“Social entrepreneurs” – those who measure their business’s success beyond simply generating a profit and also focus on the positive impact the business makes on society – often have the most in-depth, ontheground experience in identifying funding needs related to sustainable challenges and finding solutions to meet them.
By working together, social entrepreneurs and financial firms can maximize their positive impact from a sustainability perspective. Here are three ways to start such a partnership:
1. Firms can create incremental benefits by introducing social entrepreneurs to their stakeholders.
Firms that partner with social entrepreneurs can generate significant value. This value accrues to the entrepreneurs themselves, to firms’ stakeholders and to the partner firms themselves, all while progress is being made toward on sustainability issues.
Mainstream firms and foundations can help social entrepreneurs marry their business acumen with their social mission by mentoring, promoting, sponsoring, and providing technological solutions to them. Meanwhile, firms can gather more investment for social entrepreneurs, enabling them to scale up their impact and address t sustainability challenges more effectively.
Social entrepreneurs and private investors benefit when corporations make the effort to raise entrepreneurs’ profiles, and they also benefit from connections with one another. Ultimately, the firms themselves deepen relationships with clients who share the social entrepreneurs' passions.
2. Financial services firms can devise more effective philanthropic funding models for social entrepreneurs.
There is a rising trend among philanthropy clients to switch from givingbased philanthropy models to outcomesbased philanthropic initiatives. We believe these new initiatives offer great potential for enabling social entrepreneurs to scale up successful local SDG solutions and deliver them to a wider audience.
Programrelated investments (PRIs), for instance, could be employed to assist social entrepreneurs more effectively. PRIs use philanthropic capital to make loans rather than donations. In this way, they provide a consistent, legally robust framework for largescale, longterm social investment and are effective vehicles for drawing forprofit assets into SDGrelated philanthropic opportunities.
Investors tend to prefer the increased flexibility of a philanthropic loan to a grant. Once repaid, loans enable investors to recycle their capital into support for multiple social programs. This approach leverages donor capital more effectively and increases its social and environmental impact. However, one disadvantage of PRIs is that the funding entities that use them must frequently bear high administrative burdens and operating costs. We therefore believe there is a need for more efficient, packaged PRI structuring. Financial services firms are well placed to help lower the costs and complexity of structuring PRIs given their capabilities in corporate deal making.
3. Social entrepreneurs can amplify their impact with help from the technology sector.
Mainstream technology firms offer new operating models and solutions that help social enterprises scale up their impact. Technology entrepreneurs and leaders are playing larger roles on the boards of social enterprises and nongovernmental organizations (NGOs). They bring a startup mindset of developing and deploying “neverthoughtofbefore” solutions to the historically riskaverse nonprofit sector.
The tech sector also brings fresh operating styles. Venture capital models, for example, help social enterprises find collaborative solutions through a rapid prototyping approach (test, fail, learn, and improve), supported by big data and analytics to assess results. This approach can be spread among social enterprises by leveraging opensource platforms. By connecting different organizations with similar goals, social enterprises can readily share best practices or new ideas on solving social and environmental challenges.
Technology can also further reduce administrative or regulatory burdens for funders and grantees, connecting them more efficiently with nongovernmental organizations.
In sum, social entrepreneurs, financial services firms and the technology sector are all key to ensuring progress toward the SDGs. Strong partnerships among the three can create the synergy needed to produce favorable outcomes.