NB Financial Health

Friday
December 16
2016

Kyle Poplin / James Militzer / Scott Anderson

Social Business Roundup: My Ivory Tower or Yours? Will Cash-strapped Pensions Turn Back to ‘Sin Stocks’?

Small steps where big leaps are called for

Alastair Wilson, writing for the Stanford Social Innovation Review, says universities shouldn’t teach social entrepreneurship because they aren’t accessible to all; namely, poor people who are often best positioned to help solve social problems in their own neighborhoods.

“When people from poorer communities are successful in their entrepreneurial pursuits, they model leadership,” he writes. “They inspire their families and neighbours. They create organizations that keep employment and wages in their communities. These are compelling arguments for supporting the learning of aspiring social entrepreneurs from the poorest and most socially excluded groups.”

Wilson, CEO of the School for Social Entrepreneurs (SSE) in London, talks about how his organization – as opposed to universities – welcomes and empowers people from all backgrounds. He talks about SSE’s focus on “action learning,” inclusion, diversity and developing “soft” skills alongside technical knowledge.

His passion comes through, but he leaves some bases uncovered. For one thing, he paints too broadly; some university students are indeed poor, and some who are rich have gone on to work wonders in poor neighborhoods. But that’s picking at nits. Wilson’s biggest flaw concerns his seriously opaque first-world glasses.

Visiting SSE’s website, one learns they have 12 locations across the UK (be sure to check out the pictures of near-by castles and yachts), another in Canada and one (1) in India. Only 8 percent of SSE students live “in poverty/on a low income,” according to an SSE “Social Impact Review,” in partnership with CAN Invest and Investing for Good.

Wilson might be able to make a case that SSE’s training is less elite than that offered by universities … but only incrementally. We doubt that a poor African woman who dreams of starting a social enterprise in her village – where 100 percent of the residents live in poverty – makes much distinction between Stanford University and “action learning” at SSE’s Yorkshire and Humber facility. Plainly stated, she’s got (almost) no chance of ever attending either one.

We believe in the power of social enterprise to benefit all societies. But we would also argue that those most in need of social entrepreneurship training don’t live in developed countries with highly refined markets and expansive safety nets, but in developing countries. Just imagine the moral high ground Wilson could claim were SSE to expand its offerings in the world’s poorest countries, where leadership most needs to be modeled and markets created.

– Kyle Poplin

 

Is Social Investing’s Pension Problem About to Get Worse?

Is the tide starting to turn against ESG investments among public pension funds in the U.S.? Last month, the influential Center for Retirement Research at Boston College released a brief discouraging these funds from engaging in ESG screening. And on Monday, CalPERS, the country’s largest public pension fund, will meet to decide whether to end its 16-year-old policy of divesting from tobacco stocks.

The rationale for both moves is practically identical: As CalPERS staff put it, in recommending an end to the tobacco ban:

  • “Divestment almost invariably harms investment performance by compromising investment strategies and increasing transaction costs.”
  • “There is considerable evidence that divesting is an ineffective strategy for achieving social or political goals. This is because the usual consequence is often a mere transfer of ownership of divested assets from one investor to another.”
  • Tobacco divestment compromises “CalPERS’ current circumstances as a mature, cash-flow negative pension plan with increasing demands on investment returns to fund benefits.”

The decision to divest from tobacco in 2000 helped cement CalPERS’ reputation as a pioneer in activist investing. But it was made easier by the perception at that time that tobacco was a dying industry, plagued as it was by multiple lawsuits, burgeoning regulation and what looked like an inexorable decline in smoking. However, in the subsequent years, the industry rebounded, cutting costs, raising prices on existing (addicted) customers and expanding its market in emerging economies, while cultivating a growing new market for e-cigarettes. CalPERS’ decision ended up costing it over $3.6 billion in foregone investment gains, according to a recent analysis, as tobacco stocks far outpaced the annualized return of the broader market.

There’s some question of whether that financial performance will continue, as the challenges facing the industry remain significant, as California Treasurer (and CalPERS board member) John Chiang pointed out in a heated defense of divestment. Calling tobacco “literally a dying industry,” he asserted that any financial benefit from reinvesting “pales in comparison to the costs CalPERS bears to care for tobacco-related diseases in its beneficiaries as well as in lost productivity for state employees.” Further, he said, “Removing the restriction on tobacco investments would irreparably damage CalPERS’ reputation as a leader in sustainable investments and send a terrible message to other pension funds.” Instead, he’s urging CalPERS to broaden its restrictions on tobacco to include externally managed portfolios, through which it still owns about $547 million in tobacco stocks.

But these arguments may not be enough to win the day with CalPERS administrators, whose main focus as fiduciaries of a pension with a widening funding gap must remain on the bottom line. The bigger question, if the fund follows its staff’s recommendation, is whether it could lead other shoes to drop, at CalPERS or other funds that look to it as a bellwether in the industry. If it backtracks on tobacco divestment because it’s missing out on returns and seeing little social impact for its trouble, couldn’t the same argument be made about other thriving “sin stocks” that are common targets of divestment? If this is the start of a trend, how will the social investing movement respond?

– James Militzer

 

In India – Earning Profits, But Not Attention

More than 53 percent of all social enterprises in India are focused on skills development, while 30 percent work toward improving education, according to a new study released by the British Council.

The findings, published in Social Value Economy: A Survey of the Social Enterprise Landscape in India, are the result of surveying 258 social enterprises across the country. The report showed 43 percent of the social enterprises reported a profit, with another 22 percent breaking even. The study was led by Ennovent India Advisors with support from the Aspen Network of Development Entrepreneurs.

Among the biggest challenges: Awareness. More than half of those surveyed say social enterprises just aren’t on the radar for banks and the public (including would-be customers).

– Scott Anderson

Airbnb Wants to Lodge You Into a Cause

FastCoExist breaks down Airbnb’s new “social impact experiences” – package trips that are managed by local nonprofits that collect 100 percent of Airbnb’s fee from each transaction. The concept is designed for travelers to volunteer and create some good, in addition to frequent-flyer miles.

“If you’re traveling to Nairobi, $150 buys you two days of learning Maasai crafts and Kenyan cooking (proceeds go to the women’s empowerment nonprofit Zawadisha),” according to the report.

But is there a downside to such high-minded travel? Spoiler alert: not really – so long as the projects aren’t scams. Past NextBillion contributors have written about businesses seeking to provide experiences in low-income communities without exploiting them or devolving into poverty tourism. It’s true that travelers bring money, and money pretty much helps all communities. But as the article points out, intrepid do-gooders might not necessarily be doing much more than painting over problems.

– Scott Anderson

 

Image credit: goandgo via Flickr.

 


 

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Education, Entrepreneurship, Investing, NextBillion Originals
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education, ESG investing, impact investing, investment fund, investors, social business, social enterprise, social impact, Weekly Roundup