5 myths socially conscious entrepreneurs need to ignore

Friday, June 6, 2014

A series of powerful forces are changing business as we know it. From the speed of communication to information accessibility, all lead to increased transparency and a more global perspective.

Whether we choose to define the newest iteration of capitalism as Shared Value,Conscious Capitalism, Institutional Logic, Benefit Corporations, Triple Bottom Line,SRI, ESG, or Regenerative Capitalism, the fact is companies that don’t update their business practices are significantly less likely to thrive. Meanwhile, those that harness the power of purpose are capturing significant value and creating meaningful competitive advantages along the way.

Changes in the investment community reflect signs of this shift: In 2013, Harvard’s $30 billion endowment as well as the $170 billion asset manager Carlyle Group appointed their first Chief Sustainability Officers to administer Environmental, Social, and Corporate Governance (ESG) strategies. And both Goldman Sachs and Morgan Stanleyhave announced the launch of sizable sustainable and social impact investment funds.

This new, holistic approach to business may be the most significant movement of our time, as well as the most misunderstood. Below are five pervasive myths surrounding stakeholder capitalism today:


MYTH #1: IMPACT INVESTING IS A FANCY TERM FOR GIVING MONEY AWAY.

Reality: Smart companies understand purpose and profitability go hand in hand.

Historically, it’s been easy to lump investing for impact in with philanthropy. When Google CEO Larry Page recently and publicly stated he’d rather give his money to Elon Musk than to charity, his message underscored a common belief that creating positive impact is necessarily tied to giving away your money.

Whether you agree or not with Larry’s view that visiting Mars is philanthropic, his point is not that charity is misguided but that businesses built with purpose and run by inspired leaders can change the world and improve lives in the process, all while creating outsized financial returns.

Mr. Musk’s entrepreneurial approach to capitalism, represented by his success at Solar City and Tesla, is built on innovation and emerging technologies and demonstrates well two key elements of next generation capitalism: building companies specifically to address social and environmental challenges, and harnessing certain advantages that purpose can create to win.

Consider examples such as Patagonia, which is at the forefront of sustainable production in a crowded lifestyle apparel space; Clif Bar or Kind in the nutrition bar category; Toms Shoes and Warby Parker pioneering a “one-for-one” conjoined business/contribution model; Airbnb and its various brethren harnessing the power of shared resources and community. Many of the world’s largest corporations are also tuning in–modifying production, distribution, sales, employment policies, and aggressively re-aligning around values-driven brands–with an eye towards sustainability and maximizing returns in the process.

Source: Fast Company (link opens in a new window)

Categories
Entrepreneurship
Tags
business development, impact investing, social enterprise