Reading: Social Money

Social Money

It’s out there
Let’s assume for a minute you’ve decided to become a social entrepreneur. Getting money for your socially beneficial startup isn’t so different from the standard process, save one thing: there are many organizations that exist primarily to give social entrepreneurs money. They’re part of a vast and fast-growing network of people dedicated to change through Socially Responsible Investing (SRI).

Investing for the cause
At a basic level, SRI is the marriage of social responsibility and environmental sustainability to investment. It includes all the financial decision-making processes that go into a prudent investment management approach, but also includes the selection and management of investments based on issues of sustainability and social responsibility.1 There are three general investment strategies at work in SRI:

Screening
Screening means investing in companies that do good and avoiding ones that do bad. Socially responsible investors ask their investment advisors to overlay a qualitative analysis of corporate policies, practices, attitudes and environmental impacts on top of the traditional quantitative analysis of profit potential. This means investing in enterprises with outstanding employee and environmental policies that make and sell safe, useful products and demonstrate respect for human rights worldwide. Companies on the outs typically include child labor law violators, tobacco, manufacturers of environmentally damaging products, and other who potentially inflict social harm.

Community investing
Community investing provides capital to people in low-income, at-risk communities who have difficulty getting money through conventional channels. Many social investors earmark a percentage of their investments to community development financial institutions (CDFIs) that work to alleviate poverty, create jobs, and provide affordable housing and small business development financing in disadvantaged communities.

Shareholder advocacy
Also called shareholder activism, this means engaging in dialogue with companies and submitting and voting on shareholder resolutions. Action is focused on positively influencing corporate behavior. Socially conscious investors often work to steer management on a course they believe will improve financial performance over time and enhance the well-being of all of the company’s stakeholders—customers, employees, vendors, communities, the environment and stockholders.

One serious growth industry
SRI is hot. In 2003, the Social Investment Forum, in its bi-annual Report on Socially Responsible Investing Trends in the US, cited $2.16 trillion involved in one or more of the three primary socially responsible investment strategies—nearly four times the $639 billion the Forum identified in 1995.

Assets under professional management involved in social screening, shareholder advocacy, and community investing have grown nearly 40% faster than all professionally managed investment assets in the US. Between 1995 and 2003, SRI experienced 240% growth versus 174% general market growth.

The growth of socially screened portfolios is even more dramatic: from $165 billion in 1995 to over $2 trillion in 2003. In 2003, socially responsible portfolios accounted for 11.3% of the investment assets under professional management in the US.

Fellows programs, venture philanthropy
Many people want to invest in good causes, but SRI funds invest in established companies. How do you, as a fledgling social entrepreneur, get funded? Check out the following organizations:

Acumen Fund is a non-profit enterprise focused on improving the lives of the poor around the world. They operate like a venture capital firm—investing philanthropic resources in innovative social entrepreneurs with a goal of social change rather than financial return.

Investors’ Circle (IC) is a non-profit national network of angel and institutional investors, foundation officers and entrepreneurs who seek to achieve financial, social and environmental returns.

Ashoka is a global organization that searches the world for social entrepreneurs—extraordinary individuals with unprecedented ideas for change in their communities.

Echoing Green’s mission is to spark social change by identifying, investing in and supporting the world’s most exceptional emerging leaders and the organizations they launch. Through a two-year fellowship program, they help develop new solutions to society’s most difficult problems.