Positive Impact Investing: A New Paradigm for Future Oriented Leadership and Innovative Corporate Culture

Abstract

Integrating impact into investment and financial decision making based on the SDGs is a nascent field of research. At the moment, it is mostly practitioners that are driving the impact assessment process and its integration into investment and finance. Some academic research has been done on the consequences of consistent implementation of ESG standards and their value in de-risking assets, managing reputation and preventing damage to communities and environment, finally showing up in a better rating, lower operational risk or a higher good will. While this ex post perspective on consequences of leadership behaviour is useful, it does not provide management with a practical ex ante decision making tool, expanding decision making to integrate impact as a new decision making perspective. The ex ante decision support function of impact in opportunity recognition and scenario modelling has not been researched so far.

Modelling of future fitness and positive impact creation ex ante will be a decisive market advantage in decision making. It is rational to assume that a positive impact driven approach will foster innovation, Yet the market has not entirely captured the upside potential of looking into positive impact creation as a decision making tool. Many authors stay with the ex post outcomes like creation of jobs or new consumption possibilities for customers when researching impact. Integrating impact into decision making is the new leadership tool because governments, charities, philanthropists alone are no longer capable of dealing with the twenty-first century’s social and environmental challenges. Focussing on the act of charitable giving belongs into the mindset of the twentieth century. The dependence on unpredictable funding hindered many charitable organizations from realizing their full potential concerning innovations, effectiveness and scale”. The dominant paradigm in financial markets today is the creation of financial returns solely and within the mindset of the twentieth century eco-social return is seen as sacrificing a certain amount of financial return. Although there is rich research that this trade-off is not true, it may still misalign impact investing with the principal—agent theory that posits that shareholder value is the indicator on how well the agent has managed the capital and ownership rights of the principal. This misinterpretation can be overcome with a growth and innovation mind-set that understands impact creation as an ex ante decision making tool and integrates in in all strategic decision making. This new leadership mind-set will foster not only impact but innovation and growth alongside and transform the logical constructs of mainstream investing and finance. Leadership focus on achieving and actively designing social outcomes as part of the business model aligns with the growth mind-set of the twenty-first century and is explored in this anthology.