The Editor's Post: The shift from ‘social’ to ‘impact economy’

“You’re a journalist, cool, what do you write about?” “Err, these days people call it the ‘impact economy’.” That’s usually followed by a blank stare, and me needing to decide whether to go on with the details or just change the topic.

I’d love to spread the word about impact beyond its own bubble, but we’re not making it easy for ourselves. Aside from the fact that we should really use the words “positive” or “negative” in front of “impact”, the word itself can mean many, many things, and so does “economy”.

But this is what a community of organisations allegedly generating 15% of the UK’s GDP, while prioritising positive impact over private gains, is increasingly calling itself – out of choice or necessity. 

Defining what is and isn’t part of the impact economy is an ambitious task that was never going to please everyone, something New Philanthropy Capital learned the hard way after its report dedicated to sizing the impact economy was followed by a backlash from leading voices in the sector – I urge you to read this week’s top story to find out about why it matters.

The impact economy is a relatively new concept. More established, in many parts of the world, is the idea of the social economy, sometimes called the social and solidarity economy. Policymakers around the globe have adopted official definitions, sometimes enshrined in law, including at EU level, and the UN voted through a resolution on the social and solidarity economy three years ago. These commonly include social enterprises, co-operatives, associations, voluntary groups and foundations.

Social economy entities benefit from targeted policies, such as the EU's Social Economy Action Plan, so being included or excluded from it makes a material difference for, say, co-operatives and social enterprises.

But in recent years, the new, somewhat overlapping concept of the impact economy has taken ground. It is usually seen as a broader, less defined term that’s supposed to be more inclusive, in particular in terms of including for-profit models. It also mirrors impact investing – the similarly woolly concept of investing to generate a positive impact alongside returns, a movement that has grown significantly in the past decade.

The argument for including some for-profit businesses and investment in the impact family is that it helps grow the flow of capital towards fixing the world’s big problems, and encourages more organisations to join in the “business for good” movement. 

But including for-profit, ‘impact-led’ businesses makes it complicated to identify what’s actually part of the impact economy, because assessing the extent to which they prioritise public benefit over private gain – the criteria set by NPC – is a muddy process where a line has to be drawn somewhat arbitrarily. At the same time, not defining and being too vague could create an open-door to impact washing.

For-profit businesses are also problematic because many see them as extractive by design: in many jurisdictions, company directors’ fiduciary duty remains – by law – to maximise shareholder profit – although this can be countered by initiatives such as the B Corp certification, for example, which encourages for-profit businesses to adopt clauses in their governing documents that commit them to have a material positive impact on society and the environment.

Many people from different backgrounds have privately told me they feel uneasy with the impact economy concept, that it is being imposed a bit ‘top-down’, to match a framing created for investors rather than nurtured by organisations on the ground. 

Through my conversations, I found that many social-purpose organisations feel they are losing their identity in the impact economy – while they really want to be part of it, they don’t recognise themselves in it (at least not yet).

But even in countries where the social economy is culturally strong, ‘impact’ is being increasingly used – and prioritised. In the EU Commission, DG GROW, the department overseeing internal market, industry and entrepreneurship, scrapped its social economy unit last year. But in January, we learned that it has commissioned a new piece of research to analyse the landscape of ‘impact-driven businesses’ in the EU, with the view to inform possible future EU-level action. 

The impact economy is a concept that purpose-led organisations are just about starting to grapple with. In the UK, it is also a flagship agenda for this government. By putting forward a definition, albeit as a starting point for further conversation, NPC took on a major task. As Dan Gregory, co-founder of Popular and former associate director of Social Enterprise UK told me this week: “With new terminology, comes responsibility”.

Last chance to apply

Yes, ‘impact’ has also made its way to the title of our beloved SE100 awards – and you have until midnight on Sunday to submit your application. Don’t delay and apply to the NatWest SE100 Impact Pioneer Awards now.

This week's top stories

NPC’s ‘impact economy’ definition: a ‘missed opportunity’ or chance to collaborate better?

Give Your Best: A ‘Vinted for good’ which gives choice to people in need

Social innovation: it’s still on the global agenda at Davos and beyond

Top image: chief secretary to the UK prime minister, Darren Jones, speaks at the Beacon Forum in Febuary. Jones has been a champion of the impact economy in government. Image courtesy of NPC/Beacon Forum.