Monitoring the Path to a Mainstream Impact Economy
How can we assess the current state of the emerging impact economy and keep track of its progress?
In order to reach such an objective, it is key to identify all the key stakeholder groups that participate in building the impact economy and evaluate each stakeholder’s level of engagement. At the Jindal Centre for Social Innovation + Entrepreneurship, we have started this process to understand and evaluate the key stakeholder groups to understand and, ultimately, measure their level of engagement.
In this step, we will share an overview of our initial findings and a discussion of each key stakeholder group. If you wish to go deeper, we have provided a database with additional information in the resources below.
The first stakeholders group includes institutional investors. This group is crucially important, especially when you understand that pension funds are the second largest group of investors in the world, with more than $41 trillion USD under management. Along with insurance companies, sovereign wealth funds and banks, they are an enormous stakeholder group. However, while they have clearly started to respond to the shift in values held by many of their clients and savers, it seems that government regulations will be required to get them really engaged. In our research, we decided to include the 100 largest pension funds based on total assets, the 50 largest insurance companies, the 20 largest sovereign wealth funds and the 5 largest university endowments. The results highlight the high potential of this group as well as the clear change in attitude and movement towards responsible and sustainable investment allocation of portfolios. However, it is still very far from the level required to scale the impact investing industry.
The second category covers foundation and philanthropies -a sector with asset size strongly dominated by the United States of America. But how do you define a foundation? Currently, there is no globally accepted definition. This results in difficulties understanding this group’s progress, and also increases the moral hazard of ‘impact washing’. In our research, we included a total of 100 large foundations from all around the world. The list includes the 50 biggest foundations in the USA based on total asset size, the 8 largest foundations in the United Kingdom, and 42 foundations in other prominent economies. Again, the results positively show that leading foundations have started to make longer-term grants, allocate part of their endowments to impact investing, and focus on outcomes rather than activities (for example, the Ford Foundation recently decided to allocate $1 billion USD to impact investing). Foundations have the potential to lead the shift toward measuring outcomes as they are key players in the creation and development of outcome funds and social impact bonds (SIBs, discussed during week 3). However, we need globally accepted definitions and other international standards to harvest the full potential of this group.
Entrepreneurs are the third group of stakeholders that we analysed. Millennials are one of the main reasons why social entrepreneurship and impact investing are catching fire and impact entrepreneurs are essential to the impact investing industry. They are proving how impact and financial outcomes can be achieved together. But not only. They are also the one attracting new investors to enter the market. Due to the difficulty to define an impact startup, this group was difficult to approach in our research. We decided to analyse the global entrepreneurship activity rather than a selection of impact startups. We used the 2015 Global Entrepreneurship Monitor (GEM) report on Social Entrepreneurship which assessed social entrepreneur’s commitment to value creation across 24 economies. Impact entrepreneurs have a critical role to play. With business models directly linked to the creation of positive impact, more successful the business is, the more impact it generates. To increase the adoption of such impact business models at scale, governments will have to create more incentives (such as tax reductions or supportive regulations).
The fourth group includes the world largest corporations. We cannot expect big businesses to lead the impact revolution. However, they still have an important role to play. Big companies typically follow consumer trends and stakeholders pressure. For this reason, as consumers, have a large role to play as they continue to purchase product and services from brands that align with their social and environmental values. Some prominent businesses have started integrating impact and believe it can create a powerful and sustainable competitive advantage. For the purpose of our research, we scrutinised the top 100 largest companies in the world (from the Fortune Global 500 Corporations list). The results seem to repeat themselves. Most corporations do provide recent sustainability report and measure their social and/or environmental impact. However, the current lack of robust impact measurement standards cannot prevent ‘impact washing’. In other words, it is easy for companies to highlight only what they do and not what they could do. A clear example is the fact that only 2.4% of the Fortune Global 500 Corporations have a women CEO. Hence, there is still a large room for improvement.
The fifth and last stakeholders group covers governments. As discussed earlier this week, governments play a crucial role to accelerate the growth of the impact investing industry. Governments have the power to create new regulations and to change the existing system. They help to incentivize the supply of impact capital and to enhance the demand for it. In our study we have had a look at the 30 GSG partners countries. The results show that governments have clearly started to use outcome-based approaches, to adopt specific legal forms for social enterprises, and to deploy professionally run outcome funds. However, systemic changes take time and governments move slowly.
In summary, all the stakeholders groups have started to shift towards the new impact economy. However, the lack of globally accepted definitions and standards highly slow down the transition.
How would you track the progress of a market? Have you identified other trends in one or several of the stakeholders groups? Can you think about another important group which should be included?
© Jindal Centre for Social Innovation + Entrepreneurship