Analysis: Can Positive Impact Harm Society?

Imagine a company that manufactures bags, furniture or building materials from industrial by-products.

On the company’s website, you can see what the material looked like before: faded textiles, plastic scraps, pieces of cut-off rubber or discarded components. Next to them is the finished product. Beautifully designed, commercially viable and ready for a new life.

The company can report how many tonnes of waste it has diverted from incineration. Investors can put a figure on the positive effect. Customers can buy a product that offers both function and a compelling story.

It looks like impact in its purest form.

And it may well be.

But now imagine that the residual material was already part of an efficient recycling or energy-recovery system. That it has to be transported over long distances, washed, heated and mixed with virgin materials before it can be reused. That the finished product does not replace another purchase but is bought in addition to it. And that the combined materials cannot be separated once the product reaches the end of its life.

The company has still transformed a measurable quantity of waste into new products.

But has it created an overall environmental benefit?

This is not a criticism of any particular company. It is a thought experiment illustrating some of the complexity involved when we take on the task of creating positive societal change.

When I follow these questions to their logical conclusion, I arrive at a paradox that has occupied my thoughts over the summer:

Can a company or organisation create positive impact within its own defined sphere of activity, while at the same time contributing to an inefficient use of society’s overall resources?

I am afraid the answer is yes.

Waste does not emerge from a vacuum

I meet many companies and organisations founded with a genuine ambition to solve social or environmental problems.

They have often noticed something others have overlooked: a residual stream that could be put to new use; a technology that could make a public or social intervention more effective; or a service that could give people access to opportunities they do not have today.

They create something tangible. They act. They try to build a business around a societal improvement.

But a company’s own narrative almost always begins with the problem it wants to solve and ends with the product it delivers. That is understandable. It is how a business model is defined and how an investment can be analysed.

Society does not stop at the company’s boundaries.

A residual material already has a place in a waste, energy or production system. A new product either replaces—or fails to replace—an existing product. Transport, labour and energy could have been used in other ways. And a solution can alter the economic incentives facing companies, public authorities and consumers.

The number of tonnes of material recycled is therefore an output. It is not, in itself, proof of positive impact.

The decisive question is not simply what the company has done, but what has actually improved compared with what would otherwise have happened.

Additionality is the decisive test

The impact field has a term for this difference: additionality.

Additionality is the change created by a company or investment beyond the realistic alternative.

Would the outcome have occurred anyway?

Did the material already have a sensible use?

Would the customer have gained access to a comparable solution from another supplier?

And would the company have been able to raise capital on conventional market terms?

It is useful here to distinguish between the additionality of the company and that of the investor.

While the company’s additionality concerns the difference between its solution and what would otherwise have happened, the investor’s additionality concerns the difference between a world with and without that particular investment.

Did the capital make it possible to develop something that would not otherwise have been developed?

Did the investor accept greater risk, a longer time horizon or a more modest financial return?

Did the investor contribute expertise, relationships or legitimacy that moved the company forward?

A company may create significant societal value even if the particular impact investor was not crucial to its development. Conversely, an investor may make an important contribution to a company whose overall systemic effect remains uncertain.

Additionality forces us to look beyond the compelling story and ask the counterfactual question:

What did we actually change?

But even high additionality does not necessarily mean that the solution is moving society as a whole in the right direction.

A private solution can create a genuine improvement for its users while contributing to a fragmented, expensive or socially unequal system.

Impact investing does real good

This is where it is important for me to pause.

My point is not that impact investing is built on superficial narratives about social start-ups and green products. Impact investing has done—and continues to do—real good.

An investor can, for example, put money into a company that gives smallholder farmers access to better weather data, more precise irrigation, improved farming methods, finance, storage facilities or new markets.

For the farmer who can increase yields, reduce post-harvest losses and create a more stable income for their family, the improvement is tangible. It is no less real because the technology does not simultaneously solve every problem relating to land rights, transport infrastructure, terms of trade, climate change and national agricultural policy.

It would be both arrogant and paralysing to dismiss such solutions because they do not transform the entire system on their own.

Sometimes a concrete, investable and imperfect solution is simply far better than the existing alternative.

And we do not have time to wait for a perfect system that may never arrive.

Impact as the third dimension of investment

The greatest contribution of impact investing may not lie solely in the companies that receive funding.

It also lies in the way impact investing changes the investor’s understanding of capital.

Traditionally, investors have assessed investments through two central dimensions: risk in relation to expected return. Impact investing adds a third: the investment’s effects on people and the planet.

That may sound like a modest extension. But it represents a significant shift in mindset.

Societal impact moves from being an externality—something outside the investment decision itself—to becoming part of the decision’s core.

The investor no longer asks only:

What can I earn, and what risk am I taking?

The investor also begins to ask:

What kind of world is my capital helping to create?

That does not mean the answer will always be adequate. Nor does it mean that the chosen impact indicator necessarily captures what matters most.

But the question itself is an achievement.

I am inclined to regard this shift in investor mindset as one of impact investing’s most important and most systemic contributions.

The more capital markets learn to regard social and environmental effects as part of an investment’s real performance, the harder it becomes to maintain the fiction that financial returns can be assessed independently of the consequences an investment has for the rest of society.

Measurement as part of the infrastructure

I also want to avoid suggesting that impact investors uncritically accept every claim made by a company.

Extensive work is under way to make impact measurable, comparable and useful in investment decisions.

Shared metrics, impact dimensions, benchmarks and impact-management principles are intended to make it easier to examine who experiences a change, how significant and lasting it is, what contribution the company and investor have made, and what risk there is that the expected effect will not materialise.

That development matters.

It can make it harder to present every green or social activity as impact. It can sharpen investor due diligence, expose negative effects and create a better basis for comparing companies and investments.

In the best of all possible worlds, these measurement methods could also become a bridge between individual investments and systemic solutions.

Companies can serve as development laboratories that create innovative solutions and test technologies, products, financing models and methods of distribution in the real world.

If their experiences are documented in reasonably consistent ways, they can contribute to broader learning about which solutions work, for whom and under what conditions.

Data from companies working with smallholder farmers can inform public strategies on productivity, climate adaptation and market access.

Data from circular-economy companies can reveal material flows and support the development of regulation, standards and infrastructure.

In this way, impact measurement can become part of the system’s information infrastructure.

But only if the data are not used solely to document the company’s success.

They must also help us determine whether the solution should be adapted, integrated, scaled or abandoned.

If the measurement framework is defined too narrowly, it can tell us only whether an investment has achieved the target set by the investor—not whether that target is the right one for society.

Same solution, different outcomes

This becomes clear when we consider how the same solution may function in different societies.

In an industrialised country with a relatively well-developed waste system, residual materials are generally already divided between recycling, energy recovery, landfill and other uses.

The system may be far from perfect. But a company is not necessarily taking a worthless material out of a vacuum. The material often already serves a function.

The additionality of moving it into a new use may therefore be limited. In some cases, the new process may be more expensive and more resource-intensive than the existing one.

The same solution may create a much greater immediate effect in a city where waste would otherwise be left in the streets, dumped in nature or openly burned.

In that context, a private or decentralised company may create cleaner neighbourhoods, reduce health risks, generate employment and provide access to materials or energy.

But the systemic question must also be asked there.

Do we risk creating a patchwork of small private solutions, each of which works for the customers who can afford it, but which never becomes a coherent and universal infrastructure?

Do different technologies and data systems become locked into isolated solutions that cannot be connected?

Will investors and companies develop an economic interest in preserving a problem that a future system should ideally prevent?

And could a series of companies that are individually useful lead a country down a development path that is ultimately worse than a more coherent, but also more demanding, systemic solution?

It is a difficult dilemma.

We cannot ask people to wait for decades for a perfect waste system, healthcare system or energy grid. But nor should we be indifferent to whether the solutions we finance today make a stronger future system easier or harder to build.

The question is therefore not only whether a solution works today, but also which possibilities it opens and closes for tomorrow.

Systems thinkers see something essential

I previously interviewed the systems thinker Steve Waddell, who argues that impact investing cannot create systemic change on its own.

Complex societal problems are shaped by politics, institutions, power, culture, infrastructure and relationships between many different actors. No single investor or company can control or transform this entire interplay.

Steve Waddell describes systems change through stages including experimentation, system design and scaling.

His criticism is that capital often seeks out the stage at which the solution and business model have become clear, while experimentation, coordination and the development of institutions, regulation and shared infrastructure are harder to finance.

I believe he sees something essential.

The sum of successful companies does not automatically add up to a well-functioning society.

Companies can develop technologies, products and services. But they do not, on their own, build legal systems, democratic institutions, universal healthcare systems or coherent infrastructure.

That requires interplay between markets, government, civil society and citizens.

Impact investors risk overlooking this when their analysis is limited to the individual company and its customers.

A company can be well run, profitable and demonstrably impact-generating while remaining peripheral to the underlying societal problem. In the worst case, it may even be economically dependent on the problem continuing.

Systems thinking is therefore a necessary corrective to the idea that the right portfolio of companies can, by itself, solve our greatest challenges.

Complexity cannot be a free pass

At the same time, I see an opposing risk that concerns me.

Advocates of systems change can become so absorbed in theories of change, relational processes and long-term strategies that it becomes difficult to determine what their own interventions have actually changed.

Systems are complex. Problems change character. New knowledge emerges. Strategies must be adjusted. Timelines grow longer.

All of this may be both true and necessary.

Systemic interventions must be able to learn and adapt. It would be naive to believe that complex societies can be transformed through a linear plan drawn up once and for all.

But complexity can also become a shield against criticism.

When a target is not reached, the system has changed. When an intervention changes direction, it is described as learning. When effects cannot be documented, the long time horizon and the many external influences are invoked.

I sometimes encounter an almost self-regarding fascination with the complexity of these processes. The more extensive the system map and theory of change become, the easier it is to explain why the results are not yet visible.

This can make it difficult to distinguish between an intervention that is slowly changing the system and one that mainly produces meetings, networks, new concepts and revised descriptions of the same problem.

Complexity does not exempt anyone from prioritising, documenting progress and ending interventions that do not appear to work.

What impact investors bring—clear targets, milestones, capital discipline and a willingness to test solutions in the real world—is not evidence of a primitive understanding of change.

It is a necessary part of it.

Concrete companies create essential learning

In 2025, I wrote about the Danish start-up The Upcycl, which has since ceased operating. But its model is still worth considering.

The Upcycl had created a digital marketplace for industrial residual materials. It sought to make materials regarded as waste by one company visible and available as raw materials to another.

On the platform, companies could trade rubber components, plastic pieces, aluminium scraps and many other materials. The Upcycl also experimented with giving discarded carpets from the exhibition industry a second life as protective floor covering on construction sites.

It is an example of what concrete companies can contribute.

They turn an idea into a practical process. They investigate whether materials can be collected, handled and used. They test whether anyone is willing to sell, buy and pay. They identify barriers that only become visible when a model encounters reality.

A systems strategy cannot do that on paper.

I have not examined The Upcycl’s overall environmental performance and therefore cannot assess its net impact. I mention the company because it illustrates something that systems thinking must not overlook: someone has to conduct the imperfect experiments that produce the knowledge on which better future systems can be built.

Not every experiment succeeds commercially. Not every experiment should be scaled. Some may reveal precisely that a solution does not work, or works only under certain conditions.

But that learning also has value.

Impact investing can finance forms of exploration that neither conventional investors nor public systems are necessarily prepared to support.

I see the outlines of a dividing line

I do not yet see two clearly defined camps.

But I do see the outlines of a dividing line.

On one side are investors and entrepreneurs who want to mobilise capital, develop concrete solutions, create measurable impact and act now.

On the other is a growing group of systems thinkers warning that isolated investments can result in suboptimisation, reproduce the existing system or distract attention from necessary structural change.

This professional tension can be productive.

But I am concerned that it could develop into mutual distrust.

Impact investors may come to view systems-change practitioners as people who produce processes rather than results.

Systems-change practitioners may come to view impact investors as market-naive actors who confuse the growth of a company with the development of society.

Both caricatures contain a grain of truth.

But both overlook the fact that the two approaches perform different and mutually dependent functions.

The problems we face are too complex to be solved by individual companies—and too urgent for us to wait for a fully developed systemic strategy.

We cannot afford for the two communities to spend their energy delegitimising one another.

From company impact to system contribution

Perhaps we are missing a level of assessment between the impact of the individual company and full systemic transformation.

I propose that we talk more about a company’s system contribution.

In my view, an investment should be assessed through at least three questions.

• Does the solution create a genuine positive effect?
  This is the company’s direct impact: Who benefits, by how much, for how long, and with what possible negative effects?
• Is the effect additional?
  What has changed compared with the realistic alternative? And what difference have the company and the investor each made?
• What is the solution’s system contribution?
  Does it help the surrounding system learn, develop and become stronger—or does it make a better future solution harder to create?

System contribution does not mean that every start-up should claim to be transforming society as a whole. Such a claim would often be both exaggerated and impossible to substantiate.

It means asking:

• Does the company create knowledge and data that others can use?
• Does it build capabilities, markets or infrastructure?
• Can the solution be integrated with other services and public systems?
• Does it contribute to shared standards and comparable results?
• Does it make a future solution easier to build, or does it create technological, financial or institutional lock-in?
• Can it be adapted or phased out if something better emerges?
• Does it reach the people with the greatest needs, or mainly those who can afford to pay?
• And is its business model dependent on the problem it addresses continuing to exist?

Not every answer can be reduced to a single figure.

But these questions can be asked without requiring every small company to finance an extensive life-cycle assessment or a full socioeconomic analysis.

They can help investors see a company as something more than an isolated impact machine.

The company may be a concrete solution. But it may also be an experiment, a demonstrator or a building block that others can later integrate into something larger.

Stronger societies require both

The role of impact investing is not necessarily to deliver the entire systemic transformation.

Its role may be to finance the concrete experiments that develop, mature and refine the systemic solutions of the future.

The role of systems thinking is not to replace these experiments with a perfect plan.

Its role is to help us understand which experiments we should learn from, which we should adapt, integrate and scale—and which are leading us into a dead end.

Impact investors do not need to become systems theorists, and systems-change practitioners do not need to become venture investors.

But both must recognise that their own perspective captures only part of the work required.

Impact investors must acknowledge that company-level impact is not automatically the same as societal value. That some essential societal functions will never be investable. And that even an additional and well-documented solution can create damaging lock-in or suboptimisation.

Systems-change practitioners, in turn, must acknowledge that systems are rarely designed in finished form around a meeting table. They develop through concrete, imperfect and risky experiments. And complexity does not exempt them from targets, prioritisation and accountability for results.

We do not have time to wait for the perfect system.

But nor can we afford to scale measurable impact if it moves society as a whole in the wrong direction.

Stronger societies require both capital’s capacity to act and systems thinking’s capacity to see.