Of course, 2008 was also a time of great challenges. The global economic crisis has affected everyone—companies, investors, funders, NGOs, entrepreneurial endeavors of all kinds, and of course individuals. In times of crisis there is a tendency to ‘stop the bleeding.’ That is, to get things back to a stable state and try to solve the underlying troubles once this stabilization has happened. The flaw in this reasoning, however, is that doing so means recreating the stable yet troubled state that led to the problems in the first place. Hundreds of billions of taxpayer dollars (and their monetary equivalents) are currently allocated to ‘bail out’ industries from banking to automobiles. Bailouts, unlike any fundamental restructuring, essentially bring troubled industries right back to the the brink of disaster. This is inefficient at best.

A better solution would be to learn from what went wrong and use such significant funding to find a better approach, rebuilding from the current state rather than recreating the past. The idea of creative destruction is not new, but unfortunately what we're seeing so far is that governments around the world have made financial commitments to industry with little thought as to how that money could be used to fundamentally alter its course to a better place. The opportunity does still exist to use this government investment in a way that reflects the new understanding of industry's role in our global lives that all of us in the social capital markets share.  2009 remains a moment when we can make a real shift, from industry being something that succeeds at the expense of people to something that helps people succeed.

Doing this means at least two key things: 1. aligning the needs of individuals with the abilities of companies, and 2. holding them accountable for achieving a set of social and environmental, as well as financial, goals. Clearly this economic redesign is a large topic that can cover many years of blog entries (and will no doubt be touched upon in SocialEdge in the coming year). But in short, for profit entities can exist to proactively help people and planet and still be profitable. To do so, managers and investors must arrive at a clearer understanding of stakeholder needs. They must work through how a business’ offerings can address them. They must set clear milestones. And they must measure, and be held accountable for, performance. We have all seen numerous illustrations of this new business ideal on a smaller scale. Renewable energy is a perfect example as it attempts to solve a need that is both human and environmental, and to turn a profit by doing so. Now, though perhaps a revolutionary thought to many, the global community can apply these practices to other industries in ways that are perhaps less obvious.

This change, however, will require innovation; innovation in processes, practices, materials, and ideas. Though troubled times may heighten survival instincts, causing people to be conservative and ‘hunker down,’ now is the time we need innovation most. Fortunately, innovation is often at its best when times are worst. It is through innovation, and in our context, through entrepreneurship, that we can devise new approaches that are informed by past failures and that aspire to a new vision. Now more than ever is the time to foster innovation, to support the creative minds who can conceptualize new ways of addressing needs that do not bring us right back to the edge of disaster where we just were. We can take advantage of markets and investment to steer progress away from simple growth and aggregation of wealth to something that not only solves current challenges, but prevents future ones. This is of course no easy task, but not an impossible one either.

2009 is a year of opportunity. It is a year not to merely stop the bleeding, but to begin to reform the global economic infrastructure using the tools social entrepreneurs have forged. Social entrepreneurs and impact-oriented investors should see 2009 as a ripe time to find the best solutions to the social and environmental challenges we face and solve them in ways that benefit all involved—through innovation, accountability and alignment of the interests of all parts of the economic ecosystem. The opportunity is ours to put forth a better way.

Here's to an innovative new year!
 

Earlier this year, our company was commissioned to develop an investment evaluation framework for a group of high net worth individuals who were exploring the development of an ecolodge in Rwanda as a means of addressing, at least in part, the social challenges stemming from the genocide and the ecological stress of decades of environmental neglect plus the repatriation of survivors to previously unoccupied areas that lack the necessary carrying capacity to rebuild communities.    

Depending on how you read it, that last paragraph describes either a worthy attempt to use commerce and local assets to help solve a social problem or a grandiose vision that seems unattainable even with the best of intentions. As such, there are a few key questions you might be asking yourself:

1) What on earth is an ‘impact evaluation framework?’
2)    How does one set boundaries around this almost limitless challenge?
3)    Can a single ecolodge really make any difference to the people and ecology of a devastated country like Rwanda?

What on earth is an ‘impact evaluation framework?’
Think of this as social and/or environmental due-diligence. Any seasoned traditional investor will undoubtedly research the company s/he is about to give money to or the NGO about to get funding. They’ll base their decision to invest on some expectations of past performance, expected future returns, etc. What is often missing from those investigations is to what extent does this investment help or hurt local communities and ecosystems (excepting government-mandated environmental impact assessments). As social investment—financial relationships designed specifically to benefit people and planet— continue to grow, this type of evaluation becomes exponentially more important.

For our ecolodge project, SVT developed what we call the “ECOframe”- the Ecolodge Choice and Evaluation Framework. The Framework gives investors/funders/donors a linear process by which to determine their own priorities, evaluate opportunities, set expectations and ultimately create a dialogue with their investees/grantees.

How does one set boundaries around this almost limitless challenge?     
This question has no easy answer, though one is absolutely required for any social enterprise regardless of issue area, geography or financial structure. Answering this question allows an organization to set goals, prioritize them, manage to them and ultimately produce continually increasing social and environmental returns.

You have likely heard the saying “what gets measured gets managed.” While that may be true, it is only half the story. Einstein’s view on this helps paint a much cleaner picture, as he is usually credited with saying, “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” Thus, it is critical to first determine what matters enough to be measured, then what from that set of things can be measured and finally what should be managed to ensure maximum positive impact for the resources available.

For the ECOframe, we developed a defined process for determining what information should be collected and can be managed to. This process clarifies characteristics about the addressable challenge, the value the project can (and cannot bring), the primary and secondary stakeholders, key indicators for tracking social value, and quantifying and analyzing results.

Going through these steps adequately allows both the investor and the enterprise itself to clarify goals, assess the value created/to be created, include key stakeholders, continually improve impact and ultimately to tell a story. Of course there is an art to each of these steps...

Can a single ecolodge help the people and ecology of a devastated country like Rwanda?
This third question is a fair one and must be asked of any impact-driven investor, funder or ground-level manager/implementer. It is true that the answer might be no. That is ok. This is the equivalent of market research for a new consumer product and is critical for any endeavor. Supplier passions alone do not drive market demand.  But, by running a project through a process like ECOframe, it is possible to not only determine if positive impact will be made, it is further possible to allow managers to set expectations of impact and work to continually improve upon them, thus simultaneously maintaining control and having an open dialogue with project supporters, thus shifting the focus from ‘all or nothing’ results to management skill and growth.

For the Rwanda ecolodge, we were able to determine that should the lodge be built, it would indeed benefit the local community and ecology in the ways in which it could control—namely through employee hiring practices/wages, access to healthcare and education for families of staff, energy efficiency/composting/construction materials, etc. Can this one ecolodge truly solve the tremendous social and economic strains in the area? No. Should its success be judged by its ability to do so? No. Can it help improve conditions and act as an example for similar social investments in the area? Absolutely.    

In our next post, we’ll address a fourth question that may be on your mind… are all investors the same and if not (they’re not), how do tools like ECOframe accommodate their differences?
 

As this blog posting will go live on election day in the US, I wanted to take a moment to preflect, to look ahead at a plausible future, rather than to dwell on the short-comings of the recent past. We have a real opportunity to reposition the United States as a global leader once more, though as the Economist put it a while back, with brains not bullets.

I have just returned from a three week road trip with stops as wide-ranging as New Jersey and Amsterdam. A little bit of Maine, Pennsylvania and throw in some New York City and DC, add in conference attendees from all over the planet and two things are very clear: EVERYONE is watching the US election, and everyone has an opinion about America. Well, maybe not everyone- I know there are pressing issues around the world that do not involve the US today. But being an American abroad... it sure feels like all eyes are upon us.

Perhaps what struck me more than anything is this—people around the world actually care about America. We are quite unpopular globally; we are seen as invasive, destructive and hypocritical. As we face what is by far the most important election in a generation if not more, it would not have surprised me if citizens of the world wanted to see us fail once and for all... to finally add that last nail in our geopolitical coffin. But they don’t. They want to see us get it right. They would rather see a United States that rebuilds its power and uses it for good, with respect, intelligence and a sophisticated world view, rather than us fade into darkness. 

So what is the America that could be? If I were to preflect on a vision, it would be—at least in part—one in which we rebuild our economy by investing heavily in the resources of the future. Renewable energy of course, but also innovators and entrepreneurs who are willing and able to provide a new means of making investment decisions and addressing the challenges the world community faces. One in which due-diligence includes understanding how any investment might perform not only in a financial sense, but also the impacts for people, communities and the environment. In the last few months we’ve learned critical lessons about investments in companies that grow by feeding on their own foundations. We now have an opportunity to start again, to take a new approach that insists we ask questions about the impact, and sustainability, of our investments.

A new view of investment need not necessarily mean a tradeoff in financial return, though it might and that can be good as well. Many of us believe that the investments that will produce the highest financial returns, at least in the long run, will be those that are not only sustainable in that they don’t consume more than they produce, but that are actually regenerative. We now have a ‘do-over,’ a chance to try a new approach that might allow this country to stand as an example of investment that brings returns on all fronts.   

Though I put forth this entry on election day, make no mistake this is not a partisan issue. Democrat and Republican alike, regardless of campaign trail rhetoric, must craft a new vision for America. One in which personal aspirations are not necessarily pushed aside, but one in which people achieve their own success directly by helping the planet and all its inhabitants—human, animal, plant or otherwise. This is no easy task, and may require incentives and education, but if as a country we demand this new direction, we can much more effectively direct the resources we have—natural, financial and human. We have the opportunity to be proactive, not reactive. The world is with us. We can do this.