Scott Anderson / James Militzer / Kyle Poplin

Weekly Roundup 10-16-15: The built-in drama of SOCAP

I’d never been to SOCAP until last week. Now, after having seen all that energy and drama, I want to make sure I go back next year.

The annual Social Capital Markets convention, which identifies itself “at the intersection of money and meaning,” includes two-and-a-half days of plenaries and panels. But the real SOCAP happens outside the meeting rooms and revolves around two primary groups. There are investors who want to find sustainable projects offering a social return, and there are entrepreneurs who need financing for their social enterprises. The contrast between the groups is as stark as the difference between “want” and “need.” The investors can afford to pick and choose in an effort to find the right fit for their organization, but many of the entrepreneurs don’t have – or don’t believe they have – that luxury.

The investors use terms like “convertible debt,” “mezzanine financing” and “supra pro rata rights.” They embrace metrics. The entrepreneurs talk about their “dream.” They love a challenge, but not necessarily its bits and pieces.

More than one investor at SOCAP could be heard saying, rather ominously, that having no financial partner is preferable to having the wrong financial partner. The entrepreneurs would nod in approval. But you get the feeling that many of them are willing to gamble that a cash infusion in their venture will trump any culture clashes that might come along with that money. It’s not that they’re desperate, necessarily, and will take any dollar thrown their way; it’s just that they look at things differently from investors. They’re willing to bet on themselves, to tweak and ultimately fix things in pursuit of their dream.

Entrepreneurs are all about taking risk, while investors want to limit it. Thus, the built-in drama of SOCAP – and what separates it from, say, an annual insurance-writers’ convention.

The world of double-bottom-line investment is still in its infancy, relatively speaking, and it’s growing. (Prime example: There were 500 more people at SOCAP this year than last.) The key players are still trying to understand each others’ motivations and how best to work together. That intricate, evolving dance between investors and investees is, at the end of the day, what SOCAP is all about, and why it’s so compelling.

Hope to see you there next year.

– Kyle Poplin


Are We Mad Enough About Corporate Malfeasance?

Still upset about Volkswagen’s recent emissions scandal? This blistering Guardian op-ed from environmental activist and author Bill McKibben might put things in perspective. As reprehensible as Volkswagen’s deceptions were, McKibben writes, “VW is the flea to Exxon’s elephant. No corporation has ever done anything this big and this bad.” The charge sounds hyperbolic until you consider the details.

According to separate investigations released in recent weeks by the Los Angeles Times/Columbia School of Journalism and the Pulitzer-prize winning website Inside Climate News, Exxon’s top management knew by the late 1970s that human-generated climate change was real, and would raise global temperatures by 2-3 degrees Celsius this century. As the Inside Climate News report describes it, a top Exxon scientist explained to the company’s senior management that carbon dioxide from the use of fossil fuels could reduce or destroy agricultural output in some countries and eventually endanger humanity, and that “man has a time window of five to 10 years before the need for hard decisions regarding changes in energy strategies might become critical.” The company, seeing an existential threat to its business, responded by launching over a decade of extensive research that would ultimately confirm these findings.

What did Exxon do with this alarming knowledge of an impending global catastrophe? They used it to gain an advantage over their competitors, buying oil leases in ice-covered areas of the ocean that they knew would soon be made accessible by melting polar ice caps. Meanwhile – and far more sinisterly – they launched an aggressive public effort to derail the emerging scientific consensus about man-made climate change, becoming one of the biggest funders of scientists, think tanks, industry groups and politicians that worked to cast doubt on the link between fossil fuels and global warming.

McKibben describes these acts as “sheer, profound, and … unparalleled evil,” and considering the stakes, it’s hard to disagree. Indeed, as he points out, “If at any point … Exxon – largest oil company on Earth, most profitable enterprise in human history – had said: ‘Our own research shows that these scientists are right and that we are in a dangerous place,’ the faux debate (over global warming) would effectively have ended.” Instead, the world wasted precious time while climate change deniers in key countries like the U.S. used the continued debate to delay decisive action.

It’s inspiring to see the growing momentum behind social business and investing on display at events like last week’s SOCAP conference. But this kind of story serves as an unwelcome counterbalance – not just because of the cynical self-interest on display, but because of our jaded reaction to it. Relatively few people would expect a major corporation like Exxon to voluntarily act against its business interests, even when confronted with a challenge that could threaten humanity’s future – a resigned acceptance of the “profit at all cost” mentality that the social enterprise and investing movement may struggle to change. Even wrongdoing at this level has so far failed to spark much public ire – indeed, McKibben was reduced to blocking access to a small-town gas pump in a futile, solitary attempt to keep the Exxon story in the headlines. So are we mad enough about corporate malfeasance? I’d say the answer is clearly “No.”

– James Militzer

A Prize-winning Understanding of Poverty

Development circles were chattering about the Nobel Prize in economics going to Angus Dean of Princeton University this week. Dean, as many reports described him, transformed the way aid agencies, governments and, I would add, market players think – not just about what the poor do not have, but how they consume what they do have. He authored thick tomes on the intricacies of designing household surveys and constructing studies to understand why poverty persists.

“Deaton helped bring about this data and measurement revolution in several ways,” Christopher Blattman, associate professor of public affairs and political science at Columbia University, writes in Foreign Policy magazine this week. “One was to help establish expenditures and consumption as the best of a bunch of bad measures of poverty. Annual income works fine in a country like the United States where most people earn a regular salary from one source, but it’s meaningless when a household has dozens of small activities, varying day to day, most of which produce things the family consumes themselves. The other contributions were to show just how much we could pull out of these simple data, and (as impressively) to actually measure it in huge household surveys – in countries that had never had that kind of data before.”

Deaton’s experience evaluating the programs intended to help impoverished countries, which blossomed in the ’70s, ’80s and ’90s, led him to be skeptical about the effectiveness of aid, to say the least. The Washington Post’s Wonkblog tracks the evolution of Deaton’s views on global aid and the sometimes toxic results – such as metastasizing corruption and stunting countries from good governance and economic growth:

“Deaton also believes that our attitude toward foreign aid – that developed countries ought to swoop in and save everyone else – is condescending and suspiciously similar to the ideas of colonialism. The rhetoric of colonialism, too, ‘was all about helping people, albeit about bringing civilization and enlightenment to people whose humanity was far from fully recognized,’” he has written.

Instead, many of the positive things that are happening in Africa – the huge adoption in cell phones over the past decade, for example – are totally homegrown. He points out that, while the world has made huge strides in reducing poverty in recent decades, almost none of this has been due to aid. Most has been due to development in countries like China, which have received very little aid as a proportion of gross domestic product and have “had to work it out for themselves.”

Today, Deaton has trained an eye toward the use of randomized control trials and their increased influence when it comes evaluating poverty and market interventions, such as microfinance. It’s a subject we’ve chronicled here at length. But, as Blattman explains, Deaton’s discussion of RCTs is more subtle than fully rejecting or fully embracing them. In short, after years of running the numbers, Deaton warns of avoiding a “magic tool” in understanding and alleviating poverty.

– Scott Anderson

Energy, Environment
climate change, corporate social responsibility, impact investing