Why India needs to foster social leadership to build an impact economy

Today’s world is increasingly unacceptable to many, with three billion still living on less than $5 per day while the top 1 percent of the world’s population owns two-thirds of global wealth.

The imminent catastrophe of climate change adds urgency to the demand for a safer, more equal world with the latest IPCC report contending that we will breach the 1.5-degree Celsius temperature-rise redline.

Inequity is also behind the many crises and uprisings roiling the globe since the beginning of the century: the global financial crisis, the Arab Spring, Occupy Wall Street, Brexit, the Paris Yellow Vest movement, Extinction Rebellion, and the rise of populism.

Social and economic inequity has reached a level that people are no longer willing to abide. The UN Sustainable Development Goals (SDGs) offer hope but are hamstrung by an annual financing gap of $2.5 trillion in developing countries alone.

There has never been a more urgent need to reconsider our social economy and social leadership.

Social leadership

Social leadership – from Muhamad Yunus’ social entrepreneurship leading to his Nobel prize in 2006, or environmental leadership in awakening the world to global warming by former US Vice President Al Gore, or Abhijeet Banerjee, Esther Dufflo and Michael Kremer’s paper on Randomized Control Trials (RCTs) to alleviate global poverty – were all acts of social leadership.

India, therefore, needs a wider, truer definition of social leadership that juxtaposes impact alongside markets. The imminent global transition to an impact economy offers a solution.

The impact economy offers a simple and bold idea that capital has a higher purpose—impact. It seeks to embed Impact, as an economic concept like risk and return in every business, investment, policy, and consumption decision.

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The Impact Economy

The genesis of impact lies in the disruption to traditional investing in the form of impact investing evolved at the beginning of the century. Widely seen as a panacea for social, environmental and economic injustice, the impact movement in its different forms, as financial inclusion or digital inclusion, climate justice or gender justice, education or health, aggregates all issues in a singular concept of a new system of impact capitalism.

Therefore, it is no surprise that in more recent times, the fostering and evolution of an impact economy – under the broader Impact Movement – as a part of the larger free-market capitalist system is increasingly becoming par for the course.

While the dual leadership of governments and private enterprises with some contribution from non-government and non-profit sectors has steered the economy so far, the imperative is to create an impact economy that necessitates the nurturing and building up of social leadership in the country.

Put another way, social leadership would create pathways for accomplishing impact on the economy.

Socio-environmental role of business leaders

In a traditional market economy model, private players produce and sell private goods while delivering growth and profits with the exclusive focus on benefitting the shareholders and without being responsible for social and environmental externalities.

With the introduction of Section 135 in the Companies Act 2013, India has statutorily mandated corporate social responsibility or CSR for specified companies. This has undoubtedly not sufficed to make up for the enormous gap in public goods and the wider socio-economic disparity that continues to exist in the country.

As such, impact economy – with its ecosystem of investors, entrepreneurs, governments, and philanthropists – aims at making investments with an eye on going beyond financial return into creating a positive social and environmental impact while generating profits in a way that contribute to the larger public good. In effect, private enterprises share the so-called public good ‘load’ of the governments.

Hence, the recent expansion of Business Responsibility and Sustainability Reporting (BRSR) by the Securities and Exchange Board of India (SEBI) from the Top 500 to the Top 1000 companies, is an opportunity for India to widen the pool of talent to develop its future cohorts of social leaders.

Social leadership for impact economy

Despite improvements in recent years on social-economic indicators, there is still a long way for the country to tide over its socio-economic deficits. For instance, even before the COVID-19 struck, the number of poor with income of $2 per day or less (in purchasing power parity terms) was a staggering 59 million, which since has more than doubled between 2020 and 2021 thanks to the pandemic-driven economic slowdown in the country.

While governments and corporations are turning the wheels of the economy forward, the advent of social leadership with a focus on impact investments can truly propel the economy in a direction that accounts for greater social and environmental outcomes for the weakest segments of society.

With governments’ inability to raise sufficient resources keeping in mind the sheer enormity of the demand, it is but natural that socially-inclined private players will have to shoulder a greater part of this responsibility.

Similar and colossal gaps exist in other socio-economic sectors in the country. Only enlightened social leadership can turn these gaps into a sustainable investment opportunity while turning around the socio-economic fortunes of faceless multitudes. Indeed, both profit and purpose can work together in an impact economy shepherded by social leadership.

In summary, the idea of an impact economy makes the private sector a partner in social impact, alongside governments, philanthropists and NGOs. We have a golden opportunity to embrace this idea and foster a new cohort of social leaders whose leadership in turn will enhance and strengthen the impact economy.