Financial Crisis Offers New Oppportunities for Socially Oriented Investments

The fallout from the financial crisis represents an extraordinary opportunity for businesses and investments that seek to combine financial returns with benefits for society, Jed Emerson, a long-time proponent of such ventures told participants at the Social Enterprise Summit.

In many ways, he said, the crash is a repudiation of the world view that divides for-profit activity strictly from social and environmental considerations.

The experience of low-cost housing groups and community development financial institutions, for example, show that it wasn’t subprime mortgages themselves that triggered the financial crisis, said Mr. Emerson, who is a managing director at Uhuru Capital Management, in New York.

“These people are doing fine,” he said. “They know how to underwrite. They know their communities. They know these people.’

Instead, the problem was a result of the approaches that purely profit-driven companies took to lending in poor neighborhoods, said Mr. Emerson.

“When you have these folks who came in on the straight commercial side, without any consideration of social value or broader impact, that’s when it got out of control,” he said. “They built this whole subprime thing around a fundamental misread of their markets, because they didn’t care about their markets. They cared about the fees and selling.”

As a result of the crash, a growing number of investors are starting to look at social investments, said Mr. Emerson.

“Finally, after 20 years, we have a whole set of deals and investment opportunities that we can actually move forward, whether its microfinance bond offerings or regional lending pools or loan guarantee funds, things that we’ve been piloting for the last decade,” he said. “It’s like, Let’s go play.”