I have reported in some articles in this blog that one of the most satisfying things about researching and writing on the charities I fund is the intellectual exercise of expanding the knowledge about them, and of course sharing that information publicly.
Well, as the title above indicates, following up on a post I wrote about Socially Responsible Investment (SRI), these notes extend that exercise of researching and sharing to that field. A sequence of events lead to that.
Recap since 2014
Since the article about SRI, written in 2014, I had started building a small portfolio of stocks mirroring part of the investing principles of the Triodos Bank Funds. The portfolio, apart from growing (compounded 30% in value since), led me to follow related financial institutions in twitter. In particular I happened to read about Trillum Asset Management. As a disclaimer, I have to say that I hold no relation to Trillium (their minimum equitiy range is way beyond my possibilities) nor do I want to recommend investing with them. But the fact is that I found a lot of materials made available on their website.
For those readers interested in SRI and ESG principles I especially recommend the following resources to be found on their White papers sections, where extensive information can be found on fossil fuel free investments, shareholder activism or gender issues, among other SRI topics.
For what I wrote in 2014, these documents provide relevant study cases.
Expanding the horizon towards social entrepreneurship
Most happy chance was that, investigating about the team behind Trillum I came across an interview to Georgia Levenson Kehoane, and the books she had written on SRI matters. I bought one, Socially Entrepreneurship for the 21st Century, which I finished last year.
In a nutshell, the book is a good reference to do a quick dive in this field. It is structured in four main parts. The first two provide the bunch of technical concepts and information in relation to non-profit and private entrepreneurship, which I will further comment below. The third part deals with study cases and examples of american public administration, in particular New York City public policy experiences and the Obama administration. The final part, called Room for Debate, cleverly points out the most relevant topics in discussion. I want to share some comments on that as well.
Social innovations in non-profit and private investing
In the first two sections of the book I read about quite a few new names and concepts.
Starting with the Non-Profit section, the chapters dealt with the translation of enterprise practices into the social organizations. They dealt with the new “philanthro-capitalists” and how they blended capital and financial instruments from the business world with social causes, somehow helping to fund and test new ideas for social impact that can later on be implemented and scaled by government agencies. In particular, following topics discussed on those chapters caught my attention:
· Organizations/foundations. Description is provided on the activities of some organizations that hold hybrid structures to fund and finance small for-profit initiatives and non-profit projects, such as Omidyar or Google.org . Others provide long term funding and resources for social enterprises, like Acumen (especially with its online courses at plusacumen) or Root Capital do. The concept of Patient Capital is introduced, meaning investments with longer horizons and lower-than-market rates of return, which helps to work on areas where the markets have usually failed.
· Use of Prizes. These can be used to give incentive to achieve an array of socially relevant objectives as participation (to educate or change behaviors), networking (to strengthen communities), exposition (to best practices, to influence perception) or to provide technical solutions (for well identified problems or to create underserved markets). Some examples of the last category are discussed such as InnoCentive (i.e. partnering with NASA as I have seen recently while writing for my posts), or the well known X-prizes, where the famed Peter Diamandis is a driving force.
· Valuation and measurement. Maybe the most relevant contribution from the business realm to the social impact initiatives is the intensive use of measurement techniques and disciplines. The book describes some of them: the basic cost-effectiveness analysis, or benefit-to-cost ratios (BCR), also calculating the Net Present Value (NPV) of an action through time; the use of Randomized Control Trials (RCT) for development projects; or the Social-Return on Investment (SROI), which, for instance, helps to assess the savings in public spending driven by an action in a given time frame. These methodologies suit differently depending on the projects and to apply them may be beyond the resources of small organizations and individuals. In order to solve this, some measurement online resources are listed in the book such as GuideStar, with lots of searching capabilities, applications for platforms, and papers, all resources both in free registration and paid versions. Other is GiveWell, which provides metrics based on cost-effectiveness, in addition their “own mistakes” section is just humbling and worth reading. Also interesting in this regard are the many cases presented in AdmittingFailure.
Beyond these resources and concepts, the book had entire sections with the focus on private “for-profit” investing, also with valuable aspects that captured my interest and that I list below:
· Impact investing: among the different strategies of the SRI, one of the most relevants is impact investing, which is discussed in the book. It calls for intentionality, that is “explicit intention of having a positive social or environmental impact”, defining the impact rather in long term benefits such as employment creation in underdeveloped areas. A second axis to impact investment is the weight conceded to the financial return that makes attractive the investment in relation to the intentionality, even when operating where market failure exists. The book cites the Monitor Insitute (now a unit of consultancy Deloitte) as a reference to assess this balance. The diagram below helps to categorize the actors that serve with different degrees on both areas.
And some names that operate in the top right corner cited are investment companies with focus on impact such as ResponsAbility (with funds with typical “patient capital” rates of return and good visuals on the “impact” concepts), Blue Orchard (also with “patient capital” funds offering and educational resources) or their “peer” Bamboo Finance, in similar fashion than the previously mentioned Acumen, among others.
· Investment measurement: in addition to discussing the investment actors, the book lists a range of resources focused as well on providing tools and relevant metrics to measure social impact “for-profit” investments and companies. Among them the most known being: B-Lab and its platform for rating corporations (“B-Corp” accreditation) and the resources of B-Analytics with its GIIRS metrics and funds; and the other, Global Impact Investment Nework (GIIN), also a subscription platform with databases, services and tools such as ImpactBase or its IRIS metrics.
Room for debate
Even if what I have read and learned on the topics mentioned above tell a story of success in new developments and efforts, there are controversial aspects in the social entrepreneurship world and Georgia´s book devotes the final chapters to discuss some of them. I found that sections humbling and relevant. Some ongoing debates caught my attention:
For example, one debate focus on the risk of confusing markets and market-building tools as ends and not means to achieve social impact. The case of the microcredits in India, with the battle of Grameen Bank founder Muhammad Yunus and the SKS Microfinance, much more commercially oriented, is a good example and has a dedicated chapter in the book.
Also a general perception among veterans in the nonprofit field about the market orientation in the last decades is noted in its pages. I selected two good quotes reflecting on these tensions:
From former Ford Foundation president Susan Berresford:
“Hundreds of foundations for decades worked to address apartheid, hundreds of foundations worked to support the civil rights movement in this country, there is nothing more ambitious than these noble aims. They were extremely results-oriented-they wanted the end of apartheid, they wanted fairness for minorities-and the use of business principles has been in the foundation world for a long time”
Also his former colleague in the foundation, Michael Edwards, is quoted saying:
“Would philantrocapitalism have helped to finance the civil rights movements in the US? (…) I hope so, but it wasn´t ‘data driven’, it didn´t operate through competition, it couldn´t generate much revenue, and it didn´t measure its impact in terms of the numbers of people who were served each day, yet it changed the world forever”
Another debate circles around the power and influence of wealthy actors in the field. Titling “The Gates Effect”, a section discusses the malaria disease, with Bill Gates as one of the most relevant proponents and funders of the eradication efforts, as opposed to the disease containment, believed to be more cost-effective by other organizations. That the World Health Organization policy leaned towards eradication is taken as an example of the “halo” effect of such super-donors. Other cases discuss the political bias of the actions of philanthropists, again opposing the axis of action of the “liberal” Gates to the conservative Koch family.
As indicated in the title of the post, these notes are a personal follow up of my learning process of the theory and practice of social investing. I have a lot to thank to Georgia´s book on opening my eyes to many new names and resources. To be noted however, is that being published in 2013, the book it is not fully capturing the impact on social innovation of the most recent developments around big data, the ways to collect such data with sensors and to extract value with machine learning and artificial intelligence.
I lacked some direction there to start learning, but I am fortunate to know a person such as Bruno Sánchez-Andrade, impact scientist as he labels himself, whose tweet shown below, was sent during the preparation of this post:
His tweet links to an article, published in the Stanford Social Innovation Review, precisely on the developing uses of big data. The writer´s organization, Planet, has a line of action in social impact of big data, that I am starting to explore. Thanks to the tweet and the article, I have also discovered Stanford University Center for Social Innovation, with its ImpactCompass. That is, new resources and organizations dealing with social impact that will keep me learning and posting on the topic.
Until the next notes are release, I will end with quote of another philanthropist, which sounds today more actual than ever:
“In God we trust, everyone else bring data”
Picture credits to linatrochez and rawpixel.com on unsplash.com