From renewable energy companies to social housing funds, investors around the world are increasingly drawn to organisations that offer social or environmental as well as financial returns. Now, a new breed of market is springing up from Scotland to India to help them identify investment opportunities - and make it easier for organisations that seek to do good to raise funds.
If regulators give their approval, Scotland's first new stock exchange in nearly 50 years will launch this year to list securities - tradeable assets, such as bonds, funds and stocks and shares - with measurable environmental or social outcomes. It will require listed companies to report the impact they have along with their financial results, said founder and chief executive Tomas Carruthers of the initiative, dubbed Project Heather.
Meanwhile, India's government last week unveiled plans to open an electronic platform to enable social enterprises - businesses that aim to do good as well as make a profit - to raise capital. They follow initiatives in Canada and Singapore to help social entrepreneurs tap into a market whose estimated value is now $502 billion, according to the Global Impact Investing Network, an industry body.
Carruthers said he aimed to "improve the possibility for brand new businesses to be created which will address socially important problems and environmentally important problems". "There are plenty of people looking to achieve impact in their portfolios," he told the Thomson Reuters Foundation by phone. "But they feel there is a shortage of opportunities to invest capital."
There is no minimum size security that can trade, making it more affordable than other stock exchanges, and investing is not limited to financial professionals or the wealthy, he added. The Scottish government has committed £750,000 ($935,000) to support the creation of 45 new jobs at the exchange, which is privately funded.
It aims to have eight to 10 entities listed at launch, and will make money from charging listing and trading fees to companies and investors that want to use the exchange. Announcing the India initiative last week, Finance Minister Nirmala Sitharaman said the government wanted to "meet various social welfare objectives related to inclusive growth and financial inclusion".
Details are scant, but Ravi Sreedharan, founder of the Indian School of Development Management, welcomed the move, calling for what he called a "marketplace for social good" to evaluate the social return on investment. "It's like putting up the value of educating a girl child or the value of reducing gender inequality by 10%," he said.
But he cautioned that social enterprises were "far more complex" than corporate businesses and warned there would need to be safeguards in place to avoid the system being exploited. "Creating an ecosystem that includes a market system, monitoring and evaluation, impact assessments, long-term impact of the work that we do, reward structures ... all that can be very complicated in that space," he said.
Other experts also warned of the difficulties of establishing a dedicated exchange, among them Debbie Ryan, chief executive of Britain's Impact Investment Network, which helps social businesses grow to the stage where they can go public. The Network runs a Social Stock Exchange that lists four companies, including a housing firm and renewable energy supplier, but Ryan said the main challenge was getting enough "genuine" social impact companies.
Cliff Prior, chief executive of British social investment firm Big Society Capital, agreed that scale was the main barrier. "To have a full-on stock exchange where you are listing securities, where it is liquid, that requires a level of scale in order for it to be viable," he said.
Other comparable schemes include Canada's Social Venture Exchange, an online platform for retail and institutional investors to fund social impact companies that is backed by the Ontario government. Singapore's Impact Investment Exchange (IIX) launched in 2009 and describes itself as "an equity crowdfunding platform", connecting investors with social impact businesses, though it cannot trade securities.
Founder Durreen Shahnaz said while it was heartening to see India move into this space, challenges lay ahead, from lack of financial support to getting social businesses investment-ready. "We are thrilled that this is happening but we also know how hard it is to do something like this," she said by telephone from New York. "We have seen attempts happen but they have failed."
She said $50 million of the $126 million raised so far on IIX, which lists about 12 companies, had gone to India. "These enterprises do need a lot of hand-holding and work to get them investment-ready, the impact assessments to be done and a lot of technical assistance work," she said.
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