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Does Social Finance Have a Place in the Classroom?

| Monday October 22nd, 2012 | 2 Comments

Amy Stein, Finance Director, Evergreen Brick Works, speaks at the Social Finance Forum on The Need for Social Finance.

By Ryan Steinbach

Two weeks ago, I took this question for granted: Should social finance be incorporated into the business curriculum? To me, the answer was yes! Social finance is an emerging approach to managing money that delivers a social and/or environmental return in addition to an economic return. Why wouldn’t we include such an offering in the curriculum? After spending two weeks talking with professors and industry professionals as to why social finance isn’t more prominently featured in college education, I’ve come up against some serious reality checks.

Here’s what I learned:

The majority isn’t convinced

When you get as caught up in the hype surrounding social finance like I have, you tend to forget it actually represents a tiny piece of the total finance market. The most optimistic reports estimate the near-term market potential of social finance at $650 billion which is 2.5 percent of the $26 trillion investment management industry in the U.S.

When I asked the Director of the Masters Program in Finance here at the Smith School, Michael Faulkender, if social finance is a topic of discussion in graduate level classes, he explained that it’s brought up anecdotally when discussing unique investor needs, but the simple fact is that an understanding of financial markets based on maximizing long-term shareholder value is what is required for an overwhelming majority of finance.

They aren’t hiring us

Last week I attended an impact investing panel with representatives of some of the biggest names in social finance, thinking I would find a nice counter argument in favor of social finance in college education. Wrong. When asked what job opportunities there were in social finance for future graduates, the panelists politely explained that they were looking for experienced dealmakers with strong affiliations to target emerging economies. Basically, there are no formal entry level positions.

Well this sucks! Not only is social finance a nonfactor in most situations, but the places where it is a factor aren’t even hiring college students. So how can we possibly justify social finance in college education?

Millennials are convinced

While today’s investors expect companies to maximize financial return, the millennial generation is proving to be far more socially conscious. As the percent of total investments shifts toward the millennial generation, the expectations of firms might also shift. Even Professor Faulkender admitted that the success of companies with a double-bottom-line or triple-bottom-line is conditional on investors having a duel objective or a triple objective. Social finance is small but there is evidence it’s growing rapidly.

We’re more hirable

I can’t speak for everyone, but it seems the traditional corporate 9-to-5 job is not what college students have in mind. More and more are fascinated by jobs in hybrid business models, startups, and social ventures. While these opportunities are exciting and different, most are small-scale operations constrained by traditional funding. Alternatives for seed, scaling, and growth capital are needed. Some options already exist, but they are hard to find and current employees often don’t have the time or understanding to pursue them. I don’t know about you, but that sounds like a huge opportunity to get your foot in the door to me.

Understanding the options and models in social finance won’t just make you more appealing to startups and social ventures. Everyone needs money, and growing interest in social financing could fundamentally shift how companies are financed in the future. I’m not saying that one day the stock market will be based on hugs and smiles, but I do think that social financing options will become a critical consideration for any company looking to grow or develop.

While we shouldn’t get ahead of ourselves, it is important that colleges recognize this space for what it is – an opportunity. But is that opportunity still too far in the future to be spending tuition dollars on? What do you think?

Ryan is in his last year of undergrad business school at the University of Maryland-College Park, majoring in Marketing and Management. He is a blogger for the Center for Social Value Creation and also the online manager of UnSectored and a social media intern at the Newberry Group. Formally, Ryan worked as a New Media intern for Calvert Foundation. When not immersed in social media, Ryan explores and writes about social innovation and his millennial generation. If he were to ever pursue a career (wait, what’s that?), it would be in writing, brand management, and/or digital marketing. Twitter handle: @R_Steinbach

image: mars_discovery_district via Flickr cc (some rights reserved)


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  • Tim MacDonald

    Ryan

    There is an important movement under way that is potentially a powerful ally of Social Finance, but is still as yet largely off the radar screen of just about everyone.

    Pensions, Endowments and other institutions investing as stewards of a chartered trust now control vast amounts of personal savings that they invest to support programmatic benefits for their various program beneficiaries. These institutions are waking up to the reality that they have the scale and the longevity required to invest directly into the means of production. They are beginning the process of building the skills and the access they will need to do that wisely, and well, by starting the process of moving their money out of the Securitized Economy and into the Real Economy.

    They are doing this because Asset Allocation according to Modern Portfolio Theory for investing in the Capital Markets is not producing the financial values these institutions needs.

    The are exploring direct investments in the Real Economy as potentially a better choice.

    This can be a boon for Social Finance, and for sustainable and socially responsible investing more generally. The Securitized Economy can bring enterprise and investment together along only one single point of shared value; the market clearing. In the Real Economy, however, enterprise and investment can come together along multiple points of shared value. Some of these must be financial, others can be societal.

    Financial values can cover the full spectrum of stewardship responsibilities for institutions: These include principal protection, programmed performance, threshold returns, constancy, transparency and alignment of incentives. These will be the same for every institutional investor.

    Societal values can be custom-crafted to meet the stewardship sensibilities of the investing institution, and may include: climate stability, resource stewardship, social mobility, financial integrity, global community, economic adaptability, etc.

    It takes scale to invest directly into the Real Economy. Individuals do not have that scale. Institutions do.

    They are learning that they have that power, and they are taking the first, cautious steps required to build the skills they will need to use it.

    This will happen faster if we grant them the social license to try.

    As an advocate of Social Finance, you might want to consider also becoming an advocate for the movement of Institutional Investment out of the Securitized Economy and into the Real Economy, more generally.

    It will be better for everybody.

    • http://twitter.com/R_Steinbach Ryan Steinbach

      Thank you for the insightful comment. Bringing this idea back to students in Universities, does the biggest opportunity for advocating this idea of moving investment from the securitized economy to the Real Economy lie in working with Universities to shift their endowments?

      I want to go beyond advocating and cause change, and the change you describe seems to require some stake or say at the institutional level.