Is the impact first / financial first distinction useful?
We wanted to share this post, Impact Investing: Can We Pay Her Less?, as it frames the issue of Impact First/ Financial First quite well. We find these kinds of profit vs impact choices arise constantly when managing a “social” business, particularly one with the poor or vulnerable people as the primary or sole clients or suppliers. In these cases, there is no opportunity for cross subsidy, or extracting higher margins from the relatively well-off. Decisions such as paying your suppliers less, charging your customers more, pulling the plug on a socially promising but low margin pilot, abandoning provision of services in remote or otherwise more costly areas – these choices affecting both bottom lines are faced by managers of double bottom line companies on a daily basis.
Unless managers, board members and shareholders are aligned around a clearly articulated set of social and financial priorities to guide these decisions, they will face constant battles and generate sub-optimal social (and perhaps even financial) performance.
Enabling investors to understand their own priorities and self-select for the investments that fit them best is what (albeit imperfect) labels like “Impact First” can help with. That is why Grassroots calls its most recent microfinance fund an “Impact First” fund: we want investors to understand that so long as the businesses run a healthy and sustainable profit, and the fund itself is managed to meet investors’ more modest profit expectations, the priority will be on maximizing social value, whether that is incomes of suppliers, outreach of women’s health services, providing low balance savings accounts, or other social objectives. For more on Grassroots’ Impact First initiative, please check back with us here or on our website.