The combination of a number of ultra- wealthy investors, high net-worth individuals, corporations and foundations all seeking to diversify, to leverage investment as a tool to drive social change can be hugely exciting for advancing societal innovation
These groups of investors are still looking for returns, perhaps less market-rate returns but where their capital is catalyzing impact. This means they are getting more interested in the pull of growing emerging economies, the more value-driven behaviours of consumers that is emerging post recent crisis and the need for relating and contributing to finding effective solutions to social and environmental challenges across all societies. Part of the aim also is to recalibrate supply and demand that looks harder at social impact.
Let’s look at some of the critical success factors for this to succeed.
The Monitor Institute wrote a report, released in 2009 (http://bit.ly/eH5UQ) on impact investing, and it provides an excellent overview of what needs to happen. Their list of critical success factors was to view this from different parties’ perspectives but let me provide the list of significant issues to be resolved:
- Developing a range of different but creative packaging instruments that make it possible to gain sufficient returns and bring the different parties together in this project.
- Most probably have some infrastructure specially suited to manage opportunities (separate stock exchanges, intermediaries and specialists)
- Form a clear network/ community to enable linkages between investors and explore common goals.
- Encourage sufficient commercial capital to participate in joint deals by involving all possible investors that see this as critical to contribute funds too.
- Build sufficient submarket funds or grant capital that might have different investment rates so a more ‘blended’ rate is attractive and resolves different ‘benefit’ criteria between parties.
- Achieve a common approach for assessing social/ environmental elements of investment from research and valuation aspects.
- Structure a viable market for investment opportunities where competitive returns can be demonstrated that
- Impact rating systems can be developed that offer acceptable minimum standards to certify companies and verification and are not actually equally destructive.
- Achieve a growing standard of metrics that set out goals of achieving social or environmental objectives
- A real push will be needed for more product innovation that meets the challenges, is able to be scaled up and overcomes potential (parts of) society’s objection or concerns with accepting the changes it might bring.
This is an evolutionary path.
The view is this is going to be a ‘messy’ transition in the evolution of the activity surronding this. It has to get a clear level of ‘traction’ and serious policy attention
Further talk about Social Impact Bonds
There is also talk of a social contract that may develop into Social Impact Bonds- investors provide capital to fund community-based programmes whose successful implementation lessens long-term public expenditure and improves society outcomes.
Clearly these emerging concepts around ‘Impact Investment’ will not be easy but if it does bring together all parties to attempt to drive impact and innovate in different fields where we have bigger social challenges then it will have that required ‘impact’ we are often missing in social innovation today.
The key is it does need to generate shared value for all and that is going to be a hard road to travel.