A Sustainable Alternative to the Financial Meltdown (Part 2)

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The point for investors is still growth. “We want to invest in things that really scale up,” says Wes Selke, an investment manager at Good Capital, a firm with a stake in Adina for Life, a juice company with a fair-trade bent. One day, Selke hopes, Adina juices will be in every Wal-Mart.


If that ruffles some socially responsible feathers, so be it, says Álvaro Rodríguez Arregui. He runs Ignia, a venture fund in Mexico City that makes microloans. He and other mission-driven investors believe the bigger a business grows, the more impact it can have on social problems. But growth requires capital, and to get it from the marketplace necessitates a competitive rate of return, measured in dollars, not the fuzzier metrics of social capital. A perfect world would contain a more comprehensive measurement, but “we can’t wait for that,” says Rodríguez Arregui. “Our mission is fighting poverty. Should we say, ‘I can’t give you a loan today because the capital markets don’t measure us correctly. Let us change the world, and then we’ll give you a loan?’ We think that’s immoral.”


As of now, corporate law is little help. Owners and partners in an organization are legally required to act in the best interests of shareholders, which usually means making them wealthier. And while some courts have ruled that corporate directors can consider the interests of employees, customers and communities to make day-to-day business decisions, when it comes to a change of control, selling the company, there’s a single directive: sell to the highest bidder.


So Griswold is embracing a new, as yet untested, legal theory: He’s joined the ranks of the “B Corps,” one of a growing number of “beneficial corporations” that write their social and environmental commitments into their charters. The idea, developed by Portland-based money manager Leslie Christian and promoted by Coen Gilbert and B Lab, is that by including a social mission in the company’s bylaws, directors have a legal responsibility to consider more than money if they want to sell the company. And investors understand that the commitment to social and environmental factors isn’t negotiable.


Coen Gilbert and his partners developed the B Lab model after their experience selling their own athletic shoe company, called And 1. Under its founders’ control, And 1 enforced a code of conduct in its shoe factories and gave millions to support youth and educational organizations in Philadelphia. But the day after they sold the company, “those things were gutted,” Coen Gilbert says. It prompted them to wonder what they might have done differently. Their research led them to create B Corporations, a network of companies that volunteer to meet social and environmental performance standards, and legally expand their responsibilities.


The result is a first stab at a unified set of standards for socially responsible companies, and a serious branding effort. As “sustainability” grows more popular, it becomes hard to distinguish a mission from a marketing push. Becoming a B Corp. is, essentially, a certification process. What the LEED certification is for eco-friendly architecture and the Fair Trade mark is for chocolate, coffee and textiles, B Corp. hopes to be for a range of enterprises. In just two years, 134 companies have become B Corps, and while food and clothing companies would seem the most obvious fit, law firms, investment managers, advertising agencies, and restaurants have embraced the label, too.


The ultimate challenge to the B Corp. model is yet to come: When an owner decides to sell, will the investors be willing to consider more than the price? And if they don’t, and there’s a lawsuit, how will the courts rule? Meanwhile, B Corps are finding other ways to grow, and Coen Gilbert has his own novel idea about attracting investors: create a B Index, a fund to funnel money to certified companies.


This fall, the week after the global markets plunged into freefall, Griswold traveled to a convention of like-minded entrepreneurs and investors. For two uncharacteristically sunny San Francisco days, the first Social Capital Markets conference welcomed socially responsible companies, social venture funds, green banks, and philanthro-capitalists to tackle the issues that arise at the intersection of business and social goals. The week before, registration had spiked, from 300 participants to 600; by the time Kevin Jones, a founding principal at Good Capital, welcomed the crowd, the hall was filled to capacity.


The crowd included a handful of traditional financial institutions, too, including representatives from Fidelity and Merrill Lynch. “There are a lot of people sniffing around this space right now, and that’s mainly because their clients are asking for it,” says Good Capital’s Selke. And the implosion of the traditional markets doesn’t hurt either: Mission-driven businesses offer the potential for a long-term investment that might sidestep the vicious cycles of boom and bust.


Or maybe they’re just looking for an early toehold in what one conference speaker called ‘the largest pre-profit segment in the world.’ Venture capital funds like Kleiner Perkins Caufield & Byers and Sequoia Capital have recently made massive investments in alternative energies and microfinance, betting that future profits lie in cleaner technology and growth in the developing world. International investment banks like Société Générale and Citigroup have assigned analysts to research “sustainable investment themes.” They have the kind of money that can move mountains, but, cautions Steven Lydenberg, chief investment officer at Domini Social Investments, traditional models can’t account for social and environmental returns. And when price is the only consideration, he says, investors fall victim to speculation and bubbles, precisely the problem sustainable businesses are trying to avoid.


That’s why those like Bernard Lietaer, an expert on international money systems and currency with the Center for Sustainable Resources at the University of California, Berkeley, say that to fix social problems, we have to offer an alternative to the monetary system as a whole. Today, he says, money has no intrinsic standard of value. Its value fluctuates in the worldwide currency markets, destabilizing global trade and promoting the same kind of speculative bubbles that the stock market creates. Not only that, but the dependence on a singular monetary system makes the whole world vulnerable to currency shocks. “Monocultures are not sustainable,” he says. The lack of diversity in the financial system leads to inherent instability.


His solution? Parallel currencies that encourage the exchange of goods and services when the conventional money system fails. For example, Lietaer says, more than 62,000 Swiss companies use the WIR Bank, a complementary currency system that allows companies to do business if bank lending gets tight. “When banks don’t lend money, companies die,” Lietaer says. “The WIR is like a spare tire, and the rest of the world is functioning without one.”


We’ll still need bills and coins, but complementary currencies can encourage behaviors that traditional money can’t. The most obvious and familiar may be frequent flier miles, which reward loyalty. But alternative currencies may be most powerful when they address social problems.


Dozens of Local Exchange Traded Systems (LETS) have been established around the world, connecting communities in credit networks designed to support local economies. In Japan, where more than 50 alternative currencies are in circulation, the fureai kippu scheme awards credits when you spend time caring for the elderly; the credits can be redeemed for care when you’re old, or you can give them to an aging parent. Similarly, Lietaer has proposed a currency that could award kids credits toward university tuition in exchange for tutoring. All address social problems, developing the local community, the need to care for an aging population, the rising cost of higher education, that the traditional money system has been unable to fix.


And the government needn’t get involved. Alternative currencies, in fact, function best among a network of businesses. Swiss banks now support the WIR, but it was an agreement of sixteen businesses in 1934 that established the model. “Businesses, save yourselves” is Lietaer’s message. “If you’re waiting for governments to save you, you’re naive. But you can’t do it individually; you have to get together.”


It’s not so far-fetched, and at the Social Capital Markets conference, that’s exactly what a lot of companies were trying to do. Even with the credit markets in turmoil, a recession on the horizon and traditional financial institutions lurking in the halls, the mood was optimistic.


Maybe the meltdown could refocus consumers and investors on sustainability and shift awareness to more than one bottom line. And maybe a commitment to suppliers and employees, in addition to shareholders, can help everyone survive the economic downturn. That’s the kind of collective action that could bring change to a broken system; the only question, Lietaer says, “is simply, how long do we have to wait?” Not long, if Griswold and the other participants at the Social Capital Markets conference have anything to say about it.

Part 1 | Part 2

Photo courtesy of Ode Magazine

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