Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
2.19 Initiatives being led by governments, foundations, investors and others have helped accelerate the
market in the past few years (Jackson and Associates, 2012). A number of OECD countries, such as the
UK, US, France and Australia, have played a leading role in developing the social impact investment
market. There have also been significant developments and experiments in the past several years in many
other developed and developing countries which are contributing to the development of new models and
approaches.
2.20 Given that countries are at different stages of development, the experience sharing process of the
Social Impact Investment Taskforce established by the G8, and the associated National Advisory Boards in
the G7 and Australia, has been helpful in raising awareness about social impact investment and how
countries might engage. These activities have also helped spur additional action within those and other
countries and attract new players to the market.
2.21 While Phase I of the international initiative focused on the social impact investment markets and
policies in G7 countries and Australia, there was a Taskforce Working Group looking into the implications
for international development 5 .The next phase of the initiative is planned to expand its engagement and
focus to the G20 countries and beyond. There is a growing recognition that traditional sources of
development financing, in particular official development assistance (ODA), are not sufficient to address
the scale and complexity of today’s global development challenges. Partnerships are needed that encourage
better collaboration between the public and private sectors and ways need to be found to use ODA in a
smart way to facilitate these partnerships as well as mobilise additional resources.
2.22 International aid agencies are searching for new tools, including results-based financing,
outcomes-based approaches, market-based solutions and different forms of public-private partnerships, to
increase their effectiveness and long-term development impact while working with the limitations of
tighter budgets. Social Impact investing has the potential to catalyse new capital flows into developing
economies, translating experiences, policies and approaches from developed countries into the emerging
and less developed country context.
2.23 While the social impact investment market has been growing significantly and has drawn
increasing interest and attention, it is still in the early stages of development (Kohler et al, 2011) and is
only a small share of the global capital markets today (Saltuk et al, 2014). While difficult to measure for a
variety of reasons including the lack of clear definitions and the diversity of sectors and approaches across
geographies, the social impact investment market potential has been estimated to be significant. This is due
to growing interest among foundations and mainstream investors as well as an intergenerational transfer of
wealth, estimated at USD 41 trillion that is expected to take place over the next 50 years with nearly
USD 6 trillion of that expected to be directed towards social issues (Rangan et al, 2011).
2.24 The microfinance industry was an early model of changing approaches to financing which also
addressed social needs. The microfinance market is estimated to include over USD 50 billion of loans
given to over 100 million micro-entrepreneurs, mostly in developing countries (Rangan et al, 2011). From
1997-2007, microfinance grew at a rate of 38% per year in terms of the number of clients although growth
has slowed in more recent years (Addis et al, 2013). The Monitor Institute and J.P. Morgan estimated
similar possible annual growth rates for the social impact investing market (Freireich and Fulton, 2009;
O’Donohoe et al., 2010).
5. See the Working Group report for further details: Social Impact Investment Taskforce (2014), Subject
Paper of the International Development Working Group: International Development
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