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Symposium 2014

The Future of Social Impact Investing

The Challenge

Society often rewards philanthropists for giving away their money—think about The Giving Pledge—while scorning those, like hedge funds, who can generate overwhelming financial returns. Turning this equation on its head, and lauding those that take risks to support young but high impact generating businesses will mean changing the nature of how we view capital markets and philanthropy. And this, perhaps, would at last unlock capital for impact investing. Philanthropic capital could be potentially more impactfully spent by providing guarantees against first loss capital to support social enterprises, or through venture debt targeting these businesses. To date, this model barely exists.

Perhaps the problem is still definitional. The concepts of impact investing, philanthropy and CSR and sustainability, while all related are not the same but contribute to misconceptions of what impact investing is. Coupled with development finance, which is not a new phenomenon, and is in fact a subset of impact investing, it perhaps comes as no surprise that potential market participants are discouraged from entering the sector.

Certainly impact investing has generated significant discussion, if not yet AUM, since its inception. What is hindering investors’ from embracing the sector, and how do we create an enabling infrastructure for impact investing to take off?

Of course there are many possibilities—one is limited monitoring and evaluation, and little or no track records. The mutual fund industry employs over 150,000 people to rate and evaluate for-profit firms. Nothing comparable exists in the impact investing world, perpetuating the lack of confidence investors often feel when it comes to impact funds or social enterprises.

Another is low returns or questionable performance: private corporations respond to market signals and go out of business when they fail, but social enterprises and impact funds expect investors to be more forgiving.

So what remedies exist? One option is to encourage policies to change, such as that of the US, where tax-free status is only awarded to charities who spend 5% of their endowment per year. For large private foundations this can be difficult to do effectively—and adjusting this figure to perhaps 4% while allowing 1% to be spent on missions related investments—risk capital in social enterprises or impact funds—would unlock literally billions for impact.

Another approach is to examine cross-sector collaboration efforts: bringing together the major donors or private foundations with public organizations and implementing private organizations to effect change, and generate revenue.

But perhaps, at the end of the analysis, the issue is the alignment of expectations and incentives between investors and social business managers and operators. If this remains a case-by-case basis rather than a sector-wide-understood definition, then the impact market will struggle to take off.

    Background Paper

    Background Paper
    Symposium 2014

    The Future of Social Impact Investing

    Polity, Academia, Business, Civil Society

    Virtual Library

    Virtual Library File
    Symposium 2014

    Venture Philanthropy: Its Evolution and Its Future - Harvard Business Review

    This article, while written for the philanthropic sector and interested venture philanthropists, offers a potent view of how the charitable world is evolving to adopt a business mindset. The fusion ...

    This article, while written for the philanthropic sector and interested venture philanthropists, offers a potent view of how the charitable world is evolving to adopt a business mindset. The fusion of business, multi-faceted returns and philanthropic desires echoes the needs of social enterprises and the early days of impact investing—putting impact before profits. This new approach is lauded as being a panacea to development challenges like poverty alleviation, access to energy, and global health, but for practitioners, the picture is less rosy.

    Virtual Library File
    Symposium 2014

    Making Capitalism More Inclusive - Selected Speeches and Essays from the Conference on Inclusive Capitalism

    Selected Speeches and Essays from Participants at the Conference on Inclusive Capitalism
    Selected Speeches and Essays from Participants at the Conference on Inclusive Capitalism
    Virtual Library File
    Symposium 2014

    Making Capitalism More Inclusive - Selected Speeches and Essays from the Conference on Inclusive Capitalism

    Business leaders and investors like Philip Hildebrand, Elroy Dimson and Tony Elumelu, motivated by an enlightened understanding of the relationship between business and society, focus on creating lo ...

    Business leaders and investors like Philip Hildebrand, Elroy Dimson and Tony Elumelu, motivated by an enlightened understanding of the relationship between business and society, focus on creating long-term local wealth in these articles and conclude that profits can be made in addition to positive impacts. The focus is away from short-termism to maximise returns to business and society and that no financial intermediaries or actors—whether pension funds, asset managers, or emerging markets growth vehicles should pass the buck in terms of good governance.

    Virtual Library File
    Symposium 2014

    Toniic e-guide to early stage impact investing

    Rather than an academic article, this is a detailed but concise guide to impact investing focusing on the early stage companies most in need of patient capital and knowledgeable investors to put soc ...

    Rather than an academic article, this is a detailed but concise guide to impact investing focusing on the early stage companies most in need of patient capital and knowledgeable investors to put socially minded business models into action. This e-guide, which draws from members of the Toniic Network—a global impact investing network—as well as their peers, aims to help those with an interest in investing in early-stage impact enterprises see how this work is being done through global case studies and regional guides.  Readers can go from learning to action as global practitioners in impact investing by using a proposed framework.

    Virtual Library File
    Symposium 2014

    Building Impact Investment Readiness: A new approach to unlocking institutional investment globally - Stanford Social Innovation Review

    The lack of institutional investor participation and government support continues to hinder the impact investing market from taking off. The author outlines the gaps and proposes macro (bird’s eye ...

    The lack of institutional investor participation and government support continues to hinder the impact investing market from taking off. The author outlines the gaps and proposes macro (bird’s eye view) but appropriate solutions to bringing institutional investors on board, using India’s impact landscape as the backdrop.