actors in society,” Barki writes.
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