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Spotlight – “A Framework for Action: Social Enterprise and Impact Investing”

Posted on by EVPA

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By The United Nations Global Compact and The Rockefeller Foundation

On June 20-22 the Rio +20 Summit on sustainable development took place, tackling two main themes – a green economy in the context of sustainable development and poverty eradication, and the institutional framework for social development.

Based on the latter topic, the United Nations Global Compact together with the Rockefeller Foundation published a research report titled: “A framework for action: social enterprise and impact investing”.

The report points out that over the past decade there has been growing recognition within the private sector of the need to take a greater and more active role in promoting sustainable development globally through engaging social enterprises. For this reason, investors, corporations and governments have been looking for innovative ways to engage the private sector.

In this report, the United Nations Global Compact, the world’s largest corporate sustainable initiative, and the Rockefeller Foundation, offer a “framework for action”. The report is thus a valuable resource for investors, large corporations and governments wanting to engage with and support the rising number of social enterprises, which can be considered the research and development arm of our sector.

In order to assist these three stakeholders, the guide outlines three steps – prioritising the rationale for engaging, defining strategy and choosing specific approaches. This framework does not provide an exhaustive list of approaches for all organisations but it helps them understand how they can be best positioned to engage. “The framework can be seen as part of the new set of tools that are needed to unlock critical private and public sector resources in support of the sector’s development,” said Judith Robin, president of the Rockefeller Foundation, which has only in recent years launched its impact investing initiative.

Although the report focuses mainly on corporations, it helps to understand better how to move forward in order to create greater impact.

As the illustration demonstrates, all three stakeholders should first identify and prioritise rationale that supports long-term objectives – grasping sizeable long-term opportunities, adding strategic value and creating better businesses environments. From an investor point of view this means understating what level of financial return they would need to achieve in relation to their objectives, increasing the demand for relevant offering from asset managers, and sharing the value that venture impact investors can give to commercial investments in low-income markets.

Prioritising rationale for corporations means aligning with many of the growth goals of the innovation and emerging market. Working with social enterprise in a low-income market can provide learning opportunities for future investments and build up relationships within a specific region.

Finally, governments when prioritising rationale should be more attentive to customising policy, including incentives to create better enabling environments for the private sector.

The second step of the framework takes into account the stakeholders’ need to consider and understand the features unique to each strategy, starting with the definition of the target market. Investors need to consider transaction costs, the level of impact they want to achieve, the engagement of the approach and impact measurement tools and standardisations. In setting the best strategy, corporations can decide whether to engage externally with new businesses, launch new businesses internally or collaborate strategically with others, or develop their own incubation model for a social enterprise. Governments, finally, can shape impact investing and social enterprise actively, as a direct participant in impact-oriented markets or as an outside influence. Interventions must be well targeted, transparent and implemented efficiently at a fitting scale for an appropriate duration. This can be done by creating regulations that direct how investors can or should invest capital and improving transaction efficiency and market information.[1]

The final step the framework for action considers is choosing the approach that most efficiently advances the selected strategy. Here again the framework does not offer an exhaustive reference for all types of approaches but outlines a number of innovative options for promoting an engagement strategy for impact investors.

As the recent report from Monitor Group and Acumen Fund, “From blueprint to scale: the case for philanthropy in impact investing”, shows, the young social enterprise sector still demands the need for seed and growth-stage capital. For this reason many early-stage incubation programmes have been launched. At the investor level there is a number of social investment funds that seek both social impact and financial return – EVPA members such as Acumen Fund and Bamboo Finance are both “impact first investors” that have diverse institutional investors, corporate foundations as well as philanthropic investors. These focus on growth-stage funds. Positive screens to identify impact investing opportunities, such as bonds, equities and mutual funds, are to be considered by investors seeking structured financial products.

When considering an approach, according to the framework for action, corporations can decide whether the company is ready for “incubation” and creation of its own business, or strategic investments and partnership are the best solution. Some corporations also have the know-how to develop new products or act as procurement for social entrepreneurs.

Finally, governments have great potential for intervention, starting with targeted incentives to funding programmes that provide direct financial assistance as well as other products aimed at businesses. Investment regulation and legal reforms are also practices on which government can focus in order to influence and leverage the support of social purpose organisations that work to increase their societal impact.

The report concludes that while many of these actions have already been taken, there is still the need of frameworks and best practices in this fast-growing but still emerging sector of venture philanthropy and impact investing.

The 8th EVPA Annual Conference will address many of the sector’s hot topics, from impact measurement, partnerships with governments and corporations, to the EU social business initiative.

You can see the full programme and speakers on www.evpa2012.com/sitecore/content/be-bruga/evpa2012/index.aspx


[1] The EU social business initiative is an example of such an approach.

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