A phrase that has risen in popularity in recent years, "purpose over profits" is a noble concept. The idea that businesses should prioritize its mission and impact on society over solely pursuing financial gains is certainly an attractive one, and it cannot be argued that the world would benefit from executives considering the well-being of their employees, customers, communities and the environment in addition to their shareholders.
Indeed, in a survey conducted by Markstein, 70 percent of consumers wanted to know what the brands they support are doing to address social and environmental issues, and a Cone Communications' study on corporate social responsibility found that the majority of Americans are willing to give and withhold their purchasing power based whether or not a company has advocated for an issue they care about.
This position extends past the consumer as well, with 61 percent of young emerging leaders saying that business models should only be pursued if they achieve profitable growth while also improving societal outcomes, according to a recent survey by Accenture and the World Economic Forum. ESG, an investment strategy that takes into account environmental, social, and governance factors, has gained significant traction. A Capital Group study found that roughly 89 percent of investors considered ESG issues in some form as part of their investment approach in 2022.
While ESG analysis does involve evaluating how a company's business activities are impacting important issues pertaining to society and the environment, the intention behind the strategy is still to maximize returns. The logic goes, businesses that do well in these categories are interacting with the world in a way that ensures dual sustainability - that of the world and the company itself that operates within it.
Going even further are those pursuing impact investing. As defined by Fidelity Charitable, impact investing is "the act of purposefully making investments that help achieve certain social and environmental benefits while generating financial returns." These investments can span a number of different industries, and types of companies even within said industry, but the unifying factor is their focus on a positive impact. Impact investing moves beyond the "do no harm" mentality of an ESG focus, to an explicit active dual mandate that gives weight to both economic and social returns.
Unfortunately, until recently impact investing has struggled with a reputation of "good people doing bad deals." The perception has been that investors would inevitably choose to focus on social returns to the detriment of IRR, taking a philanthropic perspective over a fiscal one.
Bill McGlashan, a notable name within the impact investing space, is confident that this doesn't have to be the case. Building on over three decades of experience in private equity investing, McGlashan has been a steward of the impact investing movement. He is the co-founder of The Rise Fund, one of the seminal impact investing funds that made history as being the largest ever raised, and also founded Y Analytics, a social enterprise with a mission of creating standardized metrics for social and environmental impact.
"Our view is that [returns and impact] are absolutely co-linear, and we have been able to convince these large capital sources that they are co-linear," said McGlashan in an interview. "If the output of a business is that which creates impact, by definition the more successful you are, the more impact you deliver."
Throughout his career, McGlashan has transitioned seamlessly between investing in companies and building his own. He has held the CEO position for a number of venture capital firms, and founded businesses across a wide range of industries including a dietary supplement company that became one of the largest in the country. He is also widely known for his turnaround work as CEO of the Internet messaging infrastructure provider Critical Path, Inc. McGlashan spent over a decade with TPG, one of the largest private equity firms in the world. He founded the firm's first growth equity fund focused on the mid-market, TPG Growth, which would go on to invest in big names such as Uber, Airbnb and Spotify.
McGlashan's work in alternative investments and entrepreneurship gave him a bird's eye view of capitalism in action. The beauty of capitalism as an economic system lies in its ability to cultivate a thriving middle-income class while stimulating a dynamic economy, but his perspective is that it hasn't been harnessed to its full potential.
McGlashan has said of the subject :"There is $2.5 trillion sitting on the sidelines, in bank accounts. It creates an imperative to do something with that. Let's go out and have a positive societal impact. That's capital that can be invested against great purpose and great ends. It's the most scalable sustainable way to drive change that can happen in a time frame that matters to all of us."
Harnessing TPG's capital access and investment strategy, in addition to bringing in singer-activist Bono and internet magnate Jeff Skoll as co-founders, McGlashan started The Rise Fund. Differentiating itself from previous impact funds in both scope and scale, the Rise Fund began with an unprecedented $2.1 billion raised, and later went on to raise an additional $3.5 billion follow-up fund.
According to McGlashan, the size of the fund was imperative to drawing the attention of asset managers who had previously held the perception that impact investing sacrificed returns for impact. Recognizable names include Washington State Investment Board, Regents of the University of California, and UBS Group. In total, 70 percent of capital raised came from entities that had never previously engaged in impact investing.
Turning to the non-profit The Bridgespan Group in addition to other academics and investors with experience in the sector, McGlashan sought to ensure The Rise Fund differentiated itself not just in its fund size, but also in how rigorously it evaluated potential portfolio companies. Together, they developed an operational framework that could effectively measure impact. The methodology soon took on a life of its own, and as a result McGlashan founded Y Analytics in order to ethically distribute the framework and proliferate its usage within the impact investing sector.
"If we achieve our mission, we help catalyze a bunch of really effective, credible competitors coming into the market, because that's the scale of capital that's ultimately needed," McGlashan said in an interview.
Purpose over profits is a noble idea, that is contrary to the philosophical idea of capitalism. In this system that prioritizes individual liberty, economic freedom and the pursuit of self-interest as drivers of prosperity and innovation, it would inevitably be to the detriment of the business as a whole to prioritize purpose over profits, and vice versa.
For Bill McGlashan, impact investing is about harnessing these attributes that capitalism does best, and instead channeling them to serve a dual purpose. He has said of the future: "Analysts estimate that you need $30 trillion to get the SDGs done...What's so magical about the scalability and innovation engine of capitalism is that if you direct this engine around creating impact, my suspicion is we can get there with a lot less."
