Over the past decade, more than three dozen jurisdictions in the United States passed some form of social enterprise legislation. Social enterprise statutes allow for the formation of for-profit entities that expressly require directors to consider the interests of corporate constituents beyond merely shareholders. Proponents of these social enterprise statutes argue that such statutes are needed because traditional corporate law prevents sacrificing the financial interests of shareholders in the interest of a broader social good, or in the interest of other stakeholders. Recently, social enterprises have started exploring public markets and showing up on the radar of investment professionals, including those covered by the Employee Retirement Income Security Act (ERISA). ERISA has long required plan fiduciaries to “discharge [their] duties with respect to a plan solely in the interest of the participants and beneficiaries,” but various iterations of guidance from the Department of Labor (DOL) show differing amounts of favor or disfavor toward Economically Targeted Investments (ETIs)—investments made for financial returns and collateral social benefits to participants. This Article seeks to uncover and explain the relationship between social enterprises (most of which are likely to be classified as ETIs) and ERISA, while also discussing the current and future place of social investing in the broader financial world.
Part I of this Article provides a brief overview of impact investing and the array of newly created social enterprise legal forms. Part II takes stock of the current state of social enterprise investing. Part III examines ERISA and the DOL’s guidance on extra-financial considerations when making investment decisions. Part IV describes the difficult line proponents of social enterprise forms, such as benefit corporations, must walk. On one hand, social enterprise proponents argue for the statutory permission to intentionally sacrifice profits, and, on the other hand, they argue that social enterprises will provide a market rate of return. The last substantive section, Part V, unpacks financing options outside of the ERISA umbrella for social enterprises such as venture capital and crowdfunding while also considering the future of social enterprise investing under ERISA. A brief conclusion closes the Article.