A new form of investment may be ushering in a new era where we can weigh investments based on financial returns, impact, and transparency. In response to the growing demand for more companies that have a triple bottom line, financiers and social entrepreneurs are working to provide you with this new option for investment, called Retail Impact Bonds. Retail Impact Bonds will help investors and entrepreneurs to start comparing returns on your investments through not only financial data, but also impact..
Shujog, a company based in Singapore that identifies and reviews social enterprises, works with them to scale their businesses, helps them develop strategies to measure their impact, and instructs them on better ways to reach their audiences, and its sister company IIX are trying to change the landscape for social entrepreneurs. Their impact measurement system aims to provide more transparency to an industry as we compare key players in fields like sustainable agriculture.
IIX is the stock exchange that lists Asian Social Enterprises and sells Retail Impact Bonds to investors who want to issue capital to business working industries like clean energy, sustainable agriculture, and education. IIX is clear – it is not collecting donations: these bonds are still financial tools intended to return capital to the investor while improving access to capital for social enterprises. These bonds give social entrepreneurs access to capital to help scale their businesses, and investors are promised returns on their investments as well as clear information about how this company functions and measures its impact.
Social stock exchanges are intended to be more than points of sales or trades for financial tools. They are also meant to give the public better access to information about social enterprises, see what issues are being addressed, and allow the public to support these businesses through conscious investment decisions.
Besides IIX in Singapore, the U.K, the U.S. and Canada also have their own social stock exchanges. All of these platforms seek to provide a better platform for social enterprises to reach interested investors and improve outreach towards potential volunteers and supporters.
While there is currently interest in building these sorts of platforms and improving access to capital for social enterprises, each of these stock exchanges is struggling to define its priorities, develop financial tools that will keep these programs sustainable and keep attracting investors, and have social enterprises register their companies. Social enterprises have different reasons for wanting to preserve their privacy or they may have trouble navigating the regulations necessary to list themselves. There are also major concerns that the return on investments for the stock exchanges might not be enough to go through the trouble of getting a social stock exchange up and running.
Social stock exchanges are not the only programs having trouble recruiting businesses; a number of new national stock exchanges demonstrated low registration rates. In many countries, there are significant hurdles for businesses to prove that they are reputable, including a company’s limited access to clear financial data or hesitation to release financial data publicly. Cambodia, for example, launched its stock exchange in 2011 and by June 2014 only had two companies listed.Sierra Leone launched its stock exchange in 2009 and also has trouble getting companies to list publicly, despite substantial investment in the iron and other natural resource driven industries, because many companies are hesitant to disclose financial statements.
One major barrier to entry is that these exchanges need to establish their businesses and financial tools as legitimate investments. Canada’s exchange and the U.K’s exchange both benefit from significant government support as they seek to establish themselves. It will take further interest and support from the public, for both social enterprises with enough resources and growth potential and the social stock exchanges themselves to get the programs to grow and operate independently.
These programs are certainly novel and offer promising direction for social enterprises seeking funding and support. While Shujog and IIX have developed one proposal for measuring impact and comparing social enterprises with different functions/goals, another challenge all of these groups face is how they can present “impact scores” along side financial return data.
The Retail Impact Bond may be the first serious proposal for socially minded financial tools. As an investor or interested supporter, would you purchase a bond that may promise lower returns, but also promised capital towards a cause like clean energy research and transparency in the impact your capital had within an organization?
Diana studies informal economies, social enterprises, and economic systems at Locus Analytics. She spends a lot of time exploring new neighborhoods, especially in Latin America.
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