From dealflow to a lack of education, this week leaders in social finance addressed some of the key barriers preventing the UK market from flourishing. Last month Antony Bugg-Levine, the chair of the Global Impact Investing Network, told delegates at London’s Critical Mass conference that in the world of social finance there were “hypers, haters and […]Read More ›
The Future of Impact Exchanges
A Bi-Continental Comparison of Growing Impact Exchange Platforms
As part of the first cohort of the Social Innovation Research Group (SIRG), I’ve had the chance to research methods of injecting social capital into social ventures. The convenient overlap of my research with the recent buzz on sprouting social stock exchanges in Toronto and Singapore provided me with the opportunity to interview Adam Spence – of the Social Venture Connexion (SVX) in Toronto – and representatives from Asia-IIX and Shujog – in Singapore – in hopes of answering two key questions.
1. How are these platforms different?
2. How are they approaching the challenge of growing social capital markets from their respective corners of the planet?
In 2007, the SVX team began to lay the foundation for an impact investing platform with a short concept paper. The idea was endorsed as part of the Ontario government’s Poverty Reduction Strategy in 2008, and has been subsequently co-developed by MaRS Discovery District as well as cross-sectoral partners over the past six years. The SVX connects accredited investors with social ventures on the ground. This process mobilizes private capital previously limited to conventional, restricting return on investment strategies towards triple-bottom-line return investments.
Meanwhile, Impact Investment Exchange Asia (IIX) is doing the same, albeit in a very different context. With many countries in Southeast Asia utilizing a free-market approach to address entrenched social issues, IIX hopes to enable the direction of capital to these problem solvers through its capital raising platforms Impact Incubator, Impact Partners and Impact Exchange.
Context and Government Attitude
The most palpable difference between IIX and SVX is the social innovation ecosystem in which they operate. In Canada, government policy has matured alongside the development of innovative social enterprises, creating policies that enable ground-level enterprises to financially scale up. However, within Ontario, the unconventional method of injecting social capital through an intermediary has been met with some skepticism. This new model was initially viewed as interesting but broadly theoretical. SVX’s challenge was to strengthen credibility, which they succeeded in doing through building partnerships with the MaRS Discovery District, the MaRS Centre for Impact Investing, the TMX Group, KPMG, and RBC.
In contrast, there are fewer government policies aimed at supporting social enterprises in Southeast Asia. Many countries still have a black-and-white categorization of corporations; you are either a business or a non-profit. To help develop a more nurturing environment for social enterprise to grow and access investment capital, organizations such as Shujog – IIX’s nonprofit sister company – will need to continue gaining momentum in the region. Shujog focuses on broadening knowledge through research, raising awareness and helping SEs deepen their impact through impact assessment and technical assistance facilities. The Asian Development Bank has also played an important role in encouraging such activities by commissioning a series of social enterprise landscaping studies and supporting some initial advocacy work.
Evaluation of Social Enterprises
As social stock exchanges facilitate greater competition, liquidity, and transparency in operations, this requires more accurate methods of evaluating social enterprises. While impact metrics are in their infancy, it is interesting to note their development as a result of conventional business metrics like price-to-earnings (P/E) ratio and earnings per share (EPS).
Both SVX and IIX assist social enterprises with developing standard reporting protocols, something many did not have before. Between the two, reporting standards diverge: SVX utilizes the Global Impact Investing Ratings System (GIIRS) and Impact Reporting and Investment Standards (IRIS) frameworks as a regular benchmark, while IIX is open to various impact reporting standards but requires potential issuers to engage an Authorised Impact Representative (AIR) to assist issuers with impact listing requirement compliance. Differences aside, what is valued most by both organizations is the impact narrative: who the founders are, why they do this, and where they see their social enterprise in the future. The way this maps over to an impact metric is vague, and both SVX and IIX realize it. Supporting capacity-building organizations structured around impact exchanges provides a clearer picture of the social enterprises and development in metrics, as demonstrated by Impact Finance Lab in Toronto and Shujog in Singapore.
Planning is a fine art. The effects of plans do not begin to reveal themselves until a generation later, when it is too late to move roads, highways, and transit stops. Good planning is the difference between pounding your head in the traffic spawned by Toronto’s urban sprawl and breezing through Singapore on the MRT. This principle also applies to the policymaking effects of the social stock exchanges. Impact exchange platforms like SVX and IIX are doing the difficult, invaluable work of laying the foundation for the next generation of social enterprises.
 Shujog had academic affiliations with LKY School of Public Policy, which was developing and testing its own impact metrics.
 For an interesting view on the development of sprawl, see: http://urbantoronto.ca/news/2013/05/examining-urban-sprawl-through-satellite-timelapse-imagery