All impact investing can be divided into primary or secondary impact and impact investors should understand the difference.  We define “primary impact” as impact that is caused by the company carrying out its mission.  Whenever a primary impact company sells its goods or services, there is social and/or environmental good that comes from it. Secondary impact companies, on the other hand, are measured by their practices rather than their business product.

We make the distinction between primary and secondary impact by noting that primary impact is created by “what” the does as opposed to “how” they do it. For-profit companies that have positive environmental impact by creating carbon-free energy, for example, create impact by the very act of carrying out their business and reducing carbon emissions. The more that the company grows and carries out its mission, the more positive impact there is in the world. 

Many impact investors focus on secondary impact, or “how” the company carries out its mission, than the mission itself. Certified B Corporations (B Corps) are a good example of this.  The qualifications to be a B Corp focus primarily on metrics surrounding business operations such as diversity, pay disparity, green business practices, etc.  These are laudable goals and are accompanied by rigid sets of metrics to assure compliance. 

Socially Responsible Investing (SRI) became popular in the 1970s and was known more for what investors did NOT want to invest in. An example of this is the elimination of investment dollars by SRI funds into the tobacco, alcohol and other industries perceived as negative by SRI practitioners.  ESG, or Environmental and Social Governance strategies, are more sophisticated and believe that companies that intentionally measure and act with environmental and social outcomes will do well in the long run.  Many practitioners however have found ways to meet the standardized ESG metrics while not passing the “sniff test” of more discerning impact investors.  Examples include British Petroleum, Slumberger, Clorox, Coca Cola, Conoco Phillips, Nestle and XCEL Energy. Clearly, there’s something that could be improved with ESG metrics and the companies that can manipulate the data to fit them while potentially harming society and the environment.  This practice of using metrics and certifications to make carbon generating companies like British Petroleum and Conoco Phillips is called “greenwashing” and impact investors should keep their eyes out for true impact vs. greenwashed impact.  By distinguishing between primary and secondary impact, we eliminate much of the opportunity for greenwashing.

Measurement of primary impact,  tells us what the company does and how it impacts communities, economies and the environment.  Take, for example, PharmaJet.  This is a company that makes a needle free injection system for vaccines.  The PharmaJet injector is small, requires no batteries or electricity to run, can be operated with minimal training and can be used thousands of times before replacement is needed.  The PharmaJet capsules that hold the vaccine have no needles, so every time one is used, there is a diminished likelihood of needle pricks suffered by health care practitioners.  They also cannot be reused by drug abusers or reused by healthcare practitioners in undeveloped countries.  Other benefits include PharmaJet’s more efficient delivery which cuts the amount of Polio vaccine needed by up to 30% for each injection.  Given the world-wide shortage of Polio vaccine, the impact of being able to inoculate 30% more people with a given amount of vaccine is significant.  The time to administer a shot with PharmaJet’s system is almost half of that of using needles, so healthcare workers can provide twice as many vaccinations in a community in a given period of time.  Additionally, many people are needle-phobic and they fail to get regular vaccinations for influenza and other diseases, leading to global health vulnerabilities when significant populations are unvaccinated.  The pain free, needle free PharmaJet system eliminates the excuses for these people to avoid vaccinations and can have massive impacts in global health outcomes. 

These are all Primary impacts that come from using PharmaJet’s system.  The company is not B Corporation, SRI or ESG certified, but it does more good with each unit sold than BP does in a year.  If we are going to understand what we mean by impact, we will need to distinguish between Primary and Secondary Impact, because they are clearly very different metrics and will have very different impact outcomes.

To be clear, ESG, SRI and B Corporations have done good things to raise the bar for business practices in many companies but impact investors should understand the risks or relying too heavily on these metrics.  But a company can do both primary and secondary impact – Just because a company creates primary impact through carrying out its mission does not mean that it cannot also carry out secondary impact by following best practices for sustainable practices within its organization.

 By focusing on primary impact, impact investors could avoid the challenges of ESG metrics systems and the potential for greenwashing that they enable.  Investing in companies whose primary mission entails doing social and environmental good avoids the greenwashing and self-justification that dated metrics systems could allow. 

Rockies Impact Fund - Venture Capital Fund focusing on full market-rate returns on early stage Primary impact companies.

If you’re interested in learning more about impact investing in your portfolio, are an accredited investor, fund, foundation, family office or CSR investor, please contact us about becoming a Limited Partner in the Rockies Impact Fund.  The Rockies Impact Fund is a full market-rate return targeted Primary Impact Venture Capital fund that targets early stage private impact companies in the UN SDGs focusing on healthcare, education, agtech, economic development and sustainable cities.

Peter Adams is co-author of Venture Capital for Dummies and serves as the Executive Director of the Rockies Venture Club, the longest running angel investing group in the U.S. 

Peter serves as an Officer on the Board of the Angel Capital Association, the North American association of professional angel investing groups.

He also runs the Rockies Venture Fund, an early stage venture capital fund and Rockies Impact Fund, investing in social and environmentally oriented companies. 

Peter is also the founder of The Rockies Venture Institute, the Women’s Investor Network, and BizGirls.org, a non-profit CEO Development Program for young women.

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