The last decade has seen a raft of big new ideas about innovating financing models for social enterprises. Philanthropic organisations and program investors have been overwhelmed with gurus promising smart new thinking about how to extract more impact and influence from their grant, loan, and blended finance dollars.

A decade ago, Anthony Bugg-Levine and his collaborators told us that, ‘Financial engineering, then, can be a powerful force for change.’ A report for ZBW and the Kiel Institute for the World Economy around the same time advised that ‘the creation of a standardized set of performance metrics and benchmarking data would reduce financial transaction costs and bring much needed comparability data that is currently lacking in the social enterprise sector.’

More recently, creative ideas to address the social enterprise financing gap ($1.13 trillion according to the Schwab Foundation) have included crowdfunding, intermediation by large UN agencies, and, of course, social impact bonds.

Whilst all these ideas and suggestions are important, they miss a critical gap in the analysis: starting with what makes social change innovation and entrepreneurship fundamentally different from classical or commercial innovation and entrepreneurship. Which is that social change innovators are usually trying to uproot a social problem completely no matter into which shape it metamorphoses and what effects their own interventions create.

Social change innovators are compelled by the values of their vocation and the objectives of their mission to internalize their adverse side effects. They must also keep expanding and evolving their model to serially deal with each novel reframing of the problem they set out to solve. Even harder is the ever persistent need to widen the scope of their intervention beyond their best-fit customers and best-fit market segments to ensure inclusivity. In short, they must oversolve to stay true to their cause.

‘Social change innovation in today’s complex world is only possible through solution-coalitions. No one heroic social enterprise can make a truly effective, sustainable, change.’

The law of business focus dictates that classical/commercial entrepreneurs do just the opposite. Classical entrepreneurs must constantly look for the smallest piece of the problem-puzzle that someone is willing to pay them to solve, and find ever defter and ever subtler strategies to push other parts of the problem to someone else. In short, they must be adept at undersolving. The entire regulatory science industry emerged as a consequence of this: finding ways to get conventional businesses to take responsibility for the neglected effects of their business models. In the climate space, we call this “scope 2” and “scope 3”. With social enterprises, no such tiering has ever been necessary. Full social spectrum responsibility has always been taken for granted.

For social change innovators, optimizing against the narrow concentration of value that classical entrepreneurs do so well comes with immense costs in terms of financial opportunity, personal well-being of organizational leaders, and fraught relationships with funders, partners and supporters. An illustration should help.

In the green energy space, the classical business opportunity has been the fast accelerating performance of energy transformers like solar panels and energy storage and deployers like batteries. But this rapid improvement cycle leads to massive waste. When the efficiency of solar panels is growing at so fast a pace, it makes a lot of sense to change one’s set panels well before they reach their end of use. Experts estimate 200 million tons of solar panel scrap by 2050. If the current economic incentives to rapidly discard solar panels and buy cheaper, better, ones continue, the problem will only compound.

A social enterprise promoting the replacement of dirty grid energy with solar panels must have a strategy for recycling to ensure a full accounting for social and environmental costs. Unlike a conventional business, this cannot be circumscribed merely by local laws, which are often heavily lagging and generally lax.

But beyond recycling, such a social enterprise must concern itself with ethical recycling. There are many recyclers that only extract the most valuable part of the solar panel and dump the rest into landfills. So, all of a sudden, a solar enterprise specializing in solar energy has to build considerable competencies in the materials lifecycle domain.

I should know. I started my career trying to prevent counterfeit medicines from killing infants. I soon realized that it is a traceability problem so my team and I started building a raft of technologies to track all kinds of life-impacting goods from production to consumption. Now, in a world where the green transition is humanity’s greatest challenge, we have suddenly learnt that ‘traceability’ is much too linear and thus outdated.

We are now building circular-traceability solutions, starting with a protocol we have termed, Chain Royale, for the critical minerals so essential to the climate transition. Such a solution would be essential in, among others, the solar panel waste problem identified above by ensuring that networks of specialized recyclers can coordinate to handle 99.9 percent of the panel mass, whilst suppressing fraud.

In the preceding paragraph lies the clue to the puzzle: social change innovation in today’s complex world is only possible through solution-coalitions. No one heroic social enterprise can make a truly effective, sustainable, change. Transmediary actors must work together to create transmediation networks that can oversolve metamorphosing problems in a financially sustainable and entrepreneur well-being compatible way.

The gigantic problem in the current philanthropic and impact investment culture is that funders have not prioritized transmediaries, coalitions, and oversolving. During the pandemic, I was pleased to see that the Skoll Foundation was open to funding the action collectives that emerged to support the Africa CDC. But supporters for such approaches are sadly few and far between.

There is still this romantic obsession with heroic organisations delivering the perfect unilateral solution, even though in reality such perfection doesn’t really exist. Whilst much lip service is paid to “systems strengthening” and sector work, very few funders and legitimisers tie any serious funding to it. Consequently, metrics associated with ‘strengthening ecosystem work’ tend to be rather vague and perfunctory.

Until this culture is shocked to change, social innovation will greatly lag the simple, efficient, thrust of commercial innovation, even as funders continue to serenade out of breath, burnt-out, underwater, social changemakers struggling to hold back the hurricane of social harms and planet-crashing waste.

Bright Simons is the founder and president of mPedigree Network