The Social Stock Exchange: Mainstreaming impact investing
July 31, 2013
The Social Stock Exchange was launched at the June G8 Summit on social investment and finance. Co-founder Pradeep Jethi explains the benefits it will bring to ‘mainstreaming’ impact investing.
What is the Social Stock Exchange?
Approximately $30 trillion is deployed in conventional capital markets globally. A growing proportion of this capital is owned by foundations, charities and other private social investors who want to invest in the social business sector but cannot find suitable exchange-listed social-impact businesses in which to invest on a mission-connected basis.
The Social Stock Exchange (SSE), launched at the G8 summit in June, is designed to be the leading global venue for finding securities in publicly tradable social-impact businesses. The SSE allows impact investors – investors who seek both financial and social/environmental return – to find companies whose values they share and into whom they might want to invest.
The SSE is not a trading platform; companies and securities listed on the Social Stock Exchange will already be listed on a recognized stock exchange. However, the SSE is designed to improve access to capital – specifically ‘impact’ capital from engaged investors – for organisations that are for-profit social impact businesses, most likely to be from sectors that create high social value such as health; social, affordable, and key-worker housing; education; leisure; sustainable transport; clean-technology and renewable energy; waste, water and recycling; green and ethical consumerism; and bonds that are issued by charities.
The SSE is based in the UK but is designed to include companies from around the world, providing the oxygen of capital to alleviate social and environmental problems at home, within the EU and wider western world, and in developing nations.
Key to appearing on the SSE venue is that the company must have an intention to address a social or environmental issue as part of its normal business activity. Just as conventional stock exchanges require companies to make regular and ongoing public disclosures about business performance, companies and securities on the SSE are required to publish an Impact Report. This must include evidence of the social or environmental impact created, an account of the company’s stakeholders and the beneficiaries of the impact, and how the company’s business model links to the delivery of the impact and the social or environmental outcomes.
Specialist organizations and experts (such as Adrian Henriques, who wrote about the challenges of impact measurement last month) help the company prepare the Impact Report, and this must be updated annually to provide ongoing reporting of a company’s social or environmental key performance indicators.
Mainstreaming impact investment
The SSE will provide a visible universe of investable products for social impact investors, helping to reduce the costs both of searching for impact businesses and of ‘social’ due diligence. It may also prove a catalyst to the development of a full range of investment products, and a place for the entire social impact sector to trade.
The rise of an impact index or social impact tracker products will allow savers a new way of investing that seeks social returns alongside financial returns. With the relaxation of the rules admitting stocks from small and medium-sized companies into an ISA, the UK may be able to produce the world’s first ‘Social ISA’ allowing greater capital flows into social impact plcs and in turn engender the creation of greater social impact delivery.
We are currently seeing the democratisation of impact investing, led by the growing theme of responsible capitalism. Impact investing is no longer the domain of foundations, family offices and charities. Our belief is that retail investors – high net worth individuals with discretionary capital placed within the private banks and wealth management firms, as well as the ordinary investors and savers, or what can be called ‘citizen capital’ – will lead the way. Third sector workers will also gradually compel the pensions industry to make at least some percentage of the pension allocation to impact investments – thus closing the capital loop from third sector workers to impact investment opportunities which often, in the case of health or education, are in their self-same sectors.
Responsible capitalism will not disappear from the agenda. Conventional capital markets have followed models of investment that have failed to accommodate anything other than financial returns for shareholders. By providing a single source for impact investments, where investors can select from publicly tradable securities which demonstrate delivery of mission and impact, the SSE is at the forefront of a new way of doing business – where investment meets impact.
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