With the growing number of social businesses, and a shift away from the classic charity work ideology, how does one ensure that social impact still remains at the center of one's focus and doesn't get lost in business dealings like attracting capital and scaling up? Preserving the value of social impact might have a lot to do with the people silently steering these businesses - the investors.

"Far too many impact investors are confused about the meaning of profit in a social enterprise. In addition to the financial return on investment, an impact investor must consider above all the mission that drives the enterprise—and the company’s success in fulfilling it. For example, if an impact investment is intended to fight poverty, it must enable poor people to increase their income. In other words, profit must be seen as the source of financial and other benefits to the beneficiaries as well as to the investors. Similarly, if a social enterprise has set out to reduce carbon emissions by marketing solar energy products or services, any prospective investor in the company—an impact investor—must evaluate its success in reducing carbon emissions as well as returning an acceptable rate of financial return. These requirements would seem to be self-evident, but, surprisingly, many impact investors leave them unexamined."

Read the full article on the Stanford Social Innovation Review.

Originally published February 12, 2015

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