18 March 2022 | Category: Policy

The difference between impact in business and societal impact – and how to achieve the latter

By Sabine Desczka

Senior Research Coordinator Impact Investment at Wageningen ...

Societal impact is an admirable goal, but how do you create it? How can you find the business model that achieves societal goals and revenues at the same time? How can we finance the big challenges of the world? And when is it impact? Can we learn to have impact?

Impact means addressing the big challenges of the world. We have come a long way, from not caring about the environment or accepting slavery, to business principles such as do no harm to people or planet by learning about and evaluating impact objectively. In principle, we can create companies that work business wise that also have impact. Impact can be an integrated part of our business today. But what are the business models of the future that create impact and revenues at the same time?

Many academic studies show that investors and businesses addressing environmental and social challenges perform better than other companies. However, we still cannot turn around the equation. We rather continue minimizing a companies’ risks than rate its potential to have impact. Therefore, being obliviously blind to the real threats to the world and business. 95% of food businesses will sooner or later experience the consequences from climate change when the costs of repairing climate damage to business will go beyond the investments we could have made to mitigate its’ impact.

How does business evaluate impact?

In our day-to-day business, the market mechanism is central to an entrepreneur’s perception of good business. Impact is an input or technological question, rather than an outcome for society. We focus on the product itself. Once technical problems have been solved, including well-meant and importantly progressive environmental features -such as reducing water in the production process-, impact is measured in sales, competition and client reviews. “See, we have impact because people are buying our product which is more sustainable than the competitor.”

The only output indicator entrepreneurs are using is client feedback. Product reviews are vital for product development and entrepreneurs will proudly display positive client reviews and feature technical innovations in blogs like this. As commented on by the deputy chair of the Australian Security Commission (ASIC) recently “Business values client feedback above client outcomes”.

Resource efficiency is another indicator close to the heart of an entrepreneur. It is evident that using less water or other resources to produce a product, will automatically mean cost savings. Thus, impact is achieved when bringing a product to the market that performs better than the competitors. But is this new product enough to fundamentally support political and societal agendas by proving that we as society can do better?

How does science and government evaluate impact?

For governments and science impact is usually understood as the gap between a societal challenge, e.g., eradicating poverty or a carbon neutral world, and the financial means we must achieve our objective. The question is then, where do we invest our common financial funds best to achieve the challenge. Therefore, we look through a complex system of personal interactions and patterns to find the buttons to press that will lead to systemic change, innovation, responsible behavior and therefore sustainable socio-economic growth.

We currently call them the “big shifts”, but the term changes with every new challenge. Most entrepreneurs would probably get lost in this maze of interactions, patterns and believes based on publicly available data on what could possibly change the world if we change the parameters. For business impact is different. It is often the result of a believe in your products superiority to other products in making people’s lives better or through influencing the market. It is related to certain features that might be more sustainable, for example less use of drinking water in the production process.

Entrepreneurs have a strong belief that the more people use their products, the better the world is going to be. Whether this is in fact the impact we want to have as society and whether it should be given priority is not discussed and mostly unknown to the costumer. Impact is measured in number of sales and client reviews. In this view impact is related to scale, the number of people reached out to. Both views are legitimate from the perspective of each stakeholder, but only when we manage to integrate both views into an integral vision, we will have societal impact on scale. The moment we learn to integrate different views on impact, is the moment we can accelerate sustainable growth.

By Sabine Desczka

Senior Research Coordinator Impact Investment at Wageningen Economic Research, part of WUR, the Netherlands. Economic (1999) and legal (2010) background from Hamburg University, Germany and Leiden University, the Netherlands, on impact research. Current research interests: Impact Investment in agro-food and climate, Impact Assessment, Impact Evaluation, Cost Benefit Analysis, Ecosystems analysis and systems thinking, blended finance and knowledge creation for sustainable development.

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