The Economist Print Edition; 25 September 2009.
When the GFC hit, financial innovation fell out of favour. Yet The Economist reports that the Third Sector is embracing it with abandon. The movement is premised on the belief that financial innovations can solve our most entrenched social problems. Recent events point to its growth in two distinct cultural contexts: San Francisco/ Silicon Valley and New York/ Wall Street.
San Francisco hosted SoCap09, a conference infused with entrepreneurial energy for constructing ‘sustainable hedge funds’, ‘social stock exchanges’ and more generally the architecture of the ‘social capital market’. All these concepts are based on a broadly accepted means of measuring and comparing returns.
New York, under the auspices of the Clinton Global Initiative, began to attract major players to commit to common practices. Banks and funders are teaming up to create a common language. Banks such as Citigroup, Deutsche Bank, JPMorgan, and major foundations including the Bill & Melinda Gates Foundation have agreed to create common measures of performance. One of these is the Global Impact Investment Network (GIIN) which will innovate a new asset class—impact investing—yielding both financial and social returns.
The impact investor network has agreed to publicise information about what works and what does not. This move was instigated by The Monitor Institute in their publication reviewed in the Spring 09 issue of Knowledge Connect.
As the Economist points out: “The key [to successful investment] is to measure performance clearly, so that contracts can be enforced.” Evidently new investments touting both financial and social profit have claimed a place in circles previously referred to as only nonprofit.