Social Impact Investing

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE
Social Impact Bond (SIB)
A Social Impact Bond is a financial mechanism in which investors pay for a set of interventions to
improve a social outcome that is of social and/or financial interest to a government commissioner. If the
social outcome improves, the government commissioner repays the investors for their initial investment
plus a return for the financial risks they took. If the social outcomes are not achieved, the investors stand to
lose their investment. (Social Finance website) 37
Social Impact Investment (SII)
Investments made into businesses and social sector organisations, directly or through funds, with the
intention of generating a measurable, beneficial social and environmental impact alongside a financial
return. (SIITF, 2014a)
Social Impact Investment is a transaction between an investor and investee in a social area, targeting
beneficiaries in need. Beneficiaries targeted should be at risk populations and the good provided should
have a mix of public and private good characteristics. These transactions are often made using
intermediaries. The investee in the transaction should, at least, inscribe a compulsory reporting clause of
its social activity in the statutes, as well as provide a formal evaluation of social impact. In parallel, the
investor should, at least, have a compulsory reporting clause for social impact investments and have
return expectations above or equal to zero, but not above the market rate of return (actual return may be
higher). (OECD working definition, 2014)
Social investment
Social investment is the provision and use of capital with the aim of generating social as well as
financial returns. Social investment carries an expectation of repayment of some or all of the finance. It can
cover loans, equity, bonds, and is sometimes used alongside other instruments, such as guarantees or
underwriting. As with any other investments, where the investee business performs well, returns generated
may be principally reinvested in the business, as well as offered to investors. Investors in social outcomes
weigh up the balance between the social and financial returns which they expect from an investment,
according to their own priorities. They will often accept lower financial returns in order to generate greater
social impact. (Source: City of London, 2012)
Social Purpose Organization (SPO)
An SPO, whether nonprofit, for-profit, or hybrid, seeks to create positive social impact for human
society, animals, or the natural environment in the form of social value that is not limited to economic
wealth for owners or consumption benefits for customers. (Source: Clark et al., 2012).
Socially Responsible Investing (SRI)
SRI is an investment approach that generally employs negative screening to avoid investing in
harmful companies which are creating negative spillovers in society through their activities (e.g. Tobacco
companies, weapon manufacturers). Today large amounts are invested under an SRI approach which has
implications for shareholder activism/advocacy to be able to encourage corporate social responsibility
practices. (Source: INSEAD adapted from Palandjian, 2010)
37. Available at: http://www.socialfinance.org.uk/services/social-impact-bonds/.
132 © OECD 2015