Charitable donations aren’t the only way you can support missions close to your heart. Your investments can also advance goals and issues that matter to you. A growing number of companies, often called social enterprises, build a charitable mission into the business itself. Investing in them is a potential two-for-one deal: you advance a social goal and achieve a return.
What sets these companies apart
A social enterprise is a business that advances a social or environmental mission and often structures itself to stay accountable for that mission. The most common form is the benefit corporation, known in some states as a public benefit corporation. Social enterprises often ask directors to balance mission and financial performance, and many publish reports on the social impact they achieve.
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Investors can find social enterprises in several industries. For example, in retail, companies may give a percentage of sales revenue to nonprofits aligned with their mission or donate a product for every sale. Similarly, service-oriented business may channel a portion of their funds directly to causes chosen by clients.
Some benefit corporations also carry Certified B Corporation status, a third-party certification from B Lab that verifies social and environmental performance, transparency, and accountability. The certification is distinct from legal structure, and a company can be certified without necessarily being a social enterprise.
Social enterprises also differ from the charities you donate to. Unlike a nonprofit, a social enterprise can raise equity, return profits to its investors, and grow like any other business. And because your money buys an investment rather than makes a gift, you can’t claim a charitable deduction for it.
How you can invest
A handful of benefit corporations are publicly owned, so you can buy their shares much as you would any listed stock. Many more remain private, and you would acquire shares by purchasing into private placements or private equity funds that target mission-driven companies. Some funds focus specifically on benefit corporations and similar enterprises.
What to weigh
A dual mission cuts both ways. A company bound to a social purpose may pass up profitable opportunities when they conflict with its mission. But that same commitment can also be a competitive advantage, building customer loyalty, attracting and retaining employees, and focusing the company on the long term in ways a purely shareholder-driven competitor might not.
If a company’s mission matters to you, look for a mission-lock provision, a governance feature that makes it harder for the company to abandon its stated purpose. Such a feature could require a supermajority shareholder vote to amend the purpose clause, or the company may be owned by a trust or foundation that preserves the mission across changes in control. Not every social enterprise has this kind of protection.
Part of a broader strategy
Investing in a social enterprise is just one part of a broader purpose-driven investment strategy. Another approach is values-based screening, in which investors evaluate companies based on how they operate or what they produce. With a positive screen, you would identify and invest in companies that align with your values; negative screens exclude those that don't.
Through approaches like these, purpose-driven investing enables you to both earn a return and make a positive impact.
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© Raymond James
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