Raise your hand if you’ve ever heard of a stock exchange specifically for social enterprises.
If your hands are still down, you’re in good company. Most people in the U.S.—even many of the movers and shakers in the social enterprise space—have never heard of a so-called social stock exchange. Now, I know what you’re thinking…new idea, right? Yes and no. While a fully operational, fully public social stock exchange has yet to exist anywhere in the world, a number of countries have been developing and launching their own versions of the concept for several years (the U.K., Singapore, Canada, and the U.S. to name a few, which will be discussed in Part 2 of this post). Ideally, these trading platforms are places where an investor can come to buy shares in a social enterprise—which has a mission he or she is excited about—just as a profit-oriented investor would go to the traditional stock market. The investor would expect only modest financial returns; in these stock markets, an entity’s value is correlated to its social impact.
Although some of the most powerful countries in the world have deemed the social stock exchange concept a worthwhile investment, others don’t think separate exchanges are necessary to raise capital for social enterprises. If your end-game is simply to get a chunk of money from point A to point B, perhaps that is true. But I believe the value of the social stock exchange is much more far-reaching than that (think forest, not trees). To illustrate this point, let’s take a look at the U.S. for a minute. And since nonprofits are currently king of the social sector in the eyes of the general public, let’s start there. I challenge you to name one major social problem nonprofits have solved in the last, ohh I don’t know, 50 or 100 years. I bet you can’t. The nonprofit model, utilizing the concept of charity as envisioned by the Puritans and formalized by the U.S. tax code (a regulatory system which, by the way, we are the only country to use), was meant to support an aid mindset much more than a social problem-solving one. While a nonprofit can still be a wonderful tool if you want to serve a community rather than solve a social problem, we changemakers have necessarily evolved from settling for temporary solutions to insisting on more permanent ones. And thus, we have outgrown what the nonprofit was designed to do.
The solution? Change the game. Use for-profit social enterprises as a vessel for social betterment. And then take those entities, scale them, and boost them into the limelight through social stock exchanges to channel funding to some of the most innovative solutions of our time. I’m not talking about triple bottom line companies (which equally value social, environmental, and financial return) or get-one-give-one programs (which arguably alleviate only the symptoms of a problem rather than addressing root causes). I’m talking about for-profit entities that exist first to target a social problem, and secondarily find a way to make their missions sustainable—those that pick up where nonprofits have failed to be successful on a national or global scale. While the for-profit model won’t work for every idea, for those it does work for, it means some huge advantages, including, in large part, the freedom to spend money on what the venture sees fit, such as taking risks on new ideas or paying qualified people what it takes to keep them around for the long-haul. The social stock exchange concept also allows everyone the opportunity (not just socially-conscious high rollers) to have a stake in solving social problems, particularly those that directly affect their communities—an incredible asset in terms of attracting and retaining the right kind of investor. Bonus: investing in a social enterprise means your investment may eventually return to you, whereas a donation to a nonprofit is gone forever once it leaves your hands.
Even still, social stock exchange hopefuls face many challenges. One of the most cited issues is the difficulty in quantifying and standardizing metrics of social impact within and across sectors (i.e. poverty, health, education, environment, etc). Despite the development of standardized tools such as the Global Impact Investing Rating System (GIIRS) and Impact Reporting and Investment Standards (IRIS), impact monitoring and evaluation remain tricky matters. Social stock exchanges also struggle with attracting and retaining appropriate individuals and institutions to invest. They must find investors who are patient, mission-oriented, and focused on positive social or environmental return above or equal to financial return. Finally, while investors want evidence they’re putting their money in high quality investment opportunities with a track record of success, in most cases they won’t get it. The market itself is still young and, at present, there aren’t a ton of social enterprises developed enough for a capital infusion of the size that would take place on a public stock exchange.
For now, however, while people on the ground work their magic and the market catches up, there is still vast utility in these platforms as far as changing the way we think about solving social problems. The future is bright; statistics from JP Morgan and Global Impact Investing Network suggest the impact investing sector continues to grow.
But there’s still so much work to be done, you say? Challenge accepted.
This article was originally published on www.Forbes.com. The views expressed in this article are those of the author and are not meant to be construed as legal advice.