Social Stock Exchanges: Catalyst for Impact Investing?

110 Pages·2022·2.086 MB·English

by  Karen Wendt

Sustainable Finance
Karen Wendt
Social Stock
Exchanges
Catalyst for Impact Investing?
Sustainable Finance
SeriesEditors
KarenWendt,SustainableFinanceC/O,EccosImpactGmbH,Cham,Switzerland
MargaretheRammerstorfer,ProfessorforEnergyFinanceandInvestments,Institute
forFinance,BankingandInsuranceWUVienna,Vienna,Austria
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Karen Wendt
Social Stock Exchanges
Catalyst for Impact Investing?
KarenWendt
SustainableFinanceC/O
EccosImpactGmbH
Cham,Switzerland
ISSN2522-8285 ISSN2522-8293 (electronic)
SustainableFinance
ISBN978-3-030-99719-9 ISBN978-3-030-99720-5 (eBook)
https://doi.org/10.1007/978-3-030-99720-5
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About the Book
Thisresearchresearchestheroleofstockexchangesincatalysingimpactinvesting.
Stock exchanges are marketplaces providing liquidity,marketability andpricingto
securitized assets. Through the process of disinvestment and reinvestment, savings
will turn into investment avenues. This leads to capital formation and economic
growth.Existinglegalframeworkprovidesasafeandfairdealinsecuritymarkets.
Thequestionofusingstockexchangesaslistingplatformsforassetsthatintention-
ally create a positive impact for society providing the securitized enterprises with
alternativefundraisingstructures,SocialStockExchanges(SSEs)isrelevantifone
wishes to redirect capital to sustainable growth (see 2....). The combination of a
special listing procedure combined with increased marketability could provide the
so-calledImpactorSocialStockswithadditionalliquidity,growthopportunitiesand
marketability, create necessary transparency through listing criteria and market
makingandcouldharmonizescatteredprivatemarketswhereonlyalternativeasset
ownerscaninvestandprovideaclear distinction between ESG(risk management-
oriented approaches) and impact investing. The UK, Canada, Singapore,
South Africa and Brazil have l SSEs, India and Switzerland and other countries
areintheprocessofcreatingthem.Ontheregulatoryfront,TheEuropeanUnionhas
issued its Action Plan for Sustainable Growth with the declared goal to redirect
capitaltoSustainableGrowthincludingagreentaxonomy,aforthcomingsocialand
browntaxonomy.BasedoninterviewswithMembersoftheEUHighLevelGroup,
thisresearchdiscovers,documents,evaluatesandcategorizeshowandinwhatways
entrepreneurssolveenvironmentalorsocialproblemsusingmarketmechanismsand
methodologies, creatingecosocial and economic/financialperformance atthesame
time.Theauthoranalyseshowimpactinvestingcanbedifferentiatedfromenviron-
mentalandsocialgovernance(ESG)andprovidesanoverviewofwhatSocialStock
Exchanges do well already, what can be improved and how SSEs will impact the
redirection of capital in the financial market. The terms Impact Stock Exchanges
(ISEs) and Social Stock Exchanges (SSEs) will be used in an interchangeable
manner.Intheevaluationofwhatstockexchangesprovide,theauthorwillusethe
emergingtaxonomiesaroundtheworld,thesevencapitalsmodeldevelopedbyFlora
v
vi AbouttheBook
and Flora (2011) used in multinational institutions like the International Finance
Corporation (IFC) and Barile viable systems approach to analyse their prospects.
Thiswillincludetheconceptsofgreenbonds,socialbondsandsocialentrepreneur-
ship finance on stock exchanges. This contribution is developed on the basis of
frameworksandsystemsapproacheswhichareintendedasatheoreticalframework
for theanalysis ofsocial phenomenaaswell asfororienting decision making.The
author will systemize and analyse how these concepts dovetail to the concepts of
existing stock markets and make proposals onwhat needs to beimproved tomake
SSEssuccessful.
One question is whether impact assets will further need special platforms for
impacttransactions—knownasSocialStockExchangesorwhethertheyprogressin
awaythattheyarecompatiblewithexistingmarketstructuresandcanbeplacedon
traditional marketplaces like bond markets and stock markets. Also, the author is
spottingforwhichassetsstructuresthisisthecaseandwherethisisnotthecaseand
so differentiate between themarket maturity and design of impact assetsregarding
theircompatibilitywithexistingtraditionalmarketsand—ifnotcompatiblewhether
socialstockexchangeswillprovideasolution.
Contents
1 Introductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 ResearchDesign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2 LiteratureReview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 ConceptsofSustainability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ViableSystemsModel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 TheEmergingRoleofTaxonomies. . . . . . . . . . . . . . . . . . . . . . . 11
TheEUActionPlanforSustainableGrowthandthe
EUTaxonomy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
AsianTaxonomies:China,Malaysia,Singaporeandothers. . . . . . 15
2.3 ImpactInvestingVersusESGApproaches. . . . . . . . . . . . . . . . . . 17
2.4 ThePerceivedNeedofImpactStockExchangesorSocialStock
Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.5 TheCurrentStateofSSEsandISEs. . . . . . . . . . . . . . . . . . . . . . . 23
2.6 ReviewofScientificLiteratureAndPractitioners’View
onSSEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
MappingtheFunctionsofSSEs. . . . . . . . . . . . . . . . . . . . . . . . . . 27
Practitioners’ViewonSocialStockExchanges/ImpactStock
Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
AcademicViewonSocialStockExchanges/ImpactStockExchanges 30
2.7 ImpactInvesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
AddressingtheInconsistenciesofImpactInvesting. . . . . . . . . . . . 32
DefinitionsofImpactInvesting. . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.8 AssessingImpactInvestmentPractices:Tools,Frameworksand
Databases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.9 ConclusionsonImpactInvestingandItsProblematicforStock
Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.10 ExistingProductStructureswithImpactUsedatSSEsorinthe
TraditionalStockandBondsMarkets. . . . . . . . . . . . . . . . . . . . . . 41
2.11 SocialEntrepreneurshipandSocialEconomyFinance. . . . . . . . . . 43
vii
viii Contents
2.12 GreenBonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ConclusionsandLearningWhenContrastingGreen
BondstoImpactAssets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
2.13 SocialImpactBonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
3 TraditionalStockExchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.1 FunctionsofStockExchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.2 ComparingTraditionalMarketsKeyDeterminants
withtheSSEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
3.3 BlueprintingSocialStockExchanges. . . . . . . . . . . . . . . . . . . . . . 63
3.4 SocialStockExchangesandTheirChallenges. . . . . . . . . . . . . . . 71
4 CriticalanalysisandPrognosisontheDevelopmentofSSEs. . . . . . . . 77
4.1 PrognosisontheDevelopmentofSSEs. . . . . . . . . . . . . . . . . . . . 77
4.2 RecommendationsforanEcosystemsApproachofSSEs. . . . . . . . 79
4.3 Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5 ConclusionsandLimitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Chapter 1
Introductions
SocialStockExchangesareanewsocio-economicphenomenon.Attractinginvest-
ment seems to be one of the main problems of social and ecological oriented
entrepreneurs. SSEs are trading and exchange platforms that allow social and
greenbusinessestoraisecapitalbyattractinginvestorswillingtoinvestinbusinesses
thatcreateblendedvalueandapplyalockstepapproach.Theyaddresstheneedfora
dedicated liquid marketplace with transparent price building mechanisms. As ben-
efits of social stock exchanges the following have been raised by practitioners and
researchers(seeChap.2).
According to existing SSEs Social enterprises are a new operating model
addressing acute societal and environmental challenges that have gained a global
consensusthroughtheUNSDGs(UnitedNations,2017).Whiletheimpactinvest-
mentmarketisgrowingatanaverageannualrateof20%,hurdlesstillpreventitfrom
becoming mainstream, including, the creation, sourcing and evaluation of invest-
ment opportunities, transaction sizes, viable exit options, and impact measurement
(SwissOX,2021).
Calandra and Favareto (2020), Boguslavskaya and Demushkina (2013), Pavlov
(2017,2019),Wendt(2017)foundthatSSEsmaketheprocedureofimpactinvest-
menteasier; increase thetransparency ofecosocial projects;savetransactioncosts;
provideimmediateliquiditytoecosocialenterprises;providetransparentinformation
andthereforeallowforafairvaluationprocess,theplacementontheexchangealone
increasestheecosocialvalueandoftenthevaluationofinvestmentsandtheideaisto
enableinvestorstoharvestafinancialandaneco-socialreturnoninvestment.This
claimwillbereviewedhere.
©SpringerNatureSwitzerlandAG2022 1
K.Wendt,SocialStockExchanges,SustainableFinance,
https://doi.org/10.1007/978-3-030-99720-5_1