Rome wasn’t built in a day, nor were the modern stock exchanges that we see today. In the 1300s, the world witnessed the establishment of the first non-bank related investment markets by the Venetians. Centuries later, formal markets such as the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE) started emerging. Those pioneering formal stock exchanges of the 1800s are now listed amongst the largest and most powerful financial markets in the world.
In view of the global momentum surrounding impact investing, this generation is slated to witness similar strides in the social finance industry. Although there is no NYSE-equivalent in the social finance space yet, there are a few incumbent social stock exchanges showing promising potential.
Social stock exchanges are regulated markets with public information and transaction services related to equity and debt instruments that generate financial returns along with positive social and/or environmental impact.
This concept is distinct from traditional charity platforms as a financial return is mandated. Crowdfunding platforms can also be distinguished from the social stock exchanges as they do not always warrant social or financial returns.
One of the pioneers for social stock exchanges is Ethex, an online marketplace where investors can compare ethical investments opportunities and manage their investment portfolio.
This London-based exchange was propagated by Jamie Hartzell. In 2003, with Hartzell’s initiation, Triodos Bank started a small share matching service for four social enterprises who did not want to join the main exchanges, believing it would compromise their mission. Triodos Bank wasn’t interested in developing the service further so the responsibility was transferred to Brewin Dolphin Securities in 2006. A couple of years later, Brewin expressed disinterest in the program and as a result Hartzell stepped up to lead Ethex in 2012.
Prospective investors of Ethex can join the social stock exchange by contributing a minimum capital of £10 through the free basic account or a £30 per year member account. Apart from accessing debt and equity holdings in social enterprises, Ethex users can execute investment exits with the assistance of Ethex’ matching service.
A more recent initiative from London is the Social Stock Exchange (SSE). Launched in June 2013, the SSE exhibits information on socially responsible companies that are already listed in regulated stock exchanges like the LSE. Currently, this exchange lists 11 organizations and deals with their equity, bonds, and cash investments.
Across the Atlantic, SVX is a Canadian platform developed by Adam Spence. This social stock exchange was endorsed by the Ontario Government in 2008 and approved by the Ontario Securities Commission in June this year. It is expected to have a public launch around mid-September this year at the Toronto Stock Exchange.
According to the latest plan revealed, SVX will have a public portal that displays relevant financial, social, and environmental information on participating local impact ventures. It will also host a private portal, where accredited investors and debt or equity issuers can access for more deal details.
Africa and Asia have also made significant progress in social stock exchange work. Based on past social investment achievements in Africa, and two years of active research and planning, the Kenya Social Investment Exchange (KSIX) was launched in 2011 to profile social enterprise investment opportunities in Kenya. Interested impact investors would contact the KSIX to confirm their eligibility and to identify potential debt investment opportunities.
The Impact Exchange is another novel stock exchange for social enterprises in Africa and Asia. It aims to be the world’s first comprehensive social stock exchange by providing equity, debt, and fund holdings to both accredited and retail investors.
This initiative was officially launched in June 2013, and is being led by the Stock Exchange of Mauritius (SEM) and the Impact Investment Exchange Asia. Prior to May 2013, Nexii was co-managing this social finance project with SEM.
In the past, when mainstream exchanges like the LSE and NYSE were blooming, a win-win situation for businesses and investors was created. Businesses listed on the exchanges attained greater operational freedom through access to large amounts of capital across national borders. Investors also benefited from these active and regulated stock exchanges as they did not have to stress over investment exit options or the legitimacy of the businesses they were funding.
Considering the history of stock exchanges and this year’s GIIN and J.P. Morgan survey, which identified a “lack of appropriate capital across the risk/return spectrum” and “difficulty exiting investments” as some of the key challenges in the impact investing space, the advancement of the aforementioned social stock exchanges will be a considerable step towards the progress and standardization of the social finance industry.
At the moment, though, the social stock exchange activity is jumbled and it demands more efforts for the creation of widely-accepted standards related to matters such as shareholder governance, transactional platforms, market liquidity, and trading costs.
Photo courtesy of Photokanok / FreeDigitalPhotos.net.
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