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Essay

What Is the Impact Economy?

September 17, 20268 min read

An impact economy is an economy that counts what a business does to people and the planet alongside what it earns. The phrase has an owner and a definition. GSG Impact, whose stated mission is to build impact economies, defines one as an economy “where all investment, business, consumption, and government decisions are taken with impact at its core” (GSG Impact). Four kinds of decision, one criterion added to each. That is the whole idea, and it is a serious one.

It is also younger than it sounds, larger than most people assume, and built on a measurement problem that has not been solved. We want to set out all three, and then say plainly where we sit next to it, because we are often mistaken for a version of it and we are not one.

The parent term

Before there was an impact economy there was impact investing. The Global Impact Investing Network defines impact investments as “investments made with the intention to generate positive, measurable social or environmental impact alongside a financial return” (GIIN).

Two words carry that sentence. Intention, which rules out the fund that happens to own a wind farm and would like credit for it. And measurable, which is the promise the field has been trying to keep ever since. The GIIN has worked on the problem since 2009 and now has roughly 450 members across six continents (GIIN).

“Impact economy” is what you get when you take that idea out of the fund and hand it to everyone else.

The money it actually moves

In October 2024 the GIIN put the worldwide impact investing market at $1.571 trillion, managed by more than 3,900 organisations (GIIN 2024).

That number gets quoted a lot. The sentence next to it gets quoted almost never, so here it is. The GIIN says its researchers “cleared duplicates and indirect investments, and, where necessary, sampled the data to make additional estimates in order to reach a well-informed estimate of the total size of the impact investing market.”

That is an honest description of an estimate, and it tells you what kind of number this is. Entry is by declared intention. No external referee decides whose trillion counts. We are not saying the figure is inflated; we have no basis for saying that and neither does anyone else. We are saying it measures a stated aim held by managers of capital, which is a real and useful thing to measure, and is not the same as measuring what happened to anybody.

Why “economy” is the harder word

The move from investing to economy is not a rebrand. GSG describes an impact economy as resting on five pillars: demand for capital, supply of capital, intermediaries, ecosystem enablers, and government. It says it works through more than 40 National Partners covering 60% of the global population, with more than half of those partners in emerging markets (GSG Impact).

Government is the pillar that changes the size of the problem. An investor can opt in. A tax authority, a procurement office, a building code, a consumer standing in a shop, are all in the economy already and cannot opt out. Asking capital to consider impact is a market question. Asking an economy to do it is a policy question, a data question and a household question at once, and each of those has a different failure mode.

The measurement problem underneath it

None of this works without accounting, and accounting is where the field is doing its hardest and least visible work.

The International Foundation for Valuing Impacts published General Methodology 1: Conceptual Framework for Impact Accounting in final form on 22 February 2024, setting monetary valuation as the foundation of an impact accounting system (IFVI). Topic methodologies have followed for greenhouse gas emissions, water consumption, adequate wages, and occupational health and safety.

Read what monetary valuation means in practice. A tonne of carbon becomes a currency figure. A shortfall between a wage paid and a wage a household needs becomes a currency figure. An injury becomes a currency figure. Only then can any of it sit in the same column as revenue and be added up.

We want to be careful here, because it would be easy to sneer and it would be wrong. Impact accounting is a genuine attempt to solve a real problem, done by capable people, and if capital is going to see impact at all it has to see it in the unit capital reads. George Serafeim of Harvard Business School, who has driven much of this work, is not confused about what he is building.

But notice what the method does. To make impact legible to an account, it converts impact into a price. And a price behaves differently from a form of regard. We have written at length about that difference and about the research showing where it bites, in Honor Is Not a Price. The short version: what corrupts a good deed is not being seen, it is being priced. Impact accounting is a pricing exercise by design. That is the right tool for its job and the wrong tool for ours.

What Japan did with the idea

Japan is worth reading closely, because it built the plumbing quickly and framed it in a way that is easy to miss in English.

Japan’s Financial Services Agency convened a study group on impact investing in October 2022, chaired by Noriyuki Yanagawa of the University of Tokyo. It met eight times. A draft was put out for public comment and drew responses from 43 individuals and organisations. On 29 March 2024 the FSA published the final Basic Guidelines on Impact Investment (Impact Finance) in Japanese and English (FSA).

Four months before that, in November 2023, the FSA launched Japan’s Impact Consortium, a standing forum for investors, financial institutions, companies and local governments, with a joint secretariat run by the FSA and the Ministry of Economy, Trade and Industry (Impact Consortium).

The framing is the part to notice. The consortium’s own English line is “for materializing social or environmental impact that fosters business potential.” Its Japanese materials build everything around 好循環, a virtuous circle in which creating impact and building a business reinforce each other. There is no sacrifice narrative. Japan did not set up impact as the price of doing business. It set impact and business on the same side, and then spent two years writing the guidance to make that claim operational.

Whether the circle closes is an empirical question that will take a decade to answer. As a piece of institutional design it is more coherent than most.

The limit nobody names

Here is where we part company with the field, and it is not a criticism of it.

An impact economy widens what the ledger records. It does not change what a ledger is.

Money is a form of societal memory, a portable record of what you did for someone else, and it is a memory with a specific blind spot: it records what was sold and forgets what was given. We argue that at length in Money Is Memory. An impact economy is a better memory than the one we have. It still remembers transactions.

So think about what it will never hold. The nurse who stayed past the end of her shift. The neighbour who kept an eye on a flat for three years. The father who did the boring half of a childhood. The friend who answered the phone at two in the morning. None of that passes through a fund, a supply chain, a procurement decision or a tax return, so no accounting standard reaches it, however good the standard gets. This is not a gap the methodology will close later. It is what a ledger is.

That is why we think the two projects are complementary and separate. Pricing impact is how you make capital behave better, and it is being worked on hard, with real money and real rigour. Honouring impact is how a person decides what their own life was for, and almost nobody is working on that at all.

Capitalism is the engine. Impactism is the compass. The engine is not the problem, and an impact economy is the engine being tuned, which we are glad about. The compass is a different instrument and it has to be built from different material: recognition that is peer-conferred, plural, and never convertible into money, because the instant it converts we have simply built a second currency and handed the whole problem back to itself.

What we are not claiming

We are not claiming the impact economy will fail. We have no idea, and the honest answer is that it is too early for anyone to have one. The $1.571 trillion is a real figure describing real declared intent, and the standards work is real work.

We are not claiming that measurement is bad. A world that measures carbon badly is worse than a world that measures it well, and someone has to do the tedious job of turning a wage gap into a number a board will look at.

We are not claiming a culture of honour would arrive on its own, or that it would be easy, or that we have run the experiment. We have not. Nobody has, at scale.

What we are claiming is narrow. An impact economy is a way of pricing what business does. It answers the question of where capital should go. It does not answer the question of what a life was for, and it was never designed to. Two different questions need two different instruments, and only one of them currently has a trillion dollars and a standards body behind it.

Make impact, not money, the measure of a life.

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