Towards a Social Stock Exchange.

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Mark Campanale, Director - Four Elements Capital - United Kingdom

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  • 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
  • Towards a Social Stock Exchange.

    1. 1. Mark Campanale Chair, CAF/nef Social Enterprise Investment Steering Group Founder, The Social Stock Exchange November 2007 Towards a Social Stock Exchange
    2. 2. Social capital markets <ul><li>Social business sector requires capital to expand & develop </li></ul><ul><li>Traditional capital markets not best designed to meet these needs </li></ul><ul><li>Social investment space is captured by socially responsible investment funds – but they do not invest in social purpose business/social enterprise sector </li></ul><ul><li>Foundations/charity sector will not finance social purpose businesses (except through grants) </li></ul><ul><li>Social Stock Exchange? </li></ul>“ It is now beyond urgent that we create a new social financial services sector ” Bill Drayton, Ashoka Summary
    3. 3. Natural Capital Institute <ul><li>“ The term socially responsible is so broad it is meaningless” </li></ul><ul><ul><li>Coca Cola held by 56 SRI funds including Green Century Equity Fund </li></ul></ul><ul><ul><li>Wal-Mart held by 33 SRI funds including Ethical Global Equity Fund </li></ul></ul><ul><ul><li>Altria (Formerly Phillip Morris) held by 12 SRI funds including Eco Growth Fund (Mrs Green) </li></ul></ul><ul><ul><li>Halliburton held by 23 SRI funds </li></ul></ul><ul><ul><li>Macdonalds held by 41 SRI Funds </li></ul></ul><ul><ul><li>ExxonMobil held by 40 SRI Funds including ABF Green Planet Fund </li></ul></ul><ul><ul><li>Living Planet Fund (WWF) holds BP, Shell, Barclays </li></ul></ul>Source: Commonground Magazine, 2003 + Natural Capital Institute Language of social investment captured to describe a CSR strategy
    4. 4. <ul><li>55,000 social enterprises in the UK </li></ul><ul><li>Generating £27 billion in turnover, £8 billion to GDP </li></ul><ul><li>3,000 with turnover > £1 million </li></ul><ul><li>Social & environmental listed businesses – over 150 on AIM/Plus </li></ul><ul><li>Some £6 billion invested through SRI funds, £50 billion held by foundations in reserves </li></ul>Challenges Facing Social Enterprises SOCIAL COMMERCIAL Charity Trading arm of charity Socially responsible business Business Source: John Kingston, Venturesome Social enterprise Meeting the funding needs of social enterprises Social purpose business
    5. 5. Respondents select the top two challenges they face in growing their organisations, N=109 Source: Growing Opportunity: Entrepreneurial Solutions to Insoluble Problems , Skoll Foundation/Sustainability 2007 Accessing Capital is No.1 Issue, Skoll Foundation 2007 The Equity Investment Gap
    6. 6. Addressing the Equity Gap <ul><li>Social enterprises are likely to require equity finance as they evolve </li></ul>Grant Venture philanthropy Patient capital Bank loan Quasi equity Social equity offering “ 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)
    7. 7. Social mission? Lack of capital routes for expansion or exit?
    8. 8. So what are the main financial challenges? <ul><li>Square pegs: social entrepreneurs don’t fit the existing system </li></ul><ul><li>Lack of consistent, flexible, and long-term financing </li></ul><ul><ul><li>Innovation capital (unrestricted donations) </li></ul></ul><ul><ul><li>Angel investors </li></ul></ul><ul><ul><li>Funding from unusual foundations (but duration still too short) </li></ul></ul><ul><ul><li>Private investment funds (5 years then exit) </li></ul></ul><ul><li>Lack of knowledge about – and access to – capital markets </li></ul><ul><li>Sustainable sources of financing bring their own challenges – how does it affect ‘mission?’ </li></ul>“ Strong sense that social entrepreneurs could benefit from increased knowledge about the best financing options, as well as better access to open-minded financiers.” Source: Growing Opportunity: Entreprenereurial Solections to Insoluable Problems, Skoll Foundation/Sustainability 2007
    9. 9. Preferred sources of financing Respondents select their preferred sources of financing, N=109 Source: Growing Opportunity: Entreprenereurial Solections to Insoluable Problems, Skoll Foundation/Sustainability 2007, p.18 Philanthropy, not investment capital, Skoll Foundation 2007 Want foundation grants But can make fees Will take venture capital Not ready to go public
    10. 10. IPO’s and Market listings <ul><li>Survey reveals a great deal of “unease about the implications and constraints” of the public market </li></ul><ul><li>“ Capital markets blatantly inefficient. There is no mechanism that has the efficiency of the private sector (Nasdaq), private placements, VC) when it comes to raising large amounts of capital ” – John Wood, Founder & CEO of Room to Read </li></ul><ul><li>39% of respondents cited Venture Capital as source of funding </li></ul><ul><ul><li>But may misunderstand what it means </li></ul></ul><ul><ul><li>One survey respondent even spoke of ‘venture capital gifts.’ </li></ul></ul>Source: Growing Opportunity: Entreprenereurial Solections to Insoluable Problems, Skoll Foundation/Sustainability 2007 Accessing Capital is No1 Issue, Skoll Foundation 2007
    11. 11. The Equity Investment Gap <ul><li>Companies rooted in the social enterprise sector have successfully listed on AIM or Plus Markets Plc, examples: </li></ul><ul><ul><li>Freeplay plc </li></ul></ul><ul><ul><li>Parry People Movers </li></ul></ul><ul><ul><li>Monkton Group (Good Energy) </li></ul></ul><ul><li>Social purpose businesses widely list on the public markets </li></ul><ul><ul><li>CareTech plc </li></ul></ul><ul><ul><li>Stagecoach Theatre plc </li></ul></ul><ul><ul><li>Debt Free Direct plc </li></ul></ul><ul><li>Existing exchanges such as Plus Markets, AIM and ShareMark are geared to small/medium sized companies raising £1-4 million </li></ul><ul><li>Clear evidence of a successful record of equity raising through the public markets </li></ul>Social enterprises and the public markets
    12. 12. Future <ul><li>Is there a translation issue – do current markets meet the needs of social enterprises? </li></ul><ul><li>Can social investors easily find social investments? </li></ul><ul><li>Is the regulatory framework favourable to social investors and social enterprises? </li></ul><ul><li>Is better sign-posting required? </li></ul>
    13. 13. Introduction to Social Stock Exchange <ul><li>Social Stock Exchange’s goal is to deliver an FSA regulated and duly authorised investment market place appropriate to the needs of investors </li></ul><ul><li>Social Stock Exchange will explicitly reflect the social mission of enterprises, whilst being comfortable to the needs of investors </li></ul><ul><li>Consortium will build action research that helps bring social enterprises together with investors </li></ul><ul><li>The project will help signpost social investors to social enterprises, enabling equity capital to be raised </li></ul>Summary of objectives
    14. 14. Education : York University BA (Hons) Politics and Economic History Wye Agricultural College, London University MSc Agricultural Economics Career : 1985 Environmental Consultant EC, ERM, World Vision, Band Aid/Live Aid 1989 Jupiter Asset Management Senior Sustainability Investment Analyst 1994 NPI Asset Management Ltd Senior Sustainability Investment Analyst Mark Campanale 1999 Henderson Global Investors SRI Business Development 2001-2007 Henderson Global Investors Associate Director of SRI Business Development 2007 London Bridge Capital Investment Manager, Listed Assets Directorships Director, Carbon Assets Fund Carbon Capital Markets Director, UK Social Investment Forum Founder, The Social Stock Exchange Contact: mark@campanale.co.uk 07714 415262

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