Defining a Conscious Economy: A Glossary of Sustainability Acronyms and Terms

Submitted by Beth Busenhart

By Beth Busenhart and Charlie Kuhn

We are experiencing a renaissance of sorts in business where leaders are recognizing the power of a market based approach to affect positive social and environmental change. Capital is being raised and deployed to facilitate change in the form of Impact Investment vehicles. Impact Investing alone is expected to become a $500 billion industry in the next ten years.

From top business schools and the boardrooms of corporate America to entrepreneurs in the developing world, momentum is building and so is the repertoire of buzzwords, acronyms and nuanced terminology. As a diverse set of stakeholders tries to define a way forward, it can be confusing to wade through the tongue-tangling terms that attempt to shape a new economy.

Here is our attempt to bring together major impact investing terms, define them, and point to origins when possible. This is by no means a definitive glossary on social impact, but it hopefully provides some clarification and helps you carry the conversation forward.

Benefit Corporation

A company chartered as a Benefit Corporation is a class of corporation required by law to create general benefit for society, as well as for shareholders. The fiduciary responsibility of a Benefit Corporation includes creating value for employees, community and the environment in addition to generating a profit. Laws vary by state but generally allow owners to protect the social or environmental mission and all stakeholders of the company, taking into account factors other than highest purchase price at the time of sale.

A Benefit Corporation must publicly report on non-financial performances using established third-party standards. Ten states have enacted legislation to recognize Benefit Corporations:

1. California
2. Massachusetts
3. Hawaii
4. Maryland
5. Louisiana
6. New Jersey
7. New York
8. South Carolina
9. Vermont
10. Virginia

Legislation has also been introduced in Colorado, Illinois, Michigan, North Carolina, Pennsylvania and Washington, D.C.

Certified B Corporation (B Corp)

Certified B Corporations are philosophically the same as legally designated benefit corporations but have a few important differences. The B Corp certification is not conferred by a state but by Berwyn, Pa.-based B Lab, a nonprofit organization that promotes the power of business to solve social and environmental problems.

B Lab certifies companies the same way TransFair certifies Fair Trade coffee or USGBC certifies LEED buildings. Certified B Corporations earn their designation by meeting a high standard of overall social and environmental performance. As a result, Certified B Corps have access to a portfolio of services and support from B Lab that benefit corporations do not. Unannounced audits are done on about 10 percent of all certified B Corps every year. B Lab supports and encourages legislative efforts and many legally chartered Benefit Corporations also have a B-Corp certification.

Low-profit Limited Liability Company (L3C)

L3C is a legal structure for businesses in the United States that bridges the gap between nonprofit and for-profit investing. L3Cs use their for-profit efficiencies along with fewer regulations from the IRS to achieve socially beneficial goals. L3Cs are taxed and operate with a stated goal of achieving social improvement, with profit as a secondary goal.

Base/Bottom of Pyramid (BoP)

An economic term referring to the largest but poorest socio-economic group, which in global terms refers to the 2.5 billion people who live on less than $2.50 (U.S.) per day. One of the earliest popular uses of the phrase “bottom of the pyramid” was by U.S. president Franklin D. Roosevelt in his 1932 radio address, The Forgotten Man, which referred to the plight of the American farmer and the importance of building economic power from the bottom up rather than the top down.

Base of Pyramid Entrepreneur (BoPreneur)

This is a catchy term for a Social Entrepreneur or someone who creates a new for-profit business with the mission of addressing a social and/or environmental problem and stimulating the economy at the base of the pyramid.

Blended Value

Introduced in 2000 by impact investing thought leader Jed Emerson, blended value represents a broader way of thinking about the nature of value creation by organizations, whether for-profit, nonprofit or hybrid, and through the application of capital. Emerson coined the “blended value” term to transcend the previously bifurcated definitions of value as either economic or social/environmental so that the focus could shift to maximizing companies, communities and capital.

Corporate Social Responsibility (CSR)

CSR is a form of corporate self-regulation that is integrated into the business model and takes into account not only shareholders but also stakeholders such as employees and customers. CSR efforts often include the entire value chain, including suppliers, buyers and the communities in which the company operates, when addressing issues of social and environmental impact.

The term "corporate social responsibility" came into common use in the late 1960s and early 1970s after many multinational corporations formed the term to describe any group that is impacted by a company’s activities. Annual CSR reports are now published, using a framework such as GRI to increase awareness and transparency around CSR and sustainability progress.

Double Bottom Line

A business term used in socially responsible enterprise and investment to refer to both the conventional bottom line, a measure of fiscal performance, and the second bottom line, a measure of positive social impact.

Triple Bottom Line (TBL)

Coined by John Elkington, founder and chairman of SustainAbility, in his 1997 book Cannibals with Forks: the Triple Bottom Line of 21st Century Business, the term refers to the three prongs of financial, social and environmental accountability. While businesses of the past only had to be accountable for their financial performance, today’s enterprises are increasingly pressed to demonstrate concern for three bottom lines: financial, people/communities, and the environment.

The Three Pillars or “people, planet, profit”

More terms for “triple bottom line”

Global Reporting Initiative (GRI)

A framework for reporting on economic, environmental and social sustainability, GRI is one of the most widely used standards around the world. GRI promotes transparency and accountability and provides companies with guidance and support for sustainability reporting efforts. GRI is a nonprofit that is continually evolving the standards through broad input and collaboration from civil society, business, mediating institutions, academia, labor, public agencies and intergovernmental agencies.

Environmental Social and Corporate Governance (ESG)

ESG is a general catch all phrase that encompasses the major areas of concern for a business that strives to operate in a sustainable and ethical manner. In addition to financial factors, each of these areas is taken into consideration for anyone considering investment in a company. (See SRI below)

Global Impact Investing Ratings System (GIIRS)

Provides independent, third party ratings and analytics for the impact investing industry. Both companies and funds can be rated by GIIRS to assess social and environmental impact. GIIRS ratings are analogous to Morningstar investment rankings or S&P credit risk ratings but don’t take into account financial performance.

Global Impact Investing Network (GIIN)

A not-for-profit organization dedicated to increasing the scale and effectiveness of impact investing, which aims to solve social or environmental challenges while generating financial returns.

ImpactBase

ImpactBase, a project of the Global Impact Investing Network, is a searchable online database of impact investment funds and products designed for investors.

Impact Reporting and Investment Standards (IRIS)

An initiative of the Global Impact Investing Network, IRIS provides a common language of indicators and metrics to define operational, social and environmental performance. IRIS is a set of standardized metrics that can be used to describe an organization’s social, environmental, and financial performance. IRIS' independent and credible performance measures help organizations assess and report on their social performance.

IRIS metrics span an array of performance objectives and include sector-specific metrics for areas such as financial services, agriculture, and energy, among others. Like financial accounting standards, IRIS provides a basis for performance reporting, and organizations need only use relevant metrics from the IRIS library.

PULSE

A data management tool by that provides a streamlined way for organizations or funds to track, benchmark and report on financial, operational, environmental, and social data across an investment portfolio. PULSE runs on the Salesforce platform and can be integrated with an organization’s customer relationship management (CRM) program and other front office solutions such as deal tracking and pipeline management software. In a nutshell, PULSE helps managers consolidate and centralize extensive data, making it easy to access, search and use.

Socially Responsible Investing (SRI)

Also known as sustainable, socially conscious, “green” or ethical investing, this term defines any investment strategy seeking both financial return and social good. In its broadest usage, SRI refers to proactive practices such as impact investing, shareholder advocacy and community investing. Socially responsible investments encourage corporate practices that promote environmental stewardship, consumer protection, human rights and diversity.

They can also represent the avoidance of investing in industries or products that can be socially harmful, including alcohol, tobacco, gambling, pornography, weapons and/or the military. The term dates back to the Quakers, who in 1758, prohibited members from participating in the slave trade.

Social Return on Investment (SROI)

The SROI concept, essentially a cost-benefit analysis, is used by charities, donors and nonprofit organizations to rate the results of their endeavors with firm evidence of impact and created value. The idea of social return on investment was pioneered in the 1990s by a U.S. venture fund called REDF and has since caught on.

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Throughout our list, consistent themes of transparency, accountability and interconnectedness are encouraging signs that traditional business is becoming aware of its tremendous impact. By actively engaging to harness this power for positive change rather than blindly seeking profit, our economy has the ability to inherently make the world a better place while generating financial return.

What have we missed? Add your thoughts and additions to the growing glossary around social and environmental impact by leaving a comment or connecting with the authors on Twitter, Facebook or LinkedIn.

Sources: B Lab, Global Impact Investing Network, Global Reporting Initiative, Investopedia, Next Billion, The Wall Street Journal, Wikipedia

About the Authors:

Beth Busenhart is the PULSE product manager at Application Experts (App-X), a Broomfield, Colo.-based B Corp that develops cloud-based software solutions to help alternative asset managers track the success of their investments.

Charlie Kuhn is responsible for PULSE business development at Application Experts. He can be reached at Charlie@app-x.com.