Conscientious Self Regulatory Organizations (CSRO) prepared by Natraj Bhushan, Michael Moskowitz and Elizabeth Mariwalla
Background <ul><li>The typical transaction costs in the Capital Markets is 5% as compared to transactions costs of up to 30% that a donor would face when giving to a not-for-profit. </li></ul><ul><li>Impact Investing can help narrow the gap between these two transaction costs resulting in a more effective and efficient distribution of capital. (Net Impact Powerpoint) </li></ul><ul><li>As transaction costs are reduced and transparency is increased more individuals and institutional investors are likely to support Socially Responsible Organizations. </li></ul>
CSR - A New Approach <ul><li>Corporate Social Responsibility is a new way of looking at Return on Investment. In addition to looking at Financial outcomes, corporations, largely in Europe, are required to factor in Social and Environmental impact ("triple bottom line"). </li></ul><ul><li>The principles of CSR are being applied to for-profit companies around the globe in an effort to make them more like nonprofits in that they must now factor in effects other than pure financial outcomes. </li></ul><ul><li>Now, to make nonprofits more accountable, they too can take a step towards a "triple bottom line." </li></ul>
CSRO - A Market for Nonprofits <ul><li>"Conscientious Self Regulatory Organizations" are modeled after "Self Regulatory Organziations" such as the New York Stock Exchange (NYSE) and the N ational A ssociation of S ecurities D ealers A utomated Q uotations (NASDAQ). </li></ul><ul><li>The Difference is that CSRO's are Exempt from SEC registration regulations because they are specifically designed for Not-for-profit corporations to transact in a transparent market. </li></ul><ul><li>Therefore, Nonprofit Market Participants can efficiently satisfy their fundraising needs and donors can confidently invest knowing that they will achieve both a social and "reasonable" financial return (N-PCL). </li></ul>
CSRO and Fundraising <ul><li>In a CSRO a nonprofit can sell debt through a clearinghouse (i.e. investment bank) to fund its scientific, educational and charitable activities and projects (IRS section 501(c)(3) exemptions). Using this model, Nonprofits can secure the most money with the least transaction cost possible. </li></ul><ul><li>Hypothetical: </li></ul><ul><li>The NRDC, a nonprofit devoted to environmental justice, has come up with an exciting new venture. They would like to create a social club where like-minded business and social leaders can come together for conferences, presentations and charity events. After locating a tax exempt six-story commercial brownstone they now need funds to purchase, renovate and staff the facility. The NRDC approaches Goldman Sachs, an investment bank, to provide initial sophisticated investors, and agrees to help structure a debt offering to sell on the CSRO. </li></ul>
CSRO and Social Return <ul><li>A CSRO is a transparent market that will encourage donors to preform research before investment, and donees to offer high performing charitable projects. Once an initial debt offering has been made available on the CSRO market then any traditional investor may purchase the instrument. </li></ul><ul><li>Hypothetical: </li></ul><ul><li>A socially aware school teacher wants to make a safe investment for her retirement and learns about CSRO markets and how one can analyze nonprofit projects, receive a return on investment and conduct all transactions online. She decides to go to the CSRO website and analyzes each charitable project according to uniform metrics. She arrives at a decision of which bond to buy according to her desired risk level, as well as, social and financial return on investment. She sees the NRDC project and thinks it is a fun and safe way to invest in environmental justice. </li></ul>
CSRO and Reasonable Rate of Financial Return <ul><li>According to the Not-for-Profit Corporation Law a Nonprofit may pay a "reasonable rate of return" to purchasers of its debt. The CSRO is an efficient transparent market and therefore the CSRO will determine the financial instrument to be used and the acceptable "reasonable" rate of return (covenant between donor and donee). This concept is akin to a semi annual coupon payment on a bond or an annuity. </li></ul><ul><li> </li></ul><ul><li>Hypothetical: </li></ul><ul><li>The school teacher decides to invest one thousand dollars in ten $200 NRDC bonds to finance the social club. As a result she will receive a 2% coupon payment annually with a maturity in 15 years, since that was determined to be "reasonable" and practicable by GS. </li></ul>
The CSRO Portal <ul><li>The CSRO Portal is the interface whereby the donor can find donees and their projects. The Portal will be a transparent social hub that will contain information on all registered Nonprofits, all registered projects, and analytics. Analytics include all relevant information pertinent to fundraising and previous returns on investment. This portal functions similar to "Yahoo Finance" or "Bloomberg," but solely for Nonprofit Corporations. In this sense, donors act like traditional market investors and donees act like publicly traded corporations. This ensures liquidity and confidence in the market. </li></ul>
Conclusion <ul><li>"Conscientious Self Regulatory Organizations" combine the efficiency of Capital Markets with the social missions of Not-for-Profit corporations. Since CSRO's function like traditional capital markets, it can be implemented on a wide scale. CSRO's may be tailored to a specific nonprofit mission, location, faith based preferences, etc. Nevertheless, the donor is emboldened with analytical tools to ensure the maximum net impact of his or her investment dollar. </li></ul>
Acknowledgments <ul><li>This presentation was created by Michael Moskowitz, Natraj Bhushan, and Elizabeth Hall-Mariwalla, founding members of Green Clearinghouse, Inc., a registered 501(c)(3) tax-exempt nonprofit. </li></ul><ul><li>Please contact us at: </li></ul><ul><li>[email_address] </li></ul><ul><li>Natraj.Bhushan@live.law.cuny.edu </li></ul><ul><li>[email_address] </li></ul><ul><li>Created on 1/24/11 </li></ul>
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