What is social impact investing (SII)
Social Impact Investing consists of innovative policies from at least two points of view.
First of all, because they involve different actors, public and private: no longer just the State, but also private investors, financial intermediaries, non-profit organizations.
Secondly, because they make it possible to achieve a double objective: a strong social impact and an economic gain, thereby agreeing to the individual investor as well as to the entire community.
There is now ample evidence, in fact, that social growth stimulates the growth of the real economy.
Today the time is ripe for this type of approach as, over time, the opposition between doing charity and making profit has disappeared. In the past, the social / business separation has accustomed us to wealthy individuals who, on the one hand, aim at profit without necessarily paying attention to the ways in which it is generated and, on the other hand, aim to feel right with themselves doing charity to hospitals and parishes.
Today, instead, the scarcity of public resources is pushing towards a different mentality, the one for which making philanthropy making a profit is not only possible, but also convenient.
This is demonstrated by the concrete tools that social innovation has already allowed to test in countries like Great Britain and the USA: social impact investments (Social Impact Investing, in short SII).
This is a wide range of investments (loan based or equity based) based on the assumption that private capital can intentionally contribute to creating, even in combination with public funds, positive social impacts and, at the same time, private economic returns . Highlights of the SIIs are: intentionality to produce an impact and therefore a social change; measurable goals; orientation to outcome (perceived change in the whole community) rather than to output (quantity of services provided); economic return for investors.
Contrary to popular belief, SIIs are tools not only for emerging markets but also for mature ones, as they can cover the gap between welfare demand and inadequate public resources. A dangerous gap, which affects the G8 countries: in the next ten years, in fact, they will have to face a strong need for spending that is not covered for welfare. Social impact investments can become the link between the need for incompressible services, the inadequacy of public resources, and the search for profit of investors.
It is clear that this is a remarkable leap forward, far beyond that made, in the past, with the introduction of the concept of social responsibility and investments based on the SRI and ESG () criteria.
SRI: Social Responsible Investing rely on screening systems that exclude investment sectors that are not considered socially responsible, such as weapons and gambling (SRI).
ESG: an even more advanced step are these based on the assessment of environmental, social and governance impacts.
SIIs, on the other hand, represent a further step because they are built specifically with the intention of obtaining a return and a social change.
It is significant the term Impact Investing was coined, in 2008, by JP Morgan and Rockfeller Foundation: finance today is starting to have an interest also for the Social Impact mainly because it concerns investments with a high rate of decorrelation (for example, less subject to the so-called risk Country) and therefore with less immediate and sometimes – but not always – lower returns than those of the market, but still less volatile.
The SIIs have not only been theorized and designed, but also started and tested. The first country to use them was the United Kingdom, where in 2010 the Government developed the first SIB (Social Impact Bond), followed by the United States, in particular by the city of New York (2012).