Is it really the most effective tool to promote sustainable development?
In a world in constant transformation affected by wide-ranging social and environmental challenges the limits of the current capitalistic system are clearly emerging, raising the awareness in the public opinion that a change is needed [1].
Social innovation defined as “Innovations that are both good for society and enhance society’s capacity” is one of the possible solutions to answer to the negative consequences created by modern capitalism [2], since in 2016 social entities accounted for 10% of jobs and 8% of GDP of the European continent [3].
Albeit on the rise, actually the solutions offered by Social Enterprises (SEs) are not scalable enough covering only the 1% of the actual need. Their main barrier to scale is access fund owed to niches of market to which they refer and the newness of the field [4], but there are some attractive future scenarios.
In fact, COVID-19 could lead to greater attention to social issues creating a unique opportunity in the history to reduce inequalities. The countries will provide forms of financing to generate a positive impact but probably a further withdrawal of the welfare state will occur based on the tension between a declining availability of the States’ resources and an increasing request in the number of social services, as happened during the last crisis with austerity measures [5].
In this scenario the role of impact investing, the most appropriate tool to finance SEs, should be crucial since private investments will be required to compensate the lack of public funding [6]. After all, impact investing was first fully defined in 2008 at the beginning of the Great Recession when Rockefeller Foundation and its partners promoted impact investment initiative to supplement limited government resources by leveraging investor capital to solve complex socio-environmental issues.
The two core elements of impact investing are financial and non-financial return. Economic return could be below market rate, but it is considered as a minimum requirement to distinguish from grants. With non-financial return, practitioners refer to a social or environmental outcome or even something wider such as cultural, developmental or governance impact [7].
In the next months it would be relevant to investigate the reaction and contribution of impact investing, thanks to its dynamicity and cross-sectoral attitude, to overcome its first period of discontinuity as mainstream market [8].
The COVID-19 pandemic has exposed the fragility of the global economy, is impact investing a feasible solution to build resilient macroeconomics? Are public policies self-sufficient or they require market intervention? An answer does not exist today but the future is still in our hands.
Would you like to contribute? Start by changing your bank for a more sustainable one!
Sources
[1] Misuraca, G., Pasi, G., & Brancati, C. U. (2017). ICT-Enabled Social Innovation evidence & prospective
[2] Caulier-grice, J., & Mulgan, G. (2010). Ways to Design, Develop and Grow Social Innovation
[3] European Commission (2019). Social Economy website
[4] Bland, J., Cahalane, C., van den Hout, K., Fletcher, L., Pomlett, D., & John, Z. O. (2015). Real stories of how social businesses are accessing and shaping innovative social investment options
[5] Kay, A., Roy, M. J., & Donaldson, C. (2016). Re-imagining social enterprise
[6] Global Steering Group for Impact Investment (2020). Website
[7] Saltuk, Y., Bouri, A., Mudaliar, A., & Pease, M. (2013). Global Social Finance Perspectives on Progress Global Impact Investing Network.
[8] Global Impact Investing Network (2019). Website