Which of the following are ways entrepreneurial businesses can act as catalysts for societal change?

Putting your company’s purpose at the foundation of your relationships with your stakeholders is critical to long-term success. Employees need to understand and connect with your purpose; and when they do, they can be your staunchest advocates. Customers want to see and hear what you stand for as they increasingly look to do business with companies that share their values. And shareholders need to understand the guiding principle driving your vision and mission. They will be more likely to support you in difficult moments if they have a clear understanding of your strategy and what is behind it.

A new world of work

No relationship has been changed more by the pandemic than the one between employers and employees. The quit rate in the US and the UK is at historic highs. And in the US, we are seeing some of the highest wage growth in decades. Workers seizing new opportunities is a good thing: It demonstrates their confidence in a growing economy.

While turnover and rising pay are not a feature of every region or sector, employees across the globe are looking for more from their employer – including more flexibility and more meaningful work. As companies rebuild themselves coming out of the pandemic, CEOs face a profoundly different paradigm than we are used to. Companies expected workers to come to the office five days a week. Mental health was rarely discussed in the workplace. And wages for those on low and middle incomes barely grew.

That world is gone.

Workers demanding more from their employers is an essential feature of effective capitalism. It drives prosperity and creates a more competitive landscape for talent, pushing companies to create better, more innovative environments for their employees – actions that will help them achieve greater profits for their shareholders. Companies that deliver are reaping the rewards. Our research shows that companies who forged strong bonds with their employees have seen lower levels of turnover and higher returns through the pandemic.1

Companies not adjusting to this new reality and responding to their workers do so at their own peril. Turnover drives up expenses, drives down productivity, and erodes culture and corporate memory. CEOs need to be asking themselves whether they are creating an environment that helps them compete for talent. At BlackRock we are doing the same: working with our own employees to navigate this new world of work.

Creating that environment is more complex than ever and reaches beyond issues of pay and flexibility. In addition to upending our relationship with where we physically work, the pandemic also shone a light on issues like racial equity, childcare, and mental health – and revealed the gap between generational expectations at work. These themes are now center stage for CEOs, who must be thoughtful about how they use their voice and connect on social issues important to their employees. Those who show humility and stay grounded in their purpose are more likely to build the kind of bond that endures the span of someone’s career.

At BlackRock, we want to understand how this trend is impacting your industry and your company. What are you doing to deepen the bond with your employees? How are you ensuring that employees of all backgrounds feel safe enough to maximize their creativity, innovation, and productivity? How are you ensuring your board has the right oversight of these critical issues? Where and how we work will never be the same as it was. How is your company’s culture adapting to this new world?

New sources of capital fueling market disruption

Over the past four decades, we have seen an explosion in the availability of capital. Today, global financial assets total $400 trillion.2 This exponential growth brings with it risks and opportunities for investors and companies alike, and it means that banks alone are no longer the gatekeepers to funding.

Young, innovative companies have never had easier access to capital. Never has there been more money available for new ideas to become reality. This is fueling a dynamic landscape of innovation. It means that virtually every sector has an abundance of disruptive startups trying to topple market leaders. CEOs of established companies need to understand this changing landscape and the diversity of available capital if they want to stay competitive in the face of smaller, more nimble businesses.

BlackRock wants to see the companies we invest in for our clients evolve and grow so that they generate attractive returns for decades to come. As long-term investors, we are committed to working with companies from all industries. But we too must be nimble and ensure our clients’ assets are invested, consistent with their goals, in the most dynamic companies – whether startups or established players – with the best chances at succeeding over time. As capitalists and as stewards, that’s our job.

I believe in capitalism’s ability to help individuals achieve better futures, to drive innovation, to build resilient economies, and to solve some of our most intractable challenges. Capital markets have allowed companies and countries to flourish. But access to capital is not a right. It is a privilege. And the duty to attract that capital in a responsible and sustainable way lies with you.

Capitalism and sustainability

Most stakeholders – from shareholders, to employees, to customers, to communities, and regulators – now expect companies to play a role in decarbonizing the global economy. Few things will impact capital allocation decisions – and thereby the long-term value of your company – more than how effectively you navigate the global energy transition in the years ahead.

It’s been two years since I wrote that climate risk is investment risk. And in that short period, we have seen a tectonic shift of capital.3 Sustainable investments have now reached $4 trillion.4 Actions and ambitions towards decarbonization have also increased. This is just the beginning – the tectonic shift towards sustainable investing is still accelerating. Whether it is capital being deployed into new ventures focused on energy innovation, or capital transferring from traditional indexes into more customized portfolios and products, we will see more money in motion.

Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led?

In a few short years, we have all watched innovators reimagine the auto industry. And today, every car manufacturer is racing toward an electric future. The auto industry, however, is merely on the leading edge – every sector will be transformed by new, sustainable technology.

Engineers and scientists are working around the clock on how to decarbonize cement, steel, and plastics; shipping, trucking, and aviation; agriculture, energy, and construction. I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don’t adapt, regardless of what industry they are in. And just as some companies risk being left behind, so do cities and countries that don’t plan for the future. They risk losing jobs, even as other places gain them. The decarbonization of the economy will be accompanied by enormous job creation for those that engage in the necessary long-term planning.

The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonize and make the energy transition affordable for all consumers. We need to be honest about the fact that green products often come at a higher cost today. Bringing down this green premium will be essential for an orderly and just transition. With the unprecedented amount of capital looking for new ideas, incumbents need to be clear about their pathway succeeding in a net zero economy. And it’s not just startups that can and will disrupt industries. Bold incumbents can and must do it too. Indeed, many incumbents have an advantage in capital, market knowledge, and technical expertise on the global scale required for the disruption ahead.

Our question to these companies is: what are you doing to disrupt your business? How are you preparing for and participating in the net zero transition? As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?

Economically marginalized segments of society are often too small to create the political or commercial opportunities necessary to improve their condition. Social ventures offer a way around this problem.

The Challenge

To be effective, social ventures must be financially sustainable so that the benefits they provide do not depend on a constant flow of subsidies from taxpayers or charitable givers.

The Solution

A study of 91 social ventures reviewed for the Skoll Award for Social Entrepreneurship (SASE) suggests that projects succeed when they change two features of an existing socioeconomic system: the actors involved and the enabling technologies applied.

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Social entrepreneurship has emerged over the past several decades as a way to identify and bring about potentially transformative societal change. A hybrid of government intervention and pure business entrepreneurship, social ventures can address problems that are too narrow in scope to spark legislative activism or to attract private capital.

To succeed, these ventures must adhere to both social goals and stiff financial constraints. Typically, the aim is to benefit a specific group of people, permanently transforming their lives by altering a prevailing socioeconomic equilibrium that works to their disadvantage. Sometimes, as with environmental entrepreneurship, the benefit may be extended to a broader group once the project has provided proof of concept. But more often the benefit’s target is an economically disadvantaged or marginalized segment of society that doesn’t have the means to transform its social or economic prospects without help.

The endeavor must also be financially sustainable. Otherwise the new socioeconomic equilibrium will require a constant flow of subsidies from taxpayers or charitable givers, which are difficult to guarantee indefinitely. To achieve sustainability, an enterprise’s costs should fall as the number of its beneficiaries rises, allowing the venture to reduce its dependence on philanthropic or governmental support as it grows.

In some cases a social enterprise may even spawn a profitable business. In the late 1970s, for example, Muhammad Yunus secured funding to conduct an experiment in which very poor borrowers were given tiny loans. The experiment grew into the famed Grameen Bank, a financially sustainable social business serving disadvantaged Bangladeshis. As others around the world saw that it was actually possible to make a tidy profit lending to poor people, they adopted the Grameen model, vastly magnifying the impact of Yunus’s initial innovation.

What can social entrepreneurs do to increase their chances of achieving sustainability—and perhaps even profitability? We think we have an answer. Over the past 15 years we have studied successful social entrepreneurs up close through our work for the Skoll Foundation, which was established in 1999 by the internet entrepreneur Jeffrey Skoll. Each year the foundation confers the Skoll Award for Social Entrepreneurship (SASE) on a small number of people. More than 100 social entrepreneurs representing 91 organizations have received Skoll awards to date.

In studying these leaders and their ventures, we have found that they all focus on changing two features of an existing system—the economic actors involved and the enabling technology applied—to create sustainable financial models that can permanently shift the social and economic equilibrium for their targeted beneficiaries. In the following pages we’ll describe how representative entrepreneurs have successfully made these changes.

The Actors

Social and economic problems often reflect an imbalance of power among the economic actors involved. India’s handwoven-carpet industry offers a prime example of this dynamic. In the early 1980s the children’s rights activist Kailash Satyarthi, joint winner with Malala Yousafzai of the 2014 Nobel Peace Prize, saw that poor children were easy prey for labor brokers who recruited workers for a number of Indian industries, including carpet weaving.

Social entrepreneurs add new actors to an existing system: customers and government.

Captured by these middlemen, the children were sold to business owners who forced them to work 12 or more hours a day under brutal conditions, their small hands producing the handsome but inexpensive rugs retailers demanded. Three groups of players—owners, labor brokers, and retailers—dominated the country’s handmade-rug industry, their interlocking interests perpetuating a particularly ugly equilibrium that benefited them by exploiting children.

In situations like this, we have observed, social entrepreneurs aim to transform the equilibrium by adding new actors to an existing system. These actors fall into two categories: customers, whose role is to shift the power balance; and government, whose role is to alter the economics.

Customers and power.

Satyarthi began his career in activism primarily through advocacy and organizing raids on companies, in the hope that he could raise awareness of child exploitation. He recalls the point at which he forced himself to admit that this approach would never change the system. Following a harrowing but successful raid, he was headed home when he confronted yet another bunch of labor brokers boarding a train with dozens of children bound for a life of servitude. He realized that freeing 10 or 20 or 200 children, when another 200 or 2,000 would come right behind them, was not the solution.

What could make a difference, he discovered, was enlightened consumers who would refuse to buy rugs that had been made with slave labor. Satyarthi’s insight came when an elderly woman told him she had bought a carpet in utter ignorance of how it had been made, but once she learned that it had probably been woven by child laborers, she felt she had no recourse but to throw it out. “I’m very old,” she told the activist, “but you’re very young—you must do something so that I can buy a new carpet.”

Satyarthi realized that this woman represented others who could be educated to shun products produced by exploitation in favor of those produced responsibly. In the mid-1990s he launched Rugmark (now GoodWeave International) as the first voluntary labeling scheme to certify rugs produced without child labor in South Asia.

Today GoodWeave operates globally, focusing on the top retail markets and key rug-producing regions across Asia. More than 130 carpet importers and retailers—including Target—have signed on, pledging to source woven rugs that have been certified by GoodWeave. Satyarthi understood, as have the many other social entrepreneurs introducing certification systems in a wide variety of industries, that consumers represent a potent and sustainable means of altering a suboptimal social equilibrium. As long as certification labels are undergirded by well-conceived and credible efforts, they inform and motivate consumers through increased transparency. When enough consumers vote with their wallets, retailers and suppliers get the message—and entire systems are forever altered.

Government and economics.

A number of successful social entrepreneurs have generated a better equilibrium by moving government from the sidelines to a far more productive place in the system. This new role leverages the effectiveness of citizens’ taxes or, in the case of emerging economies, development aid from wealthy nations, making government services more valuable. The Amazon Conservation Team (ACT), for example, has tackled the problem of Amazon basin deforestation by rendering Brazil’s government a more effective actor in a system that previously pitted primarily indigenous peoples against the loggers, ranchers, and miners who were claiming more and more of the basin for development, razing millions of hectares of forest—often illegally—in the process. Although Amazonian peoples have for generations considered vast tracts of the basin as their own, their existence was increasingly tenuous, and they had few means of asserting control over those lands.

But as Brazil woke up to the massive problem of deforestation, the government could do little given the sheer magnitude of the violations. Again and again it found that by the time illegal use of indigenous peoples’ land in the rain forest was identified, the damage had already been done.

ACT’s core innovation was to equip tribal peoples with handheld GPS devices and train them to chart their ancestral lands. The resulting maps enabled them to advocate more effectively for their own interests by supplying the government with information needed for rain forest conservation. With their territories clearly identified, tribal peoples could monitor and protect the land on which their way of life depended. This distributed system of monitoring and conserving significantly outperformed any centralized approach. The balance of power in the struggle with commercial interests was cost-effectively shifted in favor of the indigenous peoples, contributing to more-efficient and more-effective conservation.

The Technology

Economic and social agents use structures, business models, and tools to achieve their desired ends in an existing equilibrium. The actors and their means of operating—the engagement “technologies” they use—combine to make the equilibrium unjust and suboptimal. A second way, therefore, to effect change is to dramatically improve a system’s technology while leaving the current actors in place. Such improvement is achieved in one of three ways: substitution, creation, or repurposing.

Replace a key technology with a lower-cost one.

A number of SASE winners have succeeded by identifying a lower-cost technology that can substitute for a prevailing standard in a given function or product component.

Bart Weetjens, the founder of APOPO, realized that the greatest hurdle to clearing land mines was the high cost of the prevailing technologies, which included expensive equipment and trained dogs. For countries riddled with mines, de-mining machinery was hard to come by; furthermore, the weight of the dogs made them vulnerable to death from an exploding mine. Consequently, efforts to clear minefields were slow to gain momentum. Having kept rats as childhood pets, Weetjens knew they were smart and trainable enough to sniff out land mines. He showed that African giant pouched rats were perfect for the job, weighing so little that they wouldn’t detonate the mines. Countries and organizations can use APOPO’s services to remove mines at a radically lower cost and thus de-mine more land faster than was previously possible. (Weetjens has also trained his rats to sniff out tuberculosis in sputum samples. This cheap and readily available “technology” enables remote, isolated clinics to identify TB and get patients into treatment sooner.)

In settings where medical professionals are in short supply or strapped for time, many social entrepreneurs have discovered that paraprofessionals can deliver outstanding results. In sub-Saharan Africa the shortage of doctors and nurses is particularly acute, so the nonprofit Medic Mobile equips community health workers’ phones with applications that help the workers do everything from track drug inventories to register new pregnancies—tasks that would otherwise fall to professionals, distracting them from their more specialized, and critical, responsibilities.

In another example, mothers2mothers trains “mentor mothers” to monitor HIV-positive pregnant women. Such help has been shown to increase the latter’s adherence to the demanding treatment regimens required to increase their chances of delivering healthy, HIV-negative babies. As an added benefit, m2m’s mentor mothers leverage the international community’s enormous investment in antiretroviral drugs and other medicines to combat AIDS.

Although social entrepreneurship started squarely in the private nonprofit world, striking examples can now be found within government. One such is the Unique Identification Authority of India.

Nandan Nilekani, the founding chairman of UIDAI, was one of India’s most successful CEOs. After retiring from Infosys, the IT behemoth that helped spur India’s technology revolution, he wrote Imagining India, a best-selling book on public policy. One of his ideas was to provide each of India’s 1.2 billion citizens with a fraud-proof identifier. At the time, some 400 million Indians had no identification of any sort, making it impossible for them to drive, vote, legally work, or access government services. They couldn’t open a bank account or apply for a loan.

In 2009 Prime Minister Manmohan Singh asked Nilekani to lead the newly created UIDAI, with a mission to provide every citizen who registered with a unique 12-digit number tied to his or her biometric pattern. The problem was that enrolling hundreds of millions of Indians by any conventional centralized system would be prohibitively expensive.

Nilekani turned the project into a social enterprise. To minimize capital costs, he repurposed existing retinal scanning and fingerprint recognition technology to create an enrollment platform. To minimize variable costs, he invited other agencies and organizations to act as registrars, collecting a fee of $1 per ID issued. This kept central government employees out of the enrollment business and provided a third-party profit opportunity. As a result, UIDAI did not have to put up the funds for the enrollment equipment or employ thousands of enrollers.

By 2014, when Nilekani stepped down as chairman, more than 600 million people had been issued numbers at a cost to taxpayers of just $1 per number—a staggeringly low figure for a project of this kind. And the enrollers profited because they figured out how to drive their per-card costs well below the $1 they received as reimbursement.

In the United States, Health Leads trains college students to “prescribe” what doctors would if they had the time and the information: nonmedical social support services to the many poor or struggling patients who use public health clinics or hospital emergency rooms. The organization recognizes that such patients stand a better chance of recovering from illness if their needs for food, shelter, and transportation are met. Better health outcomes reduce the workload on doctors and nurses and the cost burden on the public health care system.

Create a new enabling technology.

We have observed that social entrepreneurs also succeed by supplying or creating a new technology that allows users to do things they could not previously do. For example, before Matt Flannery and Jessica Jackley created the Kiva platform, it was nearly impossible for small-scale lenders in wealthy countries to lend to small-scale borrowers in poor countries. The would-be lenders had no way to funnel funds through microfinance institutions (MFIs), which are largely regulated as banks by the countries in which they are based. Instead they had to stick with charitable giving by making donations to NGOs that offered microfinance programs in poor countries.

Medic Mobile equips community health workers’ phones with invaluable apps.

The Kiva platform provides a technology to break through these barriers. It enables microlenders worldwide to make loans as small as $25 to microborrowers in poor countries. Kiva manages the transaction and legal costs and requirements with its global network of MFIs and validates borrowers through locally based partners. Transaction costs on both sides have plummeted as more lenders and borrowers have begun to use the platform. Kiva is on track to facilitate more than $1 billion in microloans within the next couple of years. It has enjoyed a 98% repayment rate since its founding, in 2005, and its earned-to-contributed revenue ratio increases each year.

Repurpose an existing enabling technology.

The third mechanism is similar to the second. However, instead of creating a new technology, the social entrepreneur repurposes an existing one from a different context.

The SASE winner Victoria Hale, a former pharmaceutical company scientist and U.S. Food and Drug Administration staffer, created the Institute for OneWorld Health (iOWH) in order to scour pharmaceutical company shelves for drugs deemed unsuitable for developed world markets and incapable of generating profits in the developing world. She reasoned that some of this latent intellectual property could be repurposed to fight diseases endemic in the poorest parts of the world. An early target for iOWH, which subsequently merged with the global health organization Path, was visceral leishmaniasis (black fever), a fly-borne disease that infects half a million people and kills 30,000 each year, principally in rural India and East Africa. Black fever’s fatality rate existed not because the disease was incurable but because treatment was prohibitively expensive.

Hale identified a drug that had been fully developed but was no longer in production, paromomycin, which she believed could be used to cure black fever. Clinical trials in India proved her right. Eliminating the huge costs of drug development enabled iOWH to persuade the Indian government to make paromomycin available, turning “prohibitively expensive” into “life-saving” for those afflicted.

Meanwhile, in the Amazon basin once again, the SASE winner Imazon anticipated by about a decade Google Earth’s repurposing of public satellite infrastructure. The U.S. government and others built the infrastructure and incurred all the research, development, and other capital costs; Google acquired and repurposed it to provide a popular service.

Imazon repurposed the same infrastructure to track real-time changes in the Amazon basin—with a particular focus on the construction of new roads in the rain forest. Historically, given the size and remoteness of this terrain, illegal loggers could build an illegal road and use it for illegal cutting for years before being discovered and shut down. Imazon’s application of satellite technology, and its partnership with both government and the media, expose logging operations and other incursions so that perpetrators can be identified, stopped, and prosecuted.

A Blended Approach

The strategies we’ve described for succeeding in social entrepreneurship are not mutually exclusive. Many SASE winners draw upon several of them to achieve a new, sustainable equilibrium for their target constituents. For example, Debbie Aung Din Taylor and Jim Taylor, of Proximity Designs, understood that transforming Myanmar’s smallholder agricultural sector required them to fire on multiple cylinders: They had to reduce costs traditionally associated with a start-up, pare down the operating costs of product design and development, cultivate customers, shift government’s role, and continually enhance their technology solutions.

In Myanmar, where the two have worked since 2004, smallholders are the country’s backbone: More than 70% of the population depends on agriculture, and most farmers cultivate subsistence plots in rural locations. Only now emerging from decades of dictatorship, the government has neither the financial resources nor the capability to support this population. Private-sector businesses entering the region are focused on the larger and more sophisticated rice farmers whose output can be aggregated to meet market demands. And donors are more likely to be attracted to health or education programs than to the needs of smallholders. Rural farmers are left to eke out an existence on their own, effectively denied the information, tools, and training that would decrease their vulnerability and increase their productivity.

The Taylors were determined to transform this miserable equilibrium. A lean, focused, entrepreneurial organization from the outset, Proximity started life as a country office for International Development Enterprises, a well-established agricultural products NGO, which cut its start-up costs significantly. As it evolved and became an independent entity, its next task was to figure out how to significantly reduce product R&D costs. It did so in two ways: by partnering with Stanford’s Hasso Plattner Institute of Design and by actively recruiting low-cost, talented, and highly motivated design “fellows” and interns.

Understanding its poor rural customers enables Proximity to meet their needs across the board. The organization designs its pumps and other irrigation products to be effective, durable, and affordable, and tests its seeds to ensure healthy crops. But a substantial number of Myanmar’s farmers can’t afford new seed stock or even the least expensive device, so Proximity has added microcredit to its suite of services. In addition, it supplements its products and financial services with advisory support, providing the technical assistance that might otherwise be delivered by a country’s agricultural extension services. Finally, the organization engages deftly with the government, which considers it a trusted adviser on issues of food security and a resource for training agricultural officers.

Proximity’s operating-cost reengineering has enabled it to constantly improve and add to its line of products and services. This, in turn, has increased market demand, grown the organization’s customer base, dramatically increased revenue, and—most important—substantially improved food security and livelihood for millions of people.

The government officials, social activists, and business entrepreneurs associated with the great social transformations that have improved our world may not have imagined how much their innovations would accomplish; many did not live to see it happen. Martin Luther King Jr. is a poignant example. The same may be true of today’s social entrepreneurs. But their hybrid method is helping to create change in ways that would be difficult for government or business.

To be sure, pursuing a social goal while being constrained by the requirement of financial sustainability is difficult. Yet the evidence we see from our work at the Skoll Foundation shows that many entrepreneurs are succeeding, in settings all over the world, at creating scalable social ventures to transform unhappy circumstances for a great number of people. The clearly emerging pattern in their successes can serve as a valuable road map for others, thereby speeding society’s journey toward a better, fairer future.

A version of this article appeared in the May 2015 issue (pp.86–94) of Harvard Business Review.