Meeting Summary

Creating Social Capital Markets for Fourth Sector Organizations: Opportunities and Challenges

June 14, 2007, Forum at Google, NYC

Summary by

Alan J. Abramson, Director, Nonprofit Sector and Philanthropy Program, The Aspen Institute

On June 14, 2007, the Aspen Institute and the Fourth Sector Network, in partnership with the Calvert Social Investment Foundation and The Case Foundation, brought together 30 capital market innovators to discuss new developments in social capital markets. Underlying the June roundtable was the long-term interest of the meeting sponsors in easing social entrepreneurs’ access to existing funding streams and developing new sources of capital for them.

Presentations
Heerad Sabeti, co-founder of transForms, and the Fourth Sector Network gave a presentation on the emerging “Fourth Sector.” According to Sabeti, a Fourth Sector—made up of organizations that combine a social mission with earned income—is developing as a result of growing pressure on business to deliver social benefits and the increasing adoption by government and nonprofit organizations of earned income strategies and other business-like practices. Also called “for-benefit” organizations, these pioneering hybrid groups have several characteristics in common:

• They are committed to governance structures that empower multiple stakeholders;

• They share proceeds with key stakeholders;

• They compensate employees in a manner that rewards entrepreneurial engagement without undermining stakeholder equity;

• They are transparent in reporting to stakeholders about their social and environmental performance.

Sabeti emphasized the need to accelerate the development of Fourth Sector organizations and suggested this could be accomplished through:

• Favorable capital markets;

• A supportive legal and regulatory environment;

• Credible assessment tools to ensure accountability;

• Easy access to information about creating and operating such organizations;

• Common language and terminology.

Tim Freundlich, development officer of the Calvert Foundation for Social Investment, followed with a presentation, “Reframing Some of What We Know About the Social Capital Markets.” Freundlich highlighted the different sources of capital available for social investing, including market-rate capital (e.g., socially screened funds, like Calvert and Domini), near-market rate capital (e.g., social and community development venture capital, like Pacific Community Ventures and Investors Circle), and capital that does not yield a return (e.g., strategic philanthropy, like REDF and Social Venture Partners). Freundlich would like foundations and other social investors to put more—or even all—of their assets on the table, citing favorably the F.B. Heron Foundation’s practice of mission-related investing.

Group Discussion
Following the presentations, the Social Capital Markets forum continued with a lively discussion among meeting participants, who cited the need for:

• Clearer definitions of different types of social-purpose organizations and different types of financing.

• Better metrics, such as social return on investment (SROI), to capture the broad range of social and environmental impacts of organizational activity.

• A sense of urgency to expand social investing: “The fate of our species on this planet may be at stake.”

• Better risk assessment information for social investors, as Morningstar or Moody’s provides for business investors.

• Greater experimentation with new types of social-purpose organizations, as advocated by the B Lab and Corporation 20/20, two organizations that support and encourage innovation of corporate structures.

• A 3 or 4-day forum that promotes meaningful sharing and results in “product development” and not just the formation of another “working group.”

• A how-to guide for mission-related investing.

• More financial intermediation in the social investing arena to bridge between investors and social enterprises, as already occurs in the community development field through the operation of the Local Initiatives Support Corporation (LISC) and the Enterprise Foundation.

• A Fourth Sector summit to facilitate networking among for-benefit stakeholders and complement a more product-oriented forum.

The Aspen Institute, working in partnership with the Fourth Sector Network, plans to convene a new “Fourth Sector Strategy Group.” The strategy group will be a leadership forum for discussing the broad values fueling the social enterprise field; identifying the critical strategic issues needing attention from entrepreneurs, investors and other funders, policymakers, and scholars; making recommendations for facilitating action on these strategic needs; and helping to develop a more explicit sector identity. The strategy group will include a diverse group of 15 to 20 social entrepreneurs, business leaders, government and nonprofit leaders, funders, and journalists who are committed to working together to promote a shared vision.

In addition, the Aspen Institute’s Nonprofit Sector and Philanthropy Program is commissioning research and hosting roundtables to promote understanding and advance the development of the broad social entrepreneurship field.

For additional information about the June 14, 2007 forum (including copies of the meeting presentations) and the Aspen Institute’s work on social enterprise, contact Rachel Mosher-Williams, project director in the Aspen Institute’s Nonprofit Sector and Philanthropy Program at rwilliams@aspeninstitute.org or 202-736-2501.

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