The impact versus profit debate: is there a trade-off between financial returns and impact? If you take a look at my post that discusses the challenges of determining a valuation for a social venture, my answer would be “it depends”.
Sometimes the debate is phrased as a question about the focus of an investment firm – is it “finance first” or “impact first”. I scoured the internet, looking for arguments for and against a trade-off.
Heinrich Liechtenstein, associate professor of financial management at IESE, suggests that impact investing is “any profit-seeking investment activity that intentionally generates measurable benefits for society. Impact investing can only be called impact investing if there is a positive correlation between the financial return and the social impact… With true impact investing, there is no trade-off between profit and social impact because the two elements are positively correlated. Any trade-off between profit and social impact is the investor’s choice, not a function of impact investing.”
This blogger at suggests that the impact versus profit debate is a result of financial measures of success that currently prevail. “Social impact is at the expense of profit and profit is at the expense of social impact. We tend to view the two things a mutually exclusive and not integrated.” The blogger suggests we consider alternative measures of success.
Dr. Christoph Weber-Berg, Head of the Center for Corporate Social Responsibilty, Hochschule für Wirtschaft Zürich (University of Business Administration in Zürich), suggests that we “need to acknowledge that there may be nevertheless be a trade-off between financial profit and social benefit. But we realize that the meaning of our question has shifted away from a perspective of narrow financial interest to a broader perspective of shared value creation.”
What do you think? Join us on Tuesday July 24th at the ING Direct Café in Vancouver and Let’s Talk About Returns, the third event in a Conversation series about investing with our values.
