Tag Archives: The Guardian

Government Policy, Impact Investing, Social Economy, Social Entrepreneurship

On tough economic times

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Would anyone invest in social enterprises nowadays?  Well yes, actually.  The crisis has demonstrated that the “profits at all costs” economic model is probably finished.  Social businesses and enterprises address this directly, offering a balance between financial reward and societal benefit.

It is still capitalism, as the market and investment models still apply, but a bit less “raw in tooth and claw”.  For example, we have just secured funding for our new social business, socialinvestments.com, and other early stage businesses I know have also.  Socially Responsible Investment funds are holding up relatively well.

Secondly, the credit crunch has thoroughly debunked the notion of a “guaranteed financial return”.  We have learned there is no such thing.  Even bank and governmental guarantees are only as good as the entities behind them–and these now seem somewhat less secure.  Moreover, the failures of some guarantees were outside the control of the guarantor.  I think the “social returns” social enterprises and ethical fund managers aim to achieve can be more reliably delivered–and their ability to guarantee them is more within their sphere of control.

So with all that, why would anyone ever invest in anything but social businesses and enterprises, especially in the current environment?  You get some financial return, a guaranteed social return and who knows–entry into heaven?”

First published in The Guardian in February 2009.

3D Investing, High Impact Businesses, Impact Investing, Innovation, Institutional Investors

Market meltdown can herald the era of social business

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Peer beyond the wreckage of western financial systems and it may be possible to discern the outlines of the future. The end of the period of “global capital markets” and the “financial services revolution” is ushering in a new era – that of social business and investment.

With the collapse of large financial players, the very nature of unfettered financial markets is being questioned. Although the full cost of the meltdown is not yet known, we can be sure that the bill will be picked up by the taxpayer.

The banking system has been acting with an implicit state guarantee, for which the financial firms paid little – despite generating large sums for select employees and shareholders. Now that things have come unstuck, there is no recourse to the wealth that has been generated, which is a galling scenario for taxpayers. Their anger will be a feature of our political environment for many years to come.

Another feature of the financial bailout is the massive expansion of government indebtedness, especially in the US. These debts need to be serviced, and eventually repaid. Against this backdrop, one can forget about expenditure on social programmes.

The notion that society benefits so long as economic agents pursue pure profit-maximisation models and create wealth is now thoroughly discredited. So if the credibility of business has been seriously undermined, and government’s role severely limited by resource constraints, where should we look?

Civil society may have a role to play, but does it really possess the clout to address the scale of the problem? The answer would appear to come from an area that links all three main agents – state, private and civil – in our economy. The problem with the market-based system in its purest form was the complete absence of any social calculus. What we are now witnessing is likely to be the beginning of an economy where the full social impact of our businesses and our investments is taken into account. Signs of this trend have been evident for some time. A recent report by Eurosif, the Brussels-based trade body that encourages responsible finance, shows that, over the two years ending December 31 2007, socially responsible investment (SRI) funds in Europe have more than doubled to €2.7 trillion (£2.12 trillion) – representing 17.5% of European investment assets.

Two other asset classes with strong social return characteristics have also surged into the investment mainstream. Micro-finance has become an important feature in fixed-income portfolios, and alternative energy (“cleantech”) is becoming a core part of equity investment. In 2007, cleantech investment amounted to roughly $150bn (£117 bn).

At the smaller end of the scale, many new businesses have emerged, supported largely by individuals. These include retailer The Body Shop, online charity website Justgiving.com, the Ethical Property Company, which rents to social change organisations, Divine fairtrade chocolate, and a host of others. These businesses exploit the workings of the market to deliver tangible social benefits as well as financial returns. The fact that they generate financial surpluses means they are not dependent on the state or donors to conduct their activities – a very handy feature in the tough economic climate ahead.

Charities will still play a vital role, but those dependent on state funding will be at risk. Both the voluntary sector and other civil society organisations will probably need to become more market-driven and entrepreneurial.

Another indicator comes from leading business schools, where we can observe MBAs – a very astute, ambitious group – focusing on social business or “social entrepreneurship” as a potential profession. At the Judge Business School, Cambridge, I recently met a young man with a highly marketable background in bio-engineering who was “definitely going into social business”, rather than taking the well-worn path of MBAs who sought to “make money for 15-20 years and then give back to society”. When I asked why, his answer, without hesitation, was: “Why waste those years?”

Jeremy, a friend of mine who is considered a leader in the international development field, once told me that he was taught throughout his career that the corporate sector was ill-intentioned, and that all possible solutions lie with resident experts from his world. I recall my former colleagues at Lehman Brothers saying similar things about the infinite wisdom of markets! Unlike my old Lehman friends, Jeremy is still employed. He is lucky, but also perhaps cleverer. He told me that he found that the only real solutions to today’s intractable problems lie in using the wisdom of both the market and the development sector (and others).

It is on such linkages that the social business and investment sector is based. Economic activity is an inherently “social” activity, and excluding social impact was bound to end in disaster. It is indeed a shame it took such a severe crisis to bring this point home.

First Published in The Guardian in October 2008

Angel Investors, High Impact Businesses, Impact Investing

C’mon…………….lay off the Roddicks!

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Earlier this year The Body Shop, the campaigning heath and beauty company, announced it was to be acquired by French luxury goods manufacturer, L’Oreal.  To many, this represented a sell-out of tragic proportions.  The Body Shop had been a trailblazer among UK ethical brands, and Anita Roddick, its co-founder (with husband Gordon), was one of few visible and well-known advocates of the notion that business could and should be socially responsible.  It was of this version of the capitalist model, often referred to as “social enterprise” that Anita was “poster child”.

Tragedy turned to disaster, as it emerged that L’Oreal was itself 26% owned by Nestle.  In the food industry, Nestle has been a lightning rod for criticism by “socially responsible” investors due to a range of practices, particularly in the less developed countries.  Anita’s protests that she would change L’Oreal from within sounded optimistic at best—if not naïve or even cynical.  The Guardian newspaper reported that since the announcement of the acquisition The Body Shop’s ethical rating has fallen from X to Y since the announcement.

Knocking the rich is good sport, the question is whether those of us with a strong interest in the growth of social enterprise should mourn or rejoice at the cashing in of the Roddick chips.  There seems a strong for celebration for supporters of social and ethical enterprises willing to take a dispassionate view of events, based on several factors.

First, there is a very strong and unmet demand for capital amongst UK social enterprises.  One reason for this is the simple absence of big success stories.  Apart from the Body Shop, where is there another example of a UK social enterprise that has been a big win for investors?  There have been innovative models, which result in much social good (e. g. The Big Issue)—but few have made people rich.  One possible exception has been Green & Black’s, which, like the Body Shop, has suffered much criticism since its sale in 2XXX to Cadbury’s.  And the Body Shop has been immensely successful…just ask the garage owner/family friend who lent Gordon and Anita £8,000 (after many banks had turned them down) and is now sitting with 21% of the proceeds of this £xxx million sale.

Such stories fire the imagination (and fuel the greed) of potential angel investors into social enterprises in the same way the astonishing returns to early backers of Ebay, Amazon, Google and others encouraged the massive growth in US venture capital investing.  There may yet come a day when investors are willing to part with meaningful sums of cash for social purposes alone, and this pool of capital is growing.  But it is still meagre in comparison with the need.

The second cause to be jubilant at the enrichment of Gordon, Anita and their early “angel” is that most of their cash is likely to be recycled into social enterprise and the charitable sector.  They are on record as saying they will give most of their money away.  If we consider what they have done to date with their salary and dividend income there are further grounds for encouragement.

Over the course of the past two decades the Roddicks have backed social enterprises, charities or campaigns in such diverse fields as organic food, third world development, conflict resolution, environmental protection, ethical sourcing, human rights, etc.  They have also been backers of many of the best-known UK social enterprises including Freeplay, the manufacturer of windup and solar radios, sold predominantly in the third world, and the aforementioned Big Issue, a pioneer in helping the homeless.  While Anita has been the public face of the duo, Gordon has provided not only cash, but also valuable time and expertise to many budding British social entrepreneurs.  The idea of this wealthy couple, slipping off to a quiet and comfortable retirement on the back of their millions is laughable.  More importantly, the sale of their stake in the Body Shop represents a windfall to the social sector.

Taking shots at the successful is a great pastime.  Finding inconsistencies in those we perceive to be a bit sanctimonious can be a source of great delight.  By identifying the flaws in “the great and the good” we can feel better about our own shortcomings (hey, these guys are really no better than me!).  But while engaging in this sport those of us who care genuinely about the growth of ethical business need to put forward the positive arguments as well when our most successful social entrepreneurs cash out.

First Published in The Guardian in June 2006.