c4sense
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To generate a sustainable impact requires means and money.

Generating positive impact for the world is becoming a common cause for many companies. Recent studies show that companies with a purpose perform better economically. The creation of an impact economy does not imply the pure and simple rejection of capitalism, but an its evolution to better integrate the limits of the Planet and the ecological, social, and societal issues. Generating a positive impact requires means and measuring the performance of companies requires an evolution of the notion of value: creating wealth is essential, but it must be reasoned and put in relation to the impact generated.

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A common mission is emerging in many companies: to generate positive impact for the world.

This mission of improving or protecting the world is not something new. It was for a long time the prerogative of the clergy, then of the associative world. What is more recent is the rise of so-called “Impact” initiatives by for-profit economic entities. This rise is linked to an awareness of the increase in inequalities, of the climate crisis and of the fact that human activity produces by default a negative impact on the Planet.

New financial instruments (Social Bonds, Green Bonds…) or legal instruments (PPP…) have started the implementation of an impact economy. In France, the Law on Social and Solidarity Economy (ESS) has set a legislative framework.

While many social and solidarity enterprises produce positive impact, many of them struggle to produce economic wealth and survive only on donations and subsidies. On the other hand, under the impulse of startups and a niche in the finance sector, new business models are emerging and generating as much or more financial performance than traditional companies. For example, the resilience of SRI or Impact funds to sudden drops in the financial markets is far superior to that of other types of funds.

Companies with a purpose have better economic performance.

Until recently, studies investigating why some companies maintained strong growth over a fairly long period of time identified that they were pursuing one of three types of strategy: 1) conquering new markets, 2) expanding their product or service offering, or 3) changing some of the rules of the game in their core market.

New studies on fast-growing companies have highlighted a new factor explaining this growth: the raison d’êtreand the pursuit of a mission. While it is not new that including a raison d’être in one’s strategy allows one to increase the well-being of one’s employees, contribute to the community, help preserve the environment and sometimes even improve costs by focusing on what is important, it is beginning to be shown that it also allows one to generate sustainable growth.

Purpose drives growth because it begins by building stronger relationships with its stakeholders. Everyone understands the “why”. This makes it easier to create partnerships with customers or suppliers and to improve their loyalty to the company.

Also, in a competitive market where many players are competing to keep their market share, the raison d’êtreallows to think differently, to think “ecosystem” and to keep an alignment with the objective. It helps to find more innovative and efficient solutions, even if it means redefining the rules of the game.

More than a concept close to marketing or internal communication, the definition of a mission for the company becomes an economic and strategic issue. The raison d’être becomes a recognized driver of economic and financial performance.

Do not reject capitalism but reinvent it.

It is often said that the motivation of the impact entrepreneur is the public good, with a model that is profitable enough to finance the generation of impact, but not to get any richer themselves.

Creating yet another unicorn because an investment fund paid €300M to acquire 30% of the capital of a company that is not yet generating revenues should not be the goal of any entrepreneur.

On the other hand, an entrepreneur takes risks, and every risk must be compensated for. Wealth creation must be reasonable, but it must be present. It is possible to combine impact generation with economic and financial value creation.

An impact company remains a company: it must rely on a sustainable and profitable business model. Daily, it must manage its offers, its teams, its cash flow, its marketing expenses… and generating impact requires the means to finance the actions that will create impact.

A so-called traditional company can also generate impact: by reallocating part of its cash to virtuous investments, by organizing pivots towards eco-responsible products, by integrating social and societal issues in its organization or by paying better attention to the purpose of its products or services.

The total rejection of capitalism is not a viable solution. Our challenge is to make capitalism evolve to make it more humane, more respectful and to take the planet’s limit into account.

As Nicole Notat and Jean-Dominique Sénard said in March 2018, “If the social and solidarity economy has constituted a third way between public action and the market economy, it seems that another way may be emerging, that of a responsible economy, managing to reconcile the profit motive and the consideration of social and environmental impacts.”

Towards an evolution of the concept of value creation.

Topics related to the evolution of the notion of value creation have been emerging for a few years. We are beginning to realize that a company’s mission is not only to maximize shareholder returns in the short term. A company can have a meaning, a raison d’être, a mission (French “Loi Pacte”).

Value can have other definitions than Net Ebit and dividends. “Financial performance is essential, but it must now be combined with environmental, social and societal impact” (EDHEC Value Creation Center). The concept of value creation must evolve to measure impact beyond simple financial indicators.

This translates into the emergence of new business models (SSE, social, engaged, impact…) and new business models (traditional, hybrid, social, etc.).

The mission is a driver of financial performance when it is coupled with a real business strategy aimed at creating reasonable wealth by satisfying real needs, while respecting the limits of the planet and the social and societal dimensions.

In an impact economy, value combines both wealth creation and the generation of a positive impact on social, ecological, and societal dimensions.

The challenge now is to continue to develop this impact economy while maintaining its mission of generating positive impact over time. And therefore, to keep the “why” at the center of our strategies and to seek a reasoned and reasonable financial performance, without falling back into our default models.

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