A billion dollars isn’t cool anymore. You know what’s cool? A trillion dollars. A cool trillion dollars is how much capital could be made available to be invested in doing public good if just 1% of the world’s investment market was directed at “impact investing” – an investment approach that seeks to achieve both a financial and social return. While efforts are underway to mainstream the impacting investing market, many are asking where this money will end up and what governments can do to attract it.
Today there are around 350 impact investment funds globally with $36 billion in committed capital. More than 400 companies have been rated using the Global Impact Investment Rating System and 190 organizations are members of the Global Impact Investing Network.
The World Economic Forum, often lamented for being too elitist, is working on proposals to bringing investment in social good to the mainstream of capital markets. And the G8 has established a social impact investment taskforce with a goal of catalyzing the development of the social impact investment market.
Many capital markets are starting to take notice. Even the relatively specialized approach known as Social Impact Bonds, or SIBs, is garnering some interest among the investor community, according to the recent study by Deloitte and the MaRS Centre for Impact Investing. But, the growth of impact investing will require some big changes in how we view the role of business, government, charities and social entrepreneurs in addressing some of our biggest social problems.
Governments too are beginning to recognize private capital as a way to feed social entrepreneurship. Their willingness to be catalysts for change will be critical to a attracting more private capital for social good.
What more is needed?
First, it is important to be able to measure progress. The G8 task force has launched a series of initiatives to develop standard approaches. A new measurement tool called the social progress index has made substantial gains in establishing how we can measure advancements in basic human needs and opportunities for advancement. In addition to helping to measure the effectiveness of government policies, these initiatives may dramatically raise the bar of how businesses report on their environmental, social and governance performance.
Second, governments need to create incentives to mobilize private capital for social good. The UK has recently introduced a social finance tax credit, whereby investors will be eligible to receive income tax relief at a rate of 30% and has created a procurement policy for public sector organizations to make procurement decisions, in part, based on economic, social and environmental contributions.
Third, develop a tent that’s big enough for as many societal problem solvers as possible. President Obama has noted that the nation’s most significant challenges cannot be solved by any single organization or sector. The US Office for Social Innovation and Civic Participation is mandated to engage the social sector – individuals, not-for-profits, foundations – as well as business and government – to foster collaboration across these groups to find new ways to solve old problems.
Many of our government funded programs and safety nets are beginning to show their limits as demographics change and economies continue to stagnate. Attracting new sources of capital to promote social progress will not address all of our needs, but neither will failing to attract investors who are poised to contribute.
About the authors
Paul Macmillan is the co-author of The Solution Revolution: How business, government, and social enterprises are teaming up to solve society’s toughest problems and is the Global Public Sector Industry Leader at Deloitte. He can be reached at email@example.com
Jerrett Myers is a Manager in Deloitte’s Public Sector Strategy and Operations Practice. He can be reached at firstname.lastname@example.org