What Is Social Impact and How Is It Changing The Way The World Does Business?

Apr 3, 2018 5:07:24 PM / by Peter Heijen, Founder | 6 minute read

The Lendahand Blog revolves around the topic of "Social Impact Investing" via Crowdfunding. But what exactly is the "Social Impact" within impact investing?

 
 

Social impact can be defined as the positive effect that a business, organization, or individual has on their environment, community, or local economy.

To be clear, any investment could potentially make an "impact." However, an investment that makes a social impact is more targeted at addressing specific social challenges the world faces, such as poverty, climate change, access to basic needs, and infrastructure development.

With such a broad definition of social impact, how can we break it down into areas that are easier to connect to? First, we can divide them into the underlying issues that need attention.

Climate Change

Climate Change is a hot-button issue for the world for many reasons. According to NASA:

"...evidence reveals that current warming is occurring roughly ten times faster than the average rate of ice-age-recovery warming."

The planet's average surface temperature has risen about 1.1 degrees Celsius since the late 19th century, and temperatures are projected to continue increasing in the near future, causing rising sea levels and changing weather patterns. Global initiatives such as the Paris Climate Accord have sought to reduce carbon emissions on a global scale, but many organizations are making an impact at the local level by bringing attention and meaningful change to their communities.

social impact workers in india

Solar Energy

Solar energy is absolutely included in the climate change initiative, however, solar has proven to be a viable way to transform communities access to sustainable electricity at an affordable level as well.

The major benefit of solar energy is that it's renewable. More than that, one could even say it's limitless. According to the National Geographic, less than one-tenth of one percent of global energy demand is currently being met by today's solar energy sources. This shows you the huge opportunity for growth represented by the industry as a whole.

Companies like Tesla and SolarCity are famous for their goals to change the way the world relies on fossil fuels, but many other companies and organizations are beginning to jump on the solar power wave. Solar energy has the potential to radically change the way the world produces and accesses energy. In areas of the world that have been left behind in commercial development, this could have a huge impact on their quality of life.

Food Shortage

No matter how much food is produced across the globe, certain areas of the world still face hardships when it comes to getting access to nutritional food.

At the moment, around 800 million people worldwide are living in perpetual hunger. Health problems arising from hunger are numerous, causing multiple side effects including growth deficiency and a higher susceptibility to diseases for children.

Whether it be famine caused by war like in Yemen or Syria or broader structural problems such as in India or South Sudan, there is still vast room for improvement on how the world's food supply can reach those who currently live in starvation.

social impact project in india

Access to Energy

In developed countries we often times take for granted the massive amounts of energy that we use on a daily basis. Daily, many people's single homes use more energy than entire villages in developing countries.

The International Energy Association says that over 1.1 billion people are still without access to electricity, while 2.7 billion have no access to clean cooking options.

As these developing countries continue to try to build themselves up, there's nothing more important than access to the basic infrastructure needs that have to be in place in order to make that a possibility. Resources like electricity and fuel have to become readily available for the people and businesses that need them.

Basic Living Needs

Food, water, shelter: something that most of us don't spend much time worrying about. However, for much of the globe, that's unfortunately not the case. Many people in Africa, Asia, and South America still live without basic necessities like clean food, running water, or even a place to bathe. In fact, over 750 million people live without clean drinking water.

As far as the basic need of education goes, it's estimated that 72 million children of primary school age were not enrolled in a school because of the lack of availability or access. That data coupled with the estimate that around 1 billion people in the world entered the year 2000 without the ability to read, we see the massive numbers of people who can be helped through improved access to basic needs and education.

Poverty & Income Inequality

Closely related to many of the topics already mentioned, poverty is still a critical problem facing the world today. More than 1.3 billion people in the world live in extreme poverty, while over half the world's population lives on less than $2.50 per day. According to UNICEF, every day around 22,000 children die because of poverty-related circumstances.

When considering the lack of equality in wealth across the world, consider this statement from the OECD:

"Income inequality in OECD countries is at its highest level for the past half-century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago."

With all of the problems that come from poverty (as one can see from all of the challenges listed above), you don't have to think long to see why income equality is such a vital challenge for the world to address.

Elderly Care

In order to see the massive challenge that elderly care poses, one doesn't have to look any further than China. Currently, the Chinese have an elderly population of over 140 million. However, by 2050, that number is projected to increase to over 400 million. Couple that with the fact that China's debt to GDP is close to 260% and many wonder how the Chinese government will be able to provide care for all of those elderly people in the future.

elderly care social impact

China is not alone in this problem. When you look at changes in the world's elderly population over time, some striking figures present themselves. In the year 1900, less than 5% of the world's population was 65 years or older. In contrast, by 2050 that number will be more than triple at 16%.

European countries have been struggling to solve these challenges without putting too much pressure on public debt systems, but so far no one has come up with the perfect solution.

Many companies and organizations, such as Sarah Oliver Handbags, are committed to finding ways to improve the lives of elderly people and help keep them integrated into society, but the challenge is so immense that there is plenty of room for social impact investing to make a huge difference.

Summary

When considering all of these challenges, the world simply cannot get enough help. Charities and volunteer organizations do immeasurable good for needy people across the world, however, we’re going to need even more if we want to truly rid the world of poverty once and for all.

Impact investing gives people who want to help tackle the challenges listed above a way to help fight. If you want a way to help improve the lives of people in developing countries, donations and charity are not your only options. Impact investing gives you a new, more sustainable way to help.

Topics: impact investing, social impact

Peter Heijen, Founder

Written by Peter Heijen, Founder

When I traveled through Nepal, India, and Bangladesh a few years ago, I saw with my own eyes that entrepreneurship and employment are the strongest weapons against poverty. However, many entrepreneurs do not have access to affordable financing. Crowdfunding seemed like a good solution, that's why I founded Lendahand. I've been amazed by the results!

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