Social Impact Investing - 'What Matters gets Measured'!

6/02/2016, Martina Macpherson

Social impact investments are those that intentionally target specific social objectives along with a financial return and a way to measure the achievement of both. It brings already significant advances in areas such as reducing prisoner reoffending, caring for children and the elderly, community regeneration, financial inclusion, and supported housing. However, its method is still evolving.

What is (Social) Impact Investing?

(Social) impact investing is at the core of a broad ‘impact continuum’, that runs from philanthropy to responsible and sustainable investment, which includes all those seeking to achieve positive impact. Impact investment aims to accelerate economic growth and to address some of society’s most important issues - supporting the mission of the Sustainable Development Goals.

The amount invested by the 125 leading impact investors is forecast to grow by nearly 20%, according to a study by the Global Impact Investment Network (GIIN) and JP Morgan in 2014.[1] Given that more than US $59 trillion (as of February 2016)[2] are in mainstream investment funds that have publicly committed to incorporate environmental, social and governance factors into their investment decisions, it only needs a small fraction of this money to start moving into impact investment for it to expand rapidly along the growth path to the mainstream previously taken by venture capital and private equity.

Innovation and Collaboration are Key to Success.

The launch of social bond funds such as Big Society Capital (in cooperation with Columbia Threadneedle Investments and Big Issue Invest) in 2012, Golden Lane Housing’s first ever 2014 charity bond which is listed on the London Stock Exchange, the UK’s 2015 legislation of a new social investment tax relief, and theBig Lottery Fund and Cabinet Office’s Outcomes Funds for Social Impact Bonds(which have yet to reach their full potential) represent a concerted effort by investors and policy makers to facilitate social investment by and into charities and social enterprises.

The interest in impact investing is also echoed elsewhere in the world: In 2013, the United States National Advisory Board (NAB) was formed to highlight key areas of focus for US policymakers in order to support the growth of impact investing and to provide counsel to the global policy discussion. The board is comprised of 27 multiple stakeholders, including thought leaders, including private investors, entrepreneurs, foundations, academics, impact-oriented organizations, non-profits, and intermediaries.[3] In a world of growing social issues and falling public spending, the need for social investment has never been greater.

According to the G8 Social Impact Investment Taskforce the boundaries between the impact investing and traditional capital markets are becoming blurred as many actors in the latter have begun signalling an interest to integrate impact investments into their portfolios and services.[4] This, in turn, creates the need for some consistency, metrics and reporting standards. Advances in technology and open data are helping to push social impact reporting forward. But a universal approach remains challenging.

Can we Define Social Standards?

There are some possibilities for agreed international standards. The International Integrated Reporting Framework already attempts to combine social, environmental and economic value under one reporting standard. However, the sheer variety of reporting standards has led to more complexity and ultimately confusion among corporates and investors: There’s the AccountAbility AA1000 audit; the UN Global CompactISO 26000; the German Sustainability Code; theSustainability Accounting Standards Board; the ESG Disclosure Framework;HACT Value Insight; the Global Reporting Initiative; etc.

Over the last years, accountancy and professional services firms have now moved into social impact. The so-called “big four” – PwC, Deloitte, EY and Grant Thornton – all offer social impact auditing services. According to Jeremy Nicholls, chief executive of the Social Return on Investment Network, “this is a crucial sign that the market is taking social impact indicators seriously” and “there is definitely a trend for social impact reporting to become closer and closer to accounting”, he says. “One of the things that is now increasingly being looked at is the inter-relationship between financial reporting and social or environmental impact – or natural capital.”[5]

Can Legislation lead the Way to more Transparency?

While one universal standard for social impact assessments may prove difficult, a common accepted methodology could well emerge – also given that public policy makers are introducing new legislative frameworks in relation to environmental, social and governance (ESG) disclosure and non-financial reporting:

In the UK, the Companies Act now requires companies to include “social, community and human rights issues, including information about any policies of the company in relation to those matters” within their annual report. And the Social Value Act mandates public services commissioners to consider the economic, social or environmental benefits of tenders.

At European level, the EU Directive on non-financial reporting, which comes into force by 2017, will require listed companies with more than 500 employees to disclose information on “policies, risks and outcomes as regards environmental matters, social and employee-related aspects”.

All in all: measuring and reporting on financial AND social ‘input, activities, output, outcomes and impact’ (see ‘Social Impact Report’ by Big Society Capital)  - followed by best practices – will benefit corporates, investors and society overall.  

Contact SI Partners Ltd. for more information on how to measure impact.

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References:

[1] J.P. Morgan and the GIIN, ‘Spotlight on the Market: The Impact Investor Survey’, May 2014. Link: https://thegiin.org/knowledge/publication/spotlight-on-the-market-the-impact-investor-survey

[2] UN Principles for Responsible Investment, ‘PRI Fact Sheet’, 2016. Link:www.unpri.org/news/pri-fact-sheet

[3] US National Advisory Board on Impact Investing, ‘Private Capital – Public Good’, June 2014, Link:http://www.socialimpactinvestment.org/reports/US%20REPORT%20FINAL%20250614.pdf

[4] Social Impact Investment Taskforce, ‘Measuring Impact’, September 2014. Link: http://www.thinknpc.org/publications/impact-measurement-working-group-measuring-impact/imwg_measuring-impact-3/?post-parent=11778

[5] Tim Smedley, ‘Can you Set a Standard for Social Impact’, in The Guardian, 12th February 2015, Link: http://www.theguardian.com/sustainable-business/2015/feb/12/can-you-set-a-standard-for-social-impact