It is very easy to feel depressed. Financial markets have disintegrated and banks are collapsing. On a personal level, pensions have shrunk, home equity has evaporated and jobs are disappearing. Furthermore, global unrest is rising, threatening perceptions of our safety.
My training as a financial analyst forces me, especially at times such as these, to try to look beyond the current storm—to its aftermath—and to identify the more fundamental changes which will be ushered in.
What might be its outlines? First, serious social problems will remain. This financial wipe-out has not fixed anything, but it has made government spending infeasible as a solution. Furthermore, critical long term issues (e.g. global warming), are even more costly to resolve. Second, our faith in large centralized institutions will be very low—this started years ago. Lastly, the “profit maximization at all costs” mentality, and the associated “consumption-oriented” lifestyle will come to an end. These are ideal circumstances in which to start a social business or enterprise or invest in one, or both!
The demand for genuine public goods, for the reasons cited above, will be great. Organizations that can meet social, ethical and environmental needs will be very much sought after. This is particularly true for those which develop economic models that are financially self-sustaining. Firms such as Justgiving.com, which facilitates charitable giving on the internet, and Belu Water, which provides “carbon-neutral” bottled water, are examples of these.
Furthermore as small, grassroots, and oftentimes community-based organizations, these firms will be more appealing than the larger companies. Such firms are already finding it easier ability to secure top talent. Evidence is piling in from top business schools and recruiters that the “best and brightest” are looking for something more meaningful and enjoyable, whatever the compensation. Investment banking is no longer the “employer of choice”.
It is in the investment market where the change has been most notable. The obvious failure of risk assessment models is re-orienting investors’ thinking. In an industry where everything seems to be shrinking, one area of pronounced growth is that of responsible, sustainable or social investment. Socially Responsible Investment (SRI) assets have been resilient and looks set for further growth. Moreover, environmental, sustainability and governance (ESG) criteria are being incorporated into more investment mandates. Progressive institutions are looking to make “proactive investments”; supporting firms which directly generate positive externalities. In the last year, we at Catalyst have noticed rising interest in our venture capital fund, and those of similar providers. This interest is coming from institutions and even retail investors; as such traffic has increased markedly on our website www.socialinvestments.com. In the “aftermarket”, demand for “social” firms is also robust—witness the sale last year of Organix baby foods to Swiss food company Hero. The era of social investment has truly begun!
First Published in Third Sector in February 2009.