In this article, Julia Profeta Johansson takes the discussion of impact investing to a more practical level, introducing several questions that any business can ask itself in order to start generating positive social and/or environmental impact.
In my previous articles, I defined what impact investing is and gave my opinion on why it makes sense. I went into detail on why I believe that every business can start taking steps in the direction of being more impactful and that we really need everyone to get engaged, if we want to have a “livable” world in the future.
So in this article, I would like to give you a guide on how you can slowly become an “impact business.” But where to start?
There are three big questions that you can ask yourself to kick-start the process:
A. Is my business harmful?
B. Is my product/service needed by society?
C. Does my business somehow relate to the Sustainable Development Goals (SDGs)?
More and more, the impact ecosystem has been discussing the SDGs developed by the United Nations – a common global agenda that needs efforts from everywhere in order to be achieved. There are 17 Goals with additional measurable targets for each one of them. Going through them will provide you with objective ways of how to effectively contribute, as a business, to these global goals.
If your operation somehow already relates to one of the topics, the first step is to identify a specific target within that topic that you can intentionally improve through your business. The next step is to create a strategy with defined indicators, so you can measure your progress towards that target.
Please note – simply working in an industry related to these topics does not guarantee that you are generating positive social/environmental impact. Unfortunately, this is something that we see happening more and more: people claiming to be impact businesses just because the business is in education or healthcare, for instance. We saw a lot of “green washing” back in the 2000s, when the topic of environmental sustainability became trendy. Now, we are at risk of seeing more “social washing.” That’s why in my previous article I recommend starting slowly and not getting attached to labels.
"Don’t label yourself as something you are not – yet."
It can be a long way to really become an impact business, especially if you are not a start-up, but it can be done. And you have to start somewhere.
Going back to our process then, the following workflow may help to guide you through this thinking process of understanding where you are now and what are the first steps you can take.
- Based on my skills and knowledge, can I reinvent my company thinking about the innovations needed for a brighter future?
- Meanwhile, how can the harm be minimized?
Companies that aren’t beneficial for the world need to cease their harmful operations. There is a lot of potential to redirect the development path of a company using most of the same resources for other purposes.
- Based on my skills and knowledge, can I reinvent my company by thinking about the innovations needed for a brighter future?
- Is there anything I could start doing to help reaching the SDGs?
- If my operation/core business somehow relates to the SDGs, which target(s) could I include in my strategy?
- Do certain social/environmental problems occur in the surroundings of my company? Through my business, can I help solve them?
- What is my power in the value chain? Can I help and shape standards, in order to promote more social/environmental impact?
- Can I better choose my clients through a positive screening?
For instance, in the financial industry, as a wholesale bank, what can I offer or ask from my clients? If my clients promote some kind of social impact, could they have a better pricing on credit and other financial products? After all, more social impact normally results in less risk…There are already banks doing this.
- Could my product serve other markets/clients that would highly benefit from it?
For example, if I am in the consumer goods sector, or education, or healthcare, could I make my product and/or services accessible to less obvious clients? Is there space for some kind of cross-subsidy?
- Can I improve quality and/or access?
Is my product fair enough for the quality I offer? Or could it be better by refocusing on the beneficiary?
Establish metrics to understand better whom you are serving and if there is room to refocus your strategy, like geographic reach, client profile, potential side effects generated…
- Can I partner with others in my industry to reach unreachable clients or solve issues that no one has enough resources to solve alone?
- Is there anything I could be doing to help reach the SDGs?
Theory of Change
Theory of Change is a framework to define the impact vision of a business. It considers 3 different layers: inputs, outputs, and outcomes. Analyzing its inputs (products, services, etc.), it is possible to understand the outputs and design the desirable outcomes of the operation. Simply put, determine operational indicators in relation to what’s core in your operation (outputs) that in turn will lead to more in depth indicators, the outcomes, which should be the true impact generated, reflecting the impact vision of the business.
After thinking about all these questions, there is a tool that can be helpful in framing the impact vision of the business and figuring out which KPIs, on an operational and impact level, will help move the business towards that vision.
This tool is the Theory of Change.
The questions to ask when rethinking and repositioning a business, through the impact lens, are practically endless, but I hope this article has provided a starting point if you are interested in the topic.