The Fuel That Starts the Fire--How We Can Transform the Economy

The Fuel That Starts the Fire--How We Can Transform the Economy
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The New Year is a traditional time for reflection and renewing commitments to core purposes. To many, these actions feel especially critical at the dawn of 2017. For those of us who are dedicated to moving the economy toward greater equity for people and the earth, the need for innovative approaches seems more pressing than ever.

Can the actions of individuals or small enterprises really create movement toward fundamental economic change? Our experience at RSF Social Finance shows that they can. Despite our modest size, we have a long history of seeding, developing and modeling transformative ideas in pursuit of our mission to create financial relationships that are direct, transparent, personal and focused on long-term social, economic and ecological benefits. There are many ways to have outsized influence when you support and model potentially transformative ideas--even if others dismiss them at first.

Seed a movement
We have invested in building a legal and financial infrastructure that allows social enterprises to thrive. For example, RSF provided seed funding to B Lab, the nonprofit that certifies B Corporations, when B Corps were little more than the concept of a movement to redefine success in business. Now there are more than 2,000 businesses around the world committed to measuring and improving their social, environmental and economic impacts. And more than 30 states have passed laws establishing a new corporate entity that bakes those impacts into the corporate charter--a counterbalance to the conventional investor-centric model.

Similarly, RSF provided early operational funding to the Social Venture Net¬work, which connects impact entrepreneurs with socially conscious business leaders and investors. SVN in turn has incubated a number of other influential networks, including Business for Social Responsibility and the American Sustainable Business Council. More recently, we have been nurturing the nascent 100 percent impact investing movement by supporting both individuals and institutions on their path toward investing their whole portfolio to serve their mission.

All movements are small and vulnerable at the beginning; however, providing the fuel that starts the fire is enormously important.

Question convention
For many years, RSF based the interest rates we offer borrowers and investors on the 13-week U.S. Treasury Bill. In 2006, we shifted to LIBOR (London Interbank Offered Rate) because it was the most commonly accepted and steadiest barometer for short-term interest rates worldwide. But then we asked ourselves how such benchmarks served our mission. The answer was that they didn't, and in late 2009 we began setting our own rate, RSF Prime, through a collaborative process based on face-to-face and virtual quarterly pricing meetings involving investors, borrowers and RSF staff. I have written before about the profound changes that participants in this process have experienced, and there truly has been no downside to departing from convention.

In 2011, we reconsidered the grant-making process and realized we could turn it, too, on its head by shifting the power dynamic and encouraging collaboration instead of competition. Our Shared Gifting process provides a group of nonprofits with a pool of grant money and gives them the power to allocate funds among participants. Moving control of grant funds from donors to grantees brings community wisdom into the process and creates accountability, reciprocity and collaboration. One study identified RSF's Shared Gifting as the deepest, most community-building approach in the current move toward participatory grant making in the field of philanthropy.

Intervene where a system is breaking down

Our industrial food system creates a host of problems--poor health outcomes, lack of access to fresh food, threats to farmland and more. Looking at this system, we saw that the links between regional suppliers and buyers were broken, and we believed strategic investment could repair them. RSF is now the leading funder of U.S. food hubs--facilities that manage the aggregation, storage, processing, distribution and marketing of locally and regionally produced food. These often overlooked operations are the missing links in a supply chain that can support healthy local food systems and play an important part in rebuilding regional economies.

Through our work with food hubs we developed an approach that is now setting the course for RSF in 2017. We are reorienting our organizational design and all of our lending, investing and giving work around the integrated capital approach: the coordinated use of diverse forms of financial capital (including loans, loan guarantees, investments and grants), along with nonfinancial resources, to support enterprises working to solve complex social and environmental problems.

Early evidence indicates that by crossing conventional boundaries between philanthropy and investment, and working with partners, we can give many more catalytic social enterprises the tailored support they need to realize their potential. We see ourselves as a leader and hub for this work, based on our years of experience. One of our major initiatives this year will be piloting a fellowship program to train finance professionals in the integrated capital approach.

The forces resisting this kind of change are manifold and strong, and conventional finance, out of its need for profit, will seek to co-opt this emerging field--though understanding the philanthropic aspect is well outside its nature. The temptations of cheap subsidized and anonymous capital will readily undermine the deep, transformative social values that underpin the integrated capital approach. So we need each other and an awareness of the reality of our economic interdependence to push through change and to flourish. Transformation begins with questioning authority and questioning assumptions, but inquiry itself is no longer enough. If we want to instigate real change, we have to take authority, know why and toward what end, and then use that authority for the well-being of all.

John Bloom is vice president of organizational culture at San Francisco-based RSF Social Finance, a pioneering funder of social enterprises. He is also the author of several books, including the recently published Inhabiting Interdependence: Being in the Next Economy. Follow RSF on Twitter @RSFSocFinance.

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