VentureBeat

It’s new enough that there’s not even a commonly accepted term for it. Some call it “social capital” or “social entrepreneurism”, others “blended value”, and some choose the Starbucksian name “double-triple bottom line.” You might just call it making money from doing good.

Microcredit is the major innovation that popularized the idea of alternatives to traditional philanthropy. An economics professor named Mohammed Yunus famously pioneered giving very small loans to people in developing countries to build businesses or take care of basic needs, often something as simple as opening a small store or buying vaccinations for a family.

Contrast that to aid organizations that have spent hundreds of years providing selective handouts — with little result. In just three years, microfinancing by both non- and for-profit organizations has taken flight, with a huge effect. The key was simply adding old-fashioned capitalism and a business model to charity.

Today, businesses that act with philanthropic goals but operate under business plans that mandate turning a profit are beginning to consider themselves a distinct group. Companies like the fair-trade juice venture Adina World, low-cost solar light maker D.light Design, microfinance group Unitus and the online social change startup Virgance all have fundamentally different businesses, but the same motivator: a better world.

A recent conference, Social Capital Markets 2008, saw several hundred entrepreneurs gather in one place to trade ideas for getting financed and growing in a world that’s still dominated by old-line institutions like the Red Cross. A common business model involves co-dependent non- and for-profit arms working as a single unit. One example: Zerofootprint, a carbon calculator for cities that has a non-profit foundation doing strategy for the for-profit corporation.

While most philanthropic ventures still operate solely as non-profits, there’s a growing niche for the new breed. That’s because, as Elizabeth Funk of Unitus put it while speaking at the conference, “greed is one of the fundamental drivers of humanity.” For-profit businesses have a drive that was long ago lost in the sprawling bureaucracies of traditional aid groups.

The goal, however, is not solely maximizing profits. Good Capital, a venture investment firm in San Francisco that focuses on social capital, walks a cautious line with its investments. The fund requires a positive return on its money, but also guards against profit-taking. “Nobody wants what happened when Ben and Jerry’s sold,” co-founder Kevin Jones told me, referring to the socially responsible ice cream maker’s buyout by a giant conglomerate. “You had these great shops in San Francisco with social programs. All that went away within two months when Unilever bought.”

One of Good Capital’s early investments was Better World Books, which got $4.5 million earlier this year to collect old textbooks for resale or free distribution to developing countries. Jones relates that the company wanted to give away too many of its books, a move the investors had to block to maintain margins. “They were scaring away investors — they were scaring us,” he said. But those same investors also allowed other aid organizations to buy into Better World, a move Jones calls a “reverse poison pill” designed to help block potential buyers motivated only by profit.

Overall, the returns promised by funds like Good Capital, are lower than traditional venture investment, but there’s no shortage of investors who want in. Right now, those are typically “high net worth individuals”, in industry parlance — meaning rich people — but if the first generation of funds proves it can turn a profit, traditional investors like pension funds will likely come knocking as well.

What’s not lacking are young entrepreneurs looking for a way to change the world. Social capital is far from mature, and Jones predicts “a lot of failures” as the fledgling industry finds its wings, much as the organic food and fair trade markets have been doing for a decade. But those are now mature industries, and their successes foreshadow a permanent place for social investment.

It’s hard to tell, at first glance, whether Zerofootprint is a serious business or a feel-good environmental action group. The answer, easily discovered before long, is that it is likely both.

The centerpiece of Zerofootprint’s business is a personal carbon calculator. Enter details on your personal life — how much you drive, fly, eat, heat your house — and it will tell you how many tons of carbon dioxide you’re responsible for releasing into the atmosphere.

Once carbon output is calculated, users can see tips on lowering their own emissions, join groups and communities of like-minded people, and stay tied in with local news and events about environmentalism. This personal calculator has gotten some attention — reportedly, even former VP Al Gore uses it for himself.

However, when it comes to personal environmentalism, there are plenty of voices that would point out that it’s unlikely to have much of an effect on the global level of emissions. The number of individuals willing to cut into their free time and change their habits to address global warming is inevitably, limited, and those who do will be an unimportant minority. (For more discussion from an economist’s standpoint, check out this post on the Becker-Posner blog.)

Perhaps surprisingly, Zerofootprint’s founder, Ron Denbo, generally agrees with that view. “If you look at World War II, people stopped making cars and started making tanks. But for that mentality to take hold, unfortunately, we might have to see some very significant things take place first,” he told us in an interview. “It’s hard to see how we’ll make enough of a change here.”

Denbo thinks that climate change itself will eventually force everyone to pay attention, just as German tanks did in Europe in the late 1930s, but realizes more is needed in the short term. To that end, he aims to build his business to a grander scale than just personal use. Zerofootprint is busy making deals with cities and corporations around the world, who can use the calculator to drive internal change.

The company’s most significant clients are cities like its own hometown, Toronto. Cities can roll out their own version of the Zerofootprint calculator to their residents and thus encourage them to make cuts that matter locally. Once they’ve made their calculation, local options for carbon reduction are suggested — for example, local transit options or carpooling groups for individuals who drive a lot.

More importantly, a city has the power to encourage different behavior from large groups of residents, and simultaneously benefit from that new behavior in terms of cost savings. Denbo gave the example of a local homeowner’s association. The city could offer a tax break to home owners in exchange for lowering their electricity usage by a set percentage each month and reap the benefits of not needing to construct another power plant to meet growing demand.

There are any number of scenarios that might benefit a city, but for corporations, the Zerofootprint calculator is, so far, just a nice accessory to their business practices. PriceWaterhouseCoopers, for instance, used the calculator in Australia to determine the amount of savings they’d receive, in terms of carbon emissions, from video-conferencing with clients rather than flying consultants out to them. Handily, there was an attached economic benefit.

But government regulation requiring corporations to limit their emissions will probably be required before they take serious interest in carbon-cutting. If and when such regulations do take place, it will be a company like Zerofootprint that they turn to.

And how does Zerofootprint itself benefit? First, you have to consider the company as two separate entities: A non-profit umbrella group, the Zerofootprint Foundation, and separate for-profit arms that handle building out the calculator for cities and other companies.

Zerofootprint can thus profit from the various websites it builds out, getting revenue from advertising, partnerships with other organizations, and payments from its clients. In turn, those profits are funneled to the non-profit, which handles the overall strategy.

Zerofootprint currently has six cities signed up for its service, including Boulder, Colo. and Seattle, Wash. It’s also a candidate for the cleantech award at the Crunchies, being held this Friday.