CAPM is a tool used to assess the role of risk in asset valuation and a modified CAPM evidently can and should be used to assess risk in social valuation. Even for those who fundamentally disagree with using CAPM in social enterprise, this tool and, particularly, the discussion process have tremendous value: simple and well-used financial tools, like CAPM, provide an easy and necessary forum in which to begin the debate of risk models in social finance.
The original CAPM model focuses on an asset, project, or firm’s undiversifiable risk to investors. The model’s goal is to maximize investor return. The goal of social enterprise, rather, is much different: to blend social and financial returns. In this regard, a risk model for social enterprise must reflect this key difference. My firm, Social Asset Measurements created a modified CAPM that utilizes stakeholder specific betas (a measure of undiversifiable risk) to calculate the impact on various beneficiaries (beneficiaries may include program participants, local government, etc.). Opportunity costs are the key to this model’s measures of risk. Stakeholders often choose programs from multiple options; what is the cost of choosing one over the other? With the use of these stakeholder specific risk calculations, the CAPM creates a more-comprehensive picture of risk and value for all those affected.