Hot Commodity

For the past few years several entrepreneurs and corporate leaders have been discussing the idea of a “social stock market.” The Rockefeller Foundation recently brought this concept to the forefront of business news by pledging $500,000 to conduct a feasibility study of the concept in the UK. With this money social investment experts Mark Campanele and Pradeep Jethi plan to develop a social stock exchange (SSE) by 2009 via a “research project that will profile social enterprises and investors, assess market interest and examine the scale of potential social impact.” Supporters of this concept argue that a SSE will make it easier for green investors to find and fund social entrepreneurs and provide early stage investors and venture capitalists with a quicker exit strategy and more liquidity. SustainAbility, a consulting firm and think tank claims “money remains the main headache for social businesses; 72% of the social business surveyed cited raising money as their main challenge.”

As the world faces an increasingly urgent energy challenge the idea of a functioning SSE becomes more appealing. There are several challenges, however, some of which include:

1) How does one determine what is and isn’t a social business? This is an extremely subjective measure, as is an assessment of the “social return” of an investment.

2) The effort to create this exchange market may draw away skills and resources that should be invested in actually developing social businesses. Rather, many argue that the focus should be on developing mechanisms to help raise investments for social entrepreneurs and their companies.

3) Some social causes may prove more popular and attract more attention for emotional reasons than others. For example, Kiva.org, a microfinance website that uses the power of social networking to support microenterprise in the developing world, has already noticed that widows in Africa are almost always funded immediately while men in Central America often have to wait much longer. In fact, the Kiva team plans to experiment with higher interest rates on less popular causes to help attract funders. Similar problems may emerge in a social stock exchange.

4) Most importantly, a separate stock exchange will marginalize social enterprises by categorizing them separately. Instead, these companies should remind investors that their ability to account for social, environmental, and financial value concurrently is a legitimate sign of management quality, and the current global crises should be indications of their importance in the future. Well informed social investors will recognize that moderate or sub-par financial returns will be supplemented by social returns (although, again, I don’t know exactly how these are measured).

Although the idea of social stock exchanges has been discusses for some time now, very few examples have emerged (Sassix, Greensx). I’m not sure if this is because it is an unachievable goal (point 1 above), a bad idea (points 2, 3, and 4), or simply because a well-designed model has yet to emerge. Nevertheless, it will be interesting to track the progress of Campanele and Jethi’s research project.

This entry was posted on Monday, June 9th, 2008 at 10:12 am and is filed under Social Enterprise. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.