How To Invest $1 Trillion In Social Enterprise? Rate 'Em! How To Invest $1 Trillion In Social Enterprise? Rate 'Em!
Innovation

How To Invest $1 Trillion In Social Enterprise? Rate 'Em!

by Tim Fernholz Dylan C. Lathrop

September 24, 2011

Any entrepreneur will tell you a major obstacle to getting a company off the ground is finding investors. It’s doubly hard in the world of social enterprise, a relatively new sector that combines profit seeking with social impact goals—and unlike dollars and cents, there’s no standard set of metrics for social impact.

To solve this problem, the Global Impact Investment Rating System opened for business this week to pave the way for $1 trillion in capital to reach social enterprises over the next decade. Think of GIIRS (pronounced "gears") as a kind of Standard & Poors for the do-gooder capitalist, rating both individual companies’ social impact and that of socially responsible investment funds.

“We can’t build an industry for impact investments without credible, comparable metrics on impact,” Andrew Kassoy, a GIIRS co-founder, said. “GIIRS has the potential to catalyze   hundreds of billions of dollars of sidelined investment capital to flow  to the world’s most  inspiring and talented entrepreneurs. These businesses demonstrably create high quality jobs that increase economic opportunity here and abroad.”        

Fifteen major social impact investors—organizations that want to put their money to work for themselves and the world—have announced they will rely on GIIRS.

Among them are major financial players like J.P. Morgan and Prudential; groundbreaking social impact investors like RSF Social Finance and the Calvert Foundation; and even a major international financial institution, the Inter-American Development Bank.

Big names like that represent legitimacy for the fledgling ratings organization, and $1.5 billion in assets under management means a significant chunk of the impact investment market share is now engaged with GIIRS.

As GOOD reported last month, GIIRS is a project of B Lab, the nonprofit helping combat other structural obstacles to social enterprise, including legal challenges that come with the traditional corporate framework.

The goal of GIIRS is to provide companies with standardized reporting metrics that they can send to investors, so they won’t have to worry about jumping through four different kinds of hoops, much as the Common Application does for college-bound high school seniors.

Investors, on the other hand, won’t deal with a variety of different metrics from each company they’re considering. That baseline standard will also come with benchmarks, so that a social enterprise’s impact can be compared to the other firms in its field.

That means if you’re not the best water development company in the sector, you’ll have a tougher time attracting investors' funding—creating exactly the kind of competitive incentives that give social enterprise the potential to be more effective than traditional nonprofits.

Lowering the cost of social impact due diligence will also lower the barrier to entry, not just for institutional investors, but for individuals looking to become social impact investors. One participating fund, the Calvert Foundation, lets people buy into its funds for just $20.

“This is going to encourage mainstream investors to start looking at a different aspects of their investments, and encourage mainstream fund managers to take into account these types of issues that have traditionally been ignored,” Taryn Goodman, an investment manager at RSF Social Finance, says.

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How To Invest $1 Trillion In Social Enterprise? Rate 'Em!