Banks have no incentive to serve unprofitable consumers Further segmentation of consumer base, focus on product margins could further isolate unprofitable consumers Elimination of cross subsidy makes it more unattractive for banks to serve those on low incomes Will those at the margin drop off into financial exclusion? Imposition of account maintenance and high usage fees would have disproportionate negative impact on low income, elderly, and disabled, who often require regular branch access Danger of mis-selling package accounts or other more complicated products, particularly to those with limited financial literacy
The Social Stock Exchange An Investment Initiative in Capitalising Social Businesses
The Social Stock Exchange An Investment Initiative in Capitalising Social Businesses Mark Campanale TBLI Conference November 2009
Why do we need a “Social Stock Exchange?” “ There is a lot of seed capital available, angel-equivalent, for social entrepreneurs. But there is not a lot of later-stage funding available to take social entrepreneurs to scale. There a huge gap in the social capital market that’s preventing many of the best models from replicating and fulfilling their potential .” Linda Rottenberg, Endeavour Global, (Skoll Foundation/Sustainability 2007)
Socially Motivated Commercial Investors Foundations and Social Financial Institutions Senior Debt Subordinated Debt Private Equity and Grant Capital Stratified-Risk Capital Structure Before Financing Social Venture Service Delivery to the social sector Paying Customers Investment Capital Social Venture Paying Customers Cash Flows Service Delivery Improved Service Delivery to the social sector After IPO Financing Scale-Up of Social Finance Public traded equity
Addressing the Equity Gap Grant Venture philanthropy Patient capital Bank loan Quasi equity Social equity offering “ Going Public” An IPO Initial Public Offering Social enterprises are likely to require equity finance as they evolve
Now lots of asset managers in the social sector!
What social investors actually do? <ul><li>Social Finance Advisory institutions </li></ul><ul><li>Debt based institutions – eg loans from banks </li></ul><ul><li>Pre- IPO ‘social impact’ funds for social enterprises ( but all small relative to the market ) </li></ul><ul><li>Equity – eg stock market based institutions – the land of the ethical funds… small </li></ul>Looking at that list….. Lots of energy. Not much scale
Meantime, what happened to social impact businesses? Lack of capital routes for expansion or exit?
Future – creating a social capital market <ul><li>Translation issue – do current markets meet the needs of social enterprises? </li></ul><ul><li>Search: Can social investors easily find social investments? </li></ul><ul><li>Regulatory framework: Is it favourable to social investors and social enterprises? </li></ul><ul><li>Connecting: Is better sign-posting required? </li></ul>“ It is now beyond urgent that we create a new social financial services sector ” Bill Drayton, Ashoka Rockefeller Foundation funds research into a ‘ Social Stock Exchange’.
The Social Stock Exchange A platform that allows trading of securities in social enterprises (SE’s) on a Financial Services Authority (FSA) regulated stock exchange <ul><li>The SSE is designed to provide companies access to capital – specifically risk capital – for organisations that are for-profit social purpose businesses: </li></ul><ul><li>Health, leisure, transport, social housing </li></ul><ul><li>Green- and ethical consumerism </li></ul><ul><li>Cleaner technology. </li></ul><ul><li>SSE provides a market mechanism that provides </li></ul><ul><li>Price discovery as well as valuation and trading of shares </li></ul><ul><li>Entry and exit route for investors’ social investments </li></ul><ul><li>Platform to launch investment schemes for the public </li></ul>
<ul><li>Partnering with an existing stock exchange provider, Plus Markets. </li></ul><ul><li>Building a network of ‘social’ nominated advisors (SNOMADs) akin to the successful NOMAD model used on AIM, London’s junior market. </li></ul><ul><li>A robust principles-led admissions criteria has been developed that involves: </li></ul><ul><li>An issuer’s sponsorship on the exchange by a SNOMAD </li></ul><ul><li>A social audit as an addendum to the Prospectus </li></ul><ul><li>Vetting by an admissions panel </li></ul><ul><li>Ongoing disclosure obligations relating to the issuer’s social impacts </li></ul><ul><li>Social Key Performance Indicators (KPI’s). </li></ul>Admissions Summary
Businesses likely to gain access to a Social Stock Exchange
The Social Stock Exchange: a capital market that supports the social business sector Social Stock Exchange
Building a social capital market <ul><li>General Medical Clinics plc - primary medical care, general practice and health screening under contract with Department of Health including an NHS Walk-in centre </li></ul><ul><li>Adili plc , the online ethical fashion sells £1.5 million of stock on AIM - business accessories sourced under fair trade, organic and socially responsible principles </li></ul><ul><li>CareTech plc provides quality housing and support services to more than 1200 adults and children in 141 homes, with a range of learning and physical disabilities </li></ul><ul><li>Stagecoach Theatre Arts plc teaches children skills for life, such as confidence and communication, through the performing arts.. Each week every student is taught one hour of dance, one hour of drama and one hour of singing. </li></ul>Stock market examples… Arts, health, ethical fashion… a “social” capital market
Commonly asked questions about the Social Stock Exchange
FAQ 1 Why not encourage social enterprises to list on one of the existing exchanges? Some social purpose businesses already list on some of the existing UK exchanges but have to date lacked visibility, liquidity, and have not proved easy to find by interested social investors. The SSE will operate to a standard that would be attractive to both social investors and companies seeking capital. Most, if not all, public markets attract speculative investors at the IPO and later stages, leaving the social entrepreneur in fear of their company facing corporate mission-drift by unaligned investors. Aggregation of these mission-oriented businesses on a specialist exchange reduces the cost-of-search for social impact investors and permits easier and targeted coverage by equity analysts interested in the sector, driving down transactions costs for all – including corporate brokers, market-makers and social impact investors.
FAQ 2 What is unique about the Social Stock Exchange? A clear, differentiated primary listings and secondary trading venue with a compelling message for social purpose businesses seeking an Initial Public Offering and a primary and secondary marketplace for social purpose investors seeking to invest in the same RIE status unlocks institutional SRI and charities’ and family offices’ investments (mission-connected, mission-related, and programme-related), and provides confidence for the retail investor and allows development of pooled fund products Synergy with major SE initiatives: the Global Impact Investor Network, social finance and social investment banks, Futurebuilders and other similar UK Government fund initiatives The primary RIE for the trading of other social investment instruments such as microfinance bonds, as well as developing an exchange listing opportunity for CIC’s (Community Interest Companies) and Industrial Provident Society securities.
FAQ 3 What is the difference between this and other “Social Stock Exchanges”? The SSE is an RIE whose purpose is to enable for-profit social purpose businesses to raise capital. We admit and list fungible, tradable securities – with an attendant secondary market – as authorised and regulated by the UK’s financial regulator. Unlike other “social exchanges”, the SSE is not a philanthropic or charitable giving initiative
FAQ 4 Why not just create an index product? An index does not help the capital-raising or IPO process for successful, profitable and growing SEs An index of companies across various exchanges will not offer co-ordinated and consistent authentication, admissions procedures, market rules, and transparency and disclosure obligations Many social impact and SRI investors cannot invest in companies that are not on an RIE