Late at night, when I can't sleep, my thoughts turn to the good things to come. I think about what the future social investment market will look like. Will it, I wonder, look anything like the current investment market? What will change? Obviously, it will not be a one-to-one transfer: We can't trade dividends on social change or purchase futures in the numbers of lives saved. What will be the differences between a social investor and a traditional investor?
I don't know enough about philanthropy or traditional investments to tell you. But two organizations are shaping that future social investment market today.
Philanthropedia has created a "mutual fund" for social investors. Using a panel of experts, it constructs a list of organizations working within a certain cause (right now they have climate change, education and Bay Area homelessness) that a person can divide their donation amongst for maximum impact. Each organization is weighted within the mutual fund based on their effectiveness.
The Social Impact Exchange has created a sort of "stock market" of non-profits. Its Investment Clearinghouse (free registration required) has a list of high impact and effective non-profts for investors to scrutinize. Sean at Tactical Philanthropy says that this Clearinghouse serves as a sort of non-profit stock market not because you can watch the shares go up and down, but because it lets charitable organizations "go public" and reveal information to individual investors in the hopes of gaining more support. (Edit: For more info on the Social Impact Exchange, read one of its founders' response on Tactical Philanthropy.)
I think that this quality--accessibility of information--will be key to any sort of future social investment market and its resulting "investment products." Philanthropedia offers a neat way to get people thinking about social investment, but the concept of a mutual fund might cause people to just take the advice and not think critically about their donations. Philanthropedia does provide reviews of the organizations within the funds, but most of them are just basic information combined with quotes from their experts. I would prefer to see more information on the organizations to allow the donors to make their own decisions on who to give to.
The Social Impact Exchange, on the other hand, does offer more room for critical thinking. It provides an almost-overwhelming availability of information on its "public" non-profits as well as resources for scaling social initiatives. (It's a "Knowledge Center" as well as a Clearinghouse.) I prefer this wealth of information to Philanthropedia's method, which isn't much more than a marketing technique to encourage donors to invest. Clever marketing isn't a bad thing, but I am not sure that a mutual fund is actually something the social investment market can support, as individuals are getting social returns, not monetary. Diversifying a "portfolio" will not get you greater returns that fully supporting one organization, especially for small donors.
Evaluation based on impact and effectiveness should never be discouraged, regardless of its packaging, but information access must always remain at the foundation of any evaluation. Anything that gets good information out to donors helps create the reform needed. I don't know what the future social investment market will look like, but I do know that without information allowing individuals to think critically about their donations, that market may never arise.
(Thanks to Sean at Tactical Philanthropy for pointing me to both these organizations. To read his more detailed, more eloquent vision for the future, see his 2008 Financial Times column.)
BIG EDIT: Philanthropedia responded. They make an excellent point, saying that they do not include too much information in their reviews so they don't overwhelm people (I would say the Social Impact Exchange is currently guilty of that, but their market also isn't causal donors.) I would like to see every individual behave like a serious investor, but that probably isn't likely, and Philanthropedia's method and marketing meets them half way, like the post says.
Also, the post includes a great quote from one of Philanthropedia's founders, saying that its philosophy is about “choosing a social cause with one’s heart, but choosing an organization with one’s mind.”
Good stuff, all around.