Social impact investment (SII) -- the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial, return -- has become increasingly relevant in today’s economic setting as social challenges have mounted with public funds in many countries under pressure. New approaches are needed for addressing social and economic challenges, including new models of public and private partnership which can fund, deliver and scale innovative solutions from the ground up.
This publication provides a framework for assessing the social impact investment market and focuses on the need to build the evidence base. It highlights the importance of further international collaborations in developing global standards on definitions, data collection, impact measurement and evaluation of policies. In a fast-evolving new area, experience sharing between players in the market is also vital. International organisations such as the OECD can play an important role in facilitating these collaborations as well as conducting further analysis and data collection.
SII can potentially provide new innovative ways to more efficiently and effectively allocate public and private capital to address social and economic challenges at the global, national and local levels. While these new approaches will not replace the core role of the public sector or the need for philanthropy, they can provide models for leveraging existing capital using market-based approaches with potential to have greater impact. SII can also catalyse additional capital flows into developing economies, critical to the current high-level dialogue on Financing for Development and the development of the new Sustainable Development Goals.
The market is evolving in various ways across countries. This is influenced by the differences in the country context including history, social needs and value systems. In addition, the ways in which social and financial systems are structured will determine the role and mix of public and private capital and therefore the potential role of SII. The variation in these contexts can provide indications in terms of which SII approaches may be more appropriate in some sectors than in others, and easier to implement in some countries than in others.
Additional data on social needs and service delivery across selected countries is available here.
Evolution of the market
SII has evolved over the past decade as the result of a number of factors, including a growing interest by individual and institutional investors in tackling social issues and the tremendous social and economic challenges emphasised by the recent economic crisis. Governments are seeking more effective ways to address these increasing challenges and recognise that novel approaches are needed.
SII starts with the social needs being tackled. A growing range of actors are emerging to address those needs and form an ecosystem consisting of impact-driven organisations, intermediaries and investors committed to addressing social needs. The enabling environment is an important factor in setting the foundation for SII.
Social impact investment ecosystem
SII financing models are emerging at multiple levels and in parallel to traditional markets. As in capital markets, financial intermediation plays a critical role as there are information asymmetries between investors and investees.
As seen in the development of other parts of capital markets, data on activity and performance can play an important role in helping to grow the market. Different players involved in the market, including policymakers, have been calling for more comparable data on SII, as well as a better and more accurate understanding of the size, scope, evolution and potential of the market.
The potential role of government
The public sector could play a catalytic role in the SII market in terms of creating a conducive regulatory environment, encouraging greater transparency and taking concrete steps to help develop the market. Some examples of policy actions take to date have included:
Demand-side: supporting social delivery organisations through technical assistance, investment readiness programmes, procurement and other initiatives.
Supply-side: providing tax incentives, guarantees or subsidies, and/or co-investing in SII funds.
SII ecosystem development: creating intermediaries such as wholesale banks, exchanges or other channels to facilitate links between supply and demand for SII.
Enabling environment: addressing regulatory issues, such as legal structures.
Recommendations and next steps
Given that SII is a nascent field, concrete evidence is needed in terms of its impact. In particular, further work is needed to demonstrate the gains from the SII approach, compared to existing social service delivery models. The OECD report recommendations focus on building the evidence base, including developing a common agreement on definitions, committing to building the necessary infrastructure for coordinated data collection processes, furthering efforts on the measurement of social outcomes and evaluation of policy.