The articles for this week were very disheartening because I thought the biggest problem was acquiring the capital to start a social enterprise. And once a social enterprise shows its returns and effectiveness in achieving its economic, social/environmental goals, then capital should start to fly in or would become accessible to say the least. This was the impression I got from Hollender and Schwab articles. However, after reading the article “Nothing Ventured, Nothing Gained” and “Investing for Social & Environmental Impact” it seems as though growing social enterprises is much more difficult, if not close to impossible than starting one. After reading about TransFair or Pure Vida Coffee I was astonished at how much difficulties these social enterprises are having in obtaining loans or equities even though they are successful enterprises. I was kind of unclear on the suggestions the authors made on how to resolve such problems.
The capital social enterprises receive in start-up is mostly from friends or in form of grants or one donor so it does not seem like much capital is available in initial stages either. If businesses that generate 17% to 18% returns on investment are failing to acquire expansion capital to grow to appropriate size then how are NGOs or business that do not generate 17% to 18% returns supposed to obtain capital to continue their double bottom line or triple bottom line businesses?
I think this is attributable to the prevalence of Friedman’s ideology in large corporations and among shareholders: business’s sole purpose is to generate profit for shareholders. Even after 20 some years of social entrepreneurship movement, we seem to not have gotten far with involving the business side in initial or the expansion side of the social enterprise. So does this mean that social entrepreneurship is a movement like the affirmative action or civil rights that will last for 2 or 3 decades and die out without making much change in the thinking, policies or practice of mainstream business? Or are we supposed to wait for incremental changes and innovations and for business to generate 35% or 40% returns on investment before mainstream corporation move towards including social or environmental or economic into their bottom line? Or is social enterprise just supposed to exist as a small share of larger corporation to appease and assuage public sentiment towards business world?
What, if anything are the national governments or international agencies doing to provide the capital to social enterprises with double or triple bottom?
I, too, was surprised to read that social ventures had more difficulty finding additional funding even after they'd gotten started. However, as someone mentioned in class (sorry I don't remember who it was!), if and when social and/or environmental responsibility and impact can become financial line items, the way companies are valued can change. For example, as was briefly touched upon, if carbon markets or a cap-and-trade system are implemented, environmental impact will be reflected in a company's value.
ReplyDeleteIf this becomes part of the balance sheet, Friedman's theories will still be upheld, simply with different consequences. Shareholder interest will still reign, but their interest will be realigned to social and environmental responsibility. Thus, I don't think it's up to governments or international agencies to provide the actual capital, but I could see them playing a part in influencing investors' perceptions of a company's value.