November 05, 2021

The impact ecosystem is at a turning point

In the early days of EVPA’s existence at the beginning of the 21st century, venture philanthropy was a term known only among a handful of pioneering private equity investors who shared a vision of shaping a world where philanthropy and investment combine to drive sustainable social impact. This model initially came from the United States but was virtually unknown in Europe. Fast forward some fifteen years and the interest in impact investing is seeing exponential growth across the globe.


 

In Europe specifically, where EVPA has played an instrumental role providing a platform for the investing for impact movement, there is now a thriving impact ecosystem and a growing market engaging social investors, foundations, incubators and accelerators, financial institutions and policy makers. EVPA estimates this market to represent approximately €15 billion of assets under management, deployed by 400 European organisations investing for impact.

This evolution has started to create a critical mass of impact stakeholders, but the world is also changing, and the scope and complexity of societal challenges – from climate change to widespread inequalities – have been rapidly increasing. The Covid-19 pandemic has brought to light and exacerbated these upheavals. It has made visible the fact that the current financial and economic systems are not fit for purpose and that business cannot go on as usual.

These dual developments – an impact space which has grown and matured and a world in crisis-mode – bring both opportunities and challenges for investors for impact to drive strategies for a sustainable and thriving future.

Impact across the board

There is now increasing awareness of the potential of investing for impact as an effective strategy to achieve long-lasting social change and contribute to the UN Sustainable Development Goals.

Addressing societal challenges in a systemic way needs patient and risk-tolerant capital. Social entrepreneurs and other social purpose organisations willing to take these on, need highly-engaged/ innovative investors willing to take a long-term perspective and big bets to see their business flourish and scale.

A variety of pioneers in the field, such as social impact funds, foundations but also social banking units within financial institutions have set the scene and could nowadays act as role models for newcomers but also for more traditionally oriented investors that are increasingly becoming interested in intentionally investing with social purpose.

In the last decades, a similar catalyst role has also been played by corporate foundations, corporate impact funds or social businesses. These corporate social investors – at the intersection of the non-profit and for-profit worlds – can play a key role accelerating the purpose-led transformation journey of their related company.

This is also why they increasingly consider aligning their mission with the industry or business strategy of their related company, as an effective strategy to unlock corporate resources and expertise for more social impact. Some companies are also starting to integrate strategic collaboration with their corporate social investors as a means to address societal challenges and develop more holistic impact strategies.

Setting principles and standards to maximise impact

But as the lines between philanthropy and business, business and purpose become blurred in the name of impact, so does the definition of impact itself, increasing the risks of becoming an empty label.

This is where setting principles and standards becomes instrumental to protect the progress made over the past two decades.

Measuring and managing impact is one of those principles and a key tool to ensure impact remains visible on the radar screen (reducing the risk of green and social washing) and a lighthouse to inform investment decisions. This is where investors for impact have deep experience and a key role to play as guardians of impact and catalysts to bring to the table different forms of capital.

Collaboration is another fundamental standard and opportunity to embrace, if we want to tackle the SDGs trillion dollars funding gap. During and prior to the Covid-19 pandemic, investors for impact have demonstrated in action that innovative approaches and partnership strategies can transform the way in which deeply rooted, systemic challenges are tackled. Such approaches recognise that collaboration is more efficient than individual support, but it’s still far from becoming business as usual. Regulations, policies and mindsets are still playing catch-up.

An enabling policy framework

On the policy front, the European Union has recently taken action to shape Europe’s post-Covid future with the European Green Deal and Just Transition and a recovery package worth 2 trillion euros.

This budgetary framework brings new opportunities to reinforce the capacity of social investors and mobilise more resources for societal impact in a post-Covid world where they are all the more needed.

It is therefore crucial that social investors across Europe understand and are able to access this EU funding. We need to build this capacity, encourage sharing best practices across borders, and foster public-private collaboration at EU, national and local levels to leverage this opportunity and bridge the funding gap for social investments.

Boosting the social economy and social investment is now at the core of the EU’s policy agenda. The European Commission will launch a European Action Plan for Social Economy by the end of this year and is working on a new Social Taxonomy which will be part of the EU’s sustainable finance strategy. These are clear signs of the focus and understanding of the role that the social economy plays in contributing to sustainable growth and a fair recovery, as well as to the green and digital transitions.

In this context, the EU must strengthen its role in shaping funding programmes according to the needs of social investors and directing financial and non-financial resources to the interventions that have the most impact. There is also a need for clear definitions of what constitutes a social investment and how its impact could be measured, as is the case of environmental investments within the Green Taxonomy.

What next for investors for impact?

The impact ecosystem is at a turning point.

With social challenges multiplying, yet too few solutions operating at a large scale, the world needs more highly-engaged and patient investors taking bold risks to build the market and more financial and non-financial resources to support and nurture social innovation. Our community has a key role to play demonstrating that this investment strategy works and branching out to build stronger bridges across the spectrum of capital to mobilise resources that are not traditionally social impact oriented and could make the difference (e.g. pension funds, foundations endowments, corporate sustainability officers).

It’s time we speak with a louder and more unified voice about both the unique role investing for impact can play to achieve transformative and sustainable systemic change, and what is needed to unlock more resources.

Philanthropist, investors, businesses, institutions, politicians, individuals and civil society at large, all have a role to play if we want to drive a healthier, more just and inclusive world for next generations to come. Now is the time.

Roberta Bosurgi is Chief Executive Officer of EVPA.

EVPA Impact Month is a diverse series of events this November, aiming to explore how investing for impact can be a driving force for social recovery and transformation. Register now for an inspiring and empowering mix of talks, workshops, meetings, minglings and celebrations and join the conversation with your ideas and perspectives!

This article was originally published by Alliance Magazine here



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