Key principles of the social investment concept
Social investment is investment made into companies or organisations whose mission directly impact social issues. The aim of social investment is to generate a measurable and beneficial social impact with a neutral or positive financial return. The impact of social investment must be measurable in qualitative and quantitative form. It is a part of social and solidarity economy.
The goal of social impact investment is to foster the rise of a global entrepreneurship and innovation finance market that directly addresses social issues: old-age, handicap, education, housing, rehabilitation, employment, health, international solidarity, etc.
Investment targets are both non-profit organisations and profit-with-purpose whose social mission guides in all cases strategic decisions and the allocation of resources.
Features of social impact organisations whose social mission targeting beneficiaries with social needs:
- A group or area of action targeted by a government or charitable foundation (e.g. the fight against diseases)
- A company rooted in the territories that creates jobs in disadvantaged areas transparent about its overall impact
- A group of underserved clients who do not have access to essential goods and services
- Employees in the company or supply chain with social needs
- Civil organizations (e.g. those encouraging civic participation)
Funding is different depending on the stage of development of the business, and the nature of the business and the financing needs.
We can also speak about Social Investment as a part of socially responsible investment, which encompass corporate social responsibility – a company’s overarching approach or strategy for improving the social, environmental and economic well-being of their community or society at large. Sustainability is becoming a prior criterion of investment for more and more companies.
Ecosystem of social impact investment
The ecosystem of social investment is composed of historic and more recent financers.
- State and local authorities
- Institutional Investors
- Public agencies, specialized financial institutions
- Social and cooperatives banks
- Solidarity Investment Network
- Employee savings
- Traditional banks
- Asset Managers and Capital Investors
- Crowdfunding platforms
- Non-profit associations
- Non-profit foundations
- Non-profit and profit-with-purpose integration structures by economic activity
- Non-profit and profit-with-purpose disabled facilities
- Health mutual
- Social activity cooperative
Social Impact Investors
Public investors are a historical major source of investment, to which must be added a complete system of tax incentives (tax-free funds, subsidized contracts, etc.).
Regional and local authorities play a key role in several areas: financing of associations (subsidies and public procurement), support for local solidarity investment networks, microfinance, social housing, etc.
Wealthy individuals are willing to support the social and solidarity economy through a solidarity savings product, under the condition of a correct remuneration. There is a galaxy of investment clubs dedicated to investing in equity or quasi-equity in social enterprises. Family offices show growing interest in venture philanthropy and social sector funding.
For the most part, individuals finance the social economy via solidarity banking products, products or sharing funds, and solidarity-based employee savings funds, the latter representing a very significant share of the total financing of the social economy.
Several large companies have launched dedicated social investment funds. Most of these funds are connected to the employee savings funds offered to their employees.
For many foundations, making sense of managing their assets is a growing concern. The number of business foundations is growing every year.
Social Impact Bonds
There are many ways to finance social impact projects: loans, equity and bonds.
The social impact bond is a new form of bond issued by a social enterprise, which is dedicated to finance the development of a social impact action. The repayment is done at the end of the project and depends on the results of it (the public authorities only remunerate the bonds in case of success).
In other words, a private actor contracts with a public actor, where he undertakes to finance a specific social action in exchange for a payment by the public actor of financial interests if the results are achieved. Through bonds issued by the public authorities, social impact bonds allow private financial actors to finance non-profit social projects.
The main interest of the Social Impact Bonds is to allow the organisations to finance social impact projects that it would not have the means to help without it. They are a part of the responsible finance domain.