With the economic and financial crisis of the recent years, governments had to commit themselves to balance their budget and reduce public debt and deficit. These constraints have put limits to national expenditures, meaning that many social issues have been left aside because of a lack of funds.
However, youth education, social inclusion, healthcare, climate change all have a significant impact on economic development. In order to be addressed these issues need to attract investment.
What is social impact investing?
Finding innovative mechanisms to finance social improvements is not something new. Some countries have already been searching for new financial sources and for ways to better and more efficiently use tight public budgets. Many public-private partnerships have been developed in order to gather resources and improve some social conditions. Many banks helped the financing of social projects too.
Also at european level, in 2013 the EIB Group launched the first pan-European public-private partnership, the Social Impact Accelerator (SIA). It addressed the growing need for availability of equity finance to support social enterprises, promoting social inclusion, alternative sources of employment and contributing to growth. SIA reached its final closing in July 2015. More lately, the Juncker Plan and the EFSI are facilitating public-private partnerships, providing technical assistance and resources in favour of projects in specific sectors.
However, we have started to talk about impact investment. The need of greater availability of resources and better investing structures lead to think to new approaches. Companies, organisations or development funds have been attracted by impact investment, addressing social and environmental issues. According to the strategy and the budget adopted, to the investor expectations, the project can also set a financial return below the market rate. From this idea of impact investment many initiatives and good practices have come out.
Alternative approaches and initiatives
A recent example is the Social Impact Bonds case. They are “payment by results” investments. In particular they are agreements involving public authority, investors, a service provider and an intermediary organisation. They allow to have a return to the investment only if the project developed delivers positive and measurable social outcomes.
United Kingdom has been one of the first country to use the tool of social impact bonds. Its pilot project at Peterborough Prison it’s the world’s first social impact bond used since 2010 to finance rehabilitation at work. In 2012, with the government assistance UK launched also the world’s first social investment bank, realizing projects in healthcare, education and many other social issues.
Ireland, in its Public Service Reform Plan 2014-2016, proposed Social Impact Investing (SII). This involved using private capital to fund initiatives addressing social problems, and funding is linked to results. The State agreed to repay the private investor only if the established outcomes were achieved. The project aim was searching for private sector investment partners in the housing sector in order to provide long-term, sustainable and stable homes for homeless families in the Dublin region.
Consortium for Development of Polesine (CONSVIPO), Italy. A Territorial Pact was developed to support and reinforce the local economy through information about the financial opportunities offered by regional, national and European actors, aimed at public and private initiatives. The main goals: development of the territory, establishment of a permanent local cooperation and partnership network, support sustainable development programmes and initiatives regarding the promotion of equal opportunities.
In support of the social impact investment sector, the Global Social Impact investment Steering Group (GSG) was established in 2015, as a successor of the SII Taskforce established by G8. It’s composed by members from 13 countries plus the EU and other government and network organisations. Its aim is to promote a unified view of impact investment, facilitating knowledge exchange and encouraging policy change in national markets.
AER activities in the field
Regions are exactly the places where the citizens’ needs are and also where often the gap between financial and social players needs to be fixed. This is why AER is addressing investment issues in particular via its Spring plenary meetings on 21-23 in London. Moreover, AER has been invited to participate in the Commission’s A High-Level Task Force on financing social infrastructure and maximising public in order to ensure the regional perspective is taken into account in what could become the drafting of the Juncker Plan II.
Links
AER Spring 2017 Plenary meetings
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Photo credit @Flickr – askal bosch http://tinyurl.com/gtpdzhy
