Once again, the timing of SoCap-- the annual Social Capital Markets conference -- was extraordinary. With the financial markets awash in uncertainty and cycles of tumbling and rebounding, over 1200 entrepreneurs, investors, philanthropists and others, convened in San Francisco last week to explore how the capital markets can be recalibrated for the greater social good. It was a fitting continuation for the event -- the first SoCap was held in the fall of 2008, just after the collapse of Lehman Brothers.
Kevin Jones, SoCap convener and co-founder, refers to social capital markets as "the intersection of money and meaning." Whether it is a movement or an asset class is unclear. But there is consensus around impact investing: investments that have both financial and social returns. These returns fall on a continuum of "blended value" which includes both market returns and nonprofits, plus everything in between. This is not standard Wall Street jargon.
"Something is wrong with Modern Portfolio Theory (MPT), Leslie Christian said, "and (the theory) is accepted as the truth." Christian, a seasoned veteran of Wall Street and CEO of Portfolio 21 Investments, and Don Shaffer, CEO of RSF Social Finance, presented a paper citing how portfolio management practices need to reflect ecological impacts.
MPT has been firmly entrenched in the American investing psyche starting in the boom years after World War ll. Christian posits that its foundational principles around economic growth, risk and utility need revision to reflect the 21st century's "ecological limits" which undermine the traditional belief that the economy will grow unabated from ever increasing levels of consumption.
Since the raw materials literally fueling the business sector, e.g. clean water, timber, minerals, etc. are indeed finite, this will curtail economic growth. She believes that portfolio management is at a tipping point.
In support of this premise, RSF Social Finance announced that in the past year it converted its portfolio from about 30% to fully 100% impact investing to reflect its commitment to the sector.
Recurrent themes emerged over three days:
- sharpen the metrics around impact;
- create innovative financial instruments, models and legal structures;
- question all assumptions;
- combine money with meaning;
- and find new partners in other sectors.
Seven tracks of concurrent sessions included: Money, Meaning and Impact, Green 2.0, People-Powered Capital and Design for Social Innovation.
Finding the financing to scale remains a challenge -- but one panel, which included presenters from Root Capital and Beartooth Capital, leaders in environmental and social impact, saw possibility. David Chen, CEO of Equilibrium Capital explained, "The challenge of sustainability is finding the simplest and most easily identifiable unit of measure -- then attach metrics to it. This allows financial instruments to be created to unlock the value chain and solve problems."