What is a “Social Enterprise?”
- POSITIVE SOCIAL IMPACT AS PRIMARY MOTIVE. The popular term “social enterprise” has come to mean different things to different people. For IIX’s purposes, a Social Enterprise meets the following key criteria:- specific positive social impact is primary reason for the entity’s existence (not an ancillary or secondary development, such as a company’s Corporate Social Responsibility program)
- business model reflects responsible entrepreneurship and growth for staff and overseers, beneficiaries/customers, overall community/environment
- has a market orientation
- FOR-PROFIT OR NOT-FOR-PROFIT. Our definition of Social Enterprise embraces for-profit as well as not-for-profit entities.
What is an “Impact Investor?”
- SEEKING FINANCIAL AND SOCIAL / ENVIRONNMENTAL RETURN. Impact Investors are individuals or entities who are putting their capital to work in investments that “seek to generate both financial return and social and/or environmental value – while at a minimum returning capital, and, in many cases, offering market-rate returns or better.” (Source: Global Impact Investing Network [GIIN])
- MORE THAN SRI. Importantly, Impact Investing differs from “socially responsible investing” (SRI), which seeks to avoid investments in “sin” industries, such as tobacco. In contrast, Impact Investors proactively focus their investments on “businesses and funds that can harness the positive power of private enterprise.” (GIIN)
Why do we need a social stock exchange? Why not encourage Social Enterprises to list on an existing exchange?
- ACCESS TO GROWTH CAPITAL. A social stock exchange will allow sustainable Social Enterprises to raise capital in a traditional capital market setting based on both their social / environmental and financial results.
- INCREASED VISIBILITY AND LIQUIDITY. A small number of social purpose businesses are already listed on existing exchanges; however, due to lack of investor understanding of their social goals, their securities have often not traded well, with limited visibility and liquidity and relatively low valuations. Most investors on these exchanges focus solely on financial returns and often view a Social Enterprise’s social mission as a distraction that gets in the way of maximizing profits.
- PROTECT AND CHAMPION SOCIAL MISSIONS. Many social entrepreneurs are also fearful that bringing on board unaligned investors focused solely on maximizing profit will lead to mission drift.
- EFFICIENT SOCIAL MARKETPLACE CATALYST. The few listed Social Enterprises, scattered among traditional pure-profit companies across various exchanges, are not easily identified by interested Impact Investors. A specialised social stock exchange which aggregates Social Enterprises and connects them with Impact Investors would be attractive to both the investors and the Social Enterprises seeking capital.-For Social Enterprises, IIX will deliver a base of Impact Investors that understands their business models and values their social mission.
For Impact Investors, IIX will reduce the cost-of-search and permit easier and targeted coverage by research analysts interested in the sector, driving down transaction costs for all – including brokers, market-makers and Impact Investors.
- TRANSPARENCY. By requiring listed Social Enterprises to report on their social impact, not only their financial impact, IIX will add a new dimension to the transparency that stock exchanges offer to investors.
Why not just create an index product?
- LIMITED POOL. An index of listed Social Enterprises would likely help to raise the profile of specific Social Enterprises and ultimately help to increase the amount of capital available for Social Enterprises generally. As such, it would represent a laudable advance.But creating such an index would face a number of hurdles, most obviously the small number of currently listed Social Enterprises in Asia. An index would ideally capture only those entities listed on regulated exchanges, further limiting the size of the universe.
- INEFFICIENT MEANS TOWARDS GOAL OF CAPITAL-RAISING. The creation of an index would not directly help newly listed companies raise capital through the Initial Public Offering (IPO) process.
- LACK OF COORDINATED TRANSPARENCY. An index of companies across various exchanges will not offer coordinated and consistent authentication, admissions procedures, market rules, and transparency and disclosure requirements.
What is unique about IIX?
- PIONEER. IIX has launched its Impact Partners platform, Asia’s first private platform dedicated to connecting Social Enterprises with Impact Investors, in 2012 and its Impact Incubator platform in 2012 In addition, IIX has launched Impact Exchange, the world’s first social stock exchange with the Stock Exchange of Mauritius in 2013.
- UNIQUE FOCUS ON SOCIAL ENTERPRISES: IIX is uniquely focused on providing platforms for capital raising by social enterprises. Impact Partners is a private platform open exclusively to Asian Social Enterprises and to sophisticated Impact Investors.
- UNIQUE VENUE FOR RAISING CAPITAL: Impact Exchange provides a uniquely differentiated venue for Social Enterprises seeking to raise capital through primary offerings of shares or bonds and for social purpose investors seeking the ability to make investments in Social Enterprises with full liquidity and transparency.
- BROAD EXPOSURE TO SOCIAL MARKETPLACE. Impact Exchange is a board on the Stock Exchange of Mauritius, a fully regulated exchange, offering liquidity and transparency. Impact Exchange provides access to a range of Impact Investors that is much broader than those able to make private investments in Social Enterprises today. This will include charitable endowments, family offices, and other institutions, as well as high-net-worth individuals and retail investors. IIX also expects to attract investment from existing Social Venture Funds.
- CREATING A NEW ECOSYSTEM. IIX is pulling together the entire ecosystem (regulators, research companies, rating agencies, brokerage firms, investors and Social Enterprises) required to launch an effective exchange.
What is the difference between IIX and other “Social Stock Exchanges”?
- INVESTMENT MARKET, NOT CHARITABLE GIVING. Other “social stock exchanges” or “Social Investment Exchanges” primarily facilitate philanthropic or charitable giving to not-for-profit entities. For example, BOVESPA in Brazil does admirable work facilitating grants from philanthropists to not-for-profit entities in a non-regulated environment. Other Social Stock Exchanges focus on provide impact data on Social Enterprises listed on regular stock exchanges. In contrast, IIX will facilitate actual market investments in a regulated environment by Impact Investors in economically viable Social Enterprises (for-profit and not-for-profit) throughout Asia and Africa, which will generate both economic and social/environmental returns. IIX will list only fungible, tradable securities – with an attendant secondary market – as authorized and regulated by the financial regulator.
How will IIX measure and report on social and environmental returns?
- BUILD ON EXISTING EFFORTS. The ability to measure and report on the social / environmental return generated by listed Social Enterprises will be an important factor in attracting Impact Investors to the exchange. While there is no universally accepted method of social return reporting, a number of recent efforts are making considerable progress in creating workable metrics.
- CONSULT AND TEST WITH PARTNERS. Working in conjunction with the Program on Social Innovation and Change at the Lee Kuan Yew School of Public Policy in Singapore, and drawing on existing work being done in the field, IIX is confident that it will be able to develop a workable standard that will meet Impact Investors’ desire for transparency while meeting Social Enterprises’ need for a system that is not unduly complex to apply. IIX will consult extensively with Social Enterprises and Impact Investors to ensure this is the case.
How can I find out more about getting involved in social capital markets development?
- There are many immediate ways to get involved, as an investor, social entrepreneur or just to find out more information! If you are a SE, you may be eligible to be profiled on Impact Incubator, Impact Partners or Impact Exchange to interested impact investors.
- If you would like to connect and meet other like-minded individuals, you can sign up to our mailing list to receive more information about our Impact Chats which highlight some of the interesting trends, people and ideas making a difference in sustainable social and environmental impact and our annual Impact Forum, a global conference which brings to Singapore some of the biggest innovations, thought-leaders and initiatives around impact investing.