The Growing Momentum of ‘Social’ Capital
By Elizabeth Leslie
To quote Goldman Sach’s new head of Environmental and Social Governance (ESG) investing, Hugh Lawson “...cumulatively, one nudge here and one there start to add up”.
He refers to the growing momentum of “socially responsible investment” - the space where businesses line-up financial returns with social progress - where money meets meaning. The movement has emerged under many guises - ‘conscious capitalism’, ‘ESG investing’, ‘impact investing’ and ‘Shared Value’. At Karrikins Group, we share an excitement for this expanding circuit of social capital - and for the new opportunities it presents to accelerate business growth and elevate social impact.
The social capital movement emerged in response to an investor problem, and a challenge of traditional markets. Co-founder and convener of the Social Capital Markets (SOCAP) conference, Kevin Doyle Jones, aptly describes the dilemma:
“...people said this ground between giving and investing could not exist. There is a market in the intersection between money and meaning.”
Jones and his contemporaries have argued that “markets don’t solve everything”, and that the traditional ‘hero’ model of philanthropy is now dated - we must now solve problems through community, and community investment. This new vision - of socially responsible investing, of investment solutions that don’t just attempt to minimise harm but fully embody social and environmental values - is a new model for doing social good. It harnesses the versatile and powerful tools of modern finances business innovation to achieve social change. Mark Kramer Founder and Managing Director of FSG, argues that the most valuable organisations of today and tomorrow, are those who: “recognise the business value in addressing [all] societal needs”.
And as more and more businesses come to appreciate the power of this perspective, more and more tools become available to effectively bridge the gap between public good and premium returns.
Two elementary instruments of social capital are Divestment and Impact Investment. Impact public equities, impact fixed income (bonds), impact alternative assets and impact venture capital, constitute part of a growing assortment of products available to investors who seek a measurable social impact on top of their financial returns. The ‘impact’ model, Jones argues
“is so complex and disruptive of current systems that it should be seen as an ‘evolution’.”
Divestment, on the other hand, represents a more rudimentary solution to re-align business positioning with social interests. Again, the momentum behind this novel idea is growing: “Wall Street’s banks are starting to realise it’s possible to drop oil without dropping returns.”
Navigating this new world of social capital and impact investment “takes work”, says Paul Brest, emeritus dean and professor at Stanford Law School. Vetting potential organisations for “both the philanthropic causes and the potential financial returns” they support, requires a ‘double-up’ on due diligence. Thorough research, an openness to embrace government, as well as private sector, projects, and a focus on bringing accountability to non-profits, are key according to Brest. Further, Kiely, Mendonca and Westly point-out that to appeal to this new wave of investors:
“Companies must do a better job of compiling non-financial data on their environmental and social performance and report it to investors and other stakeholders” [NB: you can subscribe for 99c to read the full article].
Social capital has emerged, as an exciting and hopeful new space for business and society. Kiely et al. summarise that “Smart sustainability investments allow companies to attract better employees, improve their brands to sell more or sustain a price premium.”. Kramer argues that Shared Value is “how companies can help to solve social problems in ways that improve their bottom line performance.”.
To conclude with a quote from Kevin Doyle Jones, who shares our vision for community and business investment solutions in the future:
“...I want to invest in businesses that accrue wealth in the communities they work.”