Free-market capitalism has been one of the most powerful approaches to accelerate economic progress ever conceived, but ever since the 2008 financial crisis, its perception and its role in society have been distorted. Conscious capitalism seeks to redefine the dominant narrative of ‘business as usual’ to allow corporations to pivot to a role as holistic value creators. Conducting business as a “conscious business” is moving beyond just setting up a foundation, funding local community programs or adhering to responsible investment guidelines.
It is embracing a new view of capitalism that has evolved from the Milton Friedman ‘shareholder’ focused philosophy to a new paradigm of creating stakeholder value – shifting away from the myopic logic that business is a zero-sum game with a single bottom line. Corporates around the world are trying to steer capitalism away from today’s growing trend of cronyism, whether it be by adopting Michael E. Porter’s Shared Value approach, certifying themselves as a B-Corp, or by allocating a percentage of their profits for CSR, now mandatory in some countries. It is an all-encompassing term where businesses are recognized as value creators and are fully aware of and responsive to the impacts (both negative and positive) their activities and practices have on the various spheres of society and the environment. Conscious capitalism is strongly embraced in the impact investment space with an aim to support opportunities for financing scalable social enterprises (SEs); however, it has not, as of yet, been taken up as business-as-usual in the traditional finance and corporate sectors.
To bridge this gap, IIX has pioneered an innovative Impact Enhancer Program for traditional financial institutions (FIs) and corporates to enhance their conscious impact through proactive support of SE development and growth. Supporting SE investment is an effective way for corporates to help enhance resilience of local communities to withstand a variety of external stresses and catastrophes. In addition to financial returns, SEs have a strong focus on social and environmental returns, which ideally positions them to minimize shocks and/or recover quickly from catastrophes.
Just three examples of SEs which enhance resilience and overcome risk that IIX has worked with to provide technical assistance and secure investment include:
SOLsharewhose business model improves energy security, provides decentralized, reliable, sustainable, and affordable electricity access to low-income people in rural Bangladesh areas.
DoubleHelix mitigates supply chain risk while also reducing illegal logging through an innovative approach of DNA testing timber products to identify the source.
Spring Health helps to enhance resilience to water born diseases and improves water security through setting up electro-chlorination points (ECPs) sanitize water at the point of distribution in small market towns creating a decentralized water delivery method.
IIX is running the Impact Enhancer Program, which is based on a successful three-year long collaborative partnership with private equity firm KKR & Co. IIX’s partnership with FIs and other corporates under the Impact Enhancer Program consists three main phases.
Firstly, IIX works with clients, such as private equity and asset management firms, to define synergetic economic sectors and geographies that are aligned with clients’ overall core business strategy and/or ESG goals. IIX provides clients with bespoke SE sourcing through its wide network in South and Southeast Asia to identify an ideal match for client expectations and need.
Next, IIX conducts a full needs assessment and due diligence for identified SEs, end-to-end technical assistance, and investment readiness services to ensure the SEs are operationally sound and at a stage ready to raise growth capital. Also, in collaboration with IIX’s sister organization Shujog, a detailed impact assessment of the SE’s business operations is carried out to ensure a positive impact on society and environment is integrated in the SE’s business plan and strategy. This phase includes engaging closely with partner FI employees to leverage their market analysis and commercial modeling skill set in parallel with IIX’s expertise with “core of the pyramid” companies to provide collaborative mentorship and strategic input to SEs.
Finally, IIX assesses the capital requirements of the SE, develops an investor pitch, and negotiates a term sheet with both a potential investor and the SE. Partners under the Impact Enhancer Program can choose to invest in the SE directly or IIX can reach out to its extensive impact investor network. The goal is to raise the required capital for scalable SE growth.
IIX’s Impact Enhancer Program has the potential to go beyond just mitigating reputational risk – it is designed to allow the corporate to play a role in embedding systemic resilience for local communities, align with diverse stakeholders and develop a conscious culture and management as an organization. Such initiatives also serve as a magnet to attract top talent – a recent study by the Stanford Graduate School of Business showed that ninety percent of MBAs were willing to sacrifice financial benefits to work for a company that demonstrates a strong commitment to social good (i.e. positive ethics, community reputation etc.) The mutually reinforcing tenants can help corporates to redefine their business philosophy by strengthening their CSR agenda and to effectively manifest this by equipping the Social Enterprises they support with the tools to scale and sustain impact. IIX looks forward to using the program as a means to enable corporates to transition to a conscious capitalism model, allowing them to go above and beyond business as usual, to catalyze social change and to effectively link finance with development.
Andrew Jakubowski, Business Development
Natasha Garcha, Business Development & Partnerships