What is the Social Stock Exchange?
The Social Stock Exchange (SSX) is a platform to help businesses that deliver a social or environmental impact unlock capital at scale. It was launched by the UK Prime Minister in June 2013 with 11 founding member companies.
All companies on the SSX must meet rigorous criteria before joining. This includes publishing an impact report that articulates and evidences the social or environmental impact their business generates.
The SSX is not about philanthropy; we want our companies to perform well financially as well as socially and, so far, the numbers look good.
How do you help impact-driven businesses raise capital?
In mid-September, we announced our plans to become an exchange in the formal sense of the word. We’re now a venue where impact businesses of all sizes will come to raise capital from investors who themselves want to deliver an impact.
This encompasses classic share listings for those seeking significant levels of capital and also a lower-cost crowdfunding option where smaller amounts of money are being sought.
What’s more, we’ll also be hosting a secondary market allowing investors to trade these holdings. Critically, the development of a secondary market will make investing for impact far more accessible. This will really help the general public get engaged in a space that has to date been dominated by high net worth investors and private equity.
Being a member of the SSX acts as quality control for potential investors and therefore impact businesses listed on the SSX have a better chance of finding finance and having access to fund managers and organisations that in the past they wouldn’t have even dreamed of.
That combined with the help of our dedicated platform which opens up the market to retail investors, enables the SSX to nurture impact companies, from the smallest to the very biggest.
Why have impact businesses traditionally struggled to access investment?
There has been a general misconception that if you’re investing for impact, then you’re immediately compromising your potential return. That perception has prevented many of us hearing about impact investment or learning how to participate.
The good news is that making a positive social and/or environmental impact does not necessarily go hand in hand with having to compromise on financial return and organisations such as ourselves are working hard to get this message across.
What types of investors are investing in the SSX?
The SSX attracts a broad range of investors, from individuals to institutions. They include passive environmental, social and governance (ESG) funds to more classical actively-managed ethical or socially responsible funds, to the niche players who are looking for robust impact evidence in a specific area of need to deliver against their mandate.
What they all have in common is a motivation to use their investment to generate both a measurable financial and social return.
The bouts of financial fallout in recent years have undoubtedly improved the attractiveness of this and will perhaps determine the attitudes of the next generation of investors.
After all, their experience has been negative: the dotcom collapse in 2001 succeeded by the collapse in financial markets in 2008, which was caused by greed and chasing the quick buck.
They realise that investing without value is a recipe for failure. And whether it be an organisation or an individual, investors in SSX businesses will tend to be more committed to the real strategy of the business. They are the very opposite of day-traders.
The recent report by the Social Impact Investment Taskforce suggests that the global impact investment market could grow to $1tn. What do you think?
There is a great deal of wealth invested in public equity and bonds, so this would represent a very small allocation of global investment capital. There are a lot of disillusioned investors to appeal to or investors who are looking to diversify their portfolios and do more.
We have seen the Rockefeller foundation announce it is to divest $50bn from fossil fuel investments and into clean energy assets. Yale’s endowment is asking its asset managers to assess the impacts of their investments on climate change, too. It can be argued that this is no more than sound investment management if in fact this carbon is trapped, and can never be released.
I am especially encouraged to meet asset managers who think this way. Caring about social and environmental outcomes as well as financial returns simply makes them better money managers, more capable of achieving outperformance for their clients. That’s how this scales.
How will the growth of impact investing affect traditional corporations?
I think we can see the impact already.
Companies like Sainsbury’s have been trialling the self-sustainable store concept. BMW is focused on resource efficiency in its manufacturing. Apple and Samsung have been held accountable for managing their global supply chain to ensure it does not end up capitalising the continuing conflicts in the Congo. Garment companies and retailers have been held accountable for the conditions in which their clothes are actually made, for example in Bangladesh. Asset managers are signing up to the UN Principles for Responsible Investing.
The research shows that management teams and boards who are good at this are good at the detail which also drives sustainable financial outperformance over the long term. The key now is to make sure this isn’t just a short-term reaction to the bad press big corporates have attracted since the credit crisis.
All stakeholders need to play their part. Investors need to grasp their responsibilities as shareholders and invite management to focus on strategy and sustainability, not the short-term, something which was neglected during the boom years.
Providing those standards are upheld we will see more companies report on their social and environmental impact in the coming years, because it will be good business practice. But there needs to be an agreed standard by which those impacts are measured. That measurement needs to be transparent, understandable and comparable.
So, in time, when an investor is considering an important investment decision they don’t just weigh up the potential financial implications, they can also asses the social and/or environmental impact too and its effect on the adjusted rate of return.
After all, it is not until you realise the outcome an investment is having on society and our world that you can truly tell its cost, or its value.
Tomas Carruthers is chief executive officer of the Social Stock Exchange. Tomas has an established track record of building and growing retail financial services companies over the last two decades. From 2003 to 2013 he served as CEO of Interactive Investor International plc. He was formerly director, european business development at AMP International Holdings Ltd. In 1994 he co-founded ESI, which became E*Trade UK. Mr. Carruthers was educated at RGS Newcastle and Jesus College Cambridge.
Contact the British Council at social.enterprise@britishcouncil.org
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