Tuesday, October 6, 2009

Beyond Philanthropy, to Social Investment

Last week the Bill and Melinda Gates Foundation announced the launching of a social investment fund which will provide loan financing to both non-profits and businesses. $400 million is allotted to this new endeavor, and investments will begin by the end of 2009. Social investment, put simply, is an investment that has both a financial and a social return. The measurement of social returns is a topic that deserves its own blog post, but the point here is that social investment is on the rise. Other foundations, such as Skoll, have begun focusing on investing in social entrepreneurs or in funding social enterprise funds, deviating from the typical grant giving role of a foundation. Likewise, the Calvert Foundation claims to “focus on investment capital, rather than conventional philanthropy” in addressing social problems.

The recent move by Gates is indicative of an overall growth in socially responsible investing (SRI) which is seen both in the typically philanthropic world of foundations and in the corporate world.
The Social Investment Forum in its 2007 annual report noted that SRI has risen from $639 billion in 1995 to $2.71 trillion in 2007, a growth of over 300%. According to the report, a large growth of this trend in the US is attributable to the growing concern over climate change, which has increased investment in green technology and alternative fuel research. The growth in SRI is significant both domestically and internationally.

Internationally, the expansion of microfinance organizations has provided a channel for social investment where a social and a capital return is produced. Beyond microfinance, social investment in international development is also targeting small and medium enterprises. Private equity firms such as
SpringHill Equity Partners provide capital specifically in emerging markets where financial returns are lower, however those returns are accompanied by “measurable social benefits”. The Africa Middle Market Fund, while still waiting on capital, aspires to do similar work in by investing in African businesses and producing both a financial return and social improvement.

Development in the past has been dominated by foreign aid, philanthropy, and to a certain degree foreign direct investment. While philanthropy and FDI lie on two opposite ends of a spectrum, and social investment may finally be the long-awaited middle ground.

-Yulya Spantchak
Research Associate
Center of Global Prosperity

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