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Thursday, March 10, 2011

Innovative Movements in the Social Financial World

The UK is preparing to launch its first Social Stock Exchange (SSE). Following those already in place in Brazil and Portugal, the system will provide a new source of funding for social initiatives. So far, founders Mark Campanale, a former fund manager, and Pradeep Jethi, a former new product development manager at the London Stock Exchange, raised £1.2m of the £2million they need to establish the stock exchange.
The stock exchanged is not aimed at large companies active in CSR; it is aimed at smaller companies that operate specifically for a social purpose. They are mature companies that need funding for growth and expansion. Start-up companies are not eligible. Campanale and Jethi hope that the SSE will attract investment from long-term, patient and strategic investors like pension funds, who might not typically have had contact with these types of businesses. (More reading on the SSE)

Meanwhile, other innovative movements in the financial world are targeting start-up businesses. A couple years ago in the UK, a company called Social Finance, headed by former Dresdner Kleinwort banker David Hutchison, launched the world’s first social impact bonds. The British government is currently testing the use of these bonds. Last month, the U.S. government decided to do the same, putting forth $100m across seven pilot programs under the name pay for success bonds. The idea is that private firms (usually philanthropic foundations) will pay the costs of a program in its early years and if they achieve a pre-determined set of measurable social outcomes, the government will pay back the money invested, plus a bonus. If the program fails, taxpayers pay nothing. So the bonds are not like ‘bonds’ in the traditional sense, but rather, are more like equity investments. The bonds aim to motivate entities to only introduce initiatives that have a good chance of thriving, and to ensure such programs are successful, in hopes of securing future private funding. (More reading on social impact bonds)

Mixing social goals with traditional business practices and systems will always pose the threat of moral dilemmas, such as shifts in focus from social goals to gaining profit. However, it is through continuous innovation, and trial and error, that we will develop and perfect systems that will effectively contribute to promoting social initiatives.

GlassFrog blogger, Sherisse

1 comment:

  1. Sherisse,

    This is an excellent social and environmental initiative. It is refreshing to see that some people are still giving to such important causes, as Christians are asked to do. While I understand the UK and US governments thinking behind incentivising via SIBs, I am interested to understand what mechanisms said governments would put in place to measure success and on what baisi will bonuses be calculated. Also, what is "CSR"?