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Ted Barber Headshot

Impact Investing: Can We Pay Her Less?

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I was in New York City meeting with an advisor who offered to help raise investor capital for our social enterprise. She was reviewing the business plan and numbers, then looked up and asked, "Can you pay the women less?"

My partners and I didn't know what to say. I'm pretty sure our mouths were stuck open as an uncomfortable silence followed. Eventually I asked, "Have you read our mission statement?"

Prosperity Candle creates opportunities for women in regions of conflict to escape poverty. We invest in women entrepreneurs with the goal of helping them not just survive, but truly thrive. It's the hand-up-not-hand-out approach, and we focus on some of the most difficult places where few are willing or able to go. Like widows in Iraq.

I pointed out that by paying the women less we would at best increase profits by 1%. But it would cut their incomes by 25%, a devastating cost reduction that would undermine our objective while hardly strengthening the bottom line.

The advisor, a financier with a good heart, told us that while our model promises significant impact, impact-minded investors would pass us by in favor of a higher financial return. We are inspiring, but not competitive in the impact investing world.

Which begs the question... what exactly is impact investing?

It seems to apply equally to colleges divesting from coal and "blended value" funds selecting profitable businesses that score highly on social and environmental responsibility. To the investor looking for a healthy ROI while also contributing to a better world. And to individuals and foundations complementing philanthropy with financial support for innovative business models driving social change.

All of this is great. I'm just confused. These are not equal, yet all have recently been referenced under the umbrella of impact investing. A few weeks ago I was discussing this with a professor of social entrepreneurship at a business school. After sharing contrasting perspectives he concluded, "I think it makes perfect sense for founders to prioritize mission over profits, but why impose that on providers of growth capital?"

His question speaks to the debate over what constitutes an impact investment. A Stanford Social Innovation Review article defines it as "actively placing capital in enterprises that generate social or environmental goods, services or ancillary benefits such as creating good jobs, with expected financial returns ranging from highly concessionary to above market." That is absurdly broad, as the authors acknowledge. But then they talk about investor intention, which really gets to the heart of the matter: priorities.

What are yours? Skip the "doing good while doing well" or a triple bottom line. These are worthwhile goals, but when push comes to shove, you have to decide which matters most. Profit or impact? Strive for both, but be clear about which is subservient.

There is nothing wrong with prioritizing profit. Many argue it is the best way to attract capital to the impact investing space. But don't wax poetic about harnessing the power of enterprise to change the world if your instinct is to undermine that goal the moment margins slip or a profitable exit evaporates. Make your choice, say it out loud, and put your money where your mouth is. Same goes for social entrepreneurs... declare your highest priority then stand tall and stick by it.

On a NextBillion post by Geeta Goel entitled "Impact investing: Making the case for low-margin, high social return investments," a guest commented that maximizing impact rather than profit is "silly and outdated thinking."

If prioritizing living wages over a 1% increase in profit is silly and outdated, then I enthusiastically embrace this new identity. No one is ever going to convince me to pay the women less.