Social Impact Investing

In the past, public monies have often been directed to social initiatives that are failing or
that have only a limited impact. At the same time, non-profit organizations, even if
readily able to obtain short-term startup financing, face difficulty securing capital to
sustain and expand successful programs.
Building on ideas of past administrations, the Obama-Biden transition plans included the
creation of an agency within the Corporation for National and Community Service
dedicated to building the capacity and effectiveness of the nonprofit sector. The plans
highlighted the potential of this sector – as of 2012, nonprofits generated $1.5 trillion
within the US economy, employed 13.5 million Americans and contributed nearly 5.5%
GDP, while struggling with a scarcity of resources, given the uncertainty of donations,
and their lack of access to traditional incentives to growth enjoyed by for-profit
businesses. (By statute, 501(c)(3) organizations are not eligible for Small Business
Authority loans, nor can they obtain many commercial debt products designed for small
and medium enterprises.) The transition plans also called for using federal seed money
to leverage private sector funding, so as to improve local innovation, expand successful
programs, and test the impact of new ideas.
Also significant as a background to the creation of the SCIP were the recent changes in
the social sector, with the emergence of scalable, market-based models of social
change as a driving force. Such models include social enterprises with earned income
strategies; mission-driven businesses that focus on achieving a double-bottom line;
impact investors that seek to earn a financial return while achieving social benefit; and
multinational companies pursuing models of corporate responsibility. No administration
had focused on these trends until the Obama Administration created the Office of Social
Innovation to build a policy agenda in this realm.
Definition
The term Social Innovation, as defined by Stanford Social Innovation Review (SSIR),
refers to a methodology of solving societal problems through new mechanisms that
harness human and financial capital, and often stand at the crossroads of non-profit,
public, and private sectors. Specifically, SSIR frames social innovation as "a novel
solution to a social problem that is more effective, efficient, sustainable, or just than
existing solutions and for which the value created accrues primarily to society as a
whole rather than private individuals".
Social innovation refers to invention and new problem solving methods not only in nonprofits,
but also more broadly in how social entrepreneurs seek to address human
development challenges, how impact investors think about providing capital to
organizations who maximize stakeholder value, and how mission-driven businesses and
socially responsible corporations lever their comparative advantages to improve societal
outcomes.
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