CEDAR VALLEY BUSINESS MONTHLY
Social entrepreneurs use ﬁnance for social, environmental goals Because the United States and other nations face serious challenges — unemployment, inequality, financial turmoil, affordable energy, food and water security, climate change, and poverty — it’s easy not notice a small global revolution. Because economic and political systems repeatedly fail us in dealing with these problems, Scott Fullwiler social entrepreis associate neurs are designprofessor of economics and ing and leading James A. Leach o r g a n i z a t i o n s Chair in Banking —for-profit and and Monetary nonprofit—to Economics at ﬁll this void. SEs Wartburg College. create innovative change for good. Who will ﬁnance these SEs? Even the smallest organizations must be ﬁnancially viable. Truly scalable solutions to big problems will require a lot of ﬁnance. We typically consider two kinds of business: ■ Traditional for-proﬁt businesses maximize proﬁts. While they’ve enabled the standard of
living we now enjoy, they haven’t solved social and environmental problems. Some think they made them worse. ■ Traditional nonproﬁts focus on social or environmental value but often don’t leverage basic business practices to scale solutions, or have limited ﬁnancial resources to scale solutions. This dichotomy does not serve us. Every business — for-proﬁt or nonproﬁt — creates a blend of social, environmental and monetary returns, or value. Some provide monetary returns but negative social or environmental returns. Some do the opposite. Some seek to provide all three, particularly as more businesses run by SEs fall somewhere in between for-proﬁt and nonproﬁt. Sadly, mainstream finance doesn’t have tools or desire to evaluate and scale businesses that can generate blended returns consistent with innovative solutions to real problems. This is so, even as a recent Hope Consulting survey of investors found there is at least $120 billion of capital that could work for good. This isn’t charity or
philanthropy. These investors expect monetary return while also seeking social beneﬁt. Still, really good things are already happening: ■ Numerous venture capital funds are scaling for-proﬁt SEs that incorporate social or environmental missions. Good Capital is scaling fair trade and Better World Books; Equilibrium Capital is scaling clean water technologies and green buildings. City Light Capital scales solutions to inner-city problems like crime and education. ■ Venture philanthropists — venture capitalists that do not return a proﬁt to investors — invest in for-proﬁt and nonproﬁt SEs. Acumen Fund invests in SEs alleviating poverty; Social Venture Partners brings individuals together to fund and mentor growing nonproﬁts in cities across the country.
■ Nonproﬁt investment funds like Calvert Foundation or RSF Social Finance provide investment options to fund community-oriented for-proﬁt and nonproﬁt businesses. ■ Banks like Shorebank Paciﬁc and New Resource Bank evaluate all loans against social, communit and environmental criteria in addition to ﬁnancial viability. ■ Microﬁnance institutions like Grameen Bank provide small loans to entrepreneurs in developing countries. Kiva enables you to invest as little as $25 in entrepreneurs you select on its website. Vittana allows you to help people in the developing world get a college education. ■ Tools for evaluation are emerging. The Impact Reporting and Investment Standards provide standards for measuring blended outcomes; the Global Impact Investing Rating System
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will be the equivalent of Moody’s or Fitch’s; the Global Reporting Initiative sets standards and ratings for sustainability reporting by public companies; the Impact Assets Global 50 will be an index of top investment fund managers delivering blended returns. ■ Numerous studies and books argue that portfolios of publicly held companies that do good outperform traditional ﬁnancial benchmarks. While small, the movement is growing, particularly as some at the forefront — like Nobel Peace Prize recipient Muhammad Yunus of Grameen Bank or Jacqueline Novogratz of Acumen Fund — become better known. But now that you can put your money where your values are, will you? In a world of increasingly dysfunctional government combined with serious problems, it’s nice to be on the side of good.