What’s the ROI of a smile? Evaluating the future of Social Finance

When you’re in the business of making change in the world, you encounter a fair share of buzzwords. But if you want to stay true to your mission, it’s important to look beyond the hype and remain relentless about the actual impact you’re making in the world.

Social Finance is one of those terms. As MediaStyle’s CFO, I have been interested in this topic for a long time and have attended the Social Finance Forum at MaRS in Toronto for the past two years. Social Finance is not new but it is becoming one of the new buzzwords that companies – big and small – seem to be latching onto.

At its core, Social Finance is focused on lending and investing into companies who consider themselves social enterprises, charities, co-operatives and other impact-focused organizations. The term is also often used to describe Impact Investing. But it’s important to recognize that they are not the same thing. If the lines continue to blur, it could mean big challenges for smaller organizations trying to make an impact.

Let’s clear this up. Impact investing refers to an investment made into a company or organization with the intention that this money will be used to generate a measurable beneficial social or environment impact alongside a financial return. You may have noticed that big banks and investment houses have jumped on the idea of Impact Investing as a way of showing they care about the environment and social causes and making a healthy financial return for their investors.

Much of the talk over the last two Social Finance Forum events have revolved around how to measure impact so that more people will invest more money in this sector. It is the nature of finance that money and return-on-investment are the main measurement tools.

But how do you put a unit of measurement on a smile? Or on the ability of a women to support her family for the first time? Or an indigenous business owner to employ youth in their community?

There are many models used to measure impact. Some folks at the Social Finance Forum thought there might actually be too many methods. Some imagined a future with one standard set of measurements, much like the Generally Accepted Accounting Principles that CPAs use when preparing Financial Statements for a company.

As a CFO and someone who worked in public accounting for many years, I understand the value of this measurement. It means that anyone looking at the financial statements can be assured they are prepared in a consistent manner and can compare results between companies.

However, the goal of creating a standardized approach might not be compatible with the DNA of those seeking to make change in the world.

The reason social enterprises turned to Social Finance was because traditional lenders could not, or would not, lend to them. After all, they were not guaranteed a profit or even a clear timeline on they would see a return on their investment.

Small social enterprises are often working to help those in the margins. They’re tackling social or environment issues that the mainstream are ignoring. They are working on passion and determination to make the world a better place and to impact lives in a meaningful way. Quite often these social entrepreneurs are not making a significant salary (if any at all) and are putting everything they have into their work.

If traditional lending principles (impact investing) are applied more widely, it will become even harder for these changemakers to find money. Do we want to live in a world where return-on-investment trumps social causes? Can we still make change if only organizations with the means to measure impact in the prescribed way lenders desire?

Don’t get me wrong. I understand the value of measuring impact. But I fear that the institutionalization of Social Finance, by lumping it with impact investing, will not help the social enterprises that could make a huge impact with a small amount of money.

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