Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
Governance: whether services are managed and financed at the central, regional or local level, or
even a combination can mean many actors, with different political and financial pressures,
influencing the service delivery methods and desired social impacts. Complex forms of governance
can create different challenges for private social service delivery organisations joining the social
market space particularly in the case of integrated social services, discussed below.
System planning: Public interventions are designed to fit into systems, meaning complementary
public services are considered in the design. SII will exist in a system of complementary public
services which may be relied upon to regulate demand for an SII service, or facilitate outflow from
a service (e.g. social protection will limit/regulate the inflow of homeless people into an SII
homeless service, and homeless treated with SII may benefit from public employment services on
exit). These complementary services will inevitably impact on the achievability of social impact
goals set for an SII, and may create sustainability risks.
‘Cross-sectoral’ returns and ‘wrong’ pockets: Related to system planning are the possibilities
for cross-sector returns, which for SII may mean returns ending up in the ‘wrong pockets’ (see
OECD, 2014f). Where public finances control multiple sectors, systems planning can allow for
returns to accrue in sector A from interventions undertaken in sector B. Moreover, not all returns
will need to be tracked or monetised, in the public system, or achieved within a pre-determined
timeframe – in each case an important challenge for SII reporting.
Fixed capital and human capital: At present, in many countries, public service systems have
large banks of fixed capital and many employees. These bring hidden costs to social service
spending (rates in Figure 5.5 report running costs), but can also represent additional policy options
(with social outcomes) for governments if the location of the service and the employment
conditions therein are part of national plans for employment creation, retention and safe
employment. Both costs and purposes can result in a small market space and lower liquidity of
public funds for private social delivery organisations.
Borrowing, funding streams, and sustainability: Public services are backed by nations and
traditionally have had access to borrowing or funding streams to allow for the treatment of social
need even in the most difficult economic circumstances. They do not have a profit principle,
meaning they can trade-off low cost cases with cases business might see as too costly to work
with. Critiques of SII highlight the profit-principle which may ‘trump’ social efforts at the
individual or community level if the business model becomes unsustainable (Yunus cited in
Esposito, 2013).
5.49 Meeting these challenges effectively is essential for the general SII business case, as well as for
the SII business case by sector (where these issues can be more or less important). The following sections
address both the governance issues and issues with gaps in public service, data, evaluations and measuring
social impact. For the other points there is no further discussion, but this should not detract from their
importance, or the need for effective solutions.
5.3.2 The governance of public benefits and budgets
5.50 Table 5.5 records the level of governance involved in the delivery of services in the sectors of
social protection, employment services, housing, health, education, and public order. Where data is
available, each country row records the level of governance at which social services are managed by sector.
5.51 At first glance this table highlights the complexity of social service delivery across the G7
countries and Australia, with all countries involving different government levels across the sectors,
© OECD 2015 73