Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
investment, or which want to bid for contracts over GBP 1 million. The Boston Consulting Group (BCG)
conducted an independent interim review by in April 2014 and determined that the fund was having a
“significant and positive impact” (BCG, 2014).
3.11 Social ventures can also face challenges in a number of other areas including finding adequate
legal forms or conforming to impact assessment standards. Transaction and reporting requirements can be
high for social enterprises (OECD, 2013b). As the focus on impact measurement has increased, so have the
pressures on social enterprises to comply with a varying set of standards, many of which can be time
consuming and do not always feed back into the management and objective setting processes within the
organisation. Efforts are being made to develop a streamlined set of reporting standards.
3.12 Mission drift is another challenge for social impact investors and entrepreneurs. This can be
overcome, to some degree, by incorporating social parameters (clauses in term sheets and covenants) into
investment documents to make sure both the investor and investee remain aligned to the social mission. A
Working Group of the SIITF was dedicated to this important topic and it is also covered further in
Chapter 4.
3.4. Supply-side
3.13 On the supply side, capital providers are increasingly interested in social impact investment as a
way to diversify their investments and pursue social, as well as financial, goals. These include foundations,
high net worth individuals and philanthropists, banks and other financial services firms and intermediaries.
To date, the most active social impact investors have been high net worth individuals (HNWI) and family
offices, who have more flexibility and autonomy than other investors (WEF, 2013). Interested high net
worth individuals may invest individually or possibly through the small but increasing number of angel
investment groups focused on social impact investment (OECD, 2011).
3.14 Foundations have played a critical role in the development of the social impact investment
market (Koh et al., 2012). This role can range from building market infrastructure, such as Rockefeller
Foundation has done in the U.S. and the Bertelsmann Foundation in Germany, to providing “catalytic”
capital or actively investing, through programme related investments (PRI) programmes. Private
foundations have the advantage of being independent from government and the markets and therefore are
in a position to take on greater risk than other private investors and provide long-term ‘patient’ capital.
This gives them the freedom to explore and create innovative ways to address social, economic and
environmental challenges.
3.15 Grants, both public and private, continue to play an important role by providing “first loss” or
“catalytic” funding (GIIN, 2013). Grants and technical assistance are often needed before or alongside SII
to help social ventures addressing social challenges develop commercially-viable solutions (Bridges
Ventures, 2012). In addition to foundations, Development Finance Institutions (DFIs) have also played an
important role as “catalytic” funders in the market.
3.16 While grants are not considered social impact investment, foundations can and do engage in the
market through market building activities as well as through mission-related or program-related
investments (Rangan et al, 2011). However, in those cases, it is important for the foundations to distinguish
between grants, which in reality provide a 100% “subsidy” versus investments which involve risk and
therefore an expectation of returns. In essence, there are various forms of support and financing for social
ventures and different types of investors will look at the spectrum of investment options with their own
risk/return requirements in mind. Return expectations are discussed in further detail in Chapter 4.
26 © OECD 2015