Society today faces many challenges, and if they are not addressed we will have ultimately failed to protect both people and planet. The UN’s Sustainable Development Goals (SDGs) are a beacon of hope, but to achieve them we require finance, talent, enterprises, research and government backing. The need for impact investing is, therefore, inescapable.
The Social Impact Imperative: the impact imperative for sustainable development was launched by the Organisation for Economic Co-operation and Development (OECD) on 16th January 2019. The report calls for international standards to be applied on collecting data and measuring impact; with the hope that improved standards for social impact investment funds will lead to more effective impact investment by mainstream funds.
Here’s what struck me.
The need for impact investing will only continue to grow. Take one major issue, the refugee crisis. Over the last few years, around 2 million refugees have crossed dangerous and sometimes deadly routes into Europe. If the SDGs are not achieved it will become hundreds of millions of people displaced by social or environmental catastrophes, desperate to move to safety, far too often losing their lives in the process.
However, solutions for many of the world’s problems are being developed. When trends are viewed over time it becomes clear that humanity has already improved access to education, basic healthcare, childbirth mortality rates and childhood survival, literacy, poverty and much, much more. In 1960 childhood mortality was at 18.5%, and by 2015 it had fallen to 4.3%1, and over the last 65 years global literacy rates have increased by 4% every 5 years – from 42% in 1960 to 86% in 2015. What these solutions require is more investment, to allow them to scale.
The new tools of social and impact investment can help with this. The Global Impact Investing Network (GIIN) annual surveys show over 200 impact investors with $228bn invested stock. Interest in impact investing across the world has seen a massive rise, as evidenced by more government engagement, more policy initiatives, and the rise of ESG and mainstream impact funds to name just a few. Just over seven years ago Big Society Capital was the first wholesale social investor in the world, by the end of 2019 there will be 6 and it won’t stop there.
What is impact and what are the challenges?
Usually, impact is seen as the direct result of a specific intervention, investment into an enterprise that does good. But what about achieving change to the wider system – can we go beyond improving individual programmes and create sustainable systems? And have we checked for negative impact, which could be an unintended by-product of the positive?
When we know solutions work and the requirement is scaling up, we need mainstream funds who can make large investments. When dealing with early stage innovation small scale finance is often more appropriate. We need concessionary finance for the tougher areas when market rates of return are not always possible. All types of impactful investments are necessary: and we need to know when to use which.
Whilst it has been great to see increasing interest, questions remain about whether we are seeing quality as well as quantity. There are dangers such as impact washing if the market grows too quickly without solid foundations. The OECD flags many issues in its report including diverse definitions of impact, poor comparability of data and underdeveloped impact practices. All of these challenges, left unchecked, could hold us back.
The solution put forward by the OECD in its report is for governments to do more to improve fiscal and regulatory incentives for impact investing and put in place the necessary legal structures for the market to function well, such as updating financial regulation and establishing reporting standards.
What’s next for impact investing?
There are many areas of impact investment which require urgent attention: the rules of the road, the principles, characteristics and fundamentals; common data and systems, learning and transparency, training and accreditation. And the underlying values – engagement and ownership for and with the end users of our work. Including beneficiaries throughout the process is crucial, to ensure any outcomes meet their needs in the best way possible.
So, where should the industry focus? Ideally all of the above. What we can say right now is that without a clear and fully embraced set of global standards, we will be very active and will tick the boxes but will utterly miss the point.
The point is to combine people-centred values and financial imperatives, that is the nature of social impact investment and that is our challenge. We are bringing together the radically different cultures of big finance, social finance, and social enterprise. We are trying to respond to urgent social issues, whilst also building solid foundations, enabling investments to be repaid. It will not be easy, but if we know and recognise the challenges we face, we stand a good chance.
For now, the role of the social impact investment industry is to match the right mix of finance with the right kinds of enterprises. We must help to ensure the right government enabling frameworks are in place at the right scale for each situation. Most importantly, we must agree on the fundamental values of impact investing, and ensure they are written in stone.
Getting it at scale and getting it right, for real and lasting results: we can do it.
1 Our World in Data – Child Mortality