Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
for-profit or non-profit) may restrict the ability or flexibility of these organisations to attract investments in
some countries. A number of new corporate structures are developing in various countries to meet the
needs of hybrid social ventures. Hybrid corporate structures seek to blend for-profit and non-profit sources
of funds to enable social organisations to pursue their mission (Rangan et al, 2011). Legal structures are
discussed in further detail in Chapter 4 and also in Chapter 6.
3.59 Barriers to the development of the SII market include legal and civil frameworks for the creation
and regulation of social organisations, as well as the availability of finance and market information for
start-ups in this field. A number of countries have established legal precedents or civil codes for social
ventures which aim to facilitate new social start-ups, reduce risks for both entrepreneurs and potential
investors, as well as make up part of the system of regulation and review needed to assess social impact in
countries.
3.60 Regulation, however, is a more complex contributor to the picture; on the one hand regulation
may facilitate third party evaluation of social impacts (as with benefit corporations – see Reiser, 2013) and
in turn help lower the risk for investors seeking social returns, and on the other may create additional costs
for the enterprises themselves.
3.61 As discussed earlier, the availability of financial capital for social enterprises is a critical factor to
facilitating or restricting private partners in social sectors. These can be from public or private sources with
varying conditions attached. Also, the balance between private and public ‘interest’ might signal different
expectations for financial/social returns from these enterprises.
3.62 Finally, the principle of a private social delivery organisation rests on having a social impact,
which means the SII market in a given country is dependent on the availability of social outcome data,
comparable public costs, and the present role of private finance in the delivery of social services. For a
country to identify a possible ‘market space’ for SII, data is needed for assessing the business case for
across multiple sectors or social target areas. Chapter 5 presents some of this ‘market space’ data for the
G7 countries and Australia.
3.63 There are several legal and regulatory issues that impact institutional investors including the new
Solvency II (insurance companies) and Basel III (banks). In addition, the EU Structural and Investment
Funds (EUSIF) initiative is meant to be helpful to the social impact investment market by creating lighter
regulation but may create additional barriers as decisions on how each fund will be treated will be
determined at the national or local level. The legislation came into effect in the summer of 2013 and is
described in further detail in Box 3.5.
3.64 Tax laws within countries have a huge impact on setting the conditions for social impact
investment, primarily in terms of the rules surrounding non-profits, donations and investments. In some
countries, governments have provided support to social impact investors and social sector organisations
through tax credits, guarantees or subsidies. Additionally some have provided support to investees through
technical assistance or procurement.
3.65 In the 2014 Budget, the U.K. Government announced a new Social Investment Tax Relief
which will give individuals who invest in qualifying social sector organisations a reduction of 30% of that
investment in their income tax bill for that year. The government’s aim in introducing this new tax relief is
to encourage private investment in social sector organisations (HM Government, 2013c). In 2002, the
Community Investment Tax Relief (CITR) scheme was devised to encourage private investment into
CDFIs. The U.K. has several other tax incentive schemes for investments in small and medium-sized
businesses (HM Government, 2013b), including the Enterprise Investment Scheme (EIS), the Seed
Enterprise Investment Scheme (SEIS) and the Venture Capital Trust (VCT).
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