The launch of a major report from the Organisation for Economic Co-operation and Development (OECD) this week on social impact investment has coincided with a raft of activity in the nascent sector, with the Canadian and Malaysian governments looking at social impact bonds and New South Wales launching an office to promote social investment.
The OECD report, Social Impact Investment: Building the Evidence Base, was launched at a roundtable hosted by UK government in London. It was commissioned by the G8 Social Impact Investment Taskforce led by venture capital and social finance pioneer Sir Ronald Cohen. It found that there was a lack of evidence and consistency of approach around social impact investment in OECD countries, hampering its development.
It sets out seven key characteristics of social impact investment that include social target areas, measurability of social impact and return expectations.
On return expectations, the report notes investors should have return expectations above or equal to zero, but not above the market rate of return (actual return may be higher) if they want to consider their investment to be a “social impact investment”.
Speaking to Responsible Investor, Karen Wilson, lead author of the report and a consultant in the Structural Policy Division of the Directorate for Science, Technology and Innovation at the OECD, said this view was controversial.
Wilson said that if an investor was looking for an above-market risk-adjusted return it meant they were putting the financial before the social: “They can’t be considered social investors.” It was a “philosophical” point. She continued: “We don’t want whitewashing where you call yourself a social investor because you invest in a social/environmental area purely for financial reasons.”
Going forward she said the OECD and others were looking to expand the taskforce to the G20 countries and beyond. “We want to look at examples in other countries and the role of social impact investment for financing development.“There is the UN Summit financing on development in Ethiopia this year and the new sustainable development goals are coming out. And social impact investment is an important tool for both initiatives.”
Cohen also spoke at the event, revealing social impact investment was a topic at the recent World Economic Forum event in Davos. He said: “At an UBS breakfast [Nobel Prize-winning economist] Bob Shiller spoke before me and said social impact bonds were an innovation which could transform financial markets and the approach to tackling social issues.” Cohen reported Shiller as saying his wife Virginia, a noted child psychologist at Yale School of Medicine, was looking at launching a social impact bond around adoption. Tim Jackson, lead executive at Canada’s MaRS Centre for Impact Investing, told delegates that the first pan-Canadian social impact bond was awaiting ministerial approval. The bond, which will tackle hypertension amongst senior citizens, has four investors on board, including a Canadian bank. The Public Health Agency of Canada would be the outcome funder. Social Finance UK helped arrange the deal.
Meanwhile, the NSW government in Australia has launched the country’s first social impact investment policy. NSW Premier Mike Baird said: “Our target is to partner with investors and the non-government sector to develop two new social impact investments to go to market every year.” The state also launched the NSW Office of Social Impact Investment (OSII).
Australia’s first social benefit bond (SBB) in NSW, the A$7m (€4.9m) ‘Newpin’ pilot programme that is backed by institutional investors including NGS Super and Christian Super, delivered a 7.5% investment return in its first year.
Meanwhile, Malaysia is reportedly exploring social impact bonds. Emma Tomkinson, a SIB practitioner based in Australia, has written a blog on work she is doing with the Agensi Inovasi Malaysia, which is part of the Malaysian government. The work includes exploring Islamic finance as a source of SIB funding.