Developing a social equity capital market

Social enterprises need a different kind of equity market to suit their needs and stick to their values. This report examines some of the new mechanisms for investment which could bring this about.

The rise of social entrepreneurship has resulted in an increasing number of businesses seeking to maximise both social and financial returns. Like traditional businesses, social enterprises need equity capital to grow and achieve their strategic objectives.

NEF’s research indicates that traditional equity markets pose a challenge to many social purpose businesses because of their single-minded focus on profit maximisation, short term perspective, and speculative nature, which does not value social outcomes.

The experience of Body Shop, Ben & Jerry’s, and Green & Blacks suggest that social purpose businesses may be in danger of losing social mission once they enter mainstream financial markets or sell out to a large firm. And, most socially responsibly investment (SRI) funds invest primarily in FTSE 350 companies, and are limited in the extent to which they can invest in unlisted social purpose businesses.

The report says that a new mechanism to raise equity finance for social purpose businesses would enable a greater number to make public offerings without the risk of compromising their social mission in favour of profit.

A process for intermediating between supply and demand for equity capital could also enable charitable foundations, SRI funds and socially-minded investors to enhance their investment portfolio, and function to channel sufficient private capital to the social sector.