(An abridged version of this piece appeared in Fast Company as “5 Myths Socially Conscious Entrepreneurs Need to Ignore” on June 5, 2014.)

Humanity today is confronting unprecedented and systemic social and environmental challenges—natural resource degradation, an obesity/chronic disease crisis, climate change, a lack of access to affordable education, to name a few. These challenges are global in scale and, many argue, linked to “take, make, waste” consumption patterns tied to profit-above-all-else approaches to capitalism.

In The Necessary Revolution, Peter Senge and colleagues assess the situation from the perspective of systemic thinking:

“We have gotten into our predicament today because of a way of thinking that focuses on parts and neglects the whole. We have become masterful at focusing on immediate goals–such as short-term profits–and neglecting the larger systems of which quarterly profits are but one small part…. In a world of constrained natural capital, social capital and human capital, optimizing only return on financial capital imprisons business in the shadow of a distant past.”

Men and women more capable than I have argued the role of the corporation in society for years. I’ll not play arbitrator here to debates between Friedman v. Stiglitz or Mackey v. Rogers. And yet—whether or not you agree with Senge’s view—signs point to a significant and encouraging countertrend well underway.

This movement has taken numerous forms and has no single ideology; its purposes and leaders are many. Growing alongside the Millennial generation’s coming of age and the Boomer generation’s retirement, the shift accompanies the rising speed of information exchange and the awareness and transparency of the digital revolution. Environmental and social in focus, neither blue nor red in politics, what we’re seeing is above all entrepreneurial in approach and stretches across businesses both emerging and multi-national.

Whether we choose to call this movement Shared Value, Conscious Capitalism, Institutional Logic, Benefit Corporations, Triple Bottom Line, SRI, Natural Capitalism,  ESG, or Regenerative Capitalism (all facets of the same underlying macro-shift), the crucial element separating this next-generation holistic approach to business is growing proof that companies who don’t update their business practices are significantly less likely to thrive. Meanwhile, those that harness the power of purpose are creating meaningful competitive advantages and capturing market share along the way.

Changes in the investment community also reflect signs of this macro shift: In 2013, Harvard’s $30 billion endowment appointed its first “VP of sustainable investing;” Carlyle Group similarly appointed its first Chief Sustainability Officer to administer an “Environmental, Social, and Corporate Governance” (ESG) strategy for the firm. Goldman Sachs announced in November the launch of a $250 million “GS Social Impact Fund.” In the same month, Morgan Stanley established the Morgan Stanley Institute for Sustainable Investing, with the goal of attracting $10bn of client funds for projects providing social benefits as well as financial returns.

The new “holistic” approach to business may be the most significant movement of our time—as well as the most misunderstood. With so many thought leaders trying to shape the dialogue, the evolving multiplicity of terminologies has, in many respects, clouded a broader, fundamental macro trend.

In the interest of laying the groundwork for connecting those dots as well as clarifying the opportunities these trends are creating, below are five pervasive myths surrounding stakeholder capitalism today.

Myth #1:  Sustainable Investment Is Just a Fancy Term for Giving Money Away

Reality: Smart Companies Understand Purpose, Growth and Profitability Go Hand in Hand

It has historically been easy to lump the concept of investing for impact in with philanthropy. With folks like Google CEO Larry Page publically making the juxtaposition by stating he’d rather give his money to Elon Musk than to charity, it’s easy to see the reflection of a common belief: that creating positive impact is akin to giving your money away.

Whether you agree with Larry’s view that going to Mars is “philanthropic” or not, his point is not that charity is somehow misguided but that businesses built with purpose and run by inspired leaders can both change the world and improve people’s lives in the process—all while creating outsized financial returns.

Mr. Musk’s approach to capitalism, built on innovation and disruptive technologies which have the fundamental opportunity to change markets and improve lives, represents well one of two key elements of next generation capitalism: building companies specifically to address social and environmental challenges, and harnessing certain advantages that purpose can create to win.

At the same time, employees—especially Millennials—are more likely than ever to change jobs for new opportunities, and they are demanding great companies for whom to work.

As far back as 1994, Heskett et al wrote extensively of the link between employee and customer satisfaction and profitability in this way:

“Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.”

Never before has this statement been more relevant in the context of purpose-driven companies. Broader purpose and inspired culture corporations attract values-driven talent which is often willing to work for less to align their career with their values. They are also much more likely to find job satisfaction and this in turn improves retention and productivity.

The flip side is that consumers too are seeking companies that inspire them and engender their trust. Numerous recent studies reflect a striking shift in consumer sentiment. Witness Cone Communications’ 2013 Global CSR Study, in which a staggering 87% of respondents reported that they consider a company’s social and environmental commitments when making a purchasing decision. Nine out of ten reported feeling a “responsibility to purchase products they think are socially and environmentally responsible.” Bottom line: harnessing purpose will not only help you hire and retain talent, but it will also improve your brand perception/PR, customer loyalty, and probability of word-of-mouth recommendations.

One can also look to case studies such as Patagonia, which has established itself at the forefront of sustainable production in a crowded lifestyle apparel space; Clif Bar or KIND in the healthy nutrition category; Toms Shoes and Warby Parker pioneering a “one-for-one” conjoined business/contribution models; Airbnb and its various brethren harnessing the power of shared resources and community. Many of the world’s largest corporations are also tuning in—modifying production, distribution, sales, employment policies, and aggressively re-aligning around values-driven brands—with an eye towards sustainability and maximizing returns in the process.

Myth #2: Environmental and Social Welfare are the Government’s Responsibility

Reality: Businesses That Take a Holistic Approach to Growth Unlock Unrecognized Value.

While the fundamental purpose around which a business is created is critical, what is equally important is how a company chooses to conduct itself.

In their notable 2011 article, Michael Porter and Mark Kramer coined the term “Shared Value” as the expansion of “the total pool of economic and social value” available to both corporations and surrounding communities. They posit that companies who practice a shared value approach investigate untapped revenue sources within their immediate environment, finding ways to maximize profitability by—not in addition to—improving human lives and promoting environmental welfare. Shared Value therefore derives from the idea that sustainability and profit are not mutually exclusive to one another.

Unlike philanthropy, Shared Value is not external to profitable business practices but integral to them. Porter and Kramer cite the example of cashew producer Olam International, which stopped shipping nuts from Africa to Asia for processing in cheap factories and opened local processing plants, training and hiring workers in Tanzania, Mozambique, Nigeria, and Cote d’Ivoire instead. The move allowed the company to cut shipping costs by up to 25% while establishing deep roots in a community vital to its long-term survival.

Another excellent case study is Nestlé which, after discovering 70% of children under 3 and 57% of women in India suffered from anemia, created cheap cooking spice packets as a delivery vehicle for iron, iodine and vitamin A. Prior to distribution, the company engaged in years of research and development upgrading its factory lines and seeking out new delivery routes. In just three years, they sold 138 million servings—some to families in the most remote areas of India.

Nestlé’s initial investment would have appeared irresponsible through the lens of 20th century economics—and yet, their bet paid off. An understanding of the size and scale of their potential consumer base allowed the corporation to build its product efficiently. In addition to creating a new source of revenue, Nestlé earned local goodwill while creating lasting change.

Nike, Coca Cola, Unilever, IBM, Levi Strauss, CVS, P&G, Google, Facebook and DuPont represent a few examples, among many, of corporate behemoths who’ve recently rewritten core policies to account for social / environmental responsibility, invested in partnerships with non-profits, and shifted strategy—not merely out of a concern for health or the environment, but because it’s smart business.

Myth #3: The Point of Corporate Sustainability is to Improve Reputation—Anything More Hurts Shareholders

Reality: Sustainable Companies Outperform Their Unsustainable Counterparts

A growing body of research shows that companies who invest in a holistic stakeholder approach—through policies benefiting shareholders, employees, local communities, consumers, supply chain partners and the environment in concert—perform significantly better in the long-term than those who don’t.

Using a value-weighted portfolio of Fortune’s 100 Best Companies to Work for, Wharton professor Alex Edmans strikingly found that companies who invest in the happiness of their employees see greater financial returns, as can companies who employ socially responsible investment screens. Research by Harvard Business School professors Robert G. Eccles and George Serafeim, and Ioannis Ionnou of the London Business School, indicates companies who voluntarily invest in sustainable practices “significantly outperform their counterparts over the long term, both in terms of stock market as well as accounting performance.” In “Corporate Environmental Management and Credit Risk,” Rob Bauer and Daniel Hann of the European Center for Corporate Engagement demonstrate that companies who willingly adopt proactive environmental policies benefit from a lower cost of capital, while those that do not pay a premium on their cost of debt financing and are assigned lower credit ratings.

Elsewhere, former P&G CMO Jim Stengel, along with the brand strategy group Millward Brown, examined 50 purpose-driven brands and released a study last year showing the products with the strongest brand ideals not only impacted people’s lives, but also dramatically outperformed the market.

One such company is Nike, whose Sustainable Business & Innovation group has driven a company-wide shift toward sustainable products, manufacturing and marketplaces. In their own words: “Sustainability used to be the exclusive domain of experts, activists and idealists. Then, it moved into a silo at the outskirts of the corporate landscape. Today, it is seen as an important, well-integrated part of any forward-thinking company – as one of the key drivers of success.”  Marketing-speak without substance from a company with mixed history on social issue?  The proof is in the proverbial pudding: Nike has cut its carbon footprint by more than three-quarters since it began its efforts and is publically aiming to “achieve zero waste, zero toxicity, and 100% recyclability” by 2020.

Myth #4: It’s Human Nature to Prioritize Profit Over Shared Value

Reality: Consumers Are More Educated Than Ever about Sustainability and Corporate Values—And They’re Voting With Their Money

Rhetoric surrounding sustainability isn’t changing—it’s already changed. Thought leaders worldwide understand that responsible consumerism doesn’t mean privation. The old “doom and gloom” model of environmental responsibility has been replaced by one that recognizes the rapidly depleting store of “natural capital” and values resource efficiency and socially/environmentally responsible processes.

It’s also true that, at home and abroad, company policies are more transparent, allowing customers to make better-informed choices about where to spend. Perhaps as a direct result of increased public awareness, global tech powerhouses like Google and Facebook have committed to powering their Internet operations with 100% renewable energy, with Facebook projecting 25% of progress towards its goal will be made by 2015.

A recent BCG study summarizes well another key driver of this shift: The Millennial generation—representing 78 million Americans and $1.3 trillion in annual spending—engage with brands far more extensively and personally than older generations, and they expect their values to be reflected in the brands they purchase. They value careers that serve the greater good, products and services connected to social causes. They are more likely to share a brand with their peers and family members via social media or otherwise. They care more about aligning themselves with causes and companies that represent their values—and they will be the most influential generation our country has seen, numbering 78m in 2030.

Their impact is being felt everywhere, to the point that brand marketers are calling out a wholesale shift in strategy: Marketing 3.0 will be won by those who become purpose-driven social brands,”explainsPhilip Kotler in Marketing 3.0: From Products to Customers to the Human Spirit.

Myth #5: Stakeholder Capitalism is a Choice

Reality: Stakeholder Capitalism Will Define the 21st Century Competitive Marketplace

It’s well past time to start thinking about financial profit as only one element of a much larger contextual system—one that includes personal, social and environmental regeneration. Human welfare, environmental sustainability, employee happiness, and social benefit, are each critical elements of the larger system in which we, and the companies we build or work for, are tied. The idea that a corporation somehow exists outside of that, subject only to the shareholder’s profit motive, is not just short-sighted but irresponsible. In the end, each of these “constituents” is inherently tied directly to long term financial success. Without shared value creation across these areas, in fact, there can be no long term profitability.

Today, growing waves of entrepreneurs are building inspired and inspiring companies. Social Entrepreneurship courses and content have exploded across MBA programs. Employees are demanding great companies to work for; consumers are seeking out companies that inspire them and engender their trust.  Large societal challenges are creating an unparalleled opportunity for entrepreneurs and business leaders to disrupt outdated models, and a growing pool of businesses with a higher purpose built into their culture and business model are outperforming their peers.

The time has arrived for us to invest capital at scale into opportunities that offer both compelling economic and social/environmental returns, while demonstrating a more conscious approach to how we live and do business. We can no longer afford to waste our time or money on investments that do not drive this new wave of capitalism. We must embrace a model of business that seeks multi-dimensional value creation and an understanding of its integrated place in the larger system of our increasingly connected world.

With contribution by Sarah Labrie of Hippo Reads.

Image Credit: CIAT via flickr