Social Entrepreneurship: The New “Hybrid” Organization

Social Entrepreneurship and Social Innovation are the new “buzz words” when it comes to both the business and non-profit sectors.  Many people believe social enterprises to be a mix of both worlds, incorporating the social impact focus of non-profits, with the financial stability, or financial returns, of a business. Some are even calling these emerging social enterprises the beginning of a new fourth sector.

Fourth Sector?

Historically, we have seen three types of organizations in society: business, government, and non-profits.  These organizations have provided society with the products and services that make up the quality of life that many people know today.

Yet, with all of the benefits that we have received from these three organizations, they have come with many costs. Our natural environment has suffered greatly for our economic benefit; its natural resources are now being consumed at the rate of 1.5 times the natural re-growth of the planet.  We face the threat of climate change.  Social capital has also suffered as economic globalization has brought wealth to few, yet has kept the majority of the world’s population in poverty.  The economic crisis we are living today has given us a glimpse into how “short-termism, corruption and greed threaten the security of our economic systems and the viability of our civic institutions”.

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Best Practices in Water Management: A Look at LA

The city of Los Angeles is home to 3.8 million people living in 469 square miles. It is the second largest city in the US, behind New York City (which has a population of 8.2 million people that miraculously live in 302 square miles of land).

During the last few decades, the City of Los Angeles has been working diligently, and has seen significant results, in the area of water conservation. According to data collected in March 2012, Los Angeles uses less water today than 40 years ago, despite a population increase of over 1 million people:

Source: LADWP

That’s a rather significant achievement.

So, how has LA done it?

Water use in the City of Los Angeles peaked in 1986. The following five years saw severe drought, and therefore water shortages throughout the city. In 1990, the city passed The Emergency Water Conservation Plan Ordinance which established a list of water conservation actions that the city would enact depending on the severity of water scarcity at a given time. This ordinance was later amended in 2008 to make some of the measures mandatory at all times of the year – regardless of the current water situation – and expanded certain practices to the general public. The Emergency Water Conservation Plan Ordinance places restrictions on specific actions including using water for landscaping purposes (watering lawns, trees, flowers, etc.), cleaning sidewalks with water, and serving water to customers in restaurants unless asked. The ordinance also prohibits residents to leave water leaks unattended.

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Purpose, Values, and Action: Corporate Responsibility in SMEs

Multinational Corporations have been at the center of the discussion surrounding corporate responsibility.  This has occurred for two main reasons:

1. Multinationals have received a significant amount of “bad press” in recent years – from oil spills, to child labor scandals, to world financial meltdowns – pressuring them to “shape up”

2. Multinationals maintain significant power and influence over the global economy, providing “quick, meaningful wins” for environmental and social activists when they decide to “do better”.

Large multinational companies have the power to make a significant, individual impact in improving the conditions of communities and promoting environmental preservation. Although Large Enterprises (with 500 employees or more) totaled only 2% of companies that exported products in 2010 in the US, they accounted for 68% of the total value of exports – making them very powerful in terms of the amount of resources and products they manage.

However, we must not ignore the achievements of America’s Small and Medium Enterprises.

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The Carbon Capture and Storage Debate: Are we “Locking Out” the low carbon energies of the future?

As explained in a previous post, Government policy can have enormous impact in shaping our technological base in the future by promoting the “locking in” or “locking out” of certain technological innovation.

Just as Governments can help incentivize the “lock in” of renewable energy technology into our energy future, their decisions can also play a large role in whether or not we can “kick the habit” for fossil fuels.

One example if this comes in the European Union’s support of Carbon Capture and Storage technology through the NER300 Programme.

Carbon Capture and Storage (CCS)

Carbon Capture and Storage is a technology meant to capture the CO2 emissions from coal, oil, or gas plants combustion and store it so that it is not emitted into the atmosphere, which would further aggravate climate change.

Sounds interesting right?

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The EU Emissions Trading System and the Complexities of Incentivizing a Clean Energy Future

The European Union has been working diligently to promote the expansion of a low carbon economy. They have ratified the Kyoto Protocol, passed a relatively rigorous energy strategy for 2020, and created the largest Carbon Cap and Trade System in the World: the European Emissions Trading System (EU ETS).

To briefly explain how the EU ETS works, industries that are part of the trading scheme are given emissions allocations – or credits (the right to emit 1 ton of CO2 into the atmosphere). They must either reduce their emissions to the amount of credits allocated to them, or buy additional credits for every ton of CO2 over the allotted number of emissions allocations given to them. These emissions credits can be purchased on the EU ETS carbon market. Industries that reduce their emissions lower than the number of credits given to them will have a surplus of credits and can sell their extra emissions credits on the carbon market.

Each year, industries must hand over to the government the amount of emissions credits equal to the quantity of CO2 emissions they emitted within that year. The submission of credits to the government creates the necessity for some industries to buy emissions allocations if they have emitted more than they were allotted, and also gives the incentive for others to sell their surplus of credits if they have more allocations than they emitted. This supply and demand for credits creates the market for carbon.

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Subsidies, Trade, and the Broken Food System

Source: Gates Foundation, Creative Commons Licensed

You have probably heard about it before: The Broken Food System. Our world’s ability to produce a surplus of food, juxtaposed with our inability to feed all the world’s people.

Roughly one-third of the food produced in the world every year intended for human consumption gets lost or wasted.

If just one-fourth of the food currently wasted globally could be saved, it would be enough to feed the 870 million hungry people in the world.

How does this happen?

In a recent report, Oxfam has laid out several reasons. These include the intense pressure on agriculture from climate change, ecological degradation, population growth, rising energy prices, rising demand for meat and dairy products, and competition for land from biofuels, industry, and urbanization.

Yet one specifically interesting reason for structural hunger and inequality in the food system comes from its design.  The unfair trade rules and domestic protectionist policies have “rigged” the rules of the game in favor of the rich, at the expense of the poor.  These unjust policies have brought the food system to its breaking point.

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Risk and Opportunity Management for Corporate Social Responsibility

Recently, we have been discussing the theory and importance of Risk Management in project planning and management. In order to manage risks in a project, there are several tools used to plan for all possible negative impacts on a project. Project managers fill out several charts, analyzing the likelihood, severity, impacts, warning signs for each possible risk. They construct a specific budget for necessary preventative measures and possible contingency plans required to mitigate these risks.

In Risk Management, some big questions have to be answered: whats the likelihood of this risk happening?  And how much (money, time, resources, etc) is it going to cost me?


Typical Tool Used in Risk Management

One interesting topic discussed was the recent emergence of opportunity management as a core strategy to help design a project. The conversation got me to thinking about the utility of managing your opportunities. Incorporating opportunity management in projects, specifically, in the analysis of Corporate Responsibility projects, could have a large positive impact in helping to change popular opinion surrounding the topic.

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Certification Schemes in Properly Managing our Environment

One major question I seem to struggle with all the time is how to know whether or not we are making smart choices as consumers.

How do we know whether or not the fish we are eating comes from an over fished lake or river? How do we know if the Ikea table we bought is made from wood sourced from a logging company contributing to deforestation?

To answer this question, lots of organizations have come up with certification schemes to help show customers, with a “seal of approval” label, that products are fair trade, sources responsibly, etc.  Unfortunately, not all of these certifications may be as credible as one would hope.

Here are a few things to look for:

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Global Rate of Consumption Reaches 1.5 Planets; America Reaches 4.

The rate at which Americans use natural resources is strikingly unsustainable; yet, they are not alone. Fortunately, the WWF has come up with some ways to fix it.

The planet is suffering from man’s demand for food, water, ipads, and airplanes. Not only are we over consuming our natural resources at an unsustainable rate, but the amount of biodiversity in many parts of the world is dramatically declining. In order to combat this problem, the WWF, one of the world’s largest conservation organizations, has laid out a global plan.

According to the recent WWF Living Planet Report, the rate of resources we consume globally in one year requires 1.5 years time for the Earth to regenerate the renewable resources used, and absorb the CO2 waste produced. Think about that stress on our Earth’s resources, year after year, without time to recuperate and replenish.

Although this statistic may seem high, consumption is expected to increase during the next decades. One main factor will be the increase in population and economic growth in countries like Brazil, India, Indonesia, China and South Africa – often called the “BRIICS” for their recent economic success. As developing countries grow, they are going to demand lifestyles and consumption rates similar to those seen in fellow “rich” countries. If they attempt to attain lifestyles similar to Americans, we’ll need 4 planets worth of resources to meet these demands.

Source: WWF Living Planet Report 2012

So, what are we supposed to do? In the Living Planet Report, the WWF has defined 5 areas in which our current global system needs to focus their efforts:

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Economic Growth, American Politics and NeoLiberalism

Over the Holidays, I have found myself having several conversations regarding Microfinance: its benefits, its costs, the theory behind its popularity, the practical results on the ground, and why so many people – especially in the US – believe that helping the small entrepreneur will innately help the rest of the population.

The latter specifically became a rather heated discussion in my household as it feeds directly into the Republican vs. Democrat debate.

My mother, a devout Republican and small business owner in the US, is a firm believer that by hurting small business, you will inevitably hurt the working class. Businesses are what provide jobs and security to the working class. If businesses have to pay higher taxes or are unable to acquire capital, they will be unable to support their workforce. Therefore, if the government would be less restrictive on business, America could “get back to work” and pull itself out of the recession. This idea was concisely expressed by Terry Paulson, Republican political columnist, during the recent election:

Romney/Ryan will incentivize investors and entrepreneurs to get America working again… Instead of raising taxes, Romney/Ryan will cut taxes and spending while increasing federal revenue when more companies are making a profit, more people are working, and wages are growing. It’s time for free enterprise to do what Washington can never do–create jobs, jobs, jobs!

During our discussion, I could not stop thinking about how similar this “mantra” is to that of NeoLiberalists.

NeoLiberalism stems from “Classic Liberalism” which was founded by the “grandfather of Economics”, Adam Smith, in Wealth of Nations. Sound familiar? Remember the “Invisible Hand”?

The “Neo” in Neo-Liberalism comes from a rebirth and development of these classic ideas during the Cold War by several economists including, an notable economist named Milton Freidman.

Defined by its basic principles, NeoLiberalism theory states:

  • Sustained economic growth is the way to human progress
  • Free markets without government “interference” would be the most efficient and socially optimal allocation of resources
  • Economic globalization would be beneficial to everyone
  • Privatization removes inefficiencies of public sector
  • Governments should mainly function to provide the infrastructure to advance the rule of law with respect to property rights and contracts.

Following this logic, at the international level NeoLiberalism theory argues:

  • Freedom of trade in goods and services
  • Freer circulation of capital
  • Freer ability to invest

Sounds good, right?

For a lot of people, NeoLiberalism makes sense. It is what I learned during my studies at UCLA: economic models prove its “efficiency” and the global capitalism in which we live today was built from its ideas. Famous political leaders such as Ronald Reagan and Margaret Thatcher subscribed to it and organizations such as the WorldBank, World Trade Organization (WTO), and the International Monetary Fund (IMF) were built around the theory:

If we let the markets run freely, business will grow and economic benefit will “trickle down” to the bottom of society. Free market competition is the best way to promote growth and alleviate poverty:

But, has this really worked? Has NeoLiberal theory helped the poorest groups get “lifted out” of poverty?

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Microfinance: The Grameen and BRAC Experience

Two of the most widely recognized microfinance institutions in the world today are both located in Bangladesh: the Grameen Bank and BRAC.

The Grameen Bank was founded by Mohammed Yunus in 1976. Since then, they have loaned nearly 13 billion US Dollars to almost 4.5 trillion borrowers. In November of 2012, the bank had 8.4 million active borrowers with more than one billion US Dollars in outstanding loans. The Grameen Bank’s repayment rate for all its loans is nearly 97%.

The Bangladesh Rural Advancement Committee (BRAC) was started in 1972 as a relief organization following the War of Liberalization. In the early 1970s, BRAC began lending microcredit to landless people in some of its development projects.  In November 2012, BRAC had 5 million active borrowers with outstanding loans totaling 725 million US Dollars. BRAC has a repayment rate of 99.36%.

In Bangladesh, the poor account for one fifth of the total loan portfolio for the entire country.

Both of these microfinance institutions (MFIs) follow a similar structure in the way that they lend to their borrowers. They provide “solidarity group lending” in which prospective borrowers must be part of a lending group in order to receive a loan from one of these institutions. Every group member is accountable to, and liable for, all the other members’ loans. Given that the poorest communities in Bangladesh lack financial capital or assets that can be used as collateral for loans, these lending groups act as a form of “social capital”:

These organizations have become increasingly powerful and important to the economic environment in Bangladesh. According to their financial statistics they seem to be doing rather well.  But, are they having the desired economic impacts set out in their mission?

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Frustrations from the World’s Youth at the UN Climate Conference

For the past two weeks, leaders from over 190 countries have been negotiating the future of climate change at this year’s UN Conference on Climate.

The negotiations have taken place between member countries of the UN international treaty titled the United Nations Framework Convention on Climate Change (UNFCCC).  The treaty was ratified at the Earth Summit in Rio De Janeiro in 1992.  The ultimate objective of UNFCCC is “to stabilize greenhouse gas concentrations at a level that will prevent dangerous human interference with the climate system”.

Since the UNFCCC was established, the member states (today totaling 194) meet annually at the Conferences of the Parties (COP) to “assess progress in dealing with climate change”. This year’s COP, the 18th since its inauguration in 1994 (referenced as COP18), is being held in Doha, Qatar.  One of the main issues being addressed this year is the future of greenhouse-gas emission reduction and the Kyoto Protocol, which is set to expire at the end of this month.

The conference began with some very dark projections from international organizations like the World Bank and the United Nations Environment Programme (UNEP).  In a UNEP report, published just before the beginning of COP18, they state that in 2010 greenhouse-gas emissions rose to 50.1 gigatons of carbon equivalent.  This figure represents a 25% increase from 2000, and is 14% higher than the projected emissions required (44 gigatons) to maintain the desired 2°C increase in climate temperature; the 2°C increase that scientists believe is the “threshold” to avoid “dangerous” climate change.

Naderev M. Saño, the lead negotiator from the Philippines, gave an extremely heart wrenching appeal to world leaders this week:

Mr. Saño´s plea has become a popular speech amongst news reporters and bloggers covering the conference.  The delegate’s raw emotion and evident frustration regarding the lack of leadership and action being taken by the UN delegation is rarely seen in an international setting such as this.

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Microfinance and its Increasing Popularity

About a year ago, I was first introduced to the idea of microfinance through the website I was fascinated by the idea and inspired by the organization. In fact, last year instead of purchasing Christmas presents for my family members, I donated $100 to the Kiva website and my family and I chose entrepreneurs from the website to invest in.

The idea of directly investing in an entrepreneur’s personal development from halfway across the world was something really exciting. As my parents themselves are entrepreneurs, they liked the idea that they were not “donating” money, but rather “investing” in fellow entrepreneurs. It is not a donation, it is a loan; this is not only important for us, but is also important for the borrowers. They are improving their own economic situation.

As Jessica Jackley, co-founder of Kiva, explains in her TED Talk, when she went to Kenya, Uganda, Tanzania:

I never once was asked for a donation, which had kind of been my mode, right. There’s poverty, you give money to help — no one asked me for a donation. In fact, no one wanted me to feel bad for them at all. If anything, they just wanted to be able to do more of what they were doing already and to build on their own capabilities.  Because the best way for people to change their lives is for them to have control and to do that in a way that they believe is best for them.

The idea of being able to allow people to improve their own lives, in their own manner, was what really attracted my family and I to microfinance.

My family and I lent $50 to two borrowers in Kiva last Christmas.

Microfinance: An introduction

Mrs. Rajalakshmi displays loan cards issued to borrowers enrolled in Mahasemam Trust’s Microfinance Loan Program. Chennai, India.

Over the last few decades, microfinance, or microcredit, has become a popular mechanism for economic development and poverty reduction.

Microcredit can be defined as “programmes that extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families”. This “contemporary” idea of microfinance is widely believed to have been created by Mohammad Yunus, who began lending to poor women in Jobra, Bangladesh in the 1970s. He later founded his own microfinance institution (MFI) known as the Grameen Bank. In 2006, Yunus, along with the Grameen Bank, won the Nobel Peace Prize for “their efforts to create economic and social development from below”.

Microfinance, however, is not a new concept; it has played a large role in civil society for centuries and has taken several different forms outside of the modern, formal banking sector. In Latin America, for example, the use of Tandas is the most popular form of saving and financing among poor populations. Tandas are formed among a small group of people who agree to give a specific amount of money to the Tanda every week. The collected money is then given to one of the Tanda members on a rotating basis. Each member will receive the total amount of the Tanda one week during the arrangement. This system has proven to be a popular model for those communities in which “modern” financial services through the banking sector are not available. A good list of the different microfinancing models can be found on the Grameen Bank website.

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