A big thank you to everyone for all your emails and messages to my blog. I am enthused by the positive response, especially regarding the People and Planet Economy post.
People generally love the concept of a Social Innovation Sector (SIS). However, some have suggested considering another word for ‘sector,’ as the broader concept I am proposing in this series of blog posts cuts across different sectors. Please comment below any alternative suggestions for the word ‘sector’ with me.
What are some Funding Strategies for Social Innovation?
A concern that is top of mind for everyone who supports the idea of establishing an SIS ecosystem, is how it will be funded. With the UN’s Sustainable Development Goals (SDGs) requiring an estimated $4 trillion per year, the question arises of how an emerging movement can attract financial contributions and identify funding sources.
Where will the money come from?
In this blog, I outline some out-of-the-box ideas on funding sources which could fill the funding gap and lay the foundation for a new way of thinking around financing, equity, and democratised decision-making.
As usual, I share my ideas not as a finite set of solutions, but in the hope of establishing a clear and ambitious starting point that might inspire you to share your innovative thoughts on funding social innovation.
Here are some ideas.
Collective Contributions: The One-Cent Principle
The digital market continues to grow, as does its consequent impact on the environment. The computational power necessary for this market is often left out of discussions, even though creating the necessary machines demands large-scale resource exploitation and draws excessive energy.
The energy required for this growth relies on carbon-emitting plants and energy-intensive data centres. Given these realities, there is a clear justification for imposing a modest contribution on energy users and carbon emitters, ensuring a fair balance that benefits both people and the planet.
The following are two examples of contributions that could be harnessed:
Digital Payment Contributions According to The Nilson Report, roughly 1.01 billion credit card transactions are made every day globally. Although, this number is projected to climb to 427 billion transactions annually by 2026. Suppose one cent was to be levied for every transaction processed as a collective contribution towards the SDGs, more than US$3.68 billion could be raised for the year 2024, alone. If we apply a progressive contribution rate dependent on the transaction value this amount would be doubled or even tripled.
International Funds Transfer Contributions According to SWIFT, an average of 42 million transactions are made each day using their money transfer system. If a charge of one cent per payment transaction were also levied, annual revenues of US$153 million could be raised. The one-cent rule could be effectively applied to all digital transactions, including Digital Wallet Payments like PayPal and Venmo, as well as Stock Exchange and Cryptocurrency transactions. This revenue source holds enormous potential, as it is expected to further escalate with the ongoing digitalisation of the world.
People and Planet Contribution
Another idea is to launch a global campaign, urging all corporations worldwide with annual revenues exceeding US$10 million, to voluntarily contribute 2% of their profits. This voluntary contribution has the potential to generate significant revenue, which can be utilised to fund the People and Planet Economy, support sustainable development, and address the world’s most pressing challenges.
The Global 5000 companies, comprising the world’s largest corporations, collectively generate approximately US$70 trillion in revenue, accounting for around 70% of the global GDP. A mere 2% of this revenue would amount to US$1.4 trillion.
Combined, these initiatives could help us reach at least 50% of the amount required to make up the financing shortfall for the SDGs.
Excessive Luxury Levy
According to a report by Wealth-X, the global luxury market, encompassing various luxury goods such as jewellry, housing, yachts, planes, cars, art, and more, has an annual worth exceeding US$2 trillion. If a progressive levy ranging from 10% to 50% were imposed on luxury goods as a contribution to addressing social challenges, the generated revenue could range from US$200 billion to a trillion US dollars, depending on the levy rate.
I love this levy idea as it will effectively tackle the issues of income inequality and excessive consumption. By taxing extravagant luxury products at the point of sale, funds could be generated to support social programmes benefiting a broader population, including education, healthcare, and affordable housing. This tax, which would require applicability in international waters, would help narrow the wealth gap and ensure access to necessities for all.
Repayment of Subsidies and Tax Breaks
Insufficient data is available on subsidies or tax breaks provided to large corporations. However, if clear policies were instituted globally to ensure that subsidies and tax breaks were returned once companies became — or returned to — a profitable stance, this could also generate substantial funds for the SDGs.
Studies and reports on the value of tax breaks received by large corporations in the United States provide some insight into the potential funding available if this approach were adopted. For example, a 2019 report by the Institute on Taxation and Economic Policy (ITEP) found that 60 Fortune 500 companies attracted a negative federal income tax rate in 2018, receiving tax rebates instead of paying taxes. The report also found that the average effective tax rate for profitable Fortune 500 companies was 11.3%, well below the statutory corporate tax rate of 21%.
The European Regional Development Fund (ERDF), the largest subsidy programme in the European Union (EU), primarily supports regional and local economic development initiatives, including those involving corporations. According to the European Commission, the ERDF budget for 2021–2027 is €200.8 billion, representing approximately 10.6% of the total EU budget for that period. The ERDF primarily supports projects focused on innovation, economic transformation, and job creation.
Implementation of a uniform global policy to recoup subsidies from profitable companies and apply more just tax rates could potentially generate — based solely on the US and EU data — over 500 billion US dollars annually.
So, guys, these are a few ideas on how to finance the People and Planet Economy, presented here to initiate discussions and explore paths toward reducing structural inequalities.
I encourage you to share your thoughts and ideas in the comments. Also, don’t forget to input your alternative suggestions for the word ‘sector.’ It’s time to take action and shape a future that benefits all.