Giving Compass' Take:
- Here are three steps that companies can take to be more purpose-driven and manage the economics of achieving social impact.
- How can donors help companies measure and manage impact?
- Read more on a successful corporate social responsibility plan.
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A new purpose-led economy is in the making, with purpose anchored in corporate statutes, board and leadership accountability, and business strategy. The missing link, and the ultimate proof-point of a true transition in market systems towards equity and resource regeneration, will be the ability to manage the economics of impact, and systemically, actively, and transparently connect and reconcile the financial and societal objectives of the company. This is needed not just in management and internal decision-making, but to create the basis for collaboration with those most affected by inequities and resource depletion, and for reporting effectively to a rising tide of impact-oriented investors.
In the midst of a global pandemic and unprecedented recession, purpose-led companies have the enormous potential and responsibility to advance equity and reverse deepening disparities and inequality. We have seen multiple businesses making pledges to advance more equitable markets. These are companies like a life science manufacturer with a renewed focus on health equity and access to “improve and extend lives for all patients,” or an energy company seeking to protect the environment and well-being of all populations by “producing the energy to power the global economy and improve standards of living.”
But commitments are easy to make and hard to keep. Promises to improve societal outcomes and advance equity are often abandoned in favor of maximizing shareholder returns. To truly become a purpose-led company over the long run, companies must understand how products sold, their operations and associated costs, and yes, therefore profit, close or widen inequities in our societies.
- The first step in managing the economics of impact is to link financial and societal outcomes in order to gain transparency on how the business currently balances potential “win-wins” or trade-offs.
- The second step in managing the economics of impact is to understand the outcome-profit relationship and the factors that drive the status quo.
- The third step of managing the economics of impact is to invest to break trade-offs and embrace win-wins through innovation and collaboration.
Read the full article about managing the economics of impact by Marc Pfitzer, Nikhil Bumb, Christina Hooson, and Catalina Martínez at FSG.