Impact Economy: Social Challenges & Public Good
A CEO in a top floor office overlooking the city outside a window.
The impact economy, also known as impact investing, is a method of doing business, singly or collectively, which serves the public good and generates profit for the company.
Participating in the impact economy means that a company understands that generating profits while ignoring the world and its people is not a viable way to do business forever. Corporations can make money while giving back to the world and society.
Several decades ago, the impact economy would have seemed like a fantastic and out-of-touch idea. So, to better illustrate the concept of the impact economy, let's add context by discussing the money-mad era of the 1980s and the film Wall Street.
"Greed is Good"
One of the most misunderstood films in cinema history is the 1987 Oliver Stone film Wall Street, starring Charlie Sheen and Michael Douglas. In the film, Sheen's character Bud Fox is a young and ambitious stockbroker who becomes enthralled by his mentor, Douglas' Gordon Gekko.
Gekko is legendary for his stockbroking prowess, and Fox wants to be his apprentice. However, Fox soon learns that Gekko did not become a Wall Street superstar through honest means, but via insider trading, illegal deals, and cheating his way to the top.
In the 1980s, the American concept of consumerism became an impenetrable zeitgeist. Corporations were expected to make money at the expense of everyone else. After all, money is always made at someone else's expense. To get a job means that several other people vying for it stay unemployed.
And after all, let's not kid ourselves; 21st-century businesses still love making money for themselves and on their terms. When globally significant corporations like Facebook, Amazon, or Facebook make hundreds of millions or billions in dollars and then pay nothing in taxes every year, how does that benefit humanity or the world?
And how is it fair when the poor and working-class people who patronize these businesses pay taxes, struggle to live and help billionaires get richer?
In the film, Gekko utters a line that became a searing catchphrase in the 1980s: "Greed...is good." Some film critics believe that the film is a cynical and satiric take on the excess of the 1980s.
But fans of the film exemplified Gekko as a hero instead of a bad guy. Gekko wore expensive designer suits and gel-slick hair combed backward. And Gekko's look and attitude became the stockbroker and capitalist uniform through the 1980s and 1990s.
If there was anything that the Wall Street of the 1980s (the film and financial district alike)
taught American corporations and the world, it's that greed is good, money is everything, and if you aren't always making money, you don't have enough money.
The neighborhoods corporations transact in, consumer bases, the environment, the public good, and anything else didn't matter in the business world – only money.
How can it be ok that businesses worth billions and trillion can conduct themselves in such a manner? Tech giant Apple could become worth $3 trillion sometime in the future.
Meanwhile, the typical American worker makes $51,000 annually but maintains over $92,000 in personal debts.
Why should we live on a planet where the people and corporations with the most money, money earned from the pockets of those with the least, are celebrated for never giving back to the world from which they take so much?
Let's not be naïve – we still live in that world. But it is slowly changing.
So, what is an impact economy?
Ground eye view of skyscrapers.
What is an Impact Economy?
An impact economy is a hybrid form of a traditional capitalist economy that is mixed with altruistic social investment. Instead of a company, corporation, or conglomerate focusing on profiting at any cost, business focuses on investing in local neighborhoods, job growth, college tuitions, anti-pollution initiatives, or any project that serves the public good just as much as turning a profit.
In an impact economy, corporations strategically leverage investments designed to generate a return on investment and generate a positive and appreciable social impact.
The concept of an impact economy existed in the 20th century, even though it was not known as an "impact economy.” It was discussed as a quaint notion, a thought exercise, and certainly not a concept that would merit widespread practical execution in the Wall Street film and financial centers of the 1980s.
Investors and financial experts coined the phrase "impact economy" at the Rockefeller Foundation back in 2007.
It is also important to emphasize the "economy" part of the phrase. An impact economy is a business goal and social directive that exists in an ecosystem collective of private companies, entrepreneurs, foundations, organizations, and so on.
Individuals, shareholders, and business officials in an impact economy are responsible for investing in initiatives, missions, and programs that address, solve, or improve pressing social issues.
The social issues that impact economy investments can be used to solve include, but are not limited to:
Homelessness
Food security
Job training and security
Neighborhood empowerment
Education
Pollution
Inequality
Racism
Sexism
Updated transportation systems
And it is essential to understand that while many companies are taking part in the impact economy, it is still a fringe practice and not a widespread ideal in the business world.
For example, Allianz Global Investors is an investment management firm with a global reach headquartered in New York City. This investment firm has over two dozen offices worldwide run by 700 investment experts and globally employs more than 3,000 workers.
Allianz Global Investors manages global portfolio assets in excess of $730 billion. If Gordon Gekko existed in the 21st century, he might work for this company.
But Allianz Global Investor is a company that is joining the developing impact economy of the 21st century. The global investment firm announced in January 2022 that it would be developing an impact investment office run by 12 of its employees. The office will strategize how to invest in private companies that will appreciably address social and environmental challenges.
The company did not say how much capital it would invest nor when its impact investment initiative will launch. Still, it is far from the only company invested in such endeavors.
But it is not enough.
Volunteer handing food to the needy.
Nor is it enough to trust corporations to have collective epiphanies and decide to give back. An impact economy also empowers private citizens, shareholders, and participating businesses to challenge non-participating corporations to give back, invest in social and environmental initiatives, and prove that they are doing so with records.
In 2019, less than 60 companies participated in an impact economy study to prove the effectiveness and viability of their efforts. And too many companies involved in the impact economy are doing so for the bragging rights and not to do what is right.
To make the biggest impact in the business world, we must all demand accountability and social reciprocity from those who benefit so much.
