What are impact businesses
Impact businesses are ventures that generate positive social, environmental and financial impact
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Impact businesses are entrepreneurial initiatives that aim to generate positive social and environmental impact and financial gain, simultaneously. Typically, an impact business is guided by the letter of principles for impact business in Brazil. In this letter, impact businesses are based on four key principles that differentiate them from traditional NGOs or businesses:
1. Commitment to the social and environmental mission
According to principle 1 of the charter of principles for impact business in Brazil, every impact business must make its commitment to the social and environmental mission (as part of its core objectives) explicit in its legal and communication documents ( internal and external).
In addition, impact businesses must show how their operations, products and services continuously generate positive social and/or environmental impact. For this, impact businesses can adopt different levels of formalization of their commitment to social and environmental impacts.
- Level 1: Make your Theory of Change in Mission (This theory must be built before the effective change, making clear its hypotheses for social and environmental transformation, enabling entrepreneurs, accelerators and investors to have a concrete vision of the logic and feasibility of generating impact);
- Level 2: Includes in the Articles of Incorporation, Articles of Incorporation or similar document, the impacts it seeks to generate;
- Level 3: Communicates through documents (internal and external), its mission, vision and values to all stakeholders.
2. Commitment to monitored social and environmental impact
THE Theory of Change impact business should be periodically explicit, monitored and reported. To do this, impact businesses must:- Level 1: Clarify the socio-environmental transformation they intend to generate, making explicit the result and social and environmental impact metrics they will monitor;
- Level 2: Collect and analyze data to monitor the results achieved;
- Level 3: Report results, data and whether or not they are achieving their goals in a transparent manner, through media and language accessible to stakeholders;
- Level 4: Have their results audited by an independent external organization.
3. Commitment to economic logic
Impact businesses are based on a commercial operating model focused on financial sustainability. For this, impact businesses must obtain positive revenues from their products and services.
The use of philanthropic or subsidized resources is allowed to balance the financial sector of an impact business, in the short and long term, regardless of the size of the enterprise.
However, impact businesses must make explicit in their business plans and results reports the capacity to develop sustainable economic activities through, for example, the attraction of investors and commercial contracts of greater size and duration.
In principle, an impact business may rely on philanthropic capital to cover more than 50% of its operating costs. However, over time, this dependence should reduce from 50% to 25%, until there is no longer a need for philanthropic capital.
4. Commitment to effective governance
The other actors in the impact business ecosystem are a fundamental part of its development. The key to developing and implementing actions that achieve the expected goals is effective governance. For this, impact businesses must meet four levels:- Level 1: Leave a socio-environmental legacy greater than the economic value extracted, with a balanced distribution of risk among investors, entrepreneurs, suppliers, customers, communities and society;
- Level 2: Have transparency in decision making, in order to keep the stakeholders (stakeholders) on actions that impact their dynamics and expectations; and guarantee these audiences the right to be heard, through participation in advisory or deliberative councils;
- Level 3: Enable the supported community or target audience of the impact business to officially share ownership, governance, and design of the business.
Scope of impact business
Impact businesses have a broad scope, and may include topics such as quality of education, health services, urban mobility, reduction of carbon emissions, among other social demands.
However, it is essential that organizations that define themselves as impact businesses have, effectively, the commitment to adopt all the principles of letter of principles for impact business in Brazil in a given period of time, specifying the intensity and scope of actions for their correct implementation.
Dividend distribution
Impact businesses may or may not distribute their dividends (profit share). In Brazil, three main impact business formats stand out:
- Civil society organizations with income-generating activities that can receive donations but cannot distribute profits;
- Social businesses with a corporate legal format and aimed at profit, but which reinvest these resources entirely in the business;
- Impact businesses that distribute profits to their investors.
Return on invested capital (philanthropic or commercial) is not a principle for impact businesses . This distribution must be decided with the investor.
Impact business legislation
In Brazil, there is no legal structure specifically aimed at high-impact businesses.
Any legal form of organization (for-profit or non-profit) is likely to be an impact business and may include the principles of letter of principles for impact business in Brazil.
It is up to whoever adopts it to define which legal format will be chosen by their organization. This will determine the limits and form of action of the respective entity, especially with regard to the remuneration of directors, the distribution of dividends and the allocation of assets.
Assumptions for adopting impactful businesses in an ethical and responsible manner
The basic premises for conducting social businesses include:
- Compliance with all current legislation (tax, labor and environmental);
- Payment of adequate wages;
- Consultation and transparency in decision-making, as a way of maintaining dialogue with stakeholders about actions that impact their dynamics and expectations;
- Network operation and through partnerships;
- Respect for diversity and human rights and sensitivity to the historical and cultural heritage of peoples and regions.
How to Encourage Impact Business
Some practices that encourage impact business in Brazil are:- Favor the purchase of impactful business products or develop partnerships with them that respect the four principles of letter of principles for impact business in Brazil;
- Set goals to buy from impact businesses , using suppliers that respect the four principles of letter of principles for impact business in Brazil
- Provide differentiated commercial conditions (term and price, for example) for businesses with impact by acquiring or selling products and services to them;
- Partnering with impact businesses aiming to innovate the company's products and services;
- Educate other companies in the industry about social finance and Impact Business ;
- Offer funds for investing in impact businesses;
- Educate investors about the importance of impact business;
- Include the principles of letter of principles for impact business in Brazil as a condition for investing in high-impact businesses.
Incorporating Impact Business Principles
The incorporation of impact business principles presupposes the main actions:- Establish, in the annual planning of purchases and goals, the acquisition of products from impact businesses;
- Establish goals for partnerships and alliances to have business impact among its members;
- Set goals for a percentage of total resources to be directed to impact businesses;
- Disseminate the impact business concept using the principles of letter of principles for impact business in Brazil as beacons;
- Develop studies related to impact businesses and about the company itself letter of principles for impact business in Brazil.
