Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
which they can provide capital to profitably grow businesses in various social sectors. A recent World
Economic Forum report provides practical steps to be taken in order for mainstream investors to engage in
social impact investment (WEF, 2014).
3.20 Despite the increased interest among institutional investors, securing commitment from
traditional investors continues to be a challenge. The approach to institutional investors needs to be
structured in way that works for them and in a language they can understand. Initiatives, such as GIIN,
ANDE and SOCAP, which build links between mainstream and social impact investors, can help to create
awareness and increase interest. Institutional investors also have certain legal requirements which can
create barriers to social investing (Wood et al, 2012). These issues are discussed further in the recent SIITF
Working Group paper “Allocating for Impact”.
3.21 Another challenge in engaging mainstream investors is the lack of sufficient absorptive capacity
for capital (Freireich and Fulton, 2009). There is a scarcity of high quality investment opportunities into
which larger amounts of capital can be deployed. More products are being developed, across the risk return
spectrum, into which institutional investors can deploy social impact investment funds.
3.22 Some social impact investors are finding it helpful to focus on investment within specific sectors
(Bannick and Goldman, 2012). This enables a concentration on providing expertise and building the
necessary links within a specific sector and thinking about social businesses in the context of the sector
ecosystem.
3.23 Individual citizens are also able to participate, whether through investments in the local
community or through pension funds with a social return element, such as the “Solidarity Funds” in
France. Solidarity funds, or “90/10” funds as they are often called, are based on employee pension plans
and savings. Companies with over 50 employees can contribute and 10% of those funds must be invested
in government-recognised “solidarity organisations”. These funds are regulated by Finansol and managed
in partnership with banks, microfinance institutions and investment firms. Initially, only non-profit
organizations could earn the “solidarity” label, but the rules have changed to now also include commercial
businesses with a social mission. Solidarity finance provides a way to engage “retail” money in the social
sector, however, the assumption is often made that the returns on that 10% will be low (or that returns on
the other 90% will be higher).
3.24 According to a recent Triodos report, “retail” or citizen participation in social impact investing is
a promising development which can be vital to the long term success of the market. The report suggests the
creation of social impact investment funds for retail investors, the expansion of impact-enabled employee
savings and pension plans with funds dedicated to social impact investment and tax incentives for retail
impact investments (Triodos, 2014).
3.25 Crowdfunding platforms are also increasingly providing access for retail investors to support
social enterprises. While most crowdfunding for social causes is donation-based (Wilson and Testoni,
2014), increasingly, equity crowdfunding platforms are providing investment opportunities in some
countries, although equity crowdfunding is still not allowed in many countries due to investor protection
rules.
3.26 Finally, the public sector clearly plays a central role through the commissioning of social services
by national government departments, local authorities and other government agencies as well as through
direct or indirect support of the SII market. These topics are discussed in further detail in Chapter 5.
28 © OECD 2015