Towards a Social Stock Exchange

Someone please define this.....
If the idea of a social stock exchange seems confusing, you are not alone. This panel included two pillars of the social enterprise movement, Muhammad Yunus and Ron Grzywinski, but also involved Celso Grecco, an entrepreneur who has built a social stock exchange based in Brazil. All three speakers appeared to have a different perspective and I suspect if you interviewed the audience, the number of opinions would differ by the number of attendees. The idea is compelling though, and the dialogue needs to continue.

What is a stock exchange?
Muhammad Yunus argued that it is time to recognise a different type of business with aims beyond profit maximisation. Some businesses measure ‘profit’ differently by serving humanity. The same distinction has been made between an entrepreneur and a social entrepreneur, thus why not make the same clarification within stock markets. Therefore, he is suggesting a different class of business, a social benefit enterprise (SBE), that are non-loss but non-dividend companies with social missions. The first step would be to label these companies and add them to already existing stock exchanges. Investors would then simply choose the company which provided the most benefits. The next phase would be to create a different exchange. He cautioned this does mean just changing buildings but completely thinking in a different framework.

Celso Grecco, through a very humble manner, had concerns with the approach of listing via existing exchanges because of costs. He mentioned a company in the United States takes three years to file an IPO. Firms then spend approximately $1 million a year maintaining that listing. In Brazil, the social sector is still quite new (17 - 18 years), but they have found success with their exchange. 43 NGOs, or social profit organisations as Celso has renamed them, have raised capital through the exchange. This exchange has a long way to go though – capital has been raised but a tradable price is a distant goal.

Finally, the ShoreBank provides a different example. Approximately $100 MM has been raised over the last twenty years from the full spectrum of investors. ShoreBank has 14 different companies with half of them divided profit driven. The non-profits are managed by ShoreBank but investors obviously do not have an ownership stake. They are required to be 50% self-sustaining with some achieving 70%. The most recent project makes equity investments in Africa, Asia and Russia with a goal of 7.1% return for investors. This rate is not market competitive, but investors are committed. While ShoreBank has actively trading shareholders, they ultimately decided not to list on a stock exchange.

Holy Grail
Peter Wheeler, the chairman of Futurebuilders and former partner with Goldman Sachs, concluded well. A social stock exchange would provide a price which allows investors to measure value. Therefore, investments could be exited, managers would have clear measures and capital would flow into socially-minded organisations.

However, is this merely a distraction for social enterprises? The idea of a social stock exchange has been debated for some time, but very few examples have emerged. Therefore, is this the unachievable Holy Grail or a legitimate model that has yet to emerge?

Want More?
A Co-authored report by Jed Emerson, a Visiting Fellow of the Skoll Centre and the Generation Foundation, was just published by the World Economic Report. Entitled “Blended Value Investing: Capital Opportunities for Social and Environmental Impact”.