Adrian Henriques says that increasing the flow of funds to social enterprises is a good idea, but that its credibility depends on demonstrating how people benefit.
The Social Stock Exchange (SSE) was launched in early June. The name alone is very suggestive of what it does: providing a place where companies with a positive social impact can be found, bought and sold. It aims to attract investors who want a social return as well as a financial one.
The companies involved must have shares or bonds listed on a traditional financial exchange where they can be bought and sold and where their financial returns will be demonstrated. But all SSE companies must also demonstrate their social return.
To be listed on the SSE each company must produce a regular social impact report that identifies the social impact it creates, and which will no doubt in time quantify it credibly. The idea of the project is that it facilitates the flow of funds into companies that can make a serious social difference – or impact investing, as it is known. While this is undoubtedly a welcome idea, it is also one that raises questions as to what social impact actually is.
The first, and easiest, question is about the inclusion of environmental impact and cleantech within that category. One of the companies listed on the SSE, for example, is ITM Power, which is developing technologies and solutions for a hydrogen economy. Not much about society in there you might think. Except of course all environmental issues are also social issues. Not only does society as a whole care about issues such as climate change, but they are likely to have a profound and damaging social impact.
A second, much harder question, is how far the creation of social impact has to be part of the purpose of the company. Must the company intend to produce a positive social impact – or will the fact of delivering it be enough?
In general if a business is not fulfilling any social purpose at all, it is unlikely to survive. And you could argue that since Unilever or Nestlé are committed to producing food, and since food is essential for the maintenance of society, both companies are just as much social impact businesses as ITM Power. Is that the right way to think of them? And you could imagine Green & Black’s with an SSE listing despite it being owned by Kraft.
For the SSE, the discomfort around intention is made worse by the fact that the exchange will be much more an engine of transparency about the impact created than an endorsement of the achievement of a particular level of social performance.
It is useful to remember that the whole edifice of traditional economics was built up on the idea of measuring social welfare. Unfortunately when you equate the measurement of social welfare with measuring financial return, you end up with the current, ransacked world where an emphasis on increasing GDP and profits is taken to be the only necessary requirement for a healthy society. So is there another way of measuring social impact that avoids such perverse reductionism?
Paradoxically, perhaps the most established technique for the measurement of social impact, called social return on investment (SROI), has at its heart the calculation of financial flows related to the impact in question. However, SROI also has a central concern with who receives those benefits. The inclusion of stakeholders in the business of the company and in the determination and measurement of social impact is crucial to any proper measurement of it.
There are also several other methods that assess local economic impact or even the numbers of lives touched by a given activity. What distinguishes all of these is the insistence on a connection between a quantifiable result and the lives of real people – and especially those in need.
So the credibility and success of the Social Stock Exchange will hinge on how the issue of measurement is resolved in practice. Especially how rigorous it is able to be in insisting that the companies that list on it provide transparency and accountability for their impacts. Maybe that requirement alone will be enough to prevent the likes of Unilever listing on the Social Stock Exchange. In the end it comes down to an apparently simple, but rather subtle question: is social impact pursued only so that a financial return will result? Or is it the other way round?
Adrian Henriques is the author of Corporate Impact and visiting professor of accountability and CSR at Middlesex University.
This article was previously published on Guardian Sustainable Business.