Social Ventures and SRI (socially responsible investing) by Sommer Dinning

Social Ventures and Socially-Responsible Investing

by Sommer C. Dinning

February 22, 2010

The conceptual thinking behind Social Ventures or Social Entrepreneurship is the idea that social venture projects and socially-responsible investing can be measured by both a financial return on investment (“ROI”) and a social return on investment (“SROI”).  While social ventures and socially-responsible investing is proliferating rapidly around the globe in the 21st century, the philosophy behind social ventures and the practice of socially-responsible investing dates back to the 18th century.

Background of Social Ventures and Socially-Responsible Investing

The origins of social ventures and socially-responsible investing (“SRI”) date back to the Moravian Church in 1727 in Europe and approximately the same time in America with the Quakers or the Religious Society of Friends.  The Moravian Church sent thousands of missionaries around the world seeking to set up self-sustaining communities and micro enterprise businesses in the communities they sought to impact.  The Quakers, in 1758, held the Quaker Philadelphia Yearly Meeting wherein members were strictly forbidden from participating in the slave trade in America or abroad.

Faith-based organizations and religious institutions have long been at the forefront of social ventures, pioneering world missions and social investing.  One of the most well-known and articulate social entrepreneurs and SRI advocates was the Anglican cleric and Christian theologian, John Wesley (1703-1791), one of the founders of Methodism.  John Wesley along with his brother, Charles Wesley were used to open-air sermons on caring for the needs of others and wise stewardship principles.  In one of these sermons entitled, “The Use of Money,” Wesley outlined his basic principles of social investing:

  • not to harm your neighbor through your business practices;
  • do unto others as you would have them do unto you; and
  • avoid investing in industries like chemical production and tanning which can harm you and the health of the workers in those industries.

Finally, faith-based organizations and religious institutions pioneered the concept of the avoidance of investing, either by purchasing, consuming or investing, in companies which promote or produce alcohol, tobacco or companies involved in unfair trade.  Many of us remember the recent movie, Amazing Grace, which portrayed the efforts of William Wilberforce to abolish slavery.  In 1833, on his deathbed, Wilberforce was finally rewarded when the Abolition of Slavery Act was passed in Great Britain.

Social Ventures and SRI in the Era of Change – 1960 – 2000

The modern socially responsible investing movement evolved with the political climate of the 1960s.  Religious leaders like Dr. Martin Luther King, Jr. promoted social ventures like the Montgomery Bus Boycott and the Operation Breadbasket Project, establishing a dialogue for future socially responsible investing efforts.  In his famous speech, Dr. King remarks that:

            “The curse of poverty has no justification in our age. It is socially as cruel and blind as the             practice of cannibalism at the dawn of civilization, when men ate each other because they       had not yet learned to take food from the soil or to consume the abundant animal life             around them. The time has come for us to civilize ourselves by the total, direct and        immediate abolition of poverty.”  Martin Luther King, Jr., Where Do We Go from Here:       Chaos or Community? 1967

Furthermore, Dr. King’s remarks in that speech on socially-responsible investing echo true today,

            “A nation that continues year after year to spend more money on military defense than on             programs of social uplift is approaching spiritual death.”

During the 1970s, social investors increasingly sought to address equality for women, civil rights, and preservation of human rights and conservation.  Many of us remember the advertisement launched on Earth Day 1971, with the theme “People Start Pollution. People can stop it.” It was a Public Service Announcement featuring the iconic “Crying Indian” played by Iron Eyes Cody.  This advertisement sparked a nationwide campaign for conservation and environmental cleanup.

One of the most blatant social investment blockades was in South Africa in the 1970s through the 1990s.  During this time, large companies and institutions halted investment in South Africa to avoid or protest the Apartheid Regime (“apartheid” means “separateness” in Afrikaans).  In 1976, the United Nations ordered a mandatory arms embargo against South Africa. In 1971, Reverend Leon Sullivan drafted a code of conduct for practicing business in South Africa which became known as the Sullivan Principles.  Reports documenting the application of the Sullivan Principles discovered that U.S. companies were not attempting to lessen discrimination within South Africa. Because of these reports and mounting political pressure; cities, states, colleges, faith-based groups and pension funds throughout the United States began divesting from companies operating in South Africa. The subsequent negative flow of investment dollars eventually forced a group of businesses, representing 75% of South African employers, to draft a charter calling for an end to apartheid.  Apartheid ended on April 27, 1994 with the first democratic elections in South Africa when Nelson Mandela was elected as President of South Africa.  I am proud to say that my husband, B. Ray Dinning, an international tax lawyer, was in South Africa just months after the end of Apartheid promoting social ventures, SRI and micro enterprise in South Africa and he continues to do so today.  While the SRI efforts alone did not put a halt to apartheid, the divesting of investments and the United Nations embargo did focus persuasive international pressure on the South African business community.  After the miraculous transformation of South Africa under Nelson Mandela, South Africa is one of the world leaders in seeking social change through SRI and social ventures in the 21st century. 

Social Ventures and SRI in the 21st Century

Since the beginning of the 21st century, socially responsible investing has become increasingly defined as a means to promote environmentally sustainable development. Many investors consider effects of climate change a significant business and investment risk. The Ceres organization formed in 1989 as a network of investors, environmental organizations, and other public interest groups interested in working with companies to address environmental concerns.  With the Kyoto Protocol, Carbon Tax Credit and Carbon Trading and the beneficial incentives such as the Production Tax Credit promoting investment in wind power, solar and other environmentally-friendly energy ventures, promoting the wise stewardship of our World’s natural resources and preservation of our ecosystem and environment became the thrust of social ventures and SRI.

More recently, some social investors have sought to address the rights of indigenous peoples around the world who are adversely affected by the negative business practices of domestic and international employers. The 2007, the nonprofit, SRI International held a special pre-conference specifically to address the working conditions of indigenous peoples. Promoting a healthy work environment, fair wages, product safety and equal opportunity employment continue to be at the forefront of issues for many social investors.

The Future of Social Ventures and SRI

Social ventures and SRI is a escalating phenomenon in both the US and Europe. Assets in socially screened portfolios climbed to $2.71 trillion in 2007, an increase over the $2.16 trillion counted in 2003 according to the Social Investment Forum’s 2007 Report of Socially Responsible Investing Trends in the United States.  From 2005-2007, SRI assets increased more than eighteen (18%) percent while the broader and more general range of professionally managed assets increased less than three (3%) percent.  As of 2007, about $1 dollar out of every $9 dollars under professional management in the United States is invested in socially responsible investments. 

In the article, “The Rise of Social Venture Funding,” by Ray Dinning as reported by Businessweek in its Business Exchange on November 29, 2009, it is noted that, “In 2009, social venture funds are rapidly increasing at an unprecedented scale. At least seven new and follow-on funds billed as social venture or social entrepreneurship funds are on track to raise about $1 billion this year.  Furthermore, Dinning provides that, “The rise in social venture comes as institutional and accredited investors are putting significantly more money into so-called socially responsible investment (SRI) vehicles. Today, roughly $2.71 trillion—or 11% of assets under professional management in the United States—are now involved in SRI, according to the Social Investment Forum, a trade group.

Conclusions

With the rapid proliferation of social ventures, social entrepreneurship and SRI in the United States, Europe and worldwide in the 21st century, it appears that investors are entrenching themselves in the concept of “doing good and making money.”  With 11% of all assets under management in the United States – over $2.71 trillion – SRI is a force to be reckoned with in the world economy.  With proper motivation, coordination and proper business and financial structures in place, the SRI community is capable of effecting world economic change as was evident in the end of the Apartheid Regime in South Africa.

As entrepreneur and industrial pioneer, Henry Ford, stated, “Time and money spent in helping men to do more for themselves is far better than mere giving.”  Combining Ford’s philosophy with the social entrepreneurial spirit of Nobel Prize winner, Dr. Muhammad Yunus, Founder of the Grameen Bank, could spark worldwide change.  As Dr. Yunus states,”If we had believed that poverty is unacceptable to us, and that it should not belong to a civilized society, we would have created appropriate institutions and policies to create a poverty-free world.”

SRI and Social Ventures can change our world for the better.  It takes, however, the concerted efforts of the citizens at large to truly impact our Nation and the World Community for good.

Copyright 2010 Sommer C. Dinning – All Rights Reserved

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