These days, investors want more for their money. Increasingly conscious of global injustices and environmental catastrophes linked to past investments, many are now looking for a double dividend of social, as well as economic returns from their ventures.
The aim of social impact investments is to produce a measurable and positive social and environmental impact in addition to financial returns. It is an exciting and rapidly growing field which has attracted a wide variety of individual and institutional investors, running to catch the fast-moving band wagon.
More than money
Social impact investments are seen as the future of investing, given that the investors get the best of both worlds – social impact and return on the investment. However, investors face several challenges when investing in social enterprises. Some of those challenges involve the regulatory environment, stakeholder alignment, measuring impact, deal sourcing and pipeline, scaling impact, safety nets and exit strategies.
Although these challenges make it more difficult for investors to decide on whether to invest in social enterprises, there are huge benefits for social impact investors. The money invested in social enterprises works toward enhancing lives and resolving social and environmental problems. It can have a considerably greater impact than standard investments.
Market evolution
The recent economic crisis and the enormous social and economic challenges it highlighted have contributed to an acceleration in social impact investing. Since 2018, social impact investments have almost quadrupled. The widely-cited GIIN estimate of the size of the global impact investing industry has surpassed USD 1 trillion for the first time, coming in at USD 1.164 trillion. The figure represents an increasingly thorough measurement of impact assets under management globally and is the main finding of the GIIN’s 2022: Sizing the Impact Investing Market report.
European institutions have sought to nurture this growth. Some of those developments include the establishment of the European Social Innovation and Impact Fund, ensuring that innovative company models with a positive social impact are prepared to grow sustainably.
A positive trend in social impact investment in recent years
Challenges in accessing social impact investments
To access social impact investments firms must demonstrate a clear social impact, financial sustainability and a sound track record and scalability. Meeting all three can be a tough ask, especially in the absence of standardised metrics.
Governments have a vital role in developing metrics as well as legal and regulatory frameworks for the sector’s development.
Several frameworks are in place to guide governments, including environmental, social and governance (ESG) criteria which measure investments’ sustainability and ethical impact. The United Nations Sustainable Development Goals (SDGs) offer a worldwide framework for resolving significant social, economic, and environmental concerns by 2030, offer another framework for many social impact investors. For those interested in investing in social enterprises, some of the best investment tools can be found through the OECD-UNDP Impact Standards for Financing Sustainable Development, Global Impact Investing Network, UN Principles for Responsible Investment, Social Investment Forum, World Economic Forum and others.
Government support
Government actions can pave the way for business development and impact creation through regulatory frameworks, but also through tax incentives, loans and grant funding. The landscape for social impact investments is rapidly expanding – both in demand and in scope, encompassing diversity, equity and inclusion, climate action, and many new social innovations.
The tools and standards for impact investments are evolving also, making for an uncertain landscape. Yet breaching the one trillion USD barrier speaks loud and clear: social impact investments are growing fast. It is the right time to jump on the wagon to create a deep social footprint.
Stefan Chichevaliev is Executive Director at the Social Entrepreneurship Observatory, LL.B, LL.M (Business Law), PhD in Business Administration, and a Postdoc at Vrije Universiteit Brussel researching Social Entrepreneurship Ecosystem Development, with more than 10 years of experience in the private, public and the civil sector. Currently involved in social entrepreneurship, researching and exploring sustainable solutions to societal issues and boosting international academic partnerships.