Investors widen focus to business models in assessing ESG impact

Impact investing is growing, but too slowly given the staggering annual funding gap of USD2.5 trillion to achieve the Sustainable Development Goals by 2030. And the greatest challenges for people and planet won’t stand for half measures. We need much, much more impact capital to increase prosperity and social progress for all, eliminate inequalities and injustices and preserve the planet.

That's why we've teamed up with the Financial Times for the second time to put impact in the big headlines and on the front pages. And to mobilise more mainstream capital for impact.

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Most impact investors seek to make positive change by targeting start-ups or companies based on the social, or environmental, impact of their products — from affordable homes to solar power systems. But some are starting to base their investment decisions on the enterprise’s business model or leadership — in other words, the machinery driving the mission. 

Start-ups focused on creating positive social impact are, by definition, more likely to have business models designed to promote a diverse workforce and look after those employees.

But, as those companies grow, go public or are sold to larger enterprises, what happens to the mission? The risk increases that the original purpose — to have a positive impact — gets lost.

One way of mitigating that risk is for impact investors to back founders who have incorporated their business as an entity that embeds ethical and sustainability commitments into its charter documents.

In many US states, these are likely to be “public benefit corporations”, or in some jurisdictions similar entities known as “benefit corporations”.

A PBC’s articles of incorporation require it to balance shareholders’ financial interests with the interests of employees, customers, the environment and other stakeholders while pursuing the social or environmental purpose set out in its corporate charter.