Now the Good News...

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Water Work Population Services International markets and distributes low-cost health products, such as Water-Guard, a chlorine-based water-treatment solution in developing countries.

In Kenya, PSI's Joyce Wanderi, right, supplies a shop co-owned by Melcy Kagendo, left.

The 2008 Social Capitalist Awards

• Now the Good News...
  Venture philanthropy. Patient capital. For-benefit corporations. What if you could actually make a profit while changing the world?
• Profits with Purpose
• Social Capitalism in Words
• Rising Star: GlobalGiving
• Rising Star: Goodwill Industries
• Rising Star: Green Dot Public Schools
• Rising Star: Prison Entrepreneurship Program
• The Six Practices of High-Impact Nonprofits
• Q&A: Bill Drayton, founder and CEO, Ashoka
• Q&A: John Elkington, founder, SustainAbility
• Q&A: Brian Walker, CEO, Herman Miller
• Fast Talk: Rising Up
• Fast Talk: Metal Mentor
• Fast Talk: Water Work
• Fast Talk: New Vision
• Methodology
• Contributors
• Slideshow: World-Changers
• Slideshow: Profits With Purpose

This sort of deal making is accelerating, and the consequences could be profound. "We're going to be surprised by how ­quickly the finance industry moves into this market," contends Bill Drayton, founder and CEO of Ashoka, a global network of social entrepreneurs. Ashoka is trying to identify and nurture 160 people who will pioneer these financial innovations. "The finance business has a highly sophisticated ability to bring clients and funders together, and there's going to be no shortage of deal flow."

Drayton's notion is that most of those deals will yield market returns. (One model is the "human capital contract" that Felipe Vergara, a Wharton-educated Colombian, is piloting in his home country and in Chile. His idea: Students borrow for college, then pay a fixed percentage of their income for a fixed period after graduation. Investors buy shares in a fund that pools thousands of loans, so their return reflects the combined success of graduates across professions and income levels.)

But there's mounting evidence that for-profit investments don't necessarily have to generate full market returns. Calvert Investment Foundation, another Social Capitalist Award winner, has seen steady growth in holdings of its Community Investment Notes (from $91 million at the end of 2005 to $118 million as of July 31, 2007). Investors choose their return, up to 3%; if they're happy with 1%, and some are, that's what they get. The capital goes to microfinance, small-business development, housing, and so on--again, at investors' discretion.

The critical assumption behind Calvert's notes--that there are investors who will be content with a below-market financial profit if it's accompanied by demonstrable social return--would have been a nonstarter a generation ago. The increasing acceptability of that trade-off is driving the creation of a new sort of enterprise that integrates financial returns with social good. Sometimes called "for benefit" companies, these hybrids have access to capital markets, but they're explicit that profit isn't the top priority, or at least not at the expense of the workers, the environment, or the community. New Leaf Paper, for example, has created a foundation aimed at decreasing demand for its products, and Equal Exchange has encouraged competition in its fair-trade food space, reasoning that new entrants will enlarge the market and better serve low-income farmers.

Such enterprises and the investors who love them are ­clearly still the exception. "I think we're 40 or 50 years into a process that will take 70 years to happen," says John Elkington, founder and chief entrepreneur of SustainAbility, a consulting firm that specializes in social-responsibility issues.

But a market infrastructure is emerging to support these companies. In July, an outfit called B-Lab, founded by three college buddies who had enjoyed some success in private enterprise, unveiled its roster of 21 charter "B corporations." (That's B, as in "benefit.") To qualify, companies have to demonstrate transparent, comprehensive reporting on social and environmental performance; restate their articles of incorporation to reflect nonfinancial stakeholders' interests; and pay up to 0.1% of revenue to license B-Lab's branding and technical support.

"Traditional capital markets have a massive amount of infrastructure built up over the years," says Andrew Kassoy, a former hedge-fund guy who's one of B-Lab's founders. "Capital, laws, tax codes, research, ratings. This sector needs that sort of infrastructure." B-Lab says it's talking with potential partners about creating a dedicated stock exchange for B companies; it's also lobbying for changes in state laws that would make it easier for hybrid for-profits to incorporate.

As for the remaining infrastructure--well, that's happening too. Research firms such as KLD have sprung up to quantify companies' social and environmental performance; these outfits are the would-be Moody's and S&Ps of the for-benefit sector. (We like to think that the Social Capitalist Awards serve a similar standard-setting role; this year, in fact, we launched an experiment to recognize for-profit companies. The winners are listed below.) The Global Reporting Initiative, created by SoCap winner Ceres, recently asked its online readers to participate in an effort to score corporate sustainability reports; the wisdom of crowds, it appears, might cut through all that turgid prose.

No one expects this phenomenon to transform global capital markets overnight. But it forces us to confront an intriguing question: Do we really believe that short-term financial performance should determine access to capital? There's a connection, over the long term, between social good and corporate success. A paper company can't survive if all the world's forests are chainsawed away. Coffee shops do better if bean growers make enough to live on. "Some in the investing public have begun to see sustainability as contributing to the valuation of the enterprise," says Brian Walker, CEO of office furniture maker Herman Miller, one of our for-profit winners. "There is actually the opportunity for value creation in being socially responsible."

Change the world. Make some money. Raise more money, and make more change. It's an appealing prospect. Nonprofits were born because for-profits weren't addressing some market failures--pollution, poverty, illiteracy. Profit won't cure those ills, but it's becoming a bigger part of more solutions. Perhaps it's dawning on us that the cost of capital for changing the world should be lower. Perhaps the capital markets will cut the world a break.