Social Impact Investing

Turning the Improbable 

Into the Exceptional! 

Page 2 of 140

The Advocacy Foundation, Inc. 

Helping Individuals, Organizations & Communities 

Achieve Their Full Potential 

Since its founding in 2003, The Advocacy Foundation has become recognized as an effective 

provider of support to those who receive our services, having real impact within the communities 

we serve. We are currently engaged in community and faith-based collaborative initiatives, 

having the overall objective of eradicating all forms of youth violence and correcting injustices 

everywhere. In carrying-out these initiatives, we have adopted the evidence-based strategic 

framework developed and implemented by the Office of Juvenile Justice & Delinquency 

Prevention (OJJDP). 

The stated objectives are: 

1. Community Mobilization; 

2. Social Intervention; 

3. Provision of Opportunities; 

4. Organizational Change and Development; 

5. Suppression [of illegal activities]. 

Moreover, it is our most fundamental belief that in order to be effective, prevention and 

intervention strategies must be Community Specific, Culturally Relevant, Evidence-Based, and 

Collaborative. The Violence Prevention and Intervention programming we employ in 

implementing this community-enhancing framework include the programs further described 

throughout our publications, programs and special projects both domestically and 

internationally. 

www.TheAdvocacyFoundation.org 

ISBN: ......... ../2017 

......... Printed in the USA 

Advocacy Foundation Publishers 

Philadlephia, PA 

(878) 222-0450 | Voice | Data | SMS 

Page 3 of 140

Page 4 of 140

Dedication 

______ 

Every publication in our many series’ is dedicated to everyone, absolutely everyone, who by 

virtue of their calling and by Divine inspiration, direction and guidance, is on the battlefield dayafter-day 

striving to follow God’s will and purpose for their lives. And this is with particular affinity 

for those Spiritual warriors who are being transformed into excellence through daily academic, 

professional, familial, and other challenges. 

We pray that you will bear in mind: 

Matthew 19:26 (NIV) 

Jesus looked at them and said, "With man this is impossible, 

but with God all things are possible." (Emphasis added) 

To all of us who daily look past our circumstances, and naysayers, to what the Lord says we will 

accomplish: 

Blessings!! 

- The Advocacy Foundation, Inc. 

Page 5 of 140

Page 6 of 140

The Transformative Justice Project 

Eradicating Juvenile Delinquency Requires a Multi-Disciplinary Approach 

The way we accomplish all this is a follows: 

The Juvenile Justice system is incredibly overloaded, and 

Solutions-Based programs are woefully underfunded. Our 

precious children, therefore, particularly young people of 

color, often get the “swift” version of justice whenever they 

come into contact with the law. 

Decisions to build prison facilities are often based on 

elementary school test results, and our country incarcerates 

more of its young than any other nation on earth. So we at 

The Foundation labor to pull our young people out of the 

“school to prison” pipeline, and we then coordinate the efforts 

of the legal, psychological, governmental and educational 

professionals needed to bring an end to delinquency. 

We also educate families, police, local businesses, elected 

officials, clergy, and schools and other stakeholders about 

transforming whole communities, and we labor to change 

their thinking about the causes of delinquency with the goal 

of helping them embrace the idea of restoration for the young 

people in our care who demonstrate repentance for their 

mistakes. 

1. We vigorously advocate for charges reductions, wherever possible, in the adjudicatory (court) 

process, with the ultimate goal of expungement or pardon, in order to maximize the chances for 

our clients to graduate high school and progress into college, military service or the workforce 

without the stigma of a criminal record; 

2. We then enroll each young person into an Evidence-Based, Data-Driven Restorative Justice 

program designed to facilitate their rehabilitation and subsequent reintegration back into the 

community; 

3. While those projects are operating, we conduct a wide variety of ComeUnity-ReEngineering 

seminars and workshops on topics ranging from Juvenile Justice to Parental Rights, to Domestic 

issues to Police friendly contacts, to CBO and FBO accountability and compliance; 

4. Throughout the process, we encourage and maintain frequent personal contact between all 

parties; 

5 Throughout the process we conduct a continuum of events and fundraisers designed to facilitate 

collaboration among professionals and community stakeholders; and finally 

Page 7 of 140

6. 1 We disseminate Quarterly publications, like our e-Advocate series Newsletter and our e-Advocate 

Quarterly electronic Magazine to all regular donors in order to facilitate a lifelong learning process 

on the ever-evolving developments in the Justice system. 

And in addition to the help we provide for our young clients and their families, we also facilitate 

Community Engagement through the Restorative Justice process, thereby balancing the interesrs 

of local businesses, schools, clergy, elected officials, police, and all interested stakeholders. Through 

these efforts, relationships are rebuilt & strengthened, local businesses and communities are enhanced & 

protected from victimization, young careers are developed, and our precious young people are kept out 

of the prison pipeline. 

This is a massive undertaking, and we need all the help and financial support you can give! We plan to 

help 75 young persons per quarter-year (aggregating to a total of 250 per year) in each jurisdiction we 

serve) at an average cost of under $2,500 per client, per year.* 

Thank you in advance for your support! 

* FYI: 

1. The national average cost to taxpayers for minimum-security youth incarceration, is around 

$43,000.00 per child, per year. 

2. The average annual cost to taxpayers for maximun-security youth incarceration is well over 

$148,000.00 per child, per year. 

- (US News and World Report, December 9, 2014); 

3. In every jurisdiction in the nation, the Plea Bargain rate is above 99%. 

The Judicial system engages in a tri-partite balancing task in every single one of these matters, seeking 

to balance Rehabilitative Justice with Community Protection and Judicial Economy, and, although 

the practitioners work very hard to achieve positive outcomes, the scales are nowhere near balanced 

where people of color are involved. 

We must reverse this trend, which is right now working very much against the best interests of our young. 

Our young people do not belong behind bars. 

- Jack Johnson 

1 

In addition to supporting our world-class programming and support services, all regular donors receive our Quarterly e-Newsletter 

(The e-Advocate), as well as The e-Advocate Quarterly Magazine. 

Page 8 of 140

Page 9 of 140

Page 10 of 140

The Advocacy Foundation, Inc. 

Helping Individuals, Organizations & Communities 

Achieve Their Full Potential 

…a collection of works on 

Social Impact Investing 

Investments in Crime Reduction 

“Turning the Improbable Into the Exceptional” 

Atlanta 

Philadelphia 

______ 

John C Johnson III 

Founder & CEO 

(878) 222-0450 

Voice | Data | SMS 


Page 11 of 140

Page 12 of 140

Biblical Authority 

______ 

Proverbs 21:5 (NIV) 

5 

The plans of the diligent lead to profit 

as surely as haste leads to poverty 

Luke 14:28-30 (NIV) 

28 

“Suppose one of you wants to build a tower. Won’t you first sit down and estimate the 

cost to see if you have enough money to complete it? 29 For if you lay the foundation and 

are not able to finish it, everyone who sees it will ridicule you, 30 saying, ‘This person 

began to build and wasn’t able to finish.’ 

The Parable of the Bags of Gold 

Matthew 25:14-30 (NIV) 

14 

“Again, it will be like a man going on a journey, who called his servants and entrusted 

his wealth to them. 15 To one he gave five bags of gold, to another two bags, and to 

another one bag, [a] each according to his ability. Then he went on his journey. 16 The 

man who had received five bags of gold went at once and put his money to work and 

gained five bags more. 17 So also, the one with two bags of gold gained two more. 18 But 

the man who had received one bag went off, dug a hole in the ground and hid his 

master’s money. 

19 

“After a long time the master of those servants returned and settled accounts with 

them. 20 The man who had received five bags of gold brought the other five. ‘Master,’ he 

said, ‘you entrusted me with five bags of gold. See, I have gained five more.’ 

21 

“His master replied, ‘Well done, good and faithful servant! You have been faithful with 

a few things; I will put you in charge of many things.Come and share your master’s 

happiness!’ 

22 

“The man with two bags of gold also came. ‘Master,’ he said, ‘you entrusted me with 

two bags of gold; see, I have gained two more.’ 

Page 13 of 140

23 

“His master replied, ‘Well done, good and faithful servant! You have been faithful with 

a few things; I will put you in charge of many things.Come and share your master’s 

happiness!’ 

24 

“Then the man who had received one bag of gold came. ‘Master,’ he said, ‘I knew that 

you are a hard man, harvesting where you have not sown and gathering where you 

have not scattered seed. 25 So I was afraid and went out and hid your gold in the 

ground. See, here is what belongs to you.’ 

26 

“His master replied, ‘You wicked, lazy servant! So you knew that I harvest where I 

have not sown and gather where I have not scattered seed? 27 Well then, you should 

have put my money on deposit with the bankers, so that when I returned I would have 

received it back with interest. 

28 

“‘So take the bag of gold from him and give it to the one who has ten bags. 29 For 

whoever has will be given more, and they will have an abundance. Whoever does not 

have, even what they have will be taken from them. 30 And throw that worthless servant 

outside, into the darkness, where there will be weeping and gnashing of teeth.’ 

Page 14 of 140

Table of Contents 

…a collection of works on 

Social Impact Investing 

Investments in Crime Reduction 

______ 

Biblical Authority 

I. Introduction: Socially Responsible Investing ………………………… 17 

II. Social Return on Investments…………………………………………. 33 

III. Corporate Social Responsibility………………………………………. 41 

IV. Impact Investing………………………………………………………… 59 

V. Social Impact Assessments…………………………………………… 65 

VI. Economic Impact Analysis…………………………………………….. 67 

VII. Social Earnings Ratio…………………………………………………… 71 

VIII. Social Impact Bonds……………………………………………………. 77 

IX. 

The White House Office of Social Innovation 

and Civic Participation…………………………………………………. 91 

X. References……………………………………………………………… 105 

Attachments 

A. Investing for Impact Report (Case Studies) 

B. Social Impact Investment: Building the Evidence-Base 

C. Impact Investments: An Emerging Asset Class 

Copyright © 2018 The Advocacy Foundation, Inc. All Rights Reserved. 

Page 15 of 140

Page 16 of 140

I. Introduction 

Socially responsible investing (SRI), or social investment, also known as 

sustainable, socially conscious, "green" or ethical investing, is any investment 

strategy which seeks to consider both financial return and social good to bring about a 

social change. 

Recently, it has also become known as "sustainable investing" or "responsible 

investing". There is also a subset of SRI known as "impact investing", devoted to the 

conscious creation of social impact through investment. 

In general, socially responsible investors encourage corporate practices that promote 

environmental stewardship, consumer protection, human rights, and diversity. Some 

avoid businesses involved in alcohol, tobacco, fast food, gambling, pornography, 

weapons, contraception/abortifacients/abortion, fossil fuel production or the military. [1] 

The areas of concern recognized by the SRI practitioners are sometimes summarized 

under the heading of ESG issues: environment, social justice, and corporate 

governance. 

"Socially responsible investing" is one of several related concepts and approaches that 

influence and, in some cases govern, how asset managers invest portfolios. The term 

"socially responsible investing" sometimes narrowly refers to practices that seek to 

avoid harm by screening companies included in an investment portfolio. However, the 

term is also used more broadly to include more proactive practices such as impact 

investing, shareholder advocacy and community investing. According to investor Amy 

Page 17 of 140

Domini, shareholder advocacy and community investing are pillars of socially 

responsible investing, while doing only negative screening is inadequate. 

History 

The origins of socially responsible investing may date back to the Religious Society of 

Friends (Quakers). In 1758, the Quaker Philadelphia Yearly Meeting prohibited 

members from participating in the slave trade – buying or selling humans. 

One of the most articulate early adopters of SRI was John Wesley (1703–1791), one of 

the founders of Methodism. Wesley's sermon "The Use of Money" outlined his basic 

tenets of social investing – i.e. not to harm your neighbor through your business 

practices and to avoid industries like tanning and chemical production, which can harm 

the health of workers. Some of the best-known applications of socially responsible 

investing were religiously motivated. Investors would avoid “sinful” companies, such as 

those associated with products such as guns, liquor, and tobacco. 

The modern era of socially responsible investing evolved during the political climate of 

the 1960s. During this time, socially concerned investors increasingly sought to address 

equality for women, civil rights, and labor issues. Economic development projects 

started or managed by Dr. Martin Luther King, like the Montgomery Bus Boycott and the 

Operation Breadbasket Project in Chicago, established the beginning model for socially 

responsible investing efforts. King combined ongoing dialog with boycotts and direct 

action targeting specific corporations. Concerns about the Vietnam War were 

incorporated by some social investors. Many people living during the era remember a 

picture in June 1972 of a naked nine-year-old girl, Phan Thị Kim Phúc, running towards 

a photographer screaming, her back burning from the napalm dropped on her village. 

That photograph channeled outrage against Dow Chemical, the manufacturer of 

napalm, and prompted protests across the country against Dow Chemical and other 

companies profiting from the Vietnam War. 

During the 1950s and 1960s, trade unions deployed multi-employer pension fund 

monies for targeted investments. For example, the United Mine Workers fund invested 

in medical facilities, and the International Ladies' Garment Workers' Union (ILGWU) and 

International Brotherhood of Electrical Workers (IBEW) financed union-built housing 

projects. Labor unions also sought to leverage pension stocks for shareholder activism 

on proxy fights and shareholder resolutions. In 1978, SRI efforts by pension funds was 

spurred by The North will Rise Again: Pensions, Politics, and Power in the 1980s and 

the subsequent organizing efforts of authors Jeremy Rifkin and Randy Barber. By 1980, 

presidential candidates Jimmy Carter, Ronald Reagan and Jerry Brown advocated 

some type of social orientation for pension investments. 

SRI had an important role in ending the apartheid government in South Africa. 

International opposition to apartheid strengthened after the 1960 Sharpeville massacre. 

In 1971, Reverend Leon Sullivan (at the time a board member for General Motors) 

drafted a code of conduct for practicing business in South Africa which became known 

Page 18 of 140

as the Sullivan Principles. However, reports documenting the application of the Sullivan 

Principles said that US companies were not trying to lessen discrimination in South 

Africa. Due to these reports and mounting political pressure, cities, states, colleges, 

faith-based groups and pension funds throughout the US began divesting from 

companies operating in South Africa. In 1976, the United Nations imposed a mandatory 

arms embargo against South Africa. From the 1970s to the early 1990s, large 

institutions avoided investment in South Africa under apartheid. The subsequent 

negative flow of investment eventually forced a group of businesses, representing 75% 

of South African employers, to draft a charter calling for an end to apartheid. While the 

SRI efforts alone did not bring an end to apartheid, it did focus persuasive international 

pressure on the South African business community. 

The mid and late 1990s saw the rise of 

SRI’s focus on a diverse range of other 

issues, including tobacco stocks, mutual 

fund proxy disclosure, and other diverse 

focuses. 

Since the late 1990s, SRI has become 

increasingly defined as a means to 

promote environmentally sustainable 

development. Many investors 

consider effects of global climate 

change a significant business and 

investment risk. CERES was 

founded in 1989 by Joan 

Bavaria and Dennis Hayes, 

coordinator of the first Earth 

Day, as a network for 

investors, environmental 

organizations, and other public interest groups interested in working with companies to 

address environmental concerns. 

Since 1989, representatives from the SRI industry have gathered at the annual SRI in 

the Rockies Conference to exchange ideas and gain momentum for new initiatives. This 

conference is produced by First Affirmative Financial Network, an investment advisory 

firm that specializes in sustainable and responsible investing. The conference has 

attracted over 550 persons annually since 2006. 

The first sell-side brokerage in the world to offer SRI research was the Brazilian bank 

Unibanco. The service was launched in January 2001 by Unibanco SRI analyst 

Christopher Wells from the São Paulo headquarters of the bank. It was targeted at SRI 

funds in Europe and the US, although it was sent to non-SRI funds both in and out of 

Brazil. The research was about environmental and social issues (but not governance 

issues) regarding companies listed in Brazil. It was sent for free to Unibanco's clients. 

The service lasted until mid-2002. 

Page 19 of 140

Two good things came out this research: 

1. The idea was picked up by Mike Tyrrell, who worked at Jupiter, an SRI fund 

manager in London, and who developed it into something much bigger and better 

at HSBC and then Citigroup. 

2. ABN AMRO's operation in Brazil used this research to create the first SRI fund in 

an emerging market, launched in November 2001. As of late 2008, this fund, 

called Fundo Ethical, was the Brazilian operation's biggest and best performing 

stock fund of any kind. (ABN AMRO's operation in Brazil was bought by 

Santander in 2007.) 

Drawing on the industry's experience using divestment as a tool against apartheid, the 

Sudan Divestment Task Force was established in 2006 in response to the genocide 

occurring in the Darfur region of the Sudan. Support from the US government followed 

with the Sudan Accountability and Divestment Act of 2007. 

More recently, some social investors have sought to address the rights of indigenous 

peoples around the world who are affected by the business practices of various 

companies. The 2007, SRI in the Rockies Conference held a special pre-conference 

specifically to address the concerns of indigenous peoples. Healthy working conditions, 

fair wages, product safety, and equal opportunity employment also remain headline 

concerns for many social investors. In the mid-2010s, some funds developed gender 

lens investing strategies to promote workplace equity and general welfare of women 

and girls. 

Current Strategies 

Socially responsible investing is a growing market in both the US and Europe. In 

particular, it has become an important principle guiding the investment strategies of 

various funds and accounts. 

Government-Controlled Funds 

Government-controlled funds such as pension funds are often very large players in the 

investment field, and are being pressured by the citizenry and by activist groups to 

adopt investment policies which encourage ethical corporate behavior, respect the 

rights of workers, consider environmental concerns, and avoid violations of human 

rights. One outstanding endorsement of such policies is The Government Pension Fund 

of Norway, which is mandated to avoid "investments which constitute an unacceptable 

risk that the Fund may contribute to unethical acts or omissions, such as violations of 

fundamental humanitarian principles, serious violations of human rights, gross 

corruption or severe environmental damages." 

Many pension funds are currently under pressure to disinvest from the arms company 

BAE Systems, partially due to a campaign run by the Campaign Against Arms Trade 

Page 20 of 140

(CAAT). Liverpool City Council has passed a successful resolution to disinvest from the 

company, but a similar attempt by the Scottish Green Party in Edinburgh City Council 

was blocked by the Liberal Democrats. 

Mutual Funds and ETFs 

Socially responsible mutual funds counted by the 2014 Trends Report increased in 

number to 415 in 2014, up from 333 in 2012, 250 in 2010, 173 in 2005 & 2007, 189 in 

2003, and 167 in 2001. The overall number of mutual funds incorporating 

environmental, social and corporate governance (ESG) has increased four-fold increase 

since 2012. Additionally, 20 exchange-traded funds (ETFs) that incorporate ESG criteria 

were identified with $3.5 billion in assets at the end of 2011, an increase from the 8 

ETFs with $2.25 billion in net assets identified in its 2007 report—the first Trends report 

to track ETFs [11]. Unlike the Employee Retirement Income Security Act of 1974 

(ERISA), which severely limits the extent to which socially responsible goals can be 

considered in managing corporate and Taft-Hartley pension assets (due to ERISA's 

overriding goal of protecting employees' pensions), registered investment companies 

can take these factors into account so long as the disclosure and other requirements of 

the Investment Company Act of 1940 are met. US SIF maintains charts describing the 

socially responsible mutual funds offered by its member firms. 

Key: X = No investment; P = Positive investment; R = Restricted investment; NS = No 

screens. 

Fund 

Access Capital 

Strategies 

Community 

Investment Fund 

AHA Balanced Fund 

- Instiutional Class 

AHA Diversified 

Equity Fund - 

Institutional Class 

AHA Diversified 

Equity Fund - N 

Class 

AHA Full Maturity 

Fixed Income Fund - 


AHA Full Maturity 


N Class 

AHA Limited Maturity 



AHA Limited Maturity 


N Class 

AHA Socially 

Responsible Equity I 

AHA Socially 

Responsible Equity N 

Alcohol Tobacco Gambling 

Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

NS NS NS NS NS NS NS NS NS NS P X 

NS X NS NS NS NS NS NS NS NS NS V 







X X X X NS P P P P P NS V 


Appleseed Fund R R R R NS NS P P P NS P V 

Ariel Appreciation 

Fund 

NS X NS X NS NS NS NS NS NS NS V 

Ariel Focus Fund NS X NS X NS NS NS NS NS NS NS V 

Ariel Fund NS X NS X NS NS NS NS NS NS NS V 

Azzad Ethical 

Income Fund 

X X X X NS NS NS NS NS NS NS V 

Proxy 

Voting 

Page 21 of 140

Fund 

Azzad Ethical Mid 

Cap Fund 

Brighter Student 

Fund 

'Fund' 

Calvert Aggressive 

Allocation Fund 

Calvert Capital 

Accumulation A 


Accumulation B 


Accumulation C 

Calvert Conservative 


Calvert Global 

Alternative Energy 

Fund A 

Calvert Global Water 

Fund 

Calvert International 

Opportunities Fund 

Calvert Large Cap 

Growth A 


Growth B 


Growth C 


Growth I 

Calvert Mid Cap 

Value Fund 

Calvert Moderate 


Calvert New Vision 

Small Cap A 


Small Cap B 


Small Cap C 

'Fund' 

Calvert Small Cap 

Value Fund 

Calvert Social Index 

A 


B 


C 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

X X X X NS NS NS NS NS NS NS V 

X X X X X X X X X P X X 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

X X X R R P P P P P P V 





NS NS NS NS NS P P P P P NS V 

X NS NS X NS X NS P NS NS NS V 

R R NS NS NS P P P P P NS V 











Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 





Calvert Social Index I X X X R R P P P P P P V 

Calvert Social 

Investment Balanced 

A 


Investment Balanced 

C 


Investment Bond A 


Investment 

Enhanced Equity A 


Investment 

Enhanced Equity B 


Investment 

Enhanced Equity C 







Proxy 

Voting 

Proxy 

Voting 

Proxy 

Voting 

Page 22 of 140

Fund 


Investment Equity A 


Investment Equity C 


Investment Equity I 

Calvert World Values 

International A 

Calvert World Values 

International C 

CRA Qualified 

Investment 

'Fund' 

Domini European 

PacAsia Social 

Equity A 


PacAsia Social 

Equity I 


Social Equity A 


Social Equity I 

Domini Institutional 

Social Equity 

Domini PacAsia 

Social Equity A 

Domini PacAsia 

Social Equity I 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 




X X NS R NS P P P P P P V 

X X NS R NS P P P P P P V 

NS NS NS NS NS NS NS NS NS NS P X 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 


X X X X P P P P P P NS V 






Domini Social Bond X X X X NS P P P P P P V 

Domini Social Equity 

A 

Domini Social Equity 

I 

Epiphany Faith and 

Family Values 100 

Fund - A Class 



Fund - C Class 



Fund - N Class 

Gabelli SRI Green 

Fund Inc A 


Fund Inc AAA 


Fund Inc C 


Fund Inc I 

Green Century 

Balanced 

Green Century 

Equity 

Integrity Growth and 

Income Fund 

'Fund' 

Legg Mason Prt 

Social Awareness 

Fund A 



Fund B 



Fund C 



R R R R NS NS P P P P NS V 



R R R X NS P P NS NS NS NS V 




NS X NS R R P P NS NS NS NS V 

X X X R NS P P P P P NS V 

X X X NS R NS P R R R NS V 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

NS R NS R NS NS P P P P NS V 



Praxis Growth Index X X X X NS P P P P P P V 

Proxy 

Voting 

Proxy 

Voting 

Proxy 

Voting 

Page 23 of 140

Fund 

Fund A 

Praxis Growth Index 

Fund I 

Praxis Impact Bond 

Fund A 

Praxis Impact Bond 

Fund I 

Praxis International 

Index Fund A 

Praxis International 

Index Fund I 

Praxis Small Cap 

Index Fund A 

Praxis Small Cap 

Index Fund I 

Praxis Value Index 

Fund A 

Praxis Value Index 

Fund I 

Neuberger Berman 

Socially Resp Inv 

New Alternatives 

Fund 

'Fund' 

Parnassus Core 

Equity Fund 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

X X X X NS P P P P P P V 









X X X X R P P P P P NS V 

X X X X X P P P P P P X 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

X X X X R P P P P P NS V 

Parnassus Fund X X X X R P X P P P P V 

Parnassus Income 

Fixed Income 

Parnassus Mid Cap 

Fund 

Parnassus Small 

Cap Fund 

Parnassus Endeavor 

Fund 

X X X X R P X P P P NS V 

X X X X R P P P P P P V 

X X X X R P X P P P P V 

X X X X R P X P P P P V 

Pax World Balanced R X R R R P P P P P P V 

Pax World Growth R X R R R P P P P P NS V 

Pax World High Yield R X R R R P P P P P P V 

Pax World Value 

Fund - Individual 

Investor 

Pax World Value 

Fund - Institutional 

Class 

Pax World Women's 

Equity Fund - 

Individual Investor 

Pax World Women's 

Equity Fund - 


NS X R X R P P P P P NS V 

NS X R X R P P P P P NS V 

NS X R X R R R NS R R NS V 

NS X R X R R R R R R NS V 

Portfolio 21 NS X R R R P P R R R P V 

Portfolio 21 

Institutional 

Sentinel Sustainable 

Core Opportunities 

Fund 

Sentinel Sustainable 

Emerging 

Companies Fund 

SPDR Gender 

Diversity Index ETF 

(SHE) 

NS X R R R P P R R R NS V 

X X X R R P P P P P NS V 

X X X R R P P P P P NS V 

X X X X X X X P P P NS V 

TIAA-CREF R R R R NS P P P P P NS V 

Flex Total Return 

Utilities Fund 

Vanguard FTSE 

Social Index Fund 

X X X X X P P NS P P NS V 

Proxy 

Voting 

Proxy 

Voting 

Page 24 of 140

Fund 

Walden Social 

Balanced Fund 

Walden Social Equity 

Fund 

Winslow Green 

Growth Fund 


Defense/ 

Weapons 

Animal 

Testing 

Products/ 

Services 

Environment 

Human 

Rights 

Labor 

Relations 

Employment/ 

Equality 

Community 

Investment 

X X R X R P P P P P P V 

X X R X R P P P R P X V 

R R R R R P P NS NS NS NS V 

xRussell 3000 NS NS NS NS NS NS NS NS NS NS NS X 

Proxy 

Voting 

Separately Managed Accounts 

According to the 2014 Report on US Sustainable, Responsible and Impact Investing 

Trends, among separate account managers, 214 distinctive separate account vehicles 

or strategies, with $433 billion in assets, incorporated ESG factors into investment 

analysis. Where a separate account is subject to ERISA, there are legal limitations on 

the extent to which investment decisions can be based on factors other than maximizing 

plan participants' economic returns. 

Shareholder Advocacy 

Shareholder resolutions are filed by a wide variety of institutional investors, including 

public pension funds, faith-based investors, socially responsible mutual funds, and labor 

unions. In 2004, faith-based organizations filed 129 resolutions, while socially 

responsible funds filed 56 resolutions. 

Regulations governing shareholder resolutions vary from country to country. In the 

United States, they are determined primarily by the Securities and Exchange 

Commission, which regulates mutual funds and applies the 1940 Act and by the 

Department of Labor, which regulates certain plans and applies ERISA. 

These regulatory regimes require pension plans and mutual funds to disclose how they 

voted on behalf of their investors. U.S. shareholders have organized various groups to 

facilitate jointly filing resolutions. These include the Council of Institutional Investors, the 

Interfaith Center on Corporate Responsibility, and the US SIF. 

From 2012 to 2014, more than 200 US institutions and investment management firms 

filed or co-filed proposals. These institutions and money managers collectively 

controlled $1.72 trillion in assets at the end of 2013. The top categories of 

environmental and social issues from 2012 to 2014 were political contributions and 

climate change and environmental issues. 

Community Investing 

Community investing, a subset of socially responsible investing, allows for investment 

directly into community-based organizations. Community investing institutions use 

investor capital to finance or guarantee loans to individuals and organizations that have 

historically been denied access to capital by traditional financial institutions. These 

loans are used for housing, small business creation, and education or personal 

Page 25 of 140

development in the US, or are made available to local financial institutions abroad to 

finance international community development. The community investing institution 

typically provides training and other types of support and expertise to ensure the 

success of the loan and its returns for investors. 

Community investing grew almost 5% from 2012 to 2014. Assets held and invested 

locally by community development financial institutions (CDFIs) based in the US totaled 

$64.3 billion at the start of 2014, up from $61.4 billion in 2012. 

Investing in Capital Markets 

Investing Strategies 

Social investors use several strategies to maximize financial return and attempt to 

maximize social good. These strategies seek to create change by shifting the cost of 

capital down for sustainable firm and up for the non-sustainable ones. The proponents 

argue that access to capital is what drives the future direction of development. 

Negative Screening 

Negative screening excludes certain securities from investment consideration based on 

social or environmental criteria. For example, many socially responsible investors 

screen out tobacco company investments. 

The longest-running SRI index, the Domini 400—now the MSCI KLD 400—was started 

in May 1990. It has continued to perform competitively —with average annualized total 

returns of 9.51% through December 2009 compared with 8.66% for the S&P 500. 

Despite this impressive growth, it has long been commonly perceived that SRI brings 

smaller returns than unrestricted investing. So-called "sin stocks", including purveyors of 

tobacco, alcohol, gambling and defense contractors, were banned from portfolios on 

moral or ethical grounds. And shutting out entire industries hurts performance, the 

critics said. However, in a comprehensive study, financial economists Lobe, Roithmeier, 

and Walkshäusl taking the position of the advocatus diaboli, answer the question 

whether to invest in a socially responsible way – or not? They create a set of global and 

domestic sin indexes consisting of 755 publicly traded socially irresponsible stocks 

around the world belonging to the Sextet of Sin: adult entertainment, alcohol, gambling, 

nuclear power, tobacco, and weapons. 

They compare their stock market performance directly with a set of virtue comparables 

consisting of the most important international socially responsible investment indexes. 

They find no compelling evidence that ethical and unethical screens lead to a significant 

difference in their financial performance, which is in contrast with the results of prior 

studies on sinful investing. 

Page 26 of 140

Divestment 

Divesting is the act of removing stocks from a portfolio based on mainly ethical, nonfinancial 

objections to certain business activities of a corporation. Recently, CalSTRS 

(California State Teachers' Retirement System) announced the removal of more than 

$237 million in tobacco holdings from its investment portfolio after 6 months of financial 

analysis and deliberations. 

Shareholder Activism 

Shareholder activism efforts attempt to positively influence corporate behavior. These 

efforts include initiating conversations with corporate management on issues of 

Page 27 of 140

concern, and submitting and voting proxy resolutions. These activities are undertaken 

with the belief that social investors, working cooperatively, can steer management on a 

course that will improve financial performance over time and enhance the well being of 

the stockholders, customers, employees, vendors, and communities. Recent 

movements have also been reported of "investor relations activism", in which investor 

relations firms assist groups of shareholder activists in an organized push for change 

within a corporation; this is done typically by leveraging their enhanced knowledge of 

the corporation, its management (often via direct relationships), and the securities laws 

as a whole. Hedge funds are also major activist investors; while some pursue socially 

responsible investing goals, many simply are seeking to maximize fund returns. Pension 

plans subject to ERISA are somewhat more constrained in their ability to engage in 

shareholder activism or the use of plan assets to promote public policy positions; any 

expenditure of plan assets must be aimed at enhancing participants' retirement income. 

Shareholder Engagement 

A less vocal subtype of shareholder activism, shareholder engagement requires 

extensive monitoring of the non-financial performance of all portfolio companies. In 

shareholder engagement dialogues, investees receive constructive feedback on how to 

improve ESG issues within their sphere of influence. 

Positive Investing 

Positive investing is the new generation of socially responsible investing. It involves 

making investments in activities and companies believed to have a positive social 

impact. Positive investing suggested a broad revamping of the industry's methodology 

for driving change through investments. This investment approach allows investors to 

positively express their values on corporate behavior issues such as social justice and 

the environment through stock selection – without sacrificing portfolio diversification or 

long-term performance. Positive screening pushes the idea of sustainability, not just in 

the narrow environmental or humanitarian sense, but also in the sense of a company's 

long-term potential to compete and succeed. In 2015, Morgan Stanley conducted a 

review of 10,000 funds and concluded "strong sustainability" investments outperformed 

weak sustainability investments, tackling the idea of a trade-off between positive impact 

and financial return. while the Global Impact Investing Network's 2015 report on 

benchmarks and returns in impact investing in private equity and venture capital found 

market-rate or market-beating returns were common in impact investments. 

Impact Investing 

Impact Investing is the alternative investment (ie private equity) approach to Positive 

investing. In 2014, the UK's presidency of the G8 created a Social Impact Investment 

Task Force which produced a series of reports that defined impact investing as "those 

that intentionally target specific social objectives along with a financial return and 

measure the achievement of both." Impact investing, capitalizes businesses that 

potentially provide social or environmental impact at a scale that purely philanthropic 

Page 28 of 140

interventions usually cannot reach. This capital may be in a range of forms including 

private equity, debt, working capital lines of credit, and loan guarantees. Examples in 

recent decades include many investments in microfinance, community development 

finance, and clean technology. Impacting investing has its roots in the venture capital 

community, and an investor will often take active role mentoring or leading the growth of 

the company or start-up. 

Community Investment 

By investing directly in an institution, rather than purchasing stock, an investor is able to 

create a greater social impact: Money spent purchasing stock accrues to the stock's 

previous owner and may not generate social good, while money invested in a 

community institution is put to work. For example, money invested in a Community 

Development Financial Institution may be used by that institution to alleviate poverty or 

inequality, spread access to capital to under-served communities, support economic 

development or green business, or create other social good. In 1984, Trillium Asset 

Management's founder, Joan Bavaria, invited Chuck Matthei of the Institute for 

Community Economics (ICE), an organization that helps communities create and 

Page 29 of 140

sustain land trusts, to a meeting of US SIF. It is likely that this was the first time a 

nonprofit organization with a loan fund would meet directly with SRI managers. Trillium 

clients began investing in ICE later that year. 

Global Context 

Socially responsible investing is a global phenomenon. With the international scope of 

business itself, social investors frequently invest in companies with international 

operations. As international investment products and opportunities have expanded, so 

have international SRI products. The ranks of social investors are growing throughout 

developed and developing countries. In 2006, the United Nations Environment 

Programme launched its Principles for Responsible Investment which provide a 

framework for investors to incorporate environmental, social, and governance (ESG) 

factors into the investment process. PRI has more than 1,500 signatories managing 

more than US$60 trillion of assets. 

Ethical Investment in the UK 

In 1985, Friends Provident launched the first ethically screened investment fund with 

criteria which excluded tobacco, arms, alcohol and oppressive regimes. Since 1985, 

over 90 investment funds have launched offering a wide range of investment criteria; 

both negatively screened and with positive investment criteria i.e. investing into 

companies involved in promoting sustainability. 

Since 1985, most of the major investment organizations have launched ethical and 

socially responsible funds, although this has led to a great deal of discussion and 

debate over the use of the term "ethical" investment. This is because each of the fund 

management organizations tend to apply a slightly different approach to running their 

funds. 

In recent years there has been growth in the market for high social impact investments; 

this is a style of investing where the businesses receiving investment have social or 

environmental goals as a primary purpose. 

UK institutions are also getting more involved in social investing through impact 

investing funds, with those such as Deutsche Bank and NESTA, alongside other 

institutions such as Big Issue Invest, which is part of The Big Issue group. 

As of June 2014, EIRIS estimated that there was over £13.5 billion invested in Britain’s 

green and ethical retail funds. This estimate is based on around 85 UK domiciled green 

or ethical retail funds and it seeks to not include UK money invested in ethical funds 

domiciled outside of the UK. 

Page 30 of 140

In Higher Education 

In 2007, the Dwight Hall organization at Yale University launched the first 

undergraduate-run socially responsible investment fund in the United States, known as 

the Dwight Hall Socially Responsible Investment Fund. 

Page 31 of 140

Page 32 of 140

II. Social Return on Investment 

Social ROI 

Social return on investment (SROI) is a principles-based method for measuring extrafinancial 

value (i.e., environmental and social value not currently reflected in 

conventional financial accounts) relative to resources invested. It can be used by any 

entity to evaluate impact on stakeholders, identify ways to improve performance, and 

enhance the performance of investments. 

A network was formed in 2006 to facilitate the continued evolution of the method. Over 

700 globally are members of this network called Social Value UK (formerly the SROI 

Network). 

The SROI method as it has been standardized by the Social Value UK provides a 

consistent quantitative approach to understanding and managing the impacts of a 

project, business, organisation, fund or policy. It accounts for stakeholders' views of 

impact, and puts financial 'proxy' values on all those impacts identified by stakeholders 

which do not typically have market values. The aim is to include the values of people 

Page 33 of 140

that are often excluded from markets in the same terms as used in markets, that is 

money, in order to give people a voice in resource allocation decisions. 

Some SROI users employ a version of the method that does not require that all impacts 

be assigned a financial proxy. Instead the "numerator" includes monetized, quantitative 

but not monetized, qualitative, and narrative types of information about value. 

Development 

While the term SROI exists in Cost–benefit analysis, a methodology for calculating 

social return on investment in the context of social enterprise was first documented in 

2000 by REDF (formerly the Roberts Enterprise Development Fund), a San Franciscobased 

philanthropic fund that makes long-term grants to organizations that run 

businesses for social benefit. Since then the approach has evolved to take into account 

developments in corporate sustainability reporting as well as development in the field of 

accounting for social and environmental impact. Interest has been fuelled by the 

increasing recognition of the importance of metrics to manage impacts that are not 

included in traditional profit and loss accounts, and the need for these metrics to focus 

on outcomes over outputs. While SROI builds upon the logic of cost-benefit analysis, it 

is different in that it is explicitly designed to inform the practical decision-making of 

enterprise managers and investors focused on optimizing their social and environmental 

impacts. By contrast, cost-benefit analysis is a technique rooted in social science that is 

most often used by funders outside an organization to determine whether their 

investment or grant is economically efficient, although economic efficiency also 

encompasses social and environmental considerations. 

In 2002, the Hewlett Foundation's Blended was brought forward by a group of 

practitioners from the US, Canada, UK and Netherlands who had been implementing 

SROI analyses together to draft an update to the methodology. A larger group met 

again in 2006 to do another revision which was published in 2006 in the book Social 

Return on Investment: a Guide to SROI. New Economics Foundation in the UK began 

exploring ways in which SROI could be tested and developed in a UK context, 

publishing a DIY Guide to Social Return on Investment in 2007. 

The UK government's Office of the Third Sector and the Scottish Government 

commissioned a project beginning in 2007 that continues to develop guidelines that 

allow social businesses seeking government grants to account for their impact using a 

consistent, verifiable method. This resulted in another formal revision to the method, 

produced by a consortium led by the Social Value UK, published in the 2009 Guide to 

SROI. 

Developments in the UK led to agreement between the Social Value International and 

the Social Value UK on core principles. As of 2009 all but one of the seven identified 

principles are now common to the two frameworks. These are: 

 

 

Involve stakeholders. 

Understand what changes. 

Page 34 of 140

Value the things that matter. 

Only include what is material. 

Do not over-claim. 

Be transparent. 

Verify the result. 

'Value the things that matter' includes the use of financial proxies and monetization of 

value and is unique to the SROI approach. 

Since 2008 Social E-valuator from 

The Netherlands have been 

working on solutions for impact measurement. In 

2013 Social E-valuator built a brand new 

online software platform for 

measuring impact and late 2014 

they have launched an 

inclusive impact 

measurement 

platform called Sinzer. This 

enables people to map 

impact, collect data in an 

efficient way and analyze 

the results. The online 

tool from Sinzer is 

created in such a way 

that 

organizations can make better 

decisions, improve impact 

and be accountable to 

stakeholders. 

More recently, Social Asset Measurements Inc., a Canadian software and consulting 

company, developed the Social Return Intelligence Suite, which is made up of two 

interlinked software products: The Ira Impact Reporting & Management Suite (IIRM) and 

the Sabita Indicator & Financial Proxy Database Service (SDS). Sabita was created with 

funding from the National Research Council of Canada and houses over 500 indicators 

and financial proxies, which are adjusted for inflation and graded according to the SAM 

Factor – a proprietary algorithm that provides a grading from 0-10 based on the quality 

of the sources used in creating the financial proxy. Ira allows non-SROI practitioners to 

report within the SROI framework, creating monetized and non-monetized impact 

reports, as well as outcome and output reports. 

In 2009–2010 proponents affiliated with the Social Value UK proposed to establish 

linkages between SROI analysis and IRIS, an initiative to create a common set of terms 

and definitions for describing the social and environmental performance of an 

organization. Discussions about how best to do this are ongoing. 

Page 35 of 140

Some organisations that have used SROI have found it to be a useful tool for 

organizational learning. 

Primary Purpose 

While in financial management the term ROI refers to a single ratio, unlike Social 

Earnings Ratio (S/E Ratio), SROI analysis does not refer not to one single ratio but 

more to a way of reporting on value creation. It bases the assessment of value in part 

on the perception and experience of stakeholders, finds indicators of what has changed 

and tells the story of this change and, where possible, uses monetary values for these 

indicators. It is an emerging management discipline: a skill set for the measurement and 

communication of non-financial value. Therefore, the approach distinguishes between 

"SROI" and "SROI Analysis." The latter implies: a) a specific process by which the 

number was calculated, b) context information to enable accurate interpretation of the 

number itself, and c) additional non-monetized social value and information about the 

number's substance and context. 

The Principles 

There are seven principles of SROI. These are: 

1. Involve stakeholders (i.e. everyone who has a 'stake' or an interest in the subject of 

the SROI) 

Inform what gets measured and how this is measured and valued in an account 

of social value by involving stakeholders 

2. Understand what changes (for those stakeholders) 

Articulate how change is created and evaluate this through evidence gathered, 

recognising positive and negative changes as well as those that are intended and 

unintended 

3. Value what matters (also known as the 'monetisation principle' – see below) 

Making decisions about allocating resources between different options needs to 

recognise the values of stakeholders. Value refers to the relative importance of 

different outcomes. It is informed by stakeholders' preferences 

4. Only include what is material 

Determine what information and evidence must be included in the accounts to 

give a true and fair picture, such that stakeholders can draw reasonable 

conclusions about impact 

Page 36 of 140

5. Do not over-claim 

Only claim the value that activities are responsible for creating 

6. Be transparent 

Demonstrate the basis on which the analysis may be considered accurate and 

honest, and show that it will be reported to and discussed with stakeholders 

7. Verify the result 

Ensure appropriate independent assurance 

Monetisation Principle 

The translation of extra-financial value into monetary terms is considered an important 

part of SROI analysis by some practitioners, and problematic when it is made a 

universal requirement by others. Essentially, the monestisation principle assumes that 

price is a proxy for value. 

While prices represent exchange value – the market price at which demand equals 

supply – they do not completely represent all the value to either the seller or the 

consumer. In other words, they do not capture economic surplus (consumer or producer 

surplus). They also do not include the positive or negative value (i.e., externalities) for 

others who may be affected by an exchange. Moreover, prices will depend in part on 

the distribution of income and wealth: different distributions result in different prices 

which result in different proxies for value. Hence market prices do not always accurately 

reflect what people value. 

Proponents of SROI argue that using monetary proxies (market prices or other 

monetary proxies) for social, economic and environmental value offers several practical 

benefits: 

 

 

 

 

it makes it easier to align and integrate performance management systems with 

financial management systems; 

it aids communication with internal stakeholders, especially those responsible for 

finances and resource allocation, and with those who prefer quantitative to 

qualitative ways of learning; 

it induces transparency since it precipitates the clarification of which values have 

been included and which have not been included; 

it permits sensitivity analysis to show which assumptions are more important in 

that the result is more affected by changes in some assumptions than others; 

Page 37 of 140

it helps identify the critical sources of value and so streamlines performance 

management. 

Despite these benefits, on the con side there is concern that monetization lets the 

consumer of SROI analysis off the hook by too easily allowing comparison of the end 

number at the expense of understanding the actual method by which it was arrived at— 

a comparison which would be an apples to oranges comparison in nearly every case. 

The SROI methodology has been further adapted for use in planning and prioritization 

of climate change adaptation and development interventions. For example, the 

Participatory Social Return on Investment (PSROI) framework builds on the economic 

principles of SROI and CBA and integrates them with the theoretical and 

methodological foundations of Participatory Action Research (PAR), Critical systems 

thinking, and Resilience Theory and strength-based approaches such as Appreciative 

Inquiry and asset-based community development to create a framework for the planning 

and costing of adaptation to climate change in agricultural systems [10] PSROI thus 

represents the convergence of two theoretical tracks: Adaptation prioritization, planning 

and selection, and the economics of adaptation. The main divergence, then, between 

SROI and PSROI is that while SROI typically analyzes pre-defined interventions, 

PSROI involves a participatory intervention prioritization process that is antecedent to 

SROI-style economic analyses. 

Potential limitations 

 

 

 

 

Benefits that cannot be monetised: There will be some benefits that are 

important to stakeholders but which cannot be monetised. An SROI analysis 

should not be restricted to one number, but seen as a framework for exploring an 

organisation’s social impact, in which monetisation plays an important but not an 

exclusive role. 

Focus on monetisation: One of the dangers of SROI is that people may focus 

on monetisation without following the rest of the process, which is crucial to 

proving and improving. Moreover, an organisation must be clear about its 

mission and values and understand how its activities change the world – not only 

what it does but also what difference it makes. This clarity informs stakeholder 

engagement. Therefore, if an organisation seeks to monetise its impact without 

having considered its mission and stakeholders, then it risks choosing 

inappropriate indicators; and as a result the SROI calculations can be of limited 

use or even misconstrued. 

Needs considerable capacity: SROI is time- and resource-intensive. It is most 

easily used when an organisation is already measuring the direct and longerterm 

results of its work with people, groups, or the environment. 

Some outcomes not easily associated with monetary value: Some outcomes 

and impacts (for example, increased self-esteem, improved family relationships) 

cannot be easily associated with a monetary value. In order to incorporate these 

Page 38 of 140

enefits into the SROI ratio proxies for these values would be required. SROI 

analysis is a developing area and as SROI evolves it is possible that methods of 

monetising more outcomes will become available and that there will be 

increasing numbers of people using the same proxies. 

Page 39 of 140

Page 40 of 140

III. Corporate Social Responsibility 

Corporate social responsibility (CSR, also called corporate conscience, corporate 

citizenship or responsible business) is a form of corporate self-regulation integrated 

into a business model. CSR policy functions as a self-regulatory mechanism whereby a 

business monitors and ensures its active compliance with the spirit of the law, ethical 

standards and national or international norms. 

With some models, a firm's implementation of CSR goes beyond compliance and 

statutory requirements, which engages in "actions that appear to further some social 

good, beyond the interests of the firm and that which is required by law". The binary 

choice between 'complying' with the law and 'going beyond' the law must be qualified 

with some nuance. In many areas such as environmental or labor regulations, 

employers can choose to comply with the law, to go beyond the law, but they can also 

choose to not comply with the law, such as when they deliberately ignore gender 

equality or the mandate to hire disabled workers. There must be a recognition that many 

so-called 'hard' laws are also 'weak' laws, weak in the sense that they are poorly 

enforced, with no or little control or no or few sanctions in case of non-compliance. 

'Weak' law must not be confused with soft law. The aim is to increase long-term profits 

Page 41 of 140

and shareholder trust through positive public relations and high ethical standards to 

reduce business and legal risk by taking responsibility for corporate actions. CSR 

strategies encourage the company to make a positive impact on the environment and 

stakeholders including consumers, employees, investors, communities, and others. 

Proponents argue that corporations increase long-term profits by operating with a CSR 

perspective, while critics argue that CSR distracts from businesses' economic role. A 

2000 study compared existing econometric studies of the relationship between social 

and financial performance, concluding that the contradictory results of previous studies 

reporting positive, negative, and neutral financial impact, were due to flawed empirical 

analysis and claimed when the study is properly specified, CSR has a neutral impact on 

financial outcomes. 

Critics questioned the "lofty" and sometimes "unrealistic expectations" in CSR. or that 

CSR is merely window-dressing, or an attempt to pre-empt the role of governments as a 

watchdog over powerful multinational corporations. 

Political sociologists became interested in CSR in the context of theories of 

globalization, neoliberalism and late capitalism. Some sociologists viewed CSR as a 

form of capitalist legitimacy and in particular point out that what began as a social 

movement against uninhibited corporate power was transformed by corporations into a 

'business model' and a 'risk management' device, often with questionable results. 

CSR is titled to aid an organization's mission as well as serve as a guide to what the 

company represents for its consumers. Business ethics is the part of applied ethics that 

examines ethical principles and moral or ethical problems that can arise in a business 

environment. ISO 26000 is the recognized international standard for CSR. Public sector 

organizations (the United Nations for example) adhere to the triple bottom line (TBL). It 

is widely accepted that CSR adheres to similar principles, but with no formal act of 

legislation. 

Definition 

Since the 1960s, corporate social responsibility has attracted attention from businesses 

and stakeholders in regard to its benefits and what it is. Corporate social responsibility 

has been defined differently by different writers based on what they perceive about the 

concept. Having learnt from the devastating effects of corporate social irresponsibility, 

companies are focusing on the impacts of their operations not only on profits but the 

society and environment at large. Therefore, corporate social responsibility refers to "the 

ethical principle that an organization should be responsible for how its behaviour might 

affect society and the environment". From 1960, "corporate social responsibility" has 

remained a term used indiscriminately by many to cover legal and moral responsibility 

more narrowly construed. 

In response to the rising concerns on ethical issues in businesses, Carroll 1991 

extended corporate social responsibility from the traditional economic and legal 

Page 42 of 140

esponsibility to ethical and philanthropic responsibility. Carroll demonstrates that 

corporate social responsibility is made up of four responsibilities that are interrelated 

and argues that corporate social responsibility can not be achieved without meeting the 

four responsibilities sequentially namely economic, legal, ethical and philanthropic 

responsibilities. Similarly, Business Dictionary defines CSR as "A company's sense of 

responsibility towards the community and environment (both ecological and social) in 

which it operates. Companies express this citizenship (1) through their waste and 

pollution reduction processes, (2) by contributing educational and social programs and 

(3) by earning adequate returns on the employed resources." 

Consumer Perspectives 

Most consumers agree that while achieving business targets, companies should do 

CSR at the same time. Most consumers believe companies doing charity work will 

receive a positive response. Somerville also found that consumers are loyal and willing 

to spend more on retailers that support charity. Consumers also believe that retailers 

selling local products will gain loyalty. Smith (2013) shares the belief that marketing 

local products will gain consumer trust. 

However, environmental efforts are receiving negative views given the belief that this 

would affect customer service. Oppewal et al. (2006) found that not all CSR activities 

are attractive to consumers. They recommended that retailers focus on one activity. 

Becker-Olsen (2006) found that if the social initiative done by the company is not 

aligned with other company goals it will have a negative impact. Mohr et al. (2001) and 

Groza et al. (2011) also emphasise the importance of reaching the consumer. 

Page 43 of 140

Approaches 

Some commentators have identified a difference between the Canadian (Montreal 

school of CSR), the Continental European and the Anglo-Saxon approaches to CSR. It 

is said that for Chinese consumers, a socially responsible company makes safe, highquality 

products; for Germans it provides secure employment; in South Africa it makes a 

positive contribution to social needs such as health care and education. And even within 

Europe the discussion about CSR is very heterogeneous. 

A more common approach to CSR is corporate philanthropy. This includes monetary 

donations and aid given to nonprofit organizations and communities. Donations are 

made in areas such as the arts, education, housing, health, social welfare and the 

environment, among others, but excluding political contributions and commercial event 

sponsorship. 

Another approach to CSR is to incorporate the CSR strategy directly into operations. 

For instance, procurement of Fair Trade tea and coffee. 

Creating shared value or CSV is based on the idea that corporate success and social 

welfare are interdependent. A business needs a healthy, educated workforce, 

sustainable resources and adept government to compete effectively. For society to 

thrive, profitable and competitive businesses must be developed and supported to 

create income, wealth, tax revenues and philanthropy. The Harvard Business Review 

article Strategy & Society: The Link between Competitive Advantage and Corporate 

Social Responsibility provided examples of companies that have developed deep 

linkages between their business strategies and CSR. CSV acknowledges trade-offs 

between short-term profitability and social or environmental goals, but emphasizes the 

opportunities for competitive advantage from building a social value proposition into 

corporate strategy. CSV gives the impression that only two stakeholders are important - 

shareholders and consumers. 

Many companies employ benchmarking to assess their CSR policy, implementation and 

effectiveness. Benchmarking involves reviewing competitor initiatives, as well as 

measuring and evaluating the impact that those policies have on society and the 

environment, and how others perceive competitor CSR strategy. 

Cost-Benefit Analysis 

In competitive markets cost-benefit analysis of CSR initiatives can be examined using a 

resource-based view (RBV). According to Barney (1990), "formulation of the RBV, 

sustainable competitive advantage requires that resources be valuable (V), rare (R), 

inimitable (I) and non-substitutable (S)." A firm introducing a CSR-based strategy might 

only sustain high returns on their investment if their CSR-based strategy could not be 

copied (I). However, should competitors imitate such a strategy, that might increase 

overall social benefits. Firms that choose CSR for strategic financial gain are also acting 

responsibly. 

Page 44 of 140

RBV presumes that firms are bundles of heterogeneous resources and capabilities that 

are imperfectly mobile across firms. This imperfect mobility can produce competitive 

advantages for firms that acquire immobile resources. McWilliams and Siegel (2001) 

examined CSR activities and attributes as a differentiation strategy. They concluded 

that managers can determine the appropriate level of investment in CSR by conducting 

cost benefit analysis in the same way that they analyze other investments. 

Reinhardt (1998) found that a firm engaging in a CSR-based strategy could only sustain 

an abnormal return if it could prevent competitors from imitating its strategy. 

Scope 

Initially, CSR emphasized the official behaviour of individual firms. Later, it expanded to 

include supplier behaviour and the uses to which products were put and how they were 

disposed of after they lost value. 

Supply Chain 

In the 21st century, corporate social responsibility in the supply chain has attracted 

attention from businesses and stakeholders. Corporations' supply chain is the process 

by which several organizations including suppliers, customers and logistics providers 

work together to provide a value package of products and services to the end user, who 

is the customer. 

Corporate social irresponsibility in the supply chain has greatly affected the reputation of 

companies, leading to a lot of cost to solve the problems. For instance, incidents like the 

2013 Savar building collapse, which killed over 1000 people, pushed companies to 

consider the impacts of their operations on society and environment. On the other side, 

the horse meat scandal of 2013 in the United Kingdom affected many food retailers, 

including Tesco, the largest retailer in the United Kingdom, leading to the dismissal of 

the supplier. Corporate social irresponsibility from both the suppliers and the retailers 

has greatly affected the stakeholders who lost trust for the affected business entities, 

and despite the fact that sometimes it's not directly undertaken by the companies, they 

become accountable to the stakeholders. These surrounding issues have prompted 

supply chain management to consider the corporate social responsibility context. 

Page 45 of 140

Wieland and Handfield (2013) suggested that companies need to include social 

responsibility in their reviews of component quality. They highlighted the use of 

technology in improving visibility across the supply chain. 

Corporate Social Initiatives 

Corporate social responsibility includes six types of corporate social initiatives: 

 

 

 

 

 

 

Corporate philanthropy: company donations to charity, including cash, goods, 

and services, sometimes via a corporate foundation 

Community volunteering: company-organized volunteer activities, sometimes 

while an employee receives pay for pro-bono work on behalf of a non-profit 

organization 

Socially-responsible business practices: ethically produced products which 

appeal to a customer segment 

Cause promotions: company-funded advocacy campaigns 

Cause-related marketing: donations to charity based on product sales 

Corporate social marketing: company-funded behavior-change campaigns 

All six of the corporate initiatives are forms of corporate citizenship. However, only some 

of these CSR activities rise to the level of cause marketing, defined as "a type of 

corporate social responsibility (CSR) in which a company's promotional campaign has 

the dual purpose of increasing profitability while bettering society." 

Companies generally do not have a profit motive when participating in corporate 

philanthropy and community volunteering. On the other hand, the remaining corporate 

social initiatives can be examples of cause marketing, in which there is both a societal 

interest and profit motive. 

Implementation 

CSR may be based within the human resources, business development or public 

relations departments of an organisation, or may be a separate unit reporting to the 

CEO or the board of directors. 

Engagement Plan 

An engagement plan can assist in reaching a desired audience. A corporate social 

responsibility individual or team plans the goals and objectives of the organization. As 

with any corporate activity, a defined budget demonstrates commitment and scales the 

program's relative importance. 

Page 46 of 140

Accounting, Auditing and Reporting 

Social accounting is the communication of social and environmental effects of a 

company's economic actions to particular interest groups within society and to society at 

large. 

Social accounting emphasizes the notion of corporate accountability. Crowther defines 

social accounting as "an approach to reporting a firm's activities which stresses the 

need for the identification of socially relevant behavior, the determination of those to 

whom the company is accountable for its social performance and the development of 

appropriate measures and reporting techniques." Reporting guidelines and standards 

serve as frameworks for social accounting, auditing and reporting: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AccountAbility's AA1000 standard, based on John Elkington's triple bottom line 

(3BL) reporting 

The Prince's Accounting for Sustainability Project's Connected Reporting 

Framework 

The Fair Labor Association conducts audits based on its Workplace Code of 

Conduct and posts audit results on the FLA website. 

The Fair Wear Foundation verifies labour conditions in companies' supply chains, 

using interdisciplinary auditing teams. 

Global Reporting Initiative's Sustainability Reporting Guidelines 

Economy for the Common Good's Common Good Balance Sheet 

GoodCorporation's standard developed in association with the Institute of 

Business Ethics 

Synergy Codethic 26000 Social Responsibility and Sustainability Commitment 

Management System (SRSCMS) Requirements—Ethical Business Best 

Practices of Organizations—the necessary management system elements to 

obtain a certifiable ethical commitment management system. The standard 

scheme has been build around ISO 26000 and UNCTAD Guidance on Good 

Practices in Corporate Governance.The standard is applicable by any type of 

organization.; 

Earthcheck Certification / Standard 

Social Accountability International's SA8000 standard 

Standard Ethics Aei guidelines 

The ISO 14000 environmental management standard 

The United Nations Global Compact requires companies to communicate on their 

progress [48] (or to produce a Communication on Progress, COP), and to describe 

the company's implementation of the Compact's ten universal principles. 

The United Nations Intergovernmental Working Group of Experts on International 

Standards of Accounting and Reporting (ISAR) provides voluntary technical 

guidance on eco-efficiency indicators, corporate responsibility reporting, and 

corporate governance disclosure. 

The FTSE Group publishes the FTSE4Good Index, an evaluation of CSR 

performance of companies. 

Page 47 of 140

EthicalQuote (CEQ) tracks reputation of the world's largest companies on 

Environmental, Social, Governance (ESG), Corporate Social Responsibility, 

ethics and sustainability. 

The Islamic Reporting Initiative (IRI) is a not-for-profit organization which leads 

the creation of the IRI framework; the guiding integrated CSR reporting 

framework based on Islamic principles and values. 

In nations such as France, legal requirements for social accounting, auditing and 

reporting exist, though international or national agreement on meaningful 

measurements of social and environmental performance has not been achieved. Many 

companies produce externally audited annual reports that cover Sustainable 

Development and CSR issues ("Triple Bottom Line Reports"), but the reports vary 

widely in format, style, and evaluation methodology (even within the same industry). 

Critics dismiss these reports as lip service, citing examples such as Enron's yearly 

"Corporate Responsibility Annual Report" and tobacco companies' social reports. 

In South Africa, as of June 2010, all companies listed on the Johannesburg Stock 

Exchange (JSE) were required to produce an integrated report in place of an annual 

financial report and sustainability report. An integrated report reviews environmental, 

social and economic performance alongside financial performance. This requirement 

was implemented in the absence of formal or legal standards. An Integrated Reporting 

Committee (IRC) was established to issue guidelines for good practice. 

Verification 

Corporate social responsibility and its resulting reports and efforts should be verified by 

the consumer of the goods and services. The accounting, auditing and reporting 

resources provide a foundation for consumers to verify that their products are socially 

sustainable. Due to an increased awareness of the need for CSR, many industries have 

their own verification resources. The include organizations like the Forest Stewardship 

Council (paper and forest products), International Cocoa Initiative, and Kimberly 

Process (diamonds). The United Nations also provides frameworks not only for 

verification, but for reporting of human rights violations in corporate supply chains. 

Ethics Training 

The rise of ethics training inside corporations, some of it required by government 

regulation, has helped CSR to spread. The aim of such training is to help employees 

make ethical decisions when the answers are unclear. The most direct benefit is 

reducing the likelihood of "dirty hands", fines and damaged reputations for breaching 

laws or moral norms. Organizations see increased employee loyalty and pride in the 

organization. 

Page 48 of 140

Common Actions 

Common CSR actions include: 

 

 

 

Environmental sustainability: recycling, waste management, water management, 

renewable energy, reusable materials, 'greener' supply chains, reducing paper 

use and adopting Leadership in Energy and Environmental Design (LEED) 

building standards. 

Community involvement: This can include raising money for local charities, 

providing volunteers, sponsoring local events, employing local workers, 

supporting local economic growth, engaging in fair trade practices, etc. 

Ethical marketing: Companies that ethically market to consumers are placing a 

higher value on their customers and respecting them as people who are ends in 

themselves. They do not try to manipulate or falsely advertise to potential 

consumers. This is important for companies that want to be viewed as ethical. 

Social License 

"Social license" refers to a local community's acceptance or approval of a company. 

Social license exists outside formal regulatory processes. Social license can 

nevertheless be acquired through timely and effective communication, meaningful 

dialogue and ethical and responsible behavior. 

Page 49 of 140

Displaying commitment to CSR is one way to achieve social license, by enhancing a 

company's reputation. 

Potential Business Benefits 

A large body of literature exhorts business to adopt non-financial measures of success 

(e.g., Deming's Fourteen Points, balanced scorecards). While CSR benefits are hard to 

quantify, Orlitzky, Schmidt and Rynes found a correlation between social/environmental 

performance and financial performance. 

The business case for CSR within a company employs one or more of these arguments: 

Triple Bottom Line 

"People, planet and profit", also known as the triple bottom line, form one way to 

evaluate CSR. "People" refers to fair labour practices, the community and region where 

the business operates. "Planet" refers to sustainable environmental practices. Profit is 

the economic value created by the organization after deducting the cost of all inputs, 

including the cost of the capital (unlike accounting definitions of profit). 

This measure was claimed to help some companies be more conscious of their social 

and moral responsibilities. However, critics claim that it is selective and substitutes a 

company's perspective for that of the community. Another criticism is about the absence 

of a standard auditing procedure. 

The term was coined by John Elkington in 1994. 

Human Resources 

A CSR program can be an aid to recruitment and retention, particularly within the 

competitive graduate student market. Potential recruits often consider a firm's CSR 

policy. CSR can also help improve the perception of a company among its staff, 

particularly when staff can become involved through payroll giving, fundraising activities 

or community volunteering. CSR has been credited with encouraging customer 

orientation among customer-facing employees. 

CSR is known for impacting employee turnover. Several executives suggest that 

employees are their most valuable asset and that the ability to retain them leads to 

organization success. Socially responsible activities promote fairness, which in turn 

generate lower employee turnover. On the other hand, if an irresponsible behavior is 

demonstrated by a firm, employees may view this behavior as negative. Proponents 

argue that treating employees well with competitive pay and good benefits is seen as a 

socially responsible behavior and therefore reduces employee turnover. Executives 

have a strong desire for building a positive work context that benefits CSR and the 

company as a whole. This interest is driven particularly by the realization that a positive 

Page 50 of 140

work environment can result in desirable outcomes such as more favorable job attitudes 

and increased work performance. 

The IBM Institute for Business Value conducted a survey of 250 business leaders 

worldwide in 2008. The survey found out that businesses have assimilated a much 

more strategic view, and that 68% companies reported are utilizing CSR as an 

opportunity and part of a sustainable growth strategy. The authors noted that while 

developing and implementing a CSR strategy represents a unique opportunity to benefit 

the company. However, only 31% of businesses surveyed engaged their employees on 

the company's CSR objectives and initiatives. The survey's authors also stated that 

employee engagement on CSR initiatives can be a powerful recruitment and retention 

tool. As a result, employees tend to discard employers with a bad reputation. 

Risk Management 

Managing risk is an important executive responsibility. Reputations that take decades to 

build up can be ruined in hours through corruption scandals or environmental accidents. 

These draw unwanted attention from regulators, courts, governments and media. CSR 

can limit these risks. 

Page 51 of 140

Brand Differentiation 

CSR can help build customer loyalty based on distinctive ethical values. Some 

companies use their commitment to CSR as their primary positioning tool, e.g., The Cooperative 

Group, The Body Shop and American Apparel. 

Some companies use CSR methodologies as a strategic tactic to gain public support for 

their presence in global markets, helping them sustain a competitive advantage by 

using their social contributions as another form of advertising. 

Companies that operate strong CSR activities tend to drive customer's attention to buy 

products or services regardless of the price. As a result, this increases competition 

among firms since customers are aware of the company's CSR practices. These 

initiatives serve as a potential differentiator because they not only add value to the 

company, but also to the products or services. Furthermore, firms under intense 

competition are able to leverage CSR to increase the impact of their distribution on the 

firm's performance. For instance, lowering the carbon footprint of a firm's distribution 

network or engaging in fair trade are potential differentiators to lower costs and increase 

profits. In this scenario, customers can observe the company's commitment to CSR 

while increasing company sales. 

Whole Foods' marketing and promotion of organic foods have had a positive effect on 

the supermarket industry. Proponents assert that Whole Foods has been able to work 

with its suppliers to improve animal treatment and quality of meat offered in their stores. 

They also promote local agricultures in over 2,400 independent farms to maintain their 

line of sustainable organic produce. As a result, Whole Foods' high prices do not turn 

customers away from shopping. In fact, they are pleased buying organic products that 

come from sustainable practices. 

According to a Harvard Business Review article, there are three theaters of practice in 

which CSR can be divided. Theater one focuses on philanthropy, which includes 

donations of money or equipment to non-profit organizations, engagement with 

communities' initiatives and employee volunteering. This is characterized as the "soul" 

of a company, expressing the social and environmental priorities of the founders. The 

authors assert that companies engage in CSR because they are an integral part of the 

society. For instance, the Coca-Cola Company contributes with $88.1 million annually to 

a variety of environmental educational and humanitarian organization. Another example 

is PNC Financial Services' "Grow Up Great" childhood education program. This 

program provides critical school readiness resources to underserved communities 

where PNC operates. 

On the other hand, theater two focuses on improving operational effectiveness in the 

workplace. The researchers assert that programs in this theater strive to deliver social 

or environmental benefits to support a company's operation across the value chain by 

improving efficiency. Some of the examples mentioned include sustainability initiatives 

Page 52 of 140

to reduce resource use, waste, and emission that could potentially reduce costs. It also 

calls for investing in employee work conditions such as health care and education which 

may enhance productivity and retention. Unlike philanthropic giving, which is evaluated 

by its social and environmental return, initiatives in the second theater are predicted to 

improve the corporate bottom line with social value. Bimbo, the largest bakery in 

Mexico, is an excellent example of this theater. The company strives to meet social 

welfare needs. It offers free educational service to help employees complete high 

school. Bimbo also provides supplementary medical care and financial assistance to 

close gaps in the government health 

coverage. 

Moreover, the third theater 

program aims to transform 

the business 

model. 

Basically, 

companies 

create new forms of 

business 

to 

address 

social or 

environmental 

challenges 

that will lead to 

financial 

returns in the long run. One 

example can be seen in Unilever's 

Project Shakti in India. 

The authors describe 

that the company hires women 

in villages and provides them 

with micro-finance loans to sell soaps,oils,detergents, and other products door-to-door. 

This research indicates that more than 65,000 women entrepreneurs are doubling their 

incomes while increasing rural access and hygiene in Indian villages. Another example 

is IKEA's People and Planet initiative to be 100% sustainable by 2020. As a 

consequence, the company wants to introduce a new model to collect and recycle old 

furniture. 

Reduced Scrutiny 

Corporations are keen to avoid interference in their business through taxation or 

regulations. A CSR program can persuade governments and the public that a company 

Page 53 of 140

takes health and safety, diversity and the environment seriously, reducing the likelihood 

that company practices will be closely monitored. 

Supplier Relations 

Appropriate CSR programs can increase the attractiveness of supplier firms to potential 

customer corporations. E.g., a fashion merchandiser may find value in an overseas 

manufacturer that uses CSR to establish a positive image—and to reduce the risks of 

bad publicity from uncovered misbehavior. 

Criticisms and Concerns 

CSR concerns include its relationship to the purpose of business and the motives for 

engaging in it. 

Nature of Business 

Milton Friedman and others argued that a corporation's purpose is to maximize returns 

to its shareholders and that obeying the laws of the jurisdictions within which it operates 

constitutes socially responsible behavior. 

While some CSR supporters claim that companies practicing CSR, especially in 

developing countries, are less likely to exploit workers and communities, critics claim 

that CSR itself imposes outside values on local communities with unpredictable 

outcomes. 

Better governmental regulation and enforcement, rather than voluntary measures, are 

an alternative to CSR that moves decision-making and resource allocation from public 

to private bodies. However, critics claim that effective CSR must be voluntary as 

mandatory social responsibility programs regulated by the government interferes with 

people's own plans and preferences, distorts the allocation of resources, and increases 

the likelihood of irresponsible decisions. 

Motives 

Some critics believe that CSR programs are undertaken by companies to distract the 

public from ethical questions posed by their core operations. They argue that the 

reputational benefits that CSR companies receive (cited above as a benefit to the 

corporation) demonstrate the hypocrisy of the approach. Moreover, some studies find 

that CSR programs are motivated by corporate managers' personal interests at the cost 

of the shareholders so they are a type of an agency problem in corporations. 

Others have argued that the primary purpose of CSR is to provide legitimacy to the 

power of businesses. As wealth inequality is perceived to be increasing it has become 

increasingly necessary for businesses to justify their position of power. Bakan is one of 

the most prominent critics of the conflict of interest between private profit and public 

good, and his argument is summarised by Haynes that "a corporate calculus exists in 

Page 54 of 140

which costs are pushed onto both workers, consumers and the environment". CSR 

spending may be seen in these financial terms, whereby the higher costs of socially 

undesirable behaviour are offset by a CSR spending of a lower amount. Indeed, it has 

been argued that there is a "halo effect" in terms of CSR spending. Research has found 

that firms which had been convicted of bribery in the USA under the Foreign Corrupt 

Practices Act (FCPA) received more lenient fines if they had been seen to be actively 

engaging in comprehensive CSR practices. It was found that typically either a 20% 

increase in corporate giving or a commitment to eradicating a significant labour issue, 

such as child labour, was equated to a 40% lower fine in the case of bribing foreign 

officials. 

Aguinis and Glavas conducted a comprehensive review of CSR literature, covering 700 

academic sources from numerous fields including organizational behaviour, corporate 

strategy, marketing and HRM. It was found that the primary reason for firms to engage 

in CSR were the expected financial benefits associated with CSR, rather than being 

motivated a desire to be responsible to society. 

Ethical Ideologies 

CEOs' political ideologies are evident manifestations of their different personal views. 

Each CEO may exercise different powers according to their organizational outcomes. In 

fact, their political ideologies are expected to influence their preferences for the CSR 

outcomes. Proponents argue that politically liberal CEOs will envision the practice of 

CSR as beneficial and desirable to increase a firm's reputation. They tend to focus more 

on how the firm can meet the needs of the society. As a consequence, they will 

Page 55 of 140

advance with the practice of CSR while adding value to the firm. On the other hand, 

property rights may be more relevant to conservative CEOs. Since conservatives tend 

to value free markets, individualism and call for a respect of authority, they will not likely 

envision this practice as often as those identifying as liberals might. 

The financials of the company and the practice of CSR also have a positive relationship. 

Moreover, the performance of a company tends to influence conservatives more likely 

than liberals. While not seeing it from the financial performance point of view, liberals 

tend to hold a view that CSR adds to the business triple bottom line. For instance, when 

the company is performing well, they will most likely promote CSR. If the company is not 

performing as expected, they will rather tend to emphasize this practice because they 

will potentially envision it as a way to add value to the business. In contrast, politically 

conservative CEOs will tend to support the practice of CSR if they hold a view that it will 

provide a good return to the financials of the company. In other words, this type of 

executives tend to not see the outcome of CSR as a value to the company if it does not 

provide anything in exchange. 

Misdirection 

There have been unsubstantiated social efforts, ethical claims, and outright 

greenwashing by some companies that has resulted in increasing consumer cynicism 

and mistrust. Sometimes companies use CSR to direct public attention away from other, 

harmful business practices. For example, McDonald's Corporation positioned its 

association with Ronald McDonald House and other children's charities as CSR while its 

meals have been accused of promoting poor eating habits. 

Acts which may initially appear to be altruistic CSR may have ulterior motives. The 

funding of scientific research projects has been used as a source of misdirection by 

firms. Prusiner, who discovered the protein responsible of CJD and won of the 1997 

Nobel prize in Medicine, thanks the tobacco company RJ Reynolds for their crucial 

support. RJ Reynolds funded the research into CJD. Proctor states that "the tobacco 

industry was the leading funder of research into genetics, viruses, immunology, air 

pollution" anything which formed a distraction from the well-established research linking 

smoking and cancer. 

Research has also found that corporate social marketing, a form of CSR promoting 

societal good, is being used to direct criticism away from the damaging practices of the 

alcohol industry. It has been shown that adverts which supposedly encourage 

responsible drinking simultaneously aim to promote drinking as a social norm. 

Companies may engage in CSR and social marketing in this case to prevent more 

stringent government legislation on alcohol marketing. 

Controversial Industries 

Industries such as tobacco, alcohol or munitions firms make products that damage their 

consumers or the environment. Such firms may engage in the same philanthropic 

Page 56 of 140

activities as those in other industries. This duality complicates assessments of such 

firms with respect to CSR. 

The Kizhakkambalam Takeover 

Textile company Kitex has taken over the administration of an entire Indian village 

called Kizhakkambalam near Cochin by winning the local body elections. 

Environmentalists and mainstream politicians of India point out that this can lead to a 

dangerous precedent because the company got actively involved in CSR only after they 

were caught red-handed in polluting the village. 

Page 57 of 140

Stakeholder Influence 

One motivation for corporations to adopt CSR is to satisfy stakeholders. 

Branco and Rodrigues (2007) describe the stakeholder perspective of CSR as the set of 

views of corporate responsibility held by all groups or constituents with a relationship to 

the firm. In their normative model the company accepts these views as long as they do 

not hinder the organization. The stakeholder perspective fails to acknowledge the 

complexity of network interactions that can occur in cross-sector partnerships. It 

relegates communication to a maintenance function, similar to the exchange 

perspective. 

Ethical Consumerism 

The rise in popularity of ethical consumerism over the last two decades can be linked to 

the rise of CSR. Consumers are becoming more aware of the environmental and social 

implications of their day-to-day consumption decisions and in some cases make 

purchasing decisions related to their environmental and ethical concerns. 

One issue with the consumer's relationship with CSR is that it is much more complex 

than it first appears. In their paper on the consumer and CSR, Janssen and Vanhamme 

looked into a phenomenon that they termed the "CSR-Consumer Paradox". This 

describes the mismatch that occurs where consumers report that they would only buy 

from companies with good social responsibility. For instance, a survey by Cohn & Wolfe 

found that globally over 60% of consumers want to buy from responsible companies. 

However, Janssen and Vanhamme reported that less than 4% of average household 

expenditure in the UK in 2010 was ethical. This indicates that there is a clear 

discrepancy between consumer beliefs and intentions, and actual consumer behaviour, 

so that when it comes down to their actual purchase behaviour, CSR has a much lesser 

impact than consumers initially say it does. 

One theory put forward for explaining the "CSR-Consumer Paradox" is that of 

"bystander apathy" or the bystander effect. This theory stems from the social 

psychology works of Darley and Latané and states that the likelihood of an individual 

acting in a given situation is greatly reduced if other bystanders do nothing even if that 

individual strongly believes in a certain course of action. In terms of explaining the CSR- 

Consumer Paradox, this theory would suggest an "If they do not care then why should 

I?" mentality. So even if a consumer is against the use of sweatshops or wants to 

support green causes, they may continue to make purchases from companies that are 

socially irresponsible just because other consumers seem apathetic towards the issue. 

A second explanation issued by Janssen and Vanhamme is that of reciprocal altruism. 

This is a key concept in evolutionary psychology that is argued to fuel all human 

behaviour: people only do something if they can get something back in return. In the 

case of CSR and ethical consumerism, however, consumers get very little in return for 

their investment. Ethically sourced or manufactured products are typically higher in price 

Page 58 of 140

due to greater costs. However, the reward for consumers is not much different from that 

of a non-ethical counterpart. Therefore, evolutionary speaking making an ethical 

purchase is not worth the higher cost to the individual even if they believe in supporting 

ethically, environmentally and socially beneficial causes. 

Socially Responsible Investing 

Shareholders and investors, through socially responsible investing, are using their 

capital to encourage behavior they consider responsible. However, definitions of what 

constitutes ethical behavior vary. For example, some religious investors in the US have 

withdrawn investment from companies that violate their religious views, while secular 

investors divest from companies that they see as imposing religious views on workers 

or customers. 

Creating Shared Value 

With the creating shared value (CSV) model, companies use their resources and 

capabilities to solve specific societal problems in ways that are aligned with their 

corporate strategy. CSV proponents claim that the model is more community aware 

than CSR. 

Public Policies 

Some national governments promote socially and environmentally responsible 

corporate practices. The heightened role of government in CSR has facilitated the 

development of numerous CSR programs and policies. Various European governments 

have pushed companies to develop sustainable corporate practices. CSR critics such 

as Robert Reich argued that governments should set the agenda for social 

responsibility with laws and regulation that describe how to conduct business 

responsibly. 

Page 59 of 140

Regulation 

Fifteen European Union countries are actively engaged in CSR regulation and public 

policy development. CSR efforts and policies are different among countries, responding 

to the complexity and diversity of governmental, corporate and societal roles. Some 

studies have claimed that the role and effectiveness of these actors were case-specific. 

This variety among company approaches to CSR can complicate regulatory processes. 

Canada adopted CSR in 2007. Prime Minister Harper encouraged Canadian mining 

companies to meet Canada's newly developed CSR standards. 

The 'Heilbronn Declaration' is a voluntary agreement of enterprises and institutions in 

Germany especially of the Heilbronn-Franconia region signed the 15th of September 

2012. The approach of the 'Heilbronn Declaration' targets the decisive factors of 

success or failure, the achievements of the implementation and best practices regarding 

CSR. A form of responsible entrepreneurship shall be initiated to meet the requirements 

of stakeholders' trust in economy. It is an approach to make voluntary commitments 

more binding. 

In opposition to mandated CSR regulation, Researchers Armstrong & Green suggest 

that all regulation is "harmful", citing regulation as the cause for North Korea's low 

economic freedom and per capita GDP. They further claim without source that "There is 

no form of market failure, however egregious, which is not eventually made worse by 

the political interventions intended to fix it," and conclude "there is no need for further 

research on regulation in the name of social responsibility." 

Laws 

In the 1800s, the US government could take away a firm's license if it acted 

irresponsibly. Corporations were viewed as "creatures of the state" under the law. In 

1819, the United States Supreme Court in Dartmouth College vs. Woodward 

established a corporation as a legal person in specific contexts. This ruling allowed 

corporations to be protected under the Constitution and prevented states from 

regulating firms. Recently countries included CSR policies in government agendas. 

On 16 December 2008, the Danish parliament adopted a bill making it mandatory for 

the 1100 largest Danish companies, investors and state-owned companies to include 

CSR information in their financial reports. The reporting requirements became effective 

on 1 January 2009. The required information included: 

 

 

 

CSR/SRI policies 

How such policies are implemented in practice 

Results and management expectations 

CSR/SRI is voluntary in Denmark, but if a company has no policy on this it must state its 

positioning on CSR in financial reports. 

Page 60 of 140

In 1995, item S50K of the Income Tax Act of Mauritius mandated that companies 

registered in Mauritius paid 2% of their annual book profit to contribute to the social and 

environmental development of the country. In 2014, India also enacted a mandatory 

minimum CSR spending law. Under Companies Act, 2013, any company having a net 

worth of 500 crore or more or a turnover of 1,000 crore or a net profit of 5 crore must 

spend 2% of their net profits on CSR activities. The rules came into effect from 1 April 

2014. 

Crises and Their Consequences 

Crises have encouraged the adoption of CSR. The CERES principles were adopted 

following the 1989 Exxon Valdez incident. Other examples include the lead paint used 

by toy maker Mattel, which required the recall of millions of toys and caused the 

company to initiate new risk management and quality control processes. Magellan 

Metals was found responsible for lead contamination killing thousands of birds in 

Australia. The company ceased business immediately and had to work with 

independent regulatory bodies to execute a cleanup. Odwalla experienced a crisis with 

sales dropping 90% and its stock price dropping 34% due to cases of E. coli. The 

company recalled all apple or carrot juice products and introduced a new process called 

"flash pasteurization" as well as maintaining lines of communication constantly open 

with customers. 

Geography 

Corporations that employ CSR behaviors do not always behave consistently in all parts 

of the world. Conversely, a single behavior may not be considered ethical in all 

Page 61 of 140

jurisdictions. E.g., some jurisdictions forbid women from driving, while others require 

women to be treated equally in employment decisions. 

UK Retail Sector 

A 2006 study found that the UK retail sector showed the greatest rate of CSR 

involvement. Many of the big retail companies in the UK joined the Ethical Trading 

Initiative, an association established to improve working conditions and worker health. 

Tesco (2013) reported that their 'essentials' are 'Trading responsibility', 'Reducing our 

Impact on the Environment', 'Being a Great Employer' and 'Supporting Local 

Communities'. J Sainsbury employs the headings 'Best for food and health', 'Sourcing 

with integrity', 'Respect for our environment', 'Making a difference to our community', 

and 'A great place to work', etc. The four main issues to which UK retail these 

companies committed are environment, social welfare, ethical trading and becoming an 

attractive workplace. 

Top ten UK retail brands in 2013 based on Retail Week reports: 

Retailer 

Annual Sales £bn 

Tesco 42.8 

Sainsbury's 22.29 

Asda 21.66 

Morrisons 17.66 

Mark and Spencer 8.87 

Co-operative Group 8.18 

John Lewis Partnership 7.76 

Boots 6.71 

Home Retail Group 5.49 

King Fisher 4.34 

Anselmsson and Johansson (2007) assessed three areas of CSR performance: human 

responsibility, product responsibility and environmental responsibility. Martinuzzi et al. 

described the terms, writing that human responsibility is "the company deals with 

suppliers who adhere to principles of natural and good breeding and farming of animals, 

and also maintains fair and positive working conditions and work-place environments for 

their own employees. Product responsibility means that all products come with a full and 

complete list of content, that country of origin is stated, that the company will uphold its 

declarations of intent and assume liability for its products. Environmental responsibility 

means that a company is perceived to produce environmental-friendly, ecological, and 

non-harmful products". Jones et al. (2005) found that environmental issues are the most 

commonly reported CSR programs among top retailers. 

Page 62 of 140

IV. Impact Investing 

Impact investing refers to investments "made into companies, organizations, and 

funds with the intention to generate a measurable, beneficial social or environmental 

impact alongside a financial return." 

Institutional investors, notably North American and European development finance 

institutions, pension funds and endowments have played a leading role in the 

development of impact investing holistically, across all asset classes, with an initial 

focus on private equity, venture capital and green infrastructure. Under Pope Francis, 

the Catholic Church has witnessed an increased interest in impact investing. 

Page 63 of 140

"Impact investments can be made in emerging and developed markets, and target a 

range of returns from below-market to above-market rates, depending upon the 

circumstances." Impact investing tends to have roots in either social issues or 

environmental issues, and has been contrasted with microfinance. Impact investors 

actively seek to place capital in businesses, nonprofits, and funds that can harness the 

positive power of enterprise. Impact investing occurs across asset classes; for example, 

private equity/venture capital, debt, and fixed income. 

Background 

Historically, regulation—and to a lesser extent, philanthropy—was an attempt to 

minimize the negative social consequences (unintended consequences, externalities) of 

business activities.[needs reference] However, a history of individual investors using 

socially responsible investing to express their values exists, and such investing behavior 

is usually defined by the avoidance of investments in specific companies or activities 

with negative effects. In the 1990s, Jed Emerson advocated the blended value 

approach; that is, for foundations' endowments to be invested in alignment with the 

mission of the foundation, rather than to maximize financial return, which had been the 

prior accepted strategy. 

Simultaneously, approaches such as pollution prevention, corporate social 

responsibility, and triple bottom line began as measurements of non-financial effects, 

both inside and outside of corporations. In 2000, Baruch Lev, of the NYU Stern School 

of Business, collated thinking about intangible assets in a book of the same name, 

which furthered thinking about the non-financial effects of corporate production. 

Finally, around 2007, the term "impact investment" emerged — an approach that 

deliberately builds intangible assets alongside tangible, financial ones. A commitment to 

measuring social and environmental performance, with the same rigor as that applied to 

financial performance, is considered a critical, even indispensable, component of impact 

investing. 

The Industry 

The number of funds engaged in impact investing grew quickly over a five-year period 

and a 2009 report from research firm the Monitor Group estimated that the impact 

investing industry could grow from around US$50 billion in assets to US$500 billion in 

assets within the subsequent decade. Such capital may be in a range of forms, 

including equity, debt, working capital lines of credit, and loan guarantees. Examples in 

recent decades include many investments in microfinance, community development 

finance, and clean technology. The growth of impact investing is partly attributed to the 

criticism of traditional forms of philanthropy and international development, which have 

been characterized as unsustainable and driven by the goals—or whims—of the 

corresponding donors. 

Page 64 of 140

Currently impact investing is still only a small market when compared to the global 

equity market, estimated at US$61 trillion (market capitalization of domestic listed 

companies) by the World Bank in 2015. In contrast, about US$15.2 billion was 

committed to 7,551 impact investment projects that year, according to GIIN’s 2016 

Annual Impact Investor Survey. The largest sectors by asset allocation were housing, 

microfinance and energy. For 2016 growth of about 16 percent was expected, reaching 

approximately US$18 billion. 

Many development finance institutions, such as the British Commonwealth 

Development Corporation or Norwegian Norfund, can also be considered impact 

investors, because they allocate a portion of their portfolio to investments that deliver 

financial as well as social or environmental benefits. 

Impact investing is distinguished from crowdfunding sites, such as Indiegogo or 

Kickstarter, because impact investments are typically debt or equity investments over 

US$1,000—with longer-than-traditional venture capital payment times—and an "exit 

strategy" (traditionally an initial public offering (IPO) or buyout in the for-profit startup 

sector) may be non-existent. Although some social enterprises are nonprofits, impact 

investing typically involves for-profit, social- or environmental-mission-driven 

businesses. 

Organizations receiving impact investment capital may be set up legally as a for-profit, 

not-for profit, B Corporation, Low-profit Limited Liability Company, Community Interest 

Company, or other designations that may vary by country. In much of Europe, these are 

known as 'social enterprises'. 

Institutional investors 

Institutional Impact Investing 

Impact investments occur across asset classes and investment amounts. Among the 

best-known mechanism is private equity or venture capital. "Social venture capital", or 

"patient capital", impact investments are structured similarly to those in the rest of the 

Page 65 of 140

venture capital community. Investors may take an active role mentoring or leading the 

growth of the company, similar to the way a venture capital firm assists in the growth of 

an early-stage company. Hedge funds and private equity funds may also pursue impact 

investing strategies. 

Impact investment "accelerators" also exist for seed- and growth-stage social 

enterprises. Similar to seed-stage accelerators for traditional startups, impact 

investment accelerators provide smaller amounts of capital than Series A financings or 

larger impact investment deals. Most Impact Investment Accelerators are nonprofits, 

raising grants from donors to pay for business development services; however, 

commercially orientated accelerators providing investment readiness and capital-raising 

advisory services are emerging. 

Large corporations are also emerging as powerful mechanisms for impact investing. 

Companies that seek to create shared value through developing new products/services, 

or positively impacting their operations, are beginning to employ impact investments 

through their value chain, particularly their supply chain. 

Impact investing can help organizations become self-sufficient by enabling them to carry 

out their projects and initiatives without having to rely heavily on donations and state 

subsidies. 

Increased Supranational and Pension Cooperation 

Governments and national and international public institutions including development 

finance institutions have sought to leverage their impact-oriented policies by 

encouraging pension funds and other large asset owners to co-invest with them in 

impact-informed assets and projects, notably in the Global South. World Pensions 

Council and other US and European experts have welcome this course of action, 

insisting nonetheless that: 

”Governments and international institutions need to do more if they truly seek to ‘unlock’ 

private sector capital in a meaningful way. They have to ask themselves the following 

questions: what are the concrete legal, regulatory, financial and fiduciary concerns 

facing pension fund board members? How can we improve emerging industry standards 

for impact measurement and help pension trustees steer more long-term capital 

towards valuable economic endeavors at home and abroad, while, simultaneously, 

ensuring fair risk-adjusted returns for future pensioners?” 

Mission Investing by Foundations 

Mission investments are investments made by foundations and other mission-based 

organizations to further their philanthropic goals. They include any type of investment 

that is intended and designed to generate both a measurable social or environmental 

benefit and a financial return: 

Page 66 of 140

Program-related investments (PRIs) or other concessionary (below-market rate) 

investments are primarily made to achieve programmatic rather than financial 

objectives. This category includes grant support, equity (stock), subordinated 

loans, senior loans, below-market cash deposits and loan guarantees. For 

private foundations, PRIs count towards the required 5 percent annual payout. 

 

Market-rate investments (MRIs) expected to generate a market-rate financial 

return on investment comparable to an ordinary investment of a similar type and 

risk profile. They are designed to have a positive impact while contributing to the 

foundation’s long-term financial stability and growth. This category includes 

market-rate cash deposits, fixed income (bond), private equity and public equity 

(stocks). 

Impact Investing by Individuals 

Impact investing historically took place through mechanisms aimed at institutional 

investors. However, there are ways for individuals to participate in providing early stage 

or growth funding to such ventures. 

Exchange-Traded Funds 

Exchange-traded funds like the SPDR Gender Diversity ETF (NYSE Arca: SHE) from 

State Street are publicly traded and hence available to anyone with a stock brokerage 

account. MSCI offers 11 environmental, social and governance index ETFs, including 

popular low-carbon and sustainability indexes. 

Syndicate or Pooled Investing 

Groups of angel investors focused on impact, where individuals invest as a syndicate 

also exist. Examples include Investors' Circle in the US, Clearly Social Angels in the UK 

and Toniic in Europe. 

Digital Microfinance Platforms 

Web-based investing platforms, which offer lower-cost investing services, also exists. 

As equity deals can be prohibitively expensive for small-scale transactions, 

microfinance loans, rather than equity investment, are prevalent in these platforms. 

MyC4, founded in 2006, allows retail investors to loan to small businesses in African 

Page 67 of 140

countries via local intermediaries. Microplace was an early United States provider of 

such services which ceased taking on new loans in 2014, stating that its results "haven't 

scaled to the widespread social impact we aspire to achieve". 

Impact Investing in Asia 

Impact Investing in Asia is a burgeoning sector with many funds currently in play. 

However, many funds suffer from finding robust levels of investment opportunities for 

their pipeline given their ability to hedge internal requirements and risks and a potential 

inability to exit the various investments that they are invested in. 

Page 68 of 140

V. Social Impact Assessments 

Social impact assessment (SIA) is a methodology to review the social effects of infrastructure 

projects and other development interventions. Although SIA is usually applied to planned 

interventions, the same techniques can be used to evaluate the social impact of unplanned 

events, for example disasters, demographic change and epidemics. 

Definition 

The origins of SIA largely derive from the environmental impact assessment (EIA) model, which 

first emerged in the 1970s in the U.S, as a way to assess the impacts on society of certain 

development schemes and projects before they go ahead - for example, new roads, industrial 

facilities, mines, dams, ports, airports, and 

other infrastructure projects. In the United 

States under the National 

Environmental Policy Act, social impact 

assessments are federally mandated 

and performed 

in conjunction 

with 

environmental 

impact 

assessments. 

SIA has been incorporated into the 

formal planning and 

approval processes 

in several countries, 

in order to categorize 

and assess how major developments may 

affect populations, groups, and settlements. Though the social impact assessment has long 

been considered subordinate to the environmental impact assessment, new models, such as 

the Environmental Social Impact Assessment (ESIA), take a more integrated approach where 

equal weight is given to both the social and environmental impact assessments. 

Contents 

Definitions for "social impact assessment" vary by different sectors and applications. According 

to the International Association for Impact Assessment, "Social impact assessment includes the 

processes of analyzing, monitoring and managing the intended and unintended social 

consequences, both positive and negative, of planned interventions (policies, programs, plans, 

projects) and any social change processes invoked by those interventions. Its primary purpose 

is to bring about a more sustainable and equitable biophysical and human environment." 

SIA's originate from the 1970's and were originally used in Anglo-Saxon environments with 

indigenous peoples, like the United States, Canada and Australia. Use of SIA's, in general in 

combination with Environmental Impact Assessments (ESIA) has since then developed, and are 

legally required in many other countries, ranging from development countries like Sierra Leone 

and Chad, emerging markets like Chili and Philippines but also other OECD countries like 

Greenland and South Africa. 

Increased pressure on available land and increasingly educated and competent local 

communities can lead to high costs for public acceptance of complex projects with adverse risks 

and effects. SIA's are increasingly seen as an effective instrument to bring these costs down by 

Page 69 of 140

determining views of affected communities on risks, effects and mitigation measures based on a 

sound socio-economic baseline study. 

The IFC Performance Standards are generally seen as the benchmark for ESIA's and insert this 

in an overarching Envrironmental and Social Risk Management System, which is based on 

proven risk management techniques. The IFC Performance Standard is used by multinational 

companies and commercial investors. Commercial banks have united themselves under the 

Equator Principles with over 90 members in 37 countries. 

SIA overlaps with monitoring and evaluation (M&E). Evaluation is particularly important in the 

areas of: 

1. public policy, 

2. health and education initiatives, and 

3. international development projects more generally, whether conducted by governments, 

international donors, or NGOs. 

In all these sectors, there is a case for conducting SIA and evaluations at different stages. 

The Hydropower Sustainability Assessment Protocol is a sector specific method for checking 

the quality of environmental and social assessments and management plans. 

Non-experts and local people should participate in the design and implementation of proposed 

developments or programmes. This can be achieved in the process of doing an SIA, through 

adopting a participatory and democratic research process. Some SIAs go further than this, to 

adopt an advocacy role. For example, several SIAs carried out in Queensland, Australia, have 

been conducted by consultants working for local Aboriginal communities who oppose new 

mining projects on ancestral land. A rigorous SIA report, showing real consequences of the 

projects and suggesting ways to mitigate these impacts, gives credibility and provides evidence 

to take these campaigns to the planning officers or to the courts. 

Page 70 of 140

VI. Economic Impact Analysis 

An economic impact analysis (EIA) examines the effect of an event on the economy in a 

specified area, ranging from a single neighborhood to the entire globe. It usually measures 

changes in business revenue, business profits, personal wages, and/or jobs. The economic 

event analyzed can include implementation of a new policy or project, or may simply be the 

presence of a business or organization. An economic impact analysis is commonly conducted 

when there is public concern about the potential impacts of a proposed project or policy. 

An economic impact analysis typically measures or 

estimates the change in economic activity between 

two scenarios, one assuming the economic event 

occurs, and one assuming it does not occur (which is 

referred to as the counterfactual case). This can be 

accomplished either before or after the event (ex ante 

or ex post). 

Overview 

An economic impact analysis attempts to measure or 

estimate the change in economic activity in a 

specified region, caused by a specific business, 

organization, policy, program, project, activity, or 

other economic event. The study region can be a 

neighborhood, town, city, county, statistical area, 

state, country, continent, or the entire globe. 

Types of Economic Impacts 

Economic impact analyses often estimate multiple 

types of impacts. An output impact is the total increase in business sales revenue. In turn, local 

businesses use some of this new revenue to pay for goods and services outside of the study 

region, so the output impact is not synonymous with local business profits. A more conservative 

measure of economic activity is the value added impact, which estimates the increase in the 

study region’s gross regional product. The gross regional product (GRP) is very similar to the 

nation’s gross domestic product (GDP), and represents the total size of the local economy. This 

impact estimates the increase in local employee wages plus local business profits (not total 

revenue, like the output impact). However, the value added impact may overstate local profits 

when they are transferred overseas (such as in the form of dividends or investments in foreign 

facilities). 

An even more conservative measure is the labor income impact, which represents the increase 

in total money paid to local employees in the form of salaries and wages. The increases in 

income may come in the form of raises and/or increased hours for existing employees, or new 

jobs for the unemployed. This is a measure of the economic impact on just personal incomes, 

not business revenues or profits. A similar measure is the employment impact, which measures 

the increase in the number of total employees in the local region. Instead of measuring the 

economic impact in terms of money, this measure presents the impact on the number of jobs in 

the region. 

Page 71 of 140

Another measure of economic impact is the property value impact, measuring the increase in 

total property values, and is a reflection of generated income and wealth, both personal and 

business. 

Sources of Economic Impacts 

In addition to the types of impacts, economic impact analyses often estimate the sources of the 

impacts. Each impact can be decomposed into different components, depending on the effect 

that caused the impact. Direct effects are the results of the money initially spent in the study 

region by the business or organization being studied. This includes money spent to pay for 

salaries, supplies, raw materials, and operating expenses. 

The direct effects from the initial spending creates additional activity in the local economy. 

Indirect effects are the results of business-to-business transactions indirectly caused by the 

direct effects. Businesses initially benefiting from the direct effects will subsequently increase 

spending at other local businesses. The indirect effect is a measure of this increase in businessto-business 

activity (not including the initial round of spending, which is included in the direct 

effects). 

Induced effects are the results of increased personal income caused by the direct and indirect 

effects. Businesses experiencing increased revenue from the direct and indirect effects will 

subsequently increase payroll expenditures (by hiring more employees, increasing payroll 

hours, raising salaries, etc.). Households will, in turn, increase spending at local businesses. 

The induced effect is a measure of this increase in household-to-business activity. Finally, 

dynamic effects are caused by geographic shifts over time in populations and businesses. 

Methodology 

Economic impact analyses usually employ one of two methods for determining impacts. The 

first is an input-output model (I/O model) for analyzing the regional economy. These models rely 

on inter-industry data to determine how effects in one industry will impact other sectors. In 

addition, I/O models also estimate the share of each industry's purchases that are supplied by 

local firms (versus those outside the study area). Based on this data, multipliers are calculated 

and used to estimate economic impacts. Examples of I/O models used for economic impact 

analyses are IMPLAN, [3] RIMS-II, and EMSI. 

Another method used for economic impact analyses are economic simulation models. These 

are more complex econometric and general equilibrium models. They account for everything the 

I/O model does, plus they forecast the impacts caused by future economic and demographic 

changes. One such is example is the REMI Model. 

Comparison to Other Analyses 

Economic impact analyses are related to but differ from other similar studies. An economic 

impact analysis only covers specific types of economic activity. Some social impacts that affect 

a region's quality of life, such as safety and pollution, may be analyzed as part of a social impact 

assessment, but not an economic impact analysis, even if the economic value of those factors 

could be quantified. An economic impact analysis may be performed as one part of a broader 

environmental impact assessment, which is often used to examine impacts of proposed 

Page 72 of 140

development projects. An economic impact analysis may also be performed to help calculate 

the benefits as part of a cost-benefit analysis. 

Applications 

Economic impact analyses are used frequently in transportation planning. Common tools for this 

application include the Transportation Economic Development Impact System (TREDIS) and 

TranSight. Several transportation agencies, including the Transportation Research Board and 

US Department of Transportation, publish guides, standards, and techniques for utilizing 

economic impact analyses in transportation planning projects. 

Economic impact analyses are often used to examine the consequences of economic 

development projects and efforts, such as real estate development, business openings and 

closures, and site selection projects. The analyses can also help increase community support 

for these projects, as well as help obtain grants and tax incentives. 

An economic impact analysis is commonly developed in conjunction with proposed legislation or 

regulatory changes, in order to fully understand the impact of government action on the 

economy. The United States Department of Energy economic impact model is one example of 

this type of application. Many times the economic impact analysis is developed by the party 

advocating for the legislative or regulatory change, to communicate the merits of the proposed 

action. It can be useful with lobbying, media relations, and community outreach efforts. 

Page 73 of 140

Page 74 of 140

VII. Social Earnings Ratio 

The Social Earnings Ratio, sometimes abbreviated to S/E, is a single-number 

metric, used to measure the social impact of various organisations. The non-financial 

metric is similar to the price earnings ratio, but instead focuses on valuation against 

social impact, rather than projected earnings. 

The ratio was founded in 2011 by Olinga Ta'eed and a team of financial experts, in 

order to find a way of measuring financial 

investment against real 

social impact. It began 

as a university collaboration in the 

United Kingdom, 

before becoming 

an 

internationally 

recognized form of 

when the CCEG 

measurement, 

was founded. 

In 2013, it was identified in a news 

article as "the most rapidly 

adopted metric in the world". 

History 

The Social Earnings Ratio (S/E) is a form of measuring sentiment and converting it into 

financial value. The ratio began as an idea to develop a single number metric to 

measure social value. In November 2011, a University collaboration was formed to 

manage this development. Around 18 months later, the Centre for Citizenship, 

Enterprise and Governance (CCEG) was formed in April 2013, to act as the standards 

body to curate the ratio globally. The standards body would also be run as a non-profit. 

Page 75 of 140

The Board for the CCEG was to include Professor Nick Petford, who was also the Vice- 

Chancellor at the University of Northampton. 

Following the establishment of the CCEG, Olinga Ta'eed was the keynote speaker at 

the Global Citizen Forum. In early 2015, it was announced that Seratio would be 

launched as a spin-off organization to control the licensing of the Social Earnings Ratio 

platform. Barbara Mellish would be the CEO of Seratio. 

By late 2015, the CCEG had over 37,500 members, including a number of key 

sustainability leaders. The UK Intellectual Property Office accepted the terms "Social 

Earnings Ratio", "S/E Ratio" and "Seratio" as having "acquired a distinctive character as 

a result of the use made of it." Full Registration rights have been granted. This is an 

important milestone for the Social Earnings Ratio which will allow it to achieve parity to 

the Price Earnings Ratio. 

Serat.io was launched as a subsidiary project by the CCEG, for the measuring of 

personal value. Pre-launched at the Clipper Round the World Yacht Race in September 

2015, PV targets 1 million users. It is a campaign backed by celebrities such as the 

former First Lady Cherie Blair, broadcaster Jonathan Dimbleby, Italian footballer 

Gianluigi Buffon, politician Rt Hon Peter Hain, as well as the Desmond Tutu Foundation. 

Personal Value was formally launched in December 2015. 

Algorithm 

Total Value = Financial Value + Non-Financial Value = p/e + s/e 

Interpretation 

S/E Ratio is a financial metric that converts sentiment into financial value, and purports 

to be the currency of intangible values. 

The S/E utilises financial value data, claimed outcomes and independent verification 

within a Citizenship Framework. S/E provides digital articulation of value across micro, 

meso and macro levels. Regardless of the organisation or market that is measured, the 

same algorithm is used. In a similar way to comparative currency flow, it means that 

both simple and sophisticated correlations can easily be compared. 

The ratio was developed using a University collaboration, involving over 90 Universities 

globally. The framework examines the influences between the value formed at citizen, 

family, community, team, organisation, regional, national, and global levels. A principle 

rule is that S/E is never applied to negative actions. An example of this would be that 

slavery would never be measured directly, but it would be treated as a lack of freedom. 

Similarly, violence and safety levels wouldn't be measured, but the level of peace and 

its absence could be used in the framework. 

Some have compared its application similar to that of a digital non-financial currency. 

The framework utilises deep academic analysis tools, which are commonly used for 

Page 76 of 140

calculating the financial value. Since the initial collaboration between the United 

Kingdom Universities, a number of Interdependencies have been discovered. 

Interdependencies 

 

 

 

 

 

Time dependency - Value changes over time 

Direction - Value changes depending on which stakeholder viewpoint is 

assessed 

The 1/r 2 rule (Distance) - Value dilutes over increasing distance 

Multiplier effect - Enhancing, diminishing, neutral processes 

Tracking Movement - Transfer between stakeholders 

Metrics 

Focus Metric Application 

1 Institution Organizational UK Social Value Act 2012, Corporate CSR, NGO efficiency 

2 Citizen Personal Value Recruitment, Social Media, Retail, Therapy 

3 Slavery Freedom UK Modern Slavery Act 2015 

4 Health Wellbeing Health, Corporate HR 

5 Regional Hyperlocality Regional Government, Corporate CSR 

6 Collaboration Team Clipper Round the World Yacht Race 2015 

7 Ethics Leadership Mission Performance 

8 Enablement Independence NHS integrated social and health care 

9 Inspiration Art Arts Council 

10 Impact Investment Sustainable investment 

11 Intellectual Capital Universities, Corporate UK 

12 Happiness City Local Government, Politics 

13 Violence Peace Domestic Violence 

14 Animal Welfare Pet industry 

15 Tax Avoidance Corporate evasion 

16 Pay Equalities Gender 

Page 77 of 140

17 Love Relationship Online dating 

Reception 

It is often difficult or not possible to compare Social Earnings Ratio with other forms of 

financial measurement. Comparing S/E to other social impact tools is something that is 

more common. Social Return on Investment (SROI) is one example of this and is quite 

a popular search on most search engines. When its results are compared to that of 

S/E's, its clear that SROI has a greater amount of coverage. 

It could be argued that the history of SROI and the fact it was released in 2002, nine 

years prior to S/E, could indicate why it has a greater number of search engine results. 

Equally, HACT claims to "have created the largest bank of methodologically consistent 

and robust social values ever produced." By this they are referring to a database of 

financial proxy data which can be used in conjunction to SROI, although in August 2015 

they have criticised SROI comprehensively in the "Seven Principle Problems of SROI." 

Continuing with the comparison, in 2014 Lord Loomba presented a report to the House 

of Lords, "Social Impact Analysis", which included metrics from Business in the 

Community and Benefit Corporation, as well as SROI and S/E. The steep rise in S/E 

take-up in 2013 represents the automation of the metric and not necessarily any 

indication of quality. A 'big-data' approach has been provided by CSR-Hub who have 

harvested 417 metrics; in May 2014 they announced an MoU with CCEG to explore 

S/E. 

S/E has undergone considerable analysis and critique in recent years. Most recent 

comparing IIRC (International Integrated Reporting Council) to S/E, concluding 

"Together, the Framework and the S/E Ratio provide a powerful set of metrics and 

analysis for both founders and funders to evaluate value as well as strategic risk." 

Earlier in 2015, The Guardian wrote: "Since 2013, there has certainly been an increase 

in the number of online measurement tools. But the challenge of calculating social 

impact goes back to the early 1990s. One measure, called LM3, allows organisations to 

calculate the local economic impact, while another, called SROI, calculates social return 

on investment. But both are very complex and are based on lots of assumptions that the 

people who do the evaluation will have to identify, agree and sign off." Perhaps we need 

a simpler tool such as the social earnings ratio, which doesn’t require lots of 

assumptions and is based on a one-size-fits-all approach." 

The focus on the broad context of applications of S/E have drawn sometimes heated 

debate amongst the international academic and social innovation community in Italy, 

Romania, and Russia. Mohammad Yunus, a Nobel Prize laureate, has also spoken 

publicly about the framework. These discussions surrounding the concept of a 'universal 

metric' draw both praise and scepticism. 

Criticism of the timeframes to calculate the data has been made, with many wondering 

how accurate statistics be drawn in such a short period of time. other debates about the 

Page 78 of 140

usability of the framework are still forming, as S/E begins to become more prominent in 

the social measuring tools field. Some S/E exponents embrace the disruptive metric tag 

arguing it as an instrument for change, others debate the moral and potential future 

implications. There are a number of platforms discussing and organically developing 

S/E including a forum, a micro-blog, and an international journal in 8 languages, the 

Social Value & Intangibles Review. 

Application 

The S/E makes use of Big Data, Social Media and Sentiment Analysis to automate the 

algorithm on a SaaS platform, with results normally reported within 10 seconds. 

Organisation's whose financials are available via XBRL, allows the framework to be 

applied without intervention. For the measurement of individual personal values can 

take up to 60 seconds to input and start reporting. 

S/E Ratio can be applied across all organisational, institutional, and personal levels, as 

well as projects, processes, products in private, public, third (NGO, voluntary, civil 

society), and community sectors. This widespread approach is a key factor in its 

adoption in certain high profile applications which have gained it traction. S/E Ratio is 

the leading provider of metrics for delivery of public sector procurement under the UK 

Page 79 of 140

Social Value Act 2012 legislation. Currently some UK£3.15 billion of public sector 

procurement is measured through the Social Earnings Ratio. The Lord Young Review 

(February 2015) of the Social Value Act described S/E as "The Centre for Citizenship, 

Enterprise and Governance (CCEG) has developed the social earnings ratio as a quick, 

low cost, high volume way to assess social impact. It is calculated by dividing the social 

value by the money spent on it. This can be calculated using very simple information 

(e.g. the CSR budget, the carbon reduction, and the number of people helped), and is 

meant to provide a single metric that can be used as a quick benchmark". 

Seratio, the SaaS licensing arm of CCEG, announced that in Q1 2016 it will launch a 

Freedom metric to support the UK Modern Slavery Act 2015. This promotes 

Transparency in the Supply Chain for all companies over £36 million turnover - an 

estimated 12,000 companies need to comply to this new piece of legislation as from 

October 2015. CCEG chairs the EU Procurement Social Value & Transparency in 

Supply Chain Forum. 

Corporate Social Responsibility 

There is a propensity of non-financial value data covered by over 1000 different metrics 

and measures. There is remarkable lack of consistency between them. Due to the 

speed of S/E and its ability to translate empirical data from other metrics to an S/E 

score, it has harvested a significant database of organizational values reported. The EU 

SEiSMiC Social Value Group have charted growth and their 2015–16 forecasts for 

measured asset value (Euro € trillion) by S/E. Figures for 2015 and 2016 include other 

value measurements outside organizational value; the key differentiator presumably is 

personal value. 

… 

Page 80 of 140

VIII. Social Impact Bonds 

A Social Impact Bond, also known as Pay for Success Financing, a Pay for 

Success Bond or a Social Benefit Bond or simply a Social Bond, is a contract with 

the public sector in which a commitment is made to pay for improved social outcomes 

that result in public sector savings. The term was originally coined by Geoff Mulgan, 

Chief Executive of the Young Foundation. The first Social Impact Bond was launched by 

UK-based Social Finance Ltd. in September 2010. 

Social Impact Bonds are a type of bond, but not the most common 

type. While they operate over a fixed period of time, they do 

not offer a fixed rate of return. Repayment to 

investors is contingent upon specified 

social outcomes being achieved. 

Therefore, in terms of investment risk, 

Social impact bonds are more similar to 

that of a structured product or an equity 

investment. 

60 Social Impact Bonds 

have launched in 15 

countries, raising more 

than $200m in investment 

to address social 

challenges. In July 2016 

the Social Finance Global 

Network launched a white paper on 

the state of the Social Impact Bond 

market: Social Impact Bonds: The Early 

Years. Social Finance also released a 

live global database of Social Impact 

Bonds. The database can be sorted by country, issue area, investor, payor and service 

provider, providing a comprehensive overview of Social Impact Bonds launched to date 

and a snapshot of the many in development.View the database at 

http://www.socialfinance.org.uk/database/. 

In developing countries, a Development impact bond (DIB) is a variation of the SIB 

model that would provide new sources of financing to achieve improved social 

outcomes in developing country contexts. As with SIBs, investors would provide 

external financing and only receive a return if pre-agreed outcomes are achieved. 

Funds to remunerate investors come from donors, the budget of the host country, or a 

combination of the two. Financial returns to investors are intended to be commensurate 

with the level of success. DIBs have the potential to improve aid efficiency and costeffectiveness 

by shifting the focus onto implementation quality and the delivery of 

successful results. In October 2013, Social Finance Ltd. and the Center for Global 

Page 81 of 140

Development released a report outlining the findings of a high level working group set 

up to explore the potential of this new mechanism. 

History 

Social impact bonds are a non-tradable variant of social policy bonds invented by 

Ronnie Horesh, a New Zealand economist, in 1988. The idea of the Social impact bond 

has been promoted and developed by a number of agencies and individuals in an 

attempt to address the paradox that investing in prevention of social and health 

problems saves the public sector money, but that it is currently difficult for public bodies 

to find the funds and incentives to do so. 

The first Social impact bond was announced in the UK on 18 March 2010 by then 

Justice Secretary Jack Straw, to finance a prisoner rehabilitation program. In the UK the 

Prime Minister’s Council on Social Action (a group of ‘innovators from every sector’ 

brought together to ‘generate ideas and initiatives through which Government and other 

key stakeholders can catalyse, celebrate and develop social action’) was asked in 2007 

to explore alternative models for financing social action. The group began to develop 

the idea of a Social Impact Bond, and the work is being taken forward by a number of 

organisations including Social Finance, an organization committed to increasing 

investment in the third sector, the Young Foundation, the Center for Social Impact in 

Australia, and other NGOs and private firms. 

The idea of a Social Impact Bond has generated significant interest from across the 

political spectrum in multiple countries, including U.S., UK, and Australia. . 

Social impact bonds have also generated interest in the United States. In February 

2011, Barack Obama’s proposed 2012 budget stated that up to $100m would be freed 

up to run Social impact bond pilot schemes. In August, 2012, Massachusetts became 

the first state in the nation to use a competitive procurement process to secure social 

innovation financing for social services. The state legislature authorized spending up to 

$50 million on the initiatives. 

In Australia, the intention to trial Social impact bonds was announced in New South 

Wales in November 2010 by Premier Kristina Keneally of the Australian Labor Party. 

The policy direction was continued by the Coalition (Australia) after a change in 

Government in 2011. 

In November 2012 Essex County Council became the first local authority in the UK to 

commission a Social impact bond in Children’s Services, with the aim of providing 

therapeutic support and improving outcomes for adolescents at risk of going into care. 

Nick Hurd, the minister for civil society, commented: "Social impact bonds are opening 

up serious resources to tackle social problems in new and innovative ways. This is 

about communities, businesses and charities all working together to change people's 

lives, whilst at the same time making savings for the taxpayer." 

Page 82 of 140

In February 2013 Allia, a charitable social investment organisation, announced the first 

public opportunity in the UK to invest in a social impact bond. Although the product was 

later withdrawn from sale due to lack of investors, the Future for Children Bond 

combined a relatively low-risk ethical investment into affordable housing to provide the 

funds to repay capital to investors, with a higher risk investment into a social impact 

bond with the aim of delivering a high social impact and providing an additional variable 

return. 

It would have invested into the Social Impact Bond for Essex County Council to 

‘improve the life outcomes’ of children aged 11–16 at risk of going into care. 

Definitions 

There are a range of interpretations of what the term ‘Social impact bond’ means. 

Third Sector Capital Partners describes Social impact bonds as: 

'A social impact bond is one potential financing option available to support Pay for 

Success programs. Social Impact Bonds brings together government, service providers 

and investors/funders to implement existing and proven programs designed to 

accomplish clearly defined outcomes. 

Investors/funders provide the initial capital support and the government agrees to make 

payments to the program only when outcomes are achieved. So government pays for 

success.' 

Social Finance UK describes Social impact bonds as: 

‘A Social Impact Bond is a public-private partnership which funds effective social services 

through a performance-based contract.’ 

The Young Foundation describes Social impact bonds as: 

‘a range of financial assets that entail raising money from third parties and making 

repayments according to the social impacts achieved.' 

The Non-Profit Finance Fund describes Social impact bonds as: 

PFS financing agreements, in which private investors provide upfront capital for the 

delivery of services and are repaid by a back-end, or outcomes payor (usually a 

government), if contractually agreed upon outcomes are achieved, are often referred to 

as "Social Impact Bonds" (illustrated and described below). Social Impact Bonds (SIBs) 

are a mechanism by which to shift financial risk from service providers to investors, with 

investors underwriting service providers’ based on their ability to deliver on positive social 

outcomes. 

Social Finance therefore specifies that the investment is from non-government bodies, 

whereas the Young Foundation envisages that public bodies could be potential 

investors. 

Page 83 of 140

Benefits and Costs of Social Impact Bonds 

Advocates of these performance-based investments claim that they encourage 

innovation and tackle difficult social problems, asserting that new and innovative 

programs have potential for success, but often have trouble securing government 

funding because it can be hard to rigorously prove their effectiveness. This form of 

financing allows the government to partner with innovative and effective service 

providers and, if necessary, private foundations or other investors willing to cover the 

upfront costs and assume performance risk to expand promising programs, while 

assuring that taxpayers will not pay for the programs unless they demonstrate success 

in achieving the desired outcomes. The expected public sector savings are used as a 

basis for raising investment for prevention and early intervention services that improve 

social outcomes. 

In many cases, Pay for Success programs can achieve positive social outcomes, may 

create fiscal savings for government, but also involve changes in funding arrangements 

that bring risks to service agencies. The assumed benefits makes Pay for Success 

politically attractive to governments and businesses. For example, $250 million of 

investments towards preventive programs that reduce recidivism might eventually make 

it possible to close prisons that cost taxpayers $1 billion per year to run. 

The benefits of Social impact bonds depends on the definition being used, but the broad 

benefits (though not measured and verified yet) are that: 

 

 

 

 

 

 

 

More funds are available for prevention and early intervention services. 

The public sector only has to pay for effective services; the third party investor 

bears all the risk of services being potentially ineffective. 

Investors and servicers have an incentive to be as effective as possible, because 

the larger impact they have on the outcome, the larger the repayment they will 

receive. 

The Social Impact Bond approach imbeds vigorous ongoing evaluation of 

program impacts into program operations, accelerating the rate of learning about 

which approaches work and which do not. 

Government funds “what works”; thus repositioning government spending to 

cost-effective preventive programs. 

Attract new forms of capital to the social, educational and healthcare sectors. 

Independent evaluation creates transparency for all parties. 

Critics note that because the outcomes-based payments are dependent on 

governmental funds which must be budgeted, Social impact bonds do not actually raise 

Page 84 of 140

additional capital for social programs, but instead displace funding for other programs. 

Given the need to budget for a return on investment, a program evaluation, middle 

managers, and the expenses of designing the complex financial and contractual 

mechanisms, social impact bonds, according to critics, may be an expensive method of 

operating social programs. Other criticisms include: 

 

 

 

 

 

Criteria for success – donors will seek to fund that which can be observed and 

measured, the outcomes (not just the outputs). This will leave agencies 

addressing the huge structural problems in society unable to access these funds. 

This is going to be particularly true for advocacy, arts and alternative 

organizations. It will be difficult for social coalitions to get funding as their 

contributions are dispersed through member organizations and the effect they 

have on government policies, for example. The terms of these instruments may 

be set to overpay for more readily achievable goals. Doing so would increase 

long term government spending and divorce such spending from direct 

deliverables. 

More donor influence – donors, or now investors, will want to make sure their 

money is being used according to contract, and will therefore want to be more 

involved in the delivery of social services. They may even want to see NGOs 

adopt a more business style of delivery. 

Unfair competition – among NGOs will emerge. Agencies that secure funds will 

be able to operate in areas where NGOs now operate, but they will have greater 

resources, more narrowly defined goals (and therefore successes to publicize) 

and will set the standard for government funded agencies and their actions. 

Reduces Public responsibility – by reducing the government’s responsibilities 

and accountability for delivering services. Though governments may not 

genuinely represent their societies, they are still the best representatives of the 

public will and governments play an important role in maintaining a civil society 

sector. Social services are a part of our national social contract and the 

government is devolving their responsibility to businesses though encouraging 

such funding when other tax and program options can be made available. 

Ronnie Horesh has expressed his ambivalence about Social impact bonds on the 

basis that, because they are not tradable, they favour existing institutions, are 

inherently narrow and short-term in scope, and impose relatively high monitoring 

costs. They could, though, offer advantages over existing policy. 

Pilots 

Governments across the world are currently piloting Social Impact Bond initiatives. 

Below are a few examples of these initiatives. 

Public safety and recidivism 

Page 85 of 140

UK 

On 18 March 2010, Secretary of State for Justice Jack Straw announced a six-year 

Social Impact Bond (SIB) pilot scheme run by Social Finance that will see around 3,000 

short term prisoners from Peterborough prison, serving less than 12 months, receiving 

intensive interventions both in prison and in the community. Funding from investors 

outside government will be initially used to pay for the services, which will be delivered 

by Third Sector providers with a proven track record of working with offenders. If 

reoffending is not reduced by at least 7.5% the investors will receive no recompense. 

The Social Impact Bond in Peterborough was launched by Secretary of State for Justice 

Kenneth Clarke MP and Prisons Minister Crispin Blunt on 10 September 2010. 

US 

New York City: On February 2012, the City of New York issued a $9.6 million social 

bond for prisoner rehabilitation to be run by The Osborne Association with support from 

Friends of Island Academy. Goldman Sachs bought the bond and will profit if recidivism 

decreases. [47] While the City of New York didn't actually issue bonds or put up-front 

capital for MDRC to run the program (this was done by Goldman Sachs directly with 

MDRC), the City may be liable for some amount if the program is successful, 

presumably to be paid with savings associated with reduced recidivism. An independent 

evaluation, performed by the Vera Institute of Justice, found the goal of reducing 

teenage recidivism by ten percent had not been met, at all, and the city paid nothing to 

Goldman Sachs. 

New York State: In mid-2012, the New York State Department of Labor (DOL) selected 

Social Finance US as its Intermediary partner in structuring an application for federal 

funding for a Social Impact Bond. In 2013, New York approved $30 million in its budget 

to support Social impact bonds over the subsequent five years. In September 2013, 

New York State received a $12 million grant from the United States Department of 

Labor (USDOL) to fund a Pay for Success project designed to increase employment 

and reduce recidivism among 2,000 formerly incarcerated individuals in partnership with 

Social Finance US and the Center for Employment Opportunities. This was the largest 

grant awarded by USDOL for Pay for Success projects. 

Massachusetts: On August 1, 2012, the Commonwealth of Massachusetts announced 

that Third Sector Capital Partners will serve as lead intermediary, in partnership with 

New Profit Inc., for the youth recidivism initiative. Roca, United Way of Massachusetts 

Bay and Merrimack Valley, and Youth Options Unlimited will also participate in the 

youth recidivism project.The program, called Social Innovation Financing, operates on a 

simple “pay for success” model, in which nonprofits must demonstrate that by keeping 

youth from being reincarcerated. According to the state’s press release, the juvenile 

justice contract “will be designed with the specific goal of reducing recidivism and 

improving education and employment outcomes over several years for a significant 

segment of the more than 750 youth who exit the juvenile justice system, and the 

several thousand who exit the probation system annually.” 

Page 86 of 140

Federal: The U.S. Department of Justice gave “Priority Consideration” to Fiscal Year 

2012 Second Chance Act grant applications that include a Pay for Success component. 

The Second Chance Act (P.L. 110-199) authorizes federal grants to support services 

that help reduce recidivism. In 2013, the U.S. Department of Labor awarded nearly $24 

million in grants for Pay for Success projects that provide employment services to 

formerly-incarcerated individuals in order to increase employment and reduce 

recidivism. 

Australia 

The 

Government 

of New South 

Wales, 

Australia, 

announced on 

20 March 

2012 that it 

will develop a 

pilot to reduce 

adult 

recidivism with 

Social 

Ventures 

Australia and 

Mission 

Australia.. 

Several States 

in Australia 

have now 

launched 

Social Impact Bonds - the latest of which is Victoria which, on 21st December 2017, 

announced the conclusion of a SIB deal with Sacred Heart Mission. Key external 

advisers to Sacred Heart Mission were Latitude Network. 

Rough Sleeping and Chronic Homelessness 

UK 

Housing Minister Grant Shapps and London Mayor Boris Johnson announced in March 

2012 that a Social Impact Bond would be launched to help London's persistent rough 

sleepers off the streets and into secure homes. The two Social impact bonds under this 

programme were launched in December 2012. 

Page 87 of 140

US 

Massachusetts: The second of two pilots launched by the Commonwealth of 

Massachusetts in 2012 addresses the issue of chronic homelessness. In this Pay for 

Success model, Third Sector Capital Partners will partner with the Massachusetts 

Housing and Shelter Alliance (MHSA), lead intermediary for a chronic homelessness 

project, as well as the Corporation for Supportive Housing and United Way. The 

Massachusetts Housing and Shelter Alliance represents nonprofit housing organizations 

that provide housing and support services, such as medical care and vocational 

training. The consortium will try to raise the number of housing units it provides to 

around 600 from 220. Through the social innovation financing contract, MHSA and its 

partners plan to expand MHSA’s Home & Healthy for Good (HHG) low-threshold 

housing initiative. HHG has demonstrated that the often traumatic and undertreated 

health conditions which beset chronically homeless individuals are better treated after a 

person gains the basic level of stabilization that permanent housing provides. In addition 

to successfully housing those often considered the hardest to serve, HHG has 

demonstrated significant cost savings to the Commonwealth. 

Australia 

Australia's second Social Impact Bond focused on chronic homelessness was launched 

on 21 December 2017 by the Victorian Minister for Housing, Disability and Ageing. The 

SIB will be focused on three cohorts of 60 individuals, providing rapid housing and 

wrap-around, individualised, case-management support for three years each. The SIB 

provides expansion capital for Sacred Heart Mission's 'Journey to Social Inclusion' 

program which had previously been through pilot testing. Lead external advisors for this 

SIB deal were Latitude Network. 

Health 

US 

Fresno, CA: In April 2013 Social Finance US and Collective Health launched an 

asthma management demonstration project in Fresno, California. This two-year project 

is designed to prove the effectiveness of up-front investment in asthma management, 

by focusing on solid evidence and performance measurement. Fresno is one of the 

nation’s asthma hot spots; around 20 percent of its children have been diagnosed with 

the disease, which takes an especially heavy toll among poor communities. Two service 

providers with proven track records, Central California Asthma Collaborative and Clinica 

Sierra Vista, will work with the families of 200 low-income children with asthma to 

provide home care, education, and support in reducing environmental triggers ranging 

from cigarette smoke to dust mites. Social Finance expects that the program will 

produce meaningful cost savings and quality of life improvement for these children, and 

will deploy rigorous data collection and analysis techniques to prove its effectiveness. 

This proof-of-concept project will build a foundation for the first health-focused Social 

Impact Bond, and will pave the way for future SIB opportunities in the health arena. 

Page 88 of 140

New Zealand 

Four submissions were short-listed as pilot cases as the result of work undertaken 

under the leadership of the Ministry of Health in 2012/2013: 

 

 

 

 

Reduction in youth offending areas of need 

Reduction in adult reoffending 

Management of chronic illness 

Support for people with mental illness to secure and sustain employment. 

Communities 

UK 

The chief secretary to the Treasury, Liam Byrne, announced that Social Impact Bond 

trials could be expanded across government departments. “The Department for 

Children, Schools and Families have pledged to explore the potential of SIBs to lever in 

additional resources to support early intervention approaches with children and young 

people,” he said in Parliament.“Communities and Local Government are also working 

with Leeds City Council and NHS Leeds to enable them to use a SIB approach to 

reduce health and social care costs among older people. Similarly Bradford 

Metropolitan District Council are considering applying this model as part of their 

involvement in the government’s Total Place programme.” 

Page 89 of 140

US 

Federal: The U.S. Department of Housing and Urban Development (HUD) announced 

in 2013 it will provide $5 billion in grant dollars to assist in the rebuilding and 

strengthening effort following Hurricane Sandy and encouraged the five states impacted 

by the storm to make use of evidence-based, Pay for Success strategies where 

appropriate. In 2013, the Department of the Treasury issued a Request for Information 

(RFI) that will help design a proposed $300 million Incentive Fund to further expand Pay 

for Success. The Fund is intended to empower cities, states and nonprofits to test new 

Pay for Success models. This same Fund was also part of the President’s commitment 

of nearly $500 million in this year’s Budget to expand Pay for Success strategies. 

UK 

Children and Families 

Social Finance worked with UK local authorities to assess the potential for social impact 

bonds to improve family support services. These studies assessed the potential of 

social impact bonds to fund preventive and early intervention services which improve 

outcomes for children and generate cost savings for Local Authorities. 

In March 2012 Manchester City Council announced a social impact bond to fund Multidimensional 

treatment foster care. 

Australia 

New South Wales: The Government of New South Wales, Australia, announced on 20 

March 2012 that it will develop three pilots in the area of child protection / foster care 

and Juvenile Justice. One of the child protection pilots is with a consortium involving the 

Benevolent Society, Westpac Bank and the Commonwealth Bank of Australia. The 

other child protection pilot is led by UnitingCare Burnside, a division of UnitingCare 

Australia. The juvenile justice pilot to be delivered by Mission Australia did not go 

ahead. 

US 

Utah: In August 2013, the Goldman Sachs Urban Investment Group (UIG) together with 

the United Way of Salt Lake and J.B. Pritzker formed a partnership to create the first 

ever Social Impact Bond designed to finance early childhood. Goldman Sachs and 

Pritzker jointly committed up to $7 million to finance The Utah High Quality Preschool 

Program, a high impact and targeted curriculum focused on increasing school readiness 

and academic performance among at-risk 3 and 4 year olds in Utah. As a result of 

entering kindergarten better prepared, it is expected that fewer children will use special 

education and remedial services in kindergarten through 12th grade, which results in 

cost savings for school districts, the State of Utah and other government entities. The 

Page 90 of 140

first $1 million investment in this program will enable approximately 600 children to 

attend pre-school in the fall of 2013. 

Illinois: On May 5, 2014, the State of Illinois announced the state’s first Pay for 

Success (PFS) contract will increase support for at-risk youth who are involved in both 

the child welfare and juvenile justice systems in Illinois. The first contract awarded under 

this innovative initiative will go to One Hope United, in partnership with the Conscience 

Community Network (CCN). The program is intended to generate new private 

investment for support programs targeting at-risk youth, putting them on the right path 

by reducing their dependence on the state’s welfare and criminal justice systems, which 

will lead to long-term savings for taxpayers. 

US 

Early Stage Exploration 

States across the country are currently exploring opportunities to use Social impact 

bonds to achieve their social goals, including: 

 

 

 

 

 

 

 

California: In August 2013, Santa Barbara County released a Request for 

Information on Social impact bonds and approved a feasibility study to explore 

the potential use of pay for success financing in reducing prisoner recidivism; 

Additionally, Santa Clara agreed to fund a pilot project exploring SIB feasibility. 

Colorado: In June 2013, Colorado and Denver were selected to receive support 

from a Harvard Kennedy School SIB Technical Assistance Lab (SIB Lab) fellow. 

Both jurisdictions have released a “Request for Information” (RFI) on SIBS. 

Connecticut: In 2013, the Department of Children and Families released a 

Request for Information to explore how Social impact bonds might be used to 

address substance abuse among families involved in the child welfare system. 

Illinois: In April 2013, Governor Quinn announced that the State would pursue a 

Social Impact Bond program with technical support from the Harvard SIB Lab. In 

September, Illinois issued a “Request for Proposal” (RFP), focused on youth 

engaged in the juvenile justice and/or foster care systems. 

Maryland: In 2013, Social Impact Bond legislation was introduced to the 

Committee on Appropriations in the Maryland House of Delegates. 

Michigan: In September 2013, Michigan was selected to receive support from the 

SIB Lab to develop pay for success programs funded by social impact bonds. 

The state initiated an RFI to obtain initial input about potential projects. 

New Jersey: In December 2012, the State Assembly Commerce and Economic 

Development Committee approved the New Jersey Social Innovation Act, which 

Page 91 of 140

would establish a five-year pilot program to attract private funding to finance 

social services. The target areas are prevention and early intervention health 

care for low-income and uninsured people, in order to reduce government health 

care spending. 

 

 

 

 

 

North Carolina: In 2013, the Center for Child and Family Policy at Duke 

University began exploratory work around using SIBS for dissemination of a 

universal home visiting program known as Durham Connects found to reduce 

emergency care in infants. 

Ohio: In November 2012, Cuyahoga County released an RFP on funding social 

service programs through pay-for-success contracts. In the summer of 2013, the 

state of Ohio was selected to receive assistance from the SIB Lab. 

Oregon: The Governor’s 2013-2015 budget proposal included $800,000 for the 

Early Learning Division. The funds are intended to cover start-up costs for a 

“Pilot Prevention Health and Wellness Demonstration Project for Social Impact 

Financing.” 

South Carolina: In June 2013, South Carolina was selected to receive assistance 

from the SIB Lab and looks to use the support to develop a home-visiting 

program. In September 2012, the state issued an RFI related to Social impact 

bonds. 

Washington, D.C.: The District of Columbia initiated a Request for Qualifications 

in September 2013 for a feasibility study of DC Social impact bonds. 

Intermediaries and Technical Assistance Providers 

A list of over 20 intermediaries and providers of technical assistance in the UK is 

maintained as part of the Big Lottery Fund's Commissioning Better Outcomes 

programme. 

 

 

D. Capital: D. Capital is a Dalberg platform entity to catalyze finance for global 

development. D. Capital devises, plans, facilitates, and manages innovative 

finance for social good, including development impact bonds (DIBs), which are 

social impact bonds for international development. D. Capital is behind Africa's 

first, a malaria bond in Mozambique with Nando's and Anglo-American. 

Finance For Good: FFG is Canada's first social impact bond intermediary, 

founded to empower social service providers to address the root cause of social 

issues through the use of Social impact bonds. FFG aims to foster collaboration 

between all stakeholders – governments, front-line service providers, investors, 

and those in need. 

Page 92 of 140

SITAWI Finance for Good: A Civil Society Organization of Public Interest 

(OSCIP) which operates in Brazil since 2008, as a platform to provide innovative 

financial solutions for positive social and environmental impact. Within one of its 

programs, Social Finance, SITAWI began working in 2014 with Social Finance 

UK and a multilateral agency to raise awareness and build a market for Social 

impact bonds in Brazil. 

Harvard Kennedy School Government Performance Lab: With start-up 

funding from the Rockefeller Foundation, the Harvard Kennedy School recently 

established a social impact bond technical assistance lab that provides pro bono 

technical assistance to state and local governments that are considering the pay 

for success approach. 

Instiglio: Instiglio is a 501(c)(3) international nonprofit that works to make social 

programs more effective in developing countries by tying funding to results. They 

provide technical assistance in designing and implementing social impact bonds 

(SIBs), development impact-bonds (DIBs), and performance-based contracts. 

Investing For Good 

 

 

 

 

Impact4Health, LLC: Focused on healthcare Pay for Success Initiatives that 

address upstream social determinants of health to address chronic conditions 

such as asthma and diabetes. Providing technical assistance in Alameda County, 

California PFS focused on reducing pediatric asthma related emergencies. 

Policy Innovation Lab: The Policy Innovation Lab is housed in the Sorenson 

Global Impact Investing Center at the University of Utah's David Eccles School of 

Business. The Lab's mission is to promote innovative and evidence-based 

solutions to challenges in high-need policy areas, including early childhood 

education, public health, recidivism, homelessness, and economic security. 

Private Capital for Public Good: PCPG is the first organization using the social 

impact bond model to address a natural resources-based problem; specifically, 

wildfire on public lands. 

Social Finance Israel: Social Finance Israel (SFI) is a financial intermediary that 

aims to provide both social and financial returns to investors. SFI will issue 

social-financial products, such as Social impact bonds, in order to raise new 

capital for the most effective not-for-profit organizations in Israel, tackling the 

country’s most pressing social and economic issues, while delivering monetary 

returns to investors. 

Social Finance UK: Social Finance is a not-for-profit organization set up in 2007 

to help build a social investment market in the UK. Social Finance provides a 

range of financial advisory services to help build the social investment market. 

Page 93 of 140

We are dedicated to finding ways to raise capital through robust investment 

propositions. 

 

Social Finance US: Social Finance, Inc. is a 501(c)(3) nonprofit organization 

dedicated to mobilizing investment capital to drive social progress. It is a market 

intermediary that works collaboratively with public and private partners (including 

governments, social service organizations, investors, and intermediaries) to 

develop, structure, finance and manage high-quality SIBs. Its flexible approach 

enables services to be tailored to match a project’s specific needs. 

Social Investment Business Group 

 

 

 

Third Sector Capital Partners: Third Sector Capital Partners provides advisory 

services to government, human service providers, social investors and project 

intermediaries pursuing Pay for Success and Social Innovation Financing 

initiatives. We also help high performing nonprofit organizations secure the 

growth capital they need to advance their missions. 

"Bertha Centre for Social Innovation and Entrepreneurship": The Bertha Centre 

at the University of Cape Town's Graduate School of Business established in 

2011 as the first academic centre in Africa dedicated to research, teaching, 

dialogue and support of social innovations that positively change and challenge 

rules, policies, technologies, structures, beliefs and institutions. 

APEL Research and Project Management: Consulting firm with financial, 

industrial and social background, expert in social programs modeling, support 

and management, defining and selecting third sector organizations to implement 

social projects. For more than 11 years has been in charge and management of 

Semiarid Program with National Banks Federation and Semi-Arid Articulation 

(more than 700 civil society organizations facing water scarcity in 13 Brazilian 

states). Since 2013 is in charge and managing federal financial and technical 

resources to implement industries to increase value for small farmer’s production. 

Page 94 of 140

IX. The White House Office of Social Innovation 

and Civic Participation 

The Office of Social Innovation and Civic Participation is an office 

new to the Obama Administration, created within the White House, to catalyze new and 

innovative ways of encouraging government to do business differently. Its first director 

was the economist Sonal Shah. The current director is David Wilkinson. 

History 

In 2009, President Barack Obama created the White House Office of Social Innovation 

and Civic Participation (SICP) as part of his Domestic Policy Council within the 

Executive Office of the President, the office that coordinates White House domestic 

policy. 

The idea for a White House Office for Social Entrepreneurship was first developed at 

the Center for American Progress by then-Senior Fellow and former Ashoka staffer 

Michele Jolin. 

Page 95 of 140

In the past, public monies have often been directed to social initiatives that are failing or 

that have only a limited impact. At the same time, non-profit organizations, even if 

readily able to obtain short-term startup financing, face difficulty securing capital to 

sustain and expand successful programs. 

Building on ideas of past administrations, the Obama-Biden transition plans included the 

creation of an agency within the Corporation for National and Community Service 

dedicated to building the capacity and effectiveness of the nonprofit sector. The plans 

highlighted the potential of this sector – as of 2012, nonprofits generated $1.5 trillion 

within the US economy, employed 13.5 million Americans and contributed nearly 5.5% 

GDP, while struggling with a scarcity of resources, given the uncertainty of donations, 

and their lack of access to traditional incentives to growth enjoyed by for-profit 

businesses. (By statute, 501(c)(3) organizations are not eligible for Small Business 

Authority loans, nor can they obtain many commercial debt products designed for small 

and medium enterprises.) The transition plans also called for using federal seed money 

to leverage private sector funding, so as to improve local innovation, expand successful 

programs, and test the impact of new ideas. 

Also significant as a background to the creation of the SCIP were the recent changes in 

the social sector, with the emergence of scalable, market-based models of social 

change as a driving force. Such models include social enterprises with earned income 

strategies; mission-driven businesses that focus on achieving a double-bottom line; 

impact investors that seek to earn a financial return while achieving social benefit; and 

multinational companies pursuing models of corporate responsibility. No administration 

had focused on these trends until the Obama Administration created the Office of Social 

Innovation to build a policy agenda in this realm. 

Definition 

The term Social Innovation, as defined by Stanford Social Innovation Review (SSIR), 

refers to a methodology of solving societal problems through new mechanisms that 

harness human and financial capital, and often stand at the crossroads of non-profit, 

public, and private sectors. Specifically, SSIR frames social innovation as "a novel 

solution to a social problem that is more effective, efficient, sustainable, or just than 

existing solutions and for which the value created accrues primarily to society as a 

whole rather than private individuals". 

Social innovation refers to invention and new problem solving methods not only in nonprofits, 

but also more broadly in how social entrepreneurs seek to address human 

development challenges, how impact investors think about providing capital to 

organizations who maximize stakeholder value, and how mission-driven businesses and 

socially responsible corporations lever their comparative advantages to improve societal 

outcomes. 

Page 96 of 140

Mission 

The mission of the Office of Social Innovation and Civic Participation is to strengthen 

and support the social sector. This includes nonprofit organizations, foundations, and 

social entrepreneurs, non-governmental organizations, mission-driven business, and 

multinational developmental banks. 

Strategy 

The White House Office of Social Innovation and Civic 

Participation seeks to facilitate social innovation by 

harnessing human capital and facilitating the 

flow of financial capital. Based on 

evidence that communities with 

higher degrees of 

civic health exhibit 

better economic resilience, lower 

jobless rates, and faster 

returns to the workforce, the 

Administration 

believes that a 

strong social sector leads to 

better 

economic 

opportunity. 

Tactically, the Office of Social 

Innovation seeks 

to unlock social 

innovation potential on two 

fronts: Unlocking human capital and 

unlocking financial capital. 

Policies and Programs 

Priorities within harnessing human capital 

The Office of Social Innovation drives federal policy regarding national service and 

volunteering. This is based on research that indicates that communities with higher 

degrees of civic health have increased economic resilience and lower rates of 

unemployment. Such civic health can be measured by indicators such as the rates of 

volunteering, voting, and the density of per capita nonprofits that provide essential local 

services. It is consistent with scholarship that has shown that unemployed people who 

volunteer have a higher likelihood of finding work than those who do not volunteer. 

The data also indicates that interest in volunteering has reached extraordinary levels 

with historic numbers of applications for public programs such as AmeriCorps and 

Peace Corps. The popularity of non-governmental service programs such as Code for 

America, DataKind, and Global Citizen Year also has grown in recent years. All seem to 

Page 97 of 140

indicate that more Americans want to serve – and that such talent could be put to good 

use to contribute to national renewal and stronger communities. 

National Service 

National service has been a part of the fabric of American society since the founding of 

the country. It encompasses various models of public service including military service, 

and civilian service, such as AmeriCorps. Typically it is characterized by dedicated 

service to a single year or multi-year commitment at a single nonprofit organization. 

Participants benefit from a stipend of some sort that is important due to the fact that 

national service can be a part-time or full-time commitment, but the nature of the 

commitment precludes the participant from other full-time work. 

Serve America Act 

In April 2009, President Barack Obama signed the Edward M. Kennedy Serve America 

Act reauthorizing and expanding national service programs. The law added the number 

of AmeriCorps positions from 75,000 to 250,000 and created four new service 

corps. [12][13] It was the most significant piece of national service legislation since the 

1993 The National and Community Service Trust Act signed into law by President Bill 

Clinton. 

After laying out a plan for expanding AmeriCorps, the Administration launched FEMA 

Corps, a new service corps that builds upon the long-standing partnership between 

NCCC and Federal Emergency Management Agency through the creation of 1600 new 

AmeriCorps positions focused on disaster preparedness and relief activities. Enabled by 

new federal funding, these incremental corps members will gain hands-on experience 

and new skills that will improve their own professional prospects for the rest of their lives 

while they are increasing national resilience. Since the announcement, FEMA Corps 

members have been on the ground, helping with the coordinated response to disasters 

such as Superstorm Sandy in New York and New Jersey and the tornadoes in 

Oklahoma. 

Presidential Memorandum on National Service 

In July 2013, President Obama announced a Presidential Memorandum on expanding 

national service. The memorandum supports new partnerships between federal 

agencies and Corporation for National and Community Service (CNCS) to expand 

national service opportunities for Americans. The memorandum, which created a Task 

Force consisting of members of Cabinet, focused on expanding national service. 

Agencies are required to create a plan to utilize national service and volunteering. The 

Task Force is chaired by the CEO of CNCS and the Director of the Domestic Policy 

Council. 

Page 98 of 140

Volunteering 

Day of Service 

In 1994, Congress designated Martin Luther King Jr. Day as a federal holiday as a 

national day of service ] and in 2009 designated September 11 as a national day of 

service. Both designations are affiliated with President Obama's United We Serve 

campaign, a nationwide service call. 

Community Partnerships 

White House Council on Community Solutions 

In 2010, President Obama signed the executive order establishing White House Council 

for Community Solutions to engage cross sector leaders to identify initiatives that 

expanded civic participation, helped solve the nation's most serious problems and 

create new pathways for "Disconnected Youth", 16- to 24-year-olds who are out of 

school and work. First Lady Michelle Obama served as honorary chair of the Council. 

The Council was chaired on a daily basis by former Gates Foundation CEO Patty 

Stonesifer. Its membership included a cross-section of business, nonprofit and 

community leaders including rock musician Jon Bon Jovi, Starbucks executive Paula 

Boggs, and eBay CEO John Donahue. 

The Council participated in a series of town hall meetings across the country and 

conducted considerable research to understand the issues facing this population. The 

Council delivered its Final Report and Recommendations to the President in June 2012. 

One of its recommendations was to reposition the conversation about "Disconnected 

Page 99 of 140

Youth" to "Opportunity Youth" in order to more appropriate consider these young people 

as valuable assets who could contribute to economic growth and civic renewal. The 

Council also generated additional output, including the creation of toolkit for employers 

seeking to hire Opportunity Youth. It spawned other outcomes, including the launch of 

the Aspen Forum for Community Solutions headed up by former White House Domestic 

Policy Advisor Melody Barnes. 

Summer Jobs + and Youth Jobs + 

The Administration launched the Summer Jobs + initiative, which provided paid 

employment opportunities to low-income and disconnected youth and pathways to 

employment through resume writing workshops, mentorship programs and job shadow 

days. Through the initiative, over 300,000 employment opportunities were provided to 

youth in 2012, over 100,000 of which were paid. 

In April 2013, the President launched the Youth Jobs + initiative. He challenged 

business, non-profits and government to work together to provide employment 

opportunities for low-income and disconnected youth that will also aim to reduce youth 

violence in local communities. In September, the White House hosted a convening that 

focused on youth employment, especially "opportunity youth", people between 18–24 

years of age. The event recognized and honored employers and nonprofits for 

innovative work to develop the discipline and skills associated with the employment for 

the country's youth. 

Priorities within harnessing financial capital 

Based on the research, it is clear that the social sector lacks adequate capital to 

address the needs of Americans and maintain its role as a safety net and economic 

engine. To reverse this trend, the Office of Social Innovation has laid out a strategy to 

optimize the flow of scarce public dollars and to increase the flow of incremental private 

dollars. This dual track is enabled by a five-part framework: 

1. Better Information 

2. New Instruments 

3. Strong Intermediaries 

4. Institutional Capital 

5. Impact at Scale 

Harnessing better information, taking into account transparencies provided by 

technology, data and evidence can support what programs are working, and which are 

in need of iteration or reform. Better information can lead to evidence that a program is 

working, and can help the government better allocate grants to support successful 

programs. Consequently, the government can have a higher probability of "investing in 

what works," better optimize public spend, and serve as a more responsible fiduciary for 

taxpayers. New instruments can help government alloy public dollars with private 

dollars, leverage outside expertise for localization or diligence, and attract outside 

Page 100 of 140

capital to address social problems. Through the use of strong intermediaries, publicprivate 

partnerships can tap local knowledge, and build a sustainable ecosystem that 

goes beyond government. Better information, new instruments and strong 

intermediaries that help build sustainable ecosystems to solve hard problems can 

attract and unlock institutional capital, and as a consequence, programs can achieve 

true impact at scale. 

Information 

Impact Data Initiative 

The Office of Social Innovation created the Impact Data Initiative to create more 

transparency regarding information related to the social sector as a strategy to increase 

the flow of financial capital into the field. The Impact Data Initiative has been focused on 

opening federal databases as well as encouraging nonprofits to provide additional 

information. It has been supported by nonprofit organizations such as the Aspen 

Institute, Charity Navigator, Guidestar, and the Urban Institute. 

The Impact Data Initiative has predicated on changes to the Form 990. This is an 

annual reporting return that certain federally tax-exempt organizations must file with the 

Internal Revenue Service. In 2008, the form was revised as a result of the passage of 

the Federal Pension Protection Act. All 501 (c) 3 private foundations regardless of 

Page 101 of 140

income must file a Form 990. The form provides information on the organization's 

mission, programs and finances. The public is guaranteed access to this information, 

but the IRS has not published this information in a manner consistent with trends in 

open data: it not very accessible nor available in a machine-readable format. 

President Obama has proposed to phase in a requirement that all nonprofit 

organizations file their annual tax returns electronically in order to facilitate improved 

access to this information in a manner consistent with the Open Government Initiative. 

In November 2013, Senate Finance Committee Chairman Max Baucus released a tax 

reform discussion draft with a proposal to mandate all tax-exempt organizations 

required to file a Form 990 electronically and requiring the IRS to make the information 

on the forms available to the public in a machine readable format as soon as 

practicable. 

Evidence-Based Policy 

As part of President Obama's management agenda, the Office of Social Innovation has 

helped to lead federal agencies to increasingly focus on the use of data and modeling to 

inform and improve what is called evidence-based policy. 

Evidence Based Policy is not new, but it is an important priority of the Administration, as 

outlined explicitly in a Memorandum M-13-17 issued in July 2013 by the Office of 

Management and Budget (OMB), and signed by directors of the White House OMB, 

Domestic Policy Council (DPC), Office of Science and Technology Policy (OSTP), and 

Council of Economic Advisors (CEA). The memorandum provides guidance for fiscal 

year 2015 agency budget submissions, and describes plans to prioritize budget 

requests that strengthen the use of evidence and innovation to inform and improve 

decision-making. 

The memorandum gave explicit guidance in a number of key issues, such as: 

1. Harnessing data to improve agency results 

2. High-quality, low-cost evaluations for rapid, iterative experimentation 

3. Using innovative outcome-focused grant designs 

4. Strengthening agency capacity to use evidence 

And OMB, in partnership with DPC, CEA, and OSTP orchestrated workshops designed 

to help federal agencies interpret and apply the budget guidance, taking into account 

how to focus evaluation resources on the most important policy questions, how to use 

"administrative data sets" from multiple programs and agencies, how to conduct 

rigorous program evaluations and data analytics on a tight budget, how to use existing 

budgetary authority to turn traditional competitive grant programs into innovative, 

evidence-based programs, and how agencies could harness research findings from 

behavioral science to implement low-cost approaches to improving program efficacy. 

Page 102 of 140

While the Administration's focus on evidence-based policy is notable, it is not entirely 

unique. In 2013, Elaine Kamarck at Brookings launched the Center for Effective Public 

Management, the World Bank Institute promotes what it calls, "Lean" in the Public 

Sector, building upon the concepts of "Lean Startup" and "Lean Analytics" from Silicon 

Valley, the other agencies such as USAID, Education, and Labor already have 

competitive grant programs such as Development Innovation Ventures that take into 

account staged or tiered venture capital style grant making, using evidence to support 

scale-up grants. 

Programs that utilize better information to inform decision-making in grants that involve 

strong intermediaries and that enable greater scale and innovation by driving new 

private capital into the social sector are often labeled "Innovation Funds," a priority that 

enables human and financial capital. This work is highlighted in an April 2014 SSIR 

article. 

Social Innovation Fund 

Instruments 

The Social Innovation Fund (SIF) founded in 2009 and administered by the Corporation 

for National and Community Service, is one of the flagship social innovation programs 

created by the Obama Administration. 

Designed by the Office of Social Innovation, the SIF is a public-private partnership that 

tests promising new approaches to major challenges, leverages private and 

philanthropic capital to meet these needs, and grows evidence-based programs that 

demonstrate measurable outcomes. SIF's unique model leverages private and local 

resources by investing millions of dollars in experienced grant makers or 

"intermediaries" that are well-positioned within communities to identify the most capable 

programs and guide them towards greater impact and strong evidence of success. Such 

intermediaries then must raise incremental funds 3:1 in order to amplify the power of the 

federal funds. These organizations – which include venture philanthropies, community 

development financial institutions (CDFIs), operating foundations and social enterprises 

– then invest the aggregate capital into high-impact nonprofits that are delivering 

evidence-based results in one of three priority issue areas: economic opportunity, 

healthy futures, and youth development. 

Page 103 of 140

In its first three years, SIF has awarded $137 million to 20 intermediary grant-makers, 

which have selected 221 nonprofit sub-grantees working in 37 states and the District of 

Columbia. Some notable SIF investments include College Advising Corps; Chrysalis; 

Harlem Children's Zone; and YearUp. 

In 2014, the Federal Budget increased SIF, raising the program from $45 million to $70 

million which many interpreted as a strong validation of the Administration's social 

innovation agenda. 

The SIF originally was headed up by former Bridgespan executive Paul Carttar. Its 

current director is Michael Smith, a former senior executive of the Case Foundation. 

During his tenure at Case, Smith was credited with helping to lead A Billion+ Change 

and the Startup America Partnership. 

Page 104 of 140

Pay For Success 

Pay for Success (PFS) is a signature strategy of social innovations. It was originally 

pioneered by the Ford Administration as "social impact bonds." PFS offers innovative 

ways for the government to build public-private partnerships can be bring capital to test 

promising practices and scale programs that work, significantly enhancing the return on 

taxpayer investments because government only pays for programs that achieve results. 

At the same time, PFS offers the prospect of attracting new investment capital to fund 

important social programs, thus potentially boosting the capital available to fund social 

programs while creating new return horizons for private investors. 

Page 105 of 140

The Office of Social Innovation prioritized PFS in 2011 by introduce PFS in the FY12 

Budget and initiating a series of events designed to educate local, county and state 

lawmakers about the opportunity presented by PFS. Since that time, the White House 

has hosted numerous workshops, panel discussions, and other events focused on PFS. 

The Administration also has prioritized grant programs to pilot the potential of PFS to 

tackle various challenges. The Department of Justice announced three awards in 

September 2012: an implementation award in Cuyahoga County, Ohio and a planning 

award in Lowell, Massachusetts under the Second Chance Act and an additional 

contract to develop a blueprint for governments to use Pay for Success to reduce 

recidivism. 

The Department of Labor announced two awards totaling $24 million in September 

2013: one to the New York Department of Labor in the amount of $12,000,000 and the 

other to the Massachusetts Executive Office of Labor and Workforce Development in 

the amount of $11,670,000. These grants will support programming that aims to 

increase employment and reduce recidivism among formerly incarcerated individuals. 

One of the key proposals SICP made for FY 2014 was a new $300 million Pay for 

Success Incentive Fund at the Department of Treasury. The Fund is designed to help 

State and local governments implement Pay for Success programs with financial 

partners. It will provide credit enhancements for organizations that seek to introduce 

Pay for Success and offer direct grants to fund outcome payments for successful, 

money-saving services. 

Program Related Investments 

The regulations regarding Program Related Investments (PRIs) originally were drafted 

in 1972 as part of a broad effort on tax reform. These rules facilitate the ability of 

foundations to move beyond conventional grants and use other financial means to 

support nonprofits or businesses pursuing charitable purposes. However, PRIs have not 

been adopted widely by the nonprofit field because their complexity in part due to the 

outdated regulations created higher transactions costs for foundations who wanted to 

use them. 

In 2012, the Treasury Department updated aspects of the regulations for the first time in 

40 years since they were first drafted. By publishing a set of clarifying examples of how 

PRIs could be used, the Obama Administration tried to make it easier for foundations to 

see how they can adopt flexible approaches to the deployment of capital. The examples 

included scenarios including the use of credit enhancements, loan guarantees, lines of 

credit, even equity investments to achieve their philanthropic missions. 


The Office of Social Innovation has been responsible for elevating impact investing 

inside the Federal government. It has defined impact investing as "the practice of 

channeling capital toward businesses that intentionally generate economic return and 

Page 106 of 140

public benefit". Such businesses openly track and measure social, environmental, and 

governance (ESG) considerations alongside their financial returns. 

The Office of Social Innovation has hosted large-scale meetings, including the White 

House Forum on Impact Economy executed in partnership with the Aspen Institute. It 

launched the National Impact Initiative, a new approach to coordinate federal policy on 

impact investing. This encompasses the work of multiple federal agencies focused on 

impact investing, including programs such as the SBIC Impact Fund launched by SBA; 

the Freshworks Fund created by the Treasury Department and US Department of 

Agriculture; the Accelerating Market Partnerships program of the US State Department; 

and the Global Development Innovation Ventures partnership managed by USAID. 

The Office has coordinated the US Government's participation in the US's G8 Social 

Impact Investing Forum and the subsequent work of the Social Impact Investment Task 

Force chaired Ronald Cohen. The US representatives on the Task Force include Matt 

Bannick, CEO of the Omidyar Network and the Honorable Don Graves, Deputy 

Assistant Secretary of Treasury. The US Advisory Board to the Task Force includes a 

wide range of thought leaders and impact investors. 

Staff 

Special Assistant to the President and Director of SICP, Jonathan Greenblatt: 

Jonathan Greenblatt is Special Assistant to the President and Director of the Office of 

Social Innovation and Civic Participation. Greenblatt is a serial social entrepreneur who 

previously co-founded Ethos Water (sold to Starbucks); founded All for Good (acquired 

by Points of Light) served as CEO of GOOD Worldwide; taught at the Anderson School 

Page 107 of 140

of Management at UCLA; and launched the Impact Economy Initiative at the Aspen 

Institute. 

Policy Assistant, Noemie Levy: Noemie Levy is the Policy Assistant in the White 

House Office of Social Innovation and Civic Participation. She supports the Office's full 

portfolio of initiatives, including Pay for Success, national service, and innovation funds. 

Senior Policy Advisor, Rafael Lopez: Rafael López is a Senior Policy Advisor at the 

White House Office of Science and Technology Policy and the White House Office of 

Social Innovation and Civic Participation. His work focuses on identifying areas where 

the innovative application of technology-based options can improve collaboration 

between the Executive Office of the President and federal agencies to strengthen the 

relationship between the Administration, nonprofit, philanthropic, and professional 

organizations to use advanced technologies in the development and implementation of 

domestic and social policies and programs. 

Senior Policy Advisor, David Wilkinson: Dave Wilkinson serves as Senior Policy 

Advisor for Financial and Social Innovation. On assignment with the Council on 

Environmental Quality, he closely coordinates with the Office of Social Innovation and 

Civic Participation to work on a range of projects in the Office's portfolio. In this role, Mr. 

Wilkinson draws from an extensive background in community finance, capital markets 

and financial innovation. 

Presidential Innovation Fellow,: Scott Hartley focused on Evidence-based Policy, 

data driven decision making, and competitive grant programs, helping the Office of 

Social Innovation, OMB, and other agencies consider Silicon Valley methodologies such 

as "Lean Startup" philosophy to drive staged decision making, faster or more iterative 

feedback loops, and risk mitigation without stifling innovation. On leave from Mohr 

Davidow Ventures, and on assignment from USAID's Development Innovation 

Ventures, he managed agency workshops related to the President's Management 

Agenda. 

Past Staff 

Sonal Shah: Founding director of the Office of Social Innovation. Shah is a fellow at the 

Case Foundation and a board member at Social Finance US. 

Michele Jolin: Senior Policy Advisor. She is a Managing Partner of America Achieves 

and leading its Results for America initiative. 

Carlos Monje: chief of staff to the Domestic Policy Council 

Charles D. Anderson: Policy Assistant. Anderson is an adviser at the Council on 

Foreign Relations. 

Page 108 of 140

Howard W. Buffett, senior policy advisor. He is a faculty member Columbia University's 

School of International and Public Affairs, the executive director of the Howard G. 

Buffett Foundation and the co-author of 40 Chances. 

Annie Donovan: Annie was a Senior Policy Advisor working collaboratively with SICP 

and the Council on Environmental Quality. She formerly worked as the chief operating 

officer at NCB Capital Impact and now serves as the CEO of Coop Metrics. 

Marta Urquilla: Senior Policy Advisor 

Other Social Innovation and Civic Participation Offices 

Although the Obama Administration pioneered the Office of Social Innovation, the 

model has been replicated by other governments in the US and around the world. 

US Cities: 

 

 

 

Boston: Office of New Urban Mechanics 

New York City: Mayor Bloomberg's Center for Economic Opportunity 

Philadelphia: Philadelphia Mayor Office of New Urban Mechanics 

US States: 

 

Illinois: Illinois Task Force on Social Innovation, Entrepreneurship, and Enterprise 

Countries: 

 

 

 

Canada: British Columbia – Ministry of Social Development and Social 

Innovation 

United Kingdom: Cabinet Office Social Investment and Finance Team - Centre 

for Social Impact Bonds 

Australia: Government of West Australia – Social Innovation Grants Program 

Page 109 of 140

Page 110 of 140

X. References 

1. https://en.wikipedia.org/wiki/Socially_responsible_investing 

2. https://en.wikipedia.org/wiki/Social_return_on_investment 

3. https://en.wikipedia.org/wiki/Corporate_social_responsibility 

4. https://en.wikipedia.org/wiki/Impact_investing 

5. https://en.wikipedia.org/wiki/Social_impact_assessment 

6. https://en.wikipedia.org/wiki/Economic_impact_analysis 

7. https://en.wikipedia.org/wiki/Social_earnings_ratio 

8. https://en.wikipedia.org/wiki/Social_impact_bond 

9. https://en.wikipedia.org/wiki/Office_of_Social_Innovation_and_Civic_ 

Participation 

10. http://www.oecd.org/sti/ind/social-impact-investment.pdf 

11. https://www.jpmorganchase.com/corporate/socialfinance/docu 

ment/121001_A_Portfolio_Approach_to_Impact_Investment.pdf 

12. http://casefoundation.org/wpcontent/uploads/2014/11/ShortGuideToImpactInvesting-2014.pdf 

Page 111 of 140

Notes 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

Page 112 of 140

Notes 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

_____________________________________________________________________________________ 

Page 113 of 140

Page 114 of 140

Attachment A 

Investing for Impact Report 

(Case Studies) 

Page 115 of 140

Investing for Impact 

Case Studies Across 

Asset Classes

Bridges Ventures 

Bridges Ventures originated the concept of this report with the goal of contributing to the 

greater understanding within the investment community of the opportunities offered by Impact 

Investment and to promote the flourishing of further investments that can make a difference as 

well as making financial returns. 

Bridges Ventures is an innovative investment company based in London that invests funds 

delivering both financial returns and social and environmental benefits. Founded in 2002 and 

chaired by Sir Ronald Cohen, a founding partner and the former Chairman of Apax Partners, 

the company believes that market forces and entrepreneurship can be harnessed to do well by 

doing good. The team pride themselves on working closely with the companies they back and 

are committed to helping entrepreneurs achieve long-term success. Bridges Ventures currently 

has two venture funds under management that invest in businesses based in regeneration areas 

and in sustainable business sectors such as the environment, education and healthcare. They 

also recently launched the Bridges Social Entrepreneurs Fund, a quasi-equity fund for social enterprises 

and the Bridges Sustainable Property Fund, which invests in properties in regeneration 

areas and environmentally sustainable buildings. 

For more information, please visit www.bridgesventures.com. 

The Parthenon Group 

Parthenon has taken the lead in researching and authoring this report. The work has been done 

on a pro bono basis because the report has the potential to leverage more capital into investments 

that can produce great social and environmental benefits. 

The Parthenon Group is a leading advisory firm focused on strategy consulting with offices in 

Boston, London, Mumbai, and San Francisco. Since its inception in 1991, the firm has embraced 

a unique approach to strategic advisory services; long-term client relationships, a willingness to 

share risk with clients, an entrepreneurial spirit, and customised insights are the hallmarks for 

which Parthenon has become recognised in the industry. This unique approach has established 

the firm as the strategic advisor of choice for CEOs and leaders of Global 1000 corporations, 

high-potential growth companies, private equity firms, healthcare organisations, and non-profit 

organisations. Our Non-Profit Practice assists non-profit leaders, foundations and corporations 

with strategy development, corporate social responsibility, organisational alignment and other 

strategic issues. 

For more information, please contact Tracy Palandjian at tracyp@parthenon.com or visit 

www.parthenon.com. 

Global Impact Investing Network 

This report has drawn upon information and case studies provided by the Global Impact Investing 

Network (GIIN), which has been extremely open and helpful. The authors would like to 

thank the many members and partners of the GIIN who contributed to this work and hope that 

they will find that the report, in turn, contributes to their success in growing this exciting new 

sector. The GIIN is a newly-formed, independent, non-profit organization dedicated to building 

industry infrastructure, developing activities, and disseminating research and education that 

address systemic barriers to effective impact investing. By measuring the social and environmental 

performance of impact investments, the GIIN’s IRIS (Impact Reporting and Investment 

Standards) initiative brings transparency and credibility to the sector and enables further industry 

infrastructure like performance benchmarks and rating systems that help increase the scale and 

effectiveness of impact investing. 

These efforts are informed by the GIIN Investors’ Council, a membership group comprised of 

leading impact investors committed to developing a coherent industry that facilitates more private 

capital investment in businesses addressing social and environmental problems around the 

world. By bringing together the large-scale family offices, institutional investors, pension funds, 

investment banks, wealth managers, private foundations and development finance institutions 

whose goals lie in the territory between philanthropy and the sole focus on profit-maximisation, 

the GIIN seeks to drive collectively towards the maturation of a sector that is currently inhibited 

by fragmentation. 

www.globalimpactinvestingnetwork.org

Contents 

What is Impact Investment?.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 

Executive Summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 

The Impact Investment Sector.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 

Main Findings and Conclusions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 

Case Studies and the 

Asset Allocation Framework.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 

Financial First 

Cash Shorebank Deposit Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 

senior debt BlueOrchard .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 

Mezzanine/Quasi Equity Instruments Triodos 

Investment Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

Public Equities Generation Investment Management . . . . . . . . . . 20 

Venture Capital Bridges Ventures CDV Funds.. . . . . . . . . . . . . . . . . 21 

Private Equity ProCredit Holding.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 

Real Estate JP Morgan Urban Renaissance Property Fund.. . . . . 23 

other real assets Lyme Northern Forest Fund.. . . . . . . . . . . . . . . . 24 

absolute return (hedge funds) BelAir SA Fund.. . . . . . . . . . . . . . 25 

impact first 

Cash Charity Bank.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 

senior debt Root Capital .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 

quasi-equity instruments Bridges Ventures 

Social Entrepreneurs Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 

Venture Capital Aavishkaar.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 

Private Equity Acumen Fund.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 

real estate Ignia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 

other real assets Pico Bonito.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 

Layered Structures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 

International Finance Facility for Immunisation (IFFIm).. . . . . . . . . . 34 

The New York City Acquisition Fund.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 

Acknowledgements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 

Appendix. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 

1

From David Blood, Senior Partner of Generation Investment Management 

It has never been a more appropriate time to re-consider the role of capital markets 

in creating value for society. What has become exceedingly clear to us here at 

Generation is that sustainability and long-term value creation are inextricably linked. We hope by our participation 

in this study we can help demonstrate that “Impact Investment” makes sense even for mainstream 

investors. 

Generation Investment Management is proud to support this report by Bridges Ventures and Parthenon, 

as well as support the work of the Global Impact Investment Network (GIIN). We look forward to helping 

expand the community of Impact Investors, and we think now is the time for these activities to move from 

niche to mainstream. 

Today, the sustainability challenges the planet faces are extraordinary and completely unprecedented. Even 

beyond the bailouts and recent volatility, the challenges of the climate crisis, water scarcity, income disparity, 

extreme poverty and disease must command our urgent attention. Philanthropy alone cannot provide 

the full set of solutions needed to address these challenges. Now, more than ever, capital markets need to 

play a role in addressing global sustainability challenges. 

Whether you are a private individual, family office, investment bank, foundation endowment, or pension 

fund, this report should be helpful in providing a view across asset classes to highlight the variety of opportunities 

and ways to invest for impact. We hope you will join us on the path to create a more sustainable 

form of capitalism. 

David Blood 

Senior Partner of Generation Investment Management 

From Judith Rodin, President of Rockefeller Foundation 

The Rockefeller Foundation supports 

innovative solutions to many 

of the world’s most intractable 

challenges, affirming its mission, since 1913, to “promote 

the well-being” of humanity. During the last several 

years, Impact Investing has clearly emerged as one such 

solution: an innovation that can help more people tap into 

expanding markets while strengthening their resilience to 

21st century risks. 

Government funding, international aid and philanthropic 

donations alone are insufficient to achieve the world’s 

development aspirations, especially against the backdrop 

of global recession. Private investment capital, therefore, 

will need to complement traditional resources or solve 

problems on a larger scale. Fortunately, the emerging 

Impact Investing industry enables investors to direct their 

resources toward multiple bottom-line returns – financial 

and social or environmental. This means doing good with 

the market, not only doing well in it. 

The Rockefeller Foundation recently launched a major 

initiative on Harnessing the Power of Impact Investing 

because we believe the industry could potentially become 

a powerful complement to our – and others’ – work. 

Through this initiative, we organised an inspiring group of 

partners — ranging from entrepreneurs starting Impact Investment 

banks and wealth management firms to leaders 

of major pension funds and investment banks — to help 

accelerate this new industry’s evolution. A mature impact 

investing industry will enable more investors to address a 

wider range of social and environmental challenges more 

efficiently, making our job easier in turn. 

This new report, Investing for Impact: Case Studies 

Across Asset Classes, is particularly encouraging both 

for what it describes and for what it signals about how 

Impact Investing is evolving. It provides fresh evidence 

of the diversity of investment opportunities now available 

and, importantly, the range of investors this industry now 

counts among its ranks. The detailed case study approach 

complements the Monitor Institute’s analysis, Investing 

for Social & Environmental Impact, which was released 

earlier this year. Together, this seminal scholarship lays 

groundwork for new and clearer understandings of the 

industry. 

The process by which this report materialised is also 

encouraging. The 50 Impact Investing pioneers who 

contributed their time – and opened their books – to the 

report’s authors exemplify the collaborative commitment 

necessary for this new industry to reach its potential. 

The Global Impact Investing Network, whose founding 

members constitute many of the investors profiled in this 

document, will draw on this commitment and provide a 

platform for keeping these case examples “live.” We are 

also grateful to the Parthenon Group and Bridges Ventures 

for their leadership and generosity in producing this study 

as a pro bono contribution to the field. 

I hope this publication makes plain exactly why my colleagues 

and I are so excited about Impact Investing’s 

possibilities. We look forward to working with you to build 

an industry that generates many more promising case 

studies of high-Impact Investment. 

Judith Rodin 

President of the Rockefeller Foundation 

2 

Investing for Impact: Case Studies Across Asset Classes

What is Impact Investment? 

Impact Investment, often referred to using other terms such as social investment or 

sustainable investment, is defined as “actively placing capital in businesses 

and funds that generate social and/or environmental good and a range of 

returns, from principal to above market, to the investor.” 1 By leveraging 

the private sector, these investments can provide solutions at a scale that purely philanthropic 

interventions usually cannot reach. Investors in Impact Investment Funds include 

high-net-worth individuals, institutional investors, corporations or foundations, who 

invest in a wide range of asset classes. The intention of Impact Investment vehicles 

to make a social/environmental impact is a primary qualifying criterion; investments 

that unintentionally result in social good are not regarded as Impact 

Investments. Impact Investment is closely allied to but differentiated from Socially 

Responsible Investment (SRI) which generally employs negative screening to avoid investing 

in harmful companies or shareholder activism/advocacy to encourage corporate 

social responsibility practices. 

1 

Adapted from the Monitor Institute: Investing for Social and Environmental Impact 

Some examples of Impact Investment 

JP Morgan Urban 

Renaissance 

Property Fund 

($175MM raised) 

•• 

The fund targets urban development and redevelopment of affordable housing 

using “green” specifications from solar heating to recycled building materials 

•• 

The fund is targeting market rate returns, with a projected return of ~15% net of 

fees 

•• 

To support local communities, the fund is including cultural amenities such as 

partnering with after-school educational providers 

•• 

Launched to support the GAVI (Global Alliance for Vaccines and Immunisation) 

Initiative, these bonds use the public markets to support vaccination efforts in the 

developing world 

IFFIm Bonds 

($1.6B raised in 2 

issues) 

•• 

Leveraging future grants from developed countries, these bonds have been issued 

at market rates to both commercial and retail investors and hold a AAA/Aaa rating 

•• 

The offering has allowed GAVI to frontload committed funds (that have been guaranteed 

over a 20 year time horizon), facilitating more lives to be saved in the near 

years and creating the infrastructure to more efficiently administer vaccinations 

across the developing world 

•• 

Root Capital provides senior debt to the primarily large co-ops servicing the rural 

poor, the “missing middle”, too large for microfinance and too small or risky for 

corporate banks 

Root Capital 

($48MM AUM) 

•• 

Using contracts with agricultural buyers like Starbucks to mitigate the lender’s risk, 

Root Capital provides access to funds and also creates sustainable partnerships 

between farmers and buyers 

•• 

Root Capital provides below market-rate returns to investors (2.5% at present), 

but has been able to drive significant impact in farming communities in Tanzania, 

contributing to the growth of GDP in poverty-stricken rural areas 

More details on these examples and others are found in the Case Study section of this report. 

3

Executive Summary 

Why Impact Investments? 

Governments and charities do not have sufficient capital nor the complete skill 

set required to solve the world’s pressing challenges. At the same time, the 

recent economic crisis has shaken established orthodoxies about the risk and 

return profiles of traditional investments. The Impact Investment sector is emerging 

as a partial answer to the twin challenges that these two realities present: 

Impact Investment unlocks substantial capital to build a more sustainable and 

equitable global economy while allowing for diversification across geographies 

and asset classes. 

A plethora of investments is emerging across multiple asset classes that provide 

investors with market-rate investments, or for more altruistic investors, substantial 

social impact, while still generating positive financial returns. The old binary 

system—the widely-held belief that for-profit investment could only maximise 

financial return while social purpose could only be pursued through charity—is 

breaking down. 

Who is this report for? 

This report is intended for the investment community and aims to help investors 

understand this emerging industry. Many investors have begun to explore 

Impact Investments by investing in microfinance in developing countries or community 

development projects in the US. However, there is still a perception that 

Impact Investment always entails a sub-market financial return, which this report 

demonstrates is far from the case. For example, Lyme Timber, a forestry fund 

based in Hanover, New Hampshire, has been able to utilise conservation contracts, 

partnerships with the Nature Conservatory, and deep industry experience 

to invest in sustainable forestry projects throughout the US. These projects help 

conserve local forests, while delivering market to above-market returns to their 

investors. 

Meanwhile, the industry is developing globally and the financial products available 

for investors are diversifying. Investments range from tropical rainforest 

preservation in South America, to finance for charities in the UK, to low-income 

housing development in New York City, to infectious disease prevention in Africa. 

4 


A case study approach in an asset allocation framework 

The growth potential of impact investment 

The report employs a case study approach, 

mapping examples of Impact Investments on a 

traditional asset allocation framework [pg. 15]. 

This structure illustrates readily the diversity of 

products that are being developed, where they reside 

within a traditional asset allocation framework 

and the types of opportunities that are available to 

date. From these cases the report draws a series 

of findings [pg. 10]. 

This report, in conjunction with a new monograph 

by Rockefeller Philanthropy Advisors, Solutions 

for Impact Investors: From Strategy to Implementation, 

demonstrates how impact investing can 

be integrated across asset classes and equips investors 

with the tools to frame their investment 

decisions from strategy to implementation and 

evaluation. 

Compared to more traditional investments in established asset classes, Impact 

Investment is only now emerging from infancy. Some initiatives have achieved 

substantial scale but many others remain small. Questions include how much 

the sector can scale and whether achieving greater scale will result in reduction 

in either social / environmental impact or financial returns. However, apart from 

growing in its own right, the sector has fostered a high level of innovation which 

can potentially serve as a catalyst to influence how mainstream investments 

are made. 

The positive momentum of the Impact Investment sector continues, despite 

the recent turmoil in global capital markets. While the basic investment infrastructure 

needs to be developed, Impact Investment is becoming a stable and 

sustainable alternative for institutional investors and high net worth individuals. 

As the infrastructure builds further and more funds across asset classes achieve 

market-rate performance, the Impact Investment sector stands poised to become 

a powerful vehicle both to address significant social and environmental 

issues and to chart a new course for the financial services industry to reclaim its 

stature as an engine of social and economic upliftment. 

5

The Impact Investment Sector 

Investor motivation and returns 

Although investors in Impact Investments share the vision of combining financial 

returns with positive social/environmental impact, they can be categorised into two 

broad groups. The Monitor Institute, in their Investing for Social and Environmental 

Impact report, defines them as follows: 

1. Financial First Investors, who seek to optimise financial returns with a 

floor for social/environmental impact. This group tends to consist of commercial 

investors who search for investment vehicles that offer market-rate returns 

while yielding some social/environmental good. 

2. Impact First Investors, who seek to optimise social or environmental 

returns with a financial floor. This group uses social/environmental good as a 

primary objective and may accept a range of returns, from return of principal to 

market rate. This group is willing to accept a lower than market rate of return in 

investments that may be perceived as higher risk in order to help reach social/ 

environmental goals that cannot be achieved in combination with market rates 

of financial return. 

Layered Structures 

Sometimes Financial First and Impact First investors collaborate in what we term as 

layered structures (also termed “Yin-Yang” investments 2 ). These layered structures 

are created when the two types of investors work together, combining capital 

from Impact First and Financial First motivations, blending different types of 

capital with different requirements and motivations. In these deals, Impact 

First investors accept a sub-market risk-adjusted rate of return enabling other 

tranches of the investment to become attractive to Financial First investors. This 

symbiotic relationship allows Financial First investors to achieve market rate returns 

and Impact First investors to leverage their investment capital thus achieving significantly 

more social impact than they would if investing on their own. It is important 

to note that these structures are not limited to Financial First and Impact First investors, 

but can include philanthropic organisations pairing grant money with Financial 

or Impact First investors to generate high levels of impact. 

This segmentation of Impact Investors, as adapted from the Monitor Institute Report, 

is summarised in the figure on page 7. 

2 

Adapted from the Monitor Institute: Investing for Social and Environmental Impact 

6 


Segments of Impact Investors 

High 

Target Financial Return 

none 

none 

Solely Return – 

Maximizing 

Investing 

Financial Floor 

(nominal principal) 

Impact Floor 

Target Social Impact 


Investors 

Optimize financial returns 

with an impact floor 

impact 

investment 

Impact First 

Investors 

Optimize social impact 

with a financial floor 

layered structures 

Philanthropy 

high 

Who can invest in the 

impact investment sector? 

While we have broken down our investor 

groups into Financial First and Impact First 

Investors, investors can engage in Impact Investments 

on either side of this spectrum. 

Some investors, such as Prudential’s Social Investment 

Arm, have internal allocations for the 

percentage of their total assets to be placed in 

Financial First investments versus Impact First 

investments. Investors who have the flexibility 

to invest in either Financial First or Impact First 

investments achieve different goals. Financial 

First investments deliver strong risk-weighted 

returns as well as positive social / environmental 

impacts, while Impact First investments 

can trail-blaze, to meet tougher social / environmental 

challenges by accepting lower 

returns or taking initial capital risk to allow new 

types of funds to develop a track record. Finally, 

some investors are bound by fiduciary 

duties either set out in their mission statement 

or governed by their legal status and are restricted 

to only Financial First Investments. 

7

Pension Funds and Other 

Institutional Investors 

Pension funds and other institutional investors 

are normally bound by strong fiduciary duties, 

limiting their ability to play in Impact First investments. 

Although generally confined to Financial 

First investments, these investors have a multitude 

of options available to them for achieving 

market-rate return Impact Investments. From 

direct investments through to investments in 

numerous funds, pension fund managers have 

the ability to put together a diversified portfolio 

of Impact Investments. TIAA-CREF in the 

United States is one example of this new opportunity 

for market-rate Impact Investment, 

having committed more than $600 million to 

Impact Investments across asset classes (from 

cash to debt to private equity) that comply with 

fiduciary responsibility regulations. Layered 

structures also give these investors further 

opportunities to meet their fiduciary responsibilities 

while achieving various impact targets. 

Ultra High Net Worth Individuals 

Ultra high net worth individuals and family offices 

typically have greater flexibility in their 

investment mandates. Without the same level 

of fiduciary duty as many other types of investors, 

these investors can invest across different 

asset classes. The Impact Investment space 

allows these investors to pick multiple strategies 

for their investments. They, like pension 

funds, can look to maximise returns through a 

diversified Financial First platform. Or they can 

choose a particular social or environmental mission 

they wish to undertake, allocating a part 

of their investment portfolio to sub-market rate 

Impact First funds targeted at their preferred areas 

of social/environmental impact. Given their 

flexibility, family offices were instrumental in 

pioneering the early commercial investment vehicles 

in microfinance and are proving similarly 

influential in seeding the rapidly growing field of 

Impact Investment funds. 

High net worth individuals 

and family offices typically 

have greater flexibility in their 

investment mandates. 

Pension funds and other 

institutional investors are 

normally bound by strong 

fiduciary duties, limiting their 

ability to play in Impact First 

investments. 

8 


Foundations 

Like high net worth individuals, foundations often 

have the latitude to take a more specialised 

and tailored approach to Impact Investment. 

They can invest their endowment in Financial 

First investments (sometimes known as “Mission-Related 

Investment”) then use a portion 

of their grant allocations or assets to invest 

in Impact First Investments (often referred 

to as “Social Investment” and sometimes as 

“Programme-Related Investment” from their 

designation in the US tax code). Given the 

breadth of opportunities available in the market, 

many foundations have started to invest in 

Impact First funds. Like high net worth individuals 

and family offices, foundations can often 

achieve strong returns, while creating impact 

not just broadly, but in specific target missions 

that relate to the foundation’s own mission. 

Like high net worth individuals, 

foundations often have 

the latitude to take a more 

specialised and tailored approach 

to Impact Investment. 

Entry Points May Vary 

The wide range of available Impact Investment 

opportunities can be daunting for someone new 

to the space. According to John Goldstein of 

Imprint Capital, “The flexibility to invest across 

asset classes, impact areas, and return profiles 

possessed by some high net worth investors is 

both a blessing and a curse. This ability to play 

across the whole spectrum can be paralysing, 

leaving some thinking ‘Where do I start?’ Finding 

clear anchors and entry points is essential.” 

When the Kellogg Foundation chose to embark 

on this strategy, they set aside $100MM 

of the foundation’s endowment as a deliberate 

operational learning experiment in Mission 

Driven Investing. They saw investments as 

an additional tool to drive impact and used 

the funds to test various investment vehicles 

from deposits in community banks, to funds of 

funds, to private fixed income, to direct venture 

capital investment. RSF Social Finance decided 

to offer its clients portfolios consisting exclusively 

of market rate mission managers such as 

Beartooth Capital, a real estate investor restoring 

and protecting ecologically important land. 

The Hull Family Foundation employed an asset 

class approach as their core strategy, allocating 

100% of its corpus to fixed income impact 

investments, both market rate and below market 

rate. Each strategy fits the individual goals 

of the investors but demonstrates a defined, 

thoughtful approach and entry point. 

9

Main Findings and Conclusions 

The emergence of the Impact Investment sector is especially timely. 

The current economic crisis has shaken established orthodoxies 

about the risk and return of mainstream investments. At the same 

time, there has been rising interest among the investment community 

towards social and environmental responsibility in investment, 

as illustrated by the growing importance of initiatives such as the 

UN Principles for Responsible Investment. As Rockefeller Foundation 

President Judith Rodin notes in her introductory letter, charitable 

donations do not provide enough capital to solve our pressing social 

and environmental challenges at scale. The private sector/investors 

may be better placed to address certain social/environmental issues 

than charities, foundations or governments. With the global economy 

hobbled, mobilising all capital efficiently will be crucial if we are not to 

lose ground in creating a more sustainable and equitable world. 

Flourishing New Models of 

Impact Investment 

Creativity in the Impact Investment sector has 

led to strong increases in investment activity. 

From its genesis in community investment 

and low-income housing development, cleantech 

and microfinance, Impact Investment is 

now helping to provide the scale-up finance 

that enables slum schools in India to expand, 

farmers in Africa to participate in international 

value chains and underprivileged Mexicans to 

build better homes. Impact Investors are also 

becoming more innovative in designing investment 

structures that are drawing institutional 

capital to new asset classes. The case studies 

in this report have debunked the notion that 

socially or environmentally beneficial projects 

always require charity. 

Creativity in the Impact Investment 

sector has led to 

strong increases in investment 

activity. 

Impact Investment is becoming a 

Global Movement 

Impact Investment examples are springing 

up across the globe and are flourishing both 

10 


in the developed and the developing worlds. 

Impact Investment is also getting more local, 

be it a Venture Capital firm investing in rural 

developers as Aavishkaar is doing in India, or 

developing new homes for the poor as Ignia 

is doing in Mexico. As new models are flourishing, 

new geographies are also coming into 

focus. Layered structures are also helping to 

drive money into new areas. For example, 

IFFIm bonds are currently tapping the reserves 

of the wealthier Western world to provide 

immunisation for the 70 poorest countries 

globally. 

All Asset Classes are Now Showing 

Development of Impact Investment 

The majority of Impact Investment is no longer 

composed of microfinance loans or equity 

Old Sector Beliefs are Breaking Down 

As these Impact Investments become more 

widespread, when faced with a choice between 

putting their money in traditional 

investments or Impact Investments, foundations, 

high net worth individuals and institutions 

are increasingly opting for the latter. The perception 

that Impact Investment necessitates 

accepting sub-market rate returns is eroding. 

For example, many investors choose to invest 

in sustainable banks like Triodos, a bank which 

provides financing exclusively to companies 

and projects that have a social or environmental 

impact and delivers market rate returns 

to its depositors. Many funds today are raising 

their second or third fund after delivering 

market-rate or above returns to their investors. 

Microfinance, once viewed as an investment 

opportunity only for the benevolent, currently 

has over 100 investment funds managing $6.1 

investments in cleantech start-ups. It is moving 

far beyond the quoted asset class in which 

Socially Responsible Investment (SRI) has its 

roots. Whether through sustainable forestry 

or cash lending to community development 

banks, investors have more choice than ever 

to diversify their portfolios through Impact Investments. 

There are investments across all 

asset classes that provide investors with numerous 

options to trade off among risk, return 

and level of impact. 

billion in assets and draws money from all investor 

types as larger institutional investors 

are attracted by the diversification, returns, 

and social impact generated from these investments. 

3 

As Funds Mature, Some are Moving from 

Impact First to Financial First 

Many impact-oriented funds cited their beginnings 

as Impact First funds. Traditionally, their 

investor base was made up of foundations and 

high net worth individuals that were willing to 

receive below-market returns in exchange for 

certain levels of impact. As these funds were 

able to prove that they could also generate 

3 

International Association of Microfinance Investors 

11

market rate returns, institutional money started 

to flow in and these funds eventually migrated 

to the Financial First segment. 

As more impact oriented funds demonstrate 

market rate returns made from high-impact 

platforms, more institutional funds will look 

to invest in this sector. This will attract more 

funds to be raised, increasing the social impact 

that can be achieved. By pioneering investment 

in new fund managers and investment 

areas, investors with a risk appetite can help 

to accelerate this trajectory and seed the next 

generation of Impact Investment funds that can 

be accessible to Financial First investors. 

As more impact oriented 

funds demonstrate market 

rate returns made from highimpact 

platforms, more 

institutional funds will look to 

invest in this sector. 

Clarity is Emerging 

The Impact Investment sector is gaining clarity. 

Long seen as an investment sector only 

for the philanthropic investor, the solid returns 

the sector is producing are changing this landscape. 

Numerous success stories have allowed 

the sector to break down the stereotypes many 

mainstream investors had on Impact Investments. 

Through using the Asset Allocation Framework 

presented in this paper, investors can more 

easily navigate around the plethora of options 

available. Alongside research like this, developments 

are being made in the infrastructure 

of the sector. Initiatives set forth by the Rockefeller 

Foundation and B Labs are looking to 

standardise metrics for measuring the sustainability 

or relative impact in an attempt to give 

investors tools to compare and contrast their 

investment options. These developments in 

building a sustainable ecosystem for Impact 

Investments are driving the confidence many 

institutional investors are starting to gain in the 

sector. 

Impact Investment is Helping Answer 

Challenges and Change the Market 

By creating mechanisms through which investors 

can both make money and address social 

and/or environmental challenges, Impact Investment 

offers the potential to expand the 

pool of capital available to fund innovative solutions. 

Impact Investments often leverage 

grants, sometimes in mezzanine financing arrangements 

that create a large multiplier effect 

on the amount of impact generated. However, 

as the examples in this report show, Impact Investors 

are not limited to partnering with grant 

makers: from tropical rainforest preservation, to 

low-income housing development in New York 

City, to infectious disease prevention in Africa, 

Impact Investors are also making market-rate 

returns on investments that fit seamlessly into 

their portfolios. 

12 


By creating mechanisms 

through which investors 

can both make money and 

address social and/or environmental 

challenges, Impact 

Investment offers the potential 

to expand the pool of 

capital available to fund innovative 

solutions. 

Opportunities for institutional investors are still 

constrained by the relatively small size of many 

funds in this emerging sector, but as the sector 

matures, larger opportunities are becoming 

available. However, as opportunities grow in 

scale and number, will the same returns exist? 

Will impact be compromised as the sector 

grows? The answers to these questions will 

prove critical to the future of the sector. 

The early pioneer investors are helping catalyse 

the sector by showing how profitable 

investment portfolios can be compounded 

with impact. Early investors have also helped 

inspire replication in other areas of impact. 

Having seen the success IFFIm was able to 

achieve through its bond offering, the Prince of 

Wales is currently proposing a similar structure 

for rainforest bonds to halt the deforestation of 

the world’s endangered rainforests. 

Impact Investment is Emerging 

from Infancy 

New capital is employed across the asset 

allocation spectrum. In Mexico, Ignia is developing 

housing communities for families who 

earn less than $10,000 a year while still targeting 

above market-rate returns. In Honduras, 

Pico Bonito is looking to receive a 20% IRR 

from the regeneration and sustainable forestry 

of native forests adjacent to a national park 

without the aid of local government subsidies. 

These investment vehicles are examples 

of how expansion into new asset classes is 

helping to broaden the reach of Impact Investment, 

while allowing investors to diversify 

across multiple asset classes. 

13

Case Studies and the 

Asset Allocation Framework 

The objective of this report is to map the Impact 

Investment market in a framework that 

resonates with investors. For this reason the 

Impact Investment sector and case studies 

are mapped along the traditional asset classes, 

resulting in an Impact Investment Asset Allocation 

Framework (AAF). This Framework aims to 

combine the traditional asset classes with the 

specificities inherent in Impact Investment. The 

framework is thus organised along two key dimensions: 

investor motivation (Financial First 

vs. Impact First) and asset class (as per traditional 

asset allocation) 

A representation of this concept is shown 

on the opposite page. 

Understanding the Asset 

Allocation Framework 

The objective of this paper is to help potential 

investors understand the Impact Investment 

market better by describing concrete case 

studies for each cell in the AAF. The cases outlined 

in the following pages were chosen to 

show the reader the diversity of Impact Investments 

in the sector, especially the number of 

investments that aim to make returns at the 

market rate. 

•• 

Investment funds/vehicles typically have 

multiple investors so motivation for the 

fund/vehicle is established in the 

following way: 

-- 

If at least one of the investors of an 

investment vehicle/fund has fiduciary 

responsibilities, then the fund/vehicle is 

deemed Financial First because investors 

must have been able to satisfy 

themselves that a risk-adjusted marketrate 

return is being targeted; otherwise 

it is deemed Impact First. 

•• 

The allocation to a specific asset class was 

driven by the specific instrument used 

in the deal profiled; in the case studies 

presented an effort was made to select 

a deal using an instrument that is representative 

of what is commonly used by 

the investment fund/vehicle (although it is 

worth noting that certain investment funds 

may use more than one asset class in their 

investments). 

The following case studies should not be used 

as recommendations for an Impact Investment 

portfolio, but rather serve as a guide to the 

breadth of opportunities that exist in the sector. 

The allocation of case studies to the different 

cells in the framework was done on the basis 

of the following: 

•• 

The investor motivation is used to allocate 

case studies to the Financial First or Impact 

First rows of the AAF. 

14 



Asset classes 

Alternative Instruments 

Cash 

Senior 

Debt 

mezzanine 

/quasi 

equity 

Public 

Equity 

Venture 

Capital 

Private/ 

Growth 

Equity 

Real 

Estate 

Other Real 

Assets 

Absolute 

Return 

(Hedge 

Funds) 


ShoreBank 

$2.1b 

Blue 

Orchard 

Dexia 

Micro- 

Credit Fund 

$2.1b 

Triodos 

Renewables 

Europe 

Fund 

£30m 

Generation 

Investment 

Management 

$3.5B 

Bridges 

Ventures 

CDV Funds 

£115mm 

ProCredit 

Holding 

JPMorgan 

Urban Renaissance 

Prop. Fund 

$175MM 

Lyme 

Northern 

Forest Fund 

$190MM 

Harcourt 

BelAir SA 

Fund 

$345MM 


Charity 

Bank 

Root 

Capital 

$48MM 

Bridges 

Ventures 

Social 

Entrepreneurs 

Fund 

£8mm 

Aavishkaar 

Acumen 

Fund 

$34.1MM 

Ignia 

$60MM 

Bosques 

Pico 

Bonito 

$5MM 

This Framework aims to combine 

the traditional asset classes with 

the specificities inherent in Impact 

Investment. It is organized along 

two key dimensions: investor motivation 

(Financial First vs. Impact 

First) and asset class 

15

Title 

case studies 

16 


Cash 

Shorebank Deposit Program 

financial First Investor 

Investor 

Multiple Investors 

Profile: TIAA-CREF 

Cash 

~2.5% return 


Vehicle 

Shorebank 

Area of Impact 

Community Banking 

Geography 

United States 


Shorebank’s investor group consists of a varied group including financial institutions, corporations, foundations and 

high net worth individuals 

TIAA-CREF (http://www.tiaa-cref.org) 

TIAA-CREF (Teachers Insurance and Annuity Association - College Retirement Equities Fund) is one of the largest 

financial services companies in the United States, with ~$400B in assets under management 

Community Bank Deposit Program 

•• 

TIAA-CREF manages the largest, comprehensively screened social investment vehicle for individuals in the US 

with ~$9.6B of assets under management (2007), representing ~2.4% of total assets under management 

•• 

This investment is part of the firm’s Community Bank Deposit Program under TIAA-CREF’s Socially Responsible 

Investing initiative 

•• 

The motivation for the ShoreBank investment was that returns include a premium to 1 year treasury bond while 

the investment simultaneously yields a social return 

•• 

In addition to the investment in ShoreBank, TIAA-CREF has also invested $27MM in six other community banks in 

the US 

ShoreBank (http://www.shorebankcorp.org) 

•• 

In 2007, TIAA-CREF invested $22MM into ShoreBank of Chicago and ShoreBank Pacific of Ilwave, WA 

•• 

ShoreBank is considered the first and largest community development bank (CDB) in the US with $2.1B in assets 

-- 

Most CDBs in the US have special designations as to the social purposes their loans will be used for with 

80% of the lending being done in underserved communities 

-- 

Loans are made to residential real estate (e.g. affordable housing), small businesses and conservation 

projects 

-- 

$445MM in total of mission investments were made in 2006 

•• 

ShoreBank utilises CDARS (Certificate of Deposit Account Registry Service) to place its funds into insured certificates 

of deposit issued by banks in the network, allowing investments of up to $50MM to be insured by the 

Federal Deposit Insurance Corporation (FDIC), whose normal limit is $100K 

•• 

TIAA-CREF is in the process of identifying additional banks through which they can expand their overall investment 

in this program 

Impact 

social/environmental impact 

•• 

ShoreBank Corporation measures its success by the amount it invests 

to create economic prosperity and a healthy environment, as well as by 

its financial performance 

•• 

Cumulatively, ShoreBank has financed over $3.7 billion in missionrelated 

investments, with over $371 million in new mission loans in 

2008. These include: 

-- 

conservation loans 

-- 

community development loans 

-- 

loans that achieved both 

•• 

Globally, ShoreBank International has provided management advisory 

services to the financial sector in over 60 developing countries and has 

lent $914 million 

financial impact 

•• 

Financial return is that of a 1-year treasury bond plus a premium 

-- 

The current rate is ~2.5% to TIAA-CREF’s CBD Program 

•• 

Deposits are made for one year with the option of annual 

renewals 

•• 

The investment horizon is much shorter and the risk level is 

much lower than TIAA-CREF’s typical investments 

17

senior debt 

BlueOrchard 


Investor 


Debt 

Loans 

IMPACT INVESTMENT 

FUND 

BlueOrchard 

Dexia Microcredit Fund 

Deal 

ACEP Cameroun S.A. 


Microfinance 

Geography 

Global 

6-month Libor + 100 / 200bps 

“We have focused on 

microfinance because 

it has proven to be an 

efficient mechanism 

of socioeconomic 

inclusion by enabling 

entrepreneurship and 

value creation at the 

grassroots level in 

emerging markets. We 

believe that establishing 

successful and effective 

relationships between 

investors, asset 

managers, MFIs and 

their clients is the key 

to directing sustainable 

flows of capital to this 

growing and immensely 

rewarding industry.” 

Jean-Pierre Klumpp 

CEO BlueOrchard Finance S.A. 


60% of the investors in the BlueOrchard Dexia Micro-Credit Fund are institutional investors whereas 40% are high 

net worth individuals 

Dexia Micro-Credit Fund (DMCF) (http://www.blueorchard.com) 

•• 

Invests in debt instruments of up to 3 years in maturity issued by microfinance institutions (MFI) in Africa, Asia, 

Eastern and Central Europe, and Latin America 

•• 

Over 10 years in existence and nearly $500MM in assets under management 

•• 

Lends to microfinance institutions that have a minimum 3-year track record, have their accounts externally audited 

and rated, possess a minimum of $1MM in assets and are operationally self-sustainable and profitable 

•• 

Loan maturity ranges between 18 months and 3 years and most loans are renewed on expiration 

•• 

As of May 2009 there had been no defaults on any loan made by the Fund to MFIs 

•• 

The micro loans (provided by MFIs to micro-entrepreneurs) ranged from $50 to $8,000 with an average of $1,584, 

and only 3.2% of the loan repayments to MFI lenders were delays over 30 days as of March 31, 2009 

•• 

The Fund is a Luxembourg SICAV and has a minimum investment of US $10,000, or CHF 15,000. It is now available 

to US accredited investors with a minimum investment of the USD equivalent of £125,000 (~$175,000) 

ACEP CAMEROUN S.A. 

•• 

MFI that targets urban micro-entrepreneurs in 3 regions of Cameroon 

•• 

Launched in 1999 as a government project and transformed into a private company in 2005 

•• 

As of February 2009, ACEP had a portfolio of $12M in which 

-- 

There were 7.439M clients 

-- 

34% of the clients were women, who often borrow in groups of 3-5 and receive between $105 - $325 

6-month loans 

-- 

Many of them have now “graduated” to single loans, highlighting the positive impact of the micro-loans 

•• 

ACEP’s performance showed a 5.8% ROA and

Mezzanine/Quasi Equity Instruments 

Triodos Investment Management 


Investor 


Mezzanine 


FUND 

Triodos Renewables 

deal 

GFS Veurne 

area of impact 

Renewable Energy 

geography 

EU member state countries 

7% pa long term projected return 

“Renewable energy 

more than ever attracts a 

great deal of interest. EU 

legislation has defined 

that in 2020 the share of 

renewable energy needs 

to be increased to 20%. 

Triodos has been active 

in renewable energy 

investing since 1986 and 

via Triodos Renewables 

Europe Fund investors 

can contribute to a 

further increase of 

renewable energy supply 

in Europe”. 

- Bob Assenberg 

Fund Manager 

Triodos Renewables Europe Fund 


•• 

The Triodos Renewables Europe Fund is primarily funded by retail investors and a small number of institutional 

investors. Triodos Renewables Europe Fund is an open-ended fund, founded in June 2006 with a total committed 

capital of approximately £30M 

Triodos Renewables Europe Fund (http://www.triodos.com) 

•• 

Launched in June 2006, the Triodos Renewables Europe Fund is managed by Triodos Investment Management, 

the 100% owned investment arm of Triodos Bank. Triodos Bank, established in 1980, finances social, environmental 

and cultural organisations and was named Financial Times Sustainable Bank of the Year 2009 

•• 

Triodos Investment Management has been active in renewable energy investments since 1986 and was amongst 

the first equity investors in renewable energy projects in the Netherlands. Triodos Investment Management currently 

has four energy investment funds under management 

•• 

The Fund generally takes significant minority stakes (equity or quasi equity) in renewable energy projects (in 

construction or operational) with proven technology (wind, solar, hydro, biomass) 

•• 

Geographically, the primary investment focus is on countries where Triodos Bank has a presence (i.e. the 

Netherlands, Belgium, U.K., Germany, France and Spain). The Triodos Renewables Europe Fund is also open for 

investments in other EU member states 

•• 

The Fund invests in small to medium sized renewable energy projects and has a minimum investment size of 

£1MM. The maximum amount per investment is dependent on the size of the fund and is limited to a maximum 

15% of the fund’s committed capital (currently maximum of £4.5MM per investment) 

•• 

Instruments for investments in equity and/or quasi equity include common shares, preferred shares, convertible 

debt, subordinated debt, profit sharing notes 

•• 

The Triodos Renewables Europe Fund is a Luxembourg SICAV II open-ended fund 

GFS Veurne 

•• 

GFS Veurne BVBA, with a capacity of 2.7MW, is the largest solar PV project in Belgium 

•• 

700 households can be serviced by this project, avoiding the production of 1,500 tonnes of CO 2 

, equal to 300 

hectares of forest 

•• 

The Triodos Renewables Europe Fund has invested in the form of a subordinated loan of £1.25MM 



•• 

Investments in small to medium sized renewable energy projects 

providing the vital capital required, in the form needed, to enable projects 

to reach completion and developers to free up funds to develop 

new projects. The fund thereby contributes to an increase in supply in 

renewable energy in Europe and a reduction of carbon emissions 

•• 

All renewable energy projects are carefully screened and comply with 

the sustainable investment criteria as set by Triodos Bank 


•• 

As per 30th of June 2009, The Triodos Renewables Europe 

Fund has made 15 investments in renewable energy projects. 

Based on the existing pipeline of approved projects, the envisaged 

number of investments by year end is expected to be 20 

with an invested capital ratio of approximately 70% 

•• 

Returns performance in 2007 and 2008 were 5.9% and 2.9% 

respectively 

19

Public Equities 

Generation Investment Management 


Investor 


Profile: UK Envir. Agency 

9-12% projected returns above 

benchmark over 3 years 

Equity 


Fund 

Generation IM 

15+% expected returns 

Deal 

Novo Nordisk 


Sustainability 

Geography 

Global 

“[The] appointment 

[of Generation IM] 

evidences our opinion 

that those fund 

managers who seek 

to take into account 

financially material 

environmental risks and 

opportunities such as 

climate change in their 

investment decisions 

will produce better 

financial returns for 

the beneficiaries of our 

pension fund, and this is 

entirely consistent with 

our fiduciary duty’” 

Howard Pearce 

Head of Environmental Finance 

and Pension Fund Management 

for the Environment Agency 


•• 

Generation IM’s investor group includes government agencies, foundations, high net worth individuals and 

institutional funds 

UK Environment Agency (http://www.environment-agency.gov.uk/pensions) 

•• 

In 2008, the UK Environment Agency selected Generation IM to manage £50MM of its £1.5B Active Pension 

Fund 

•• 

Generation was awarded the investment mandate as part of the Agency’s drive to adopt the UN Principles for 

Responsible Investment, which urge investors to consider environmental, social and governance (ESG) issues in 

their investment decisions 

Generation Investment Management (http://www.generationim.com) 

•• 

Generation manages approximately $3.5B through their Global Equity Strategy and Climate Solutions Fund 

•• 

The firm takes a long-term investment view and integrating sustainability research (economic, environmental, 

social and governance criteria) within a rigorous fundamental equity analysis framework 

•• 

As part of its long-term focus, the firm measures its performance over a 3-year time horizon 

•• 

Generation’s concentrated approach allows maximum leverage of an intense research effort, and investments are 

made only with high levels of conviction. The research effort is characterised by fundamental, bottom-up analysis 

on companies based on primary and secondary financial and non-financial research 

•• 

The Global Equity portfolio is comprised of 30-50 global public equities, which are selected on the basis of valuation 

and potential upside from a Focus List of roughly 100 public companies 

•• 

The Global Equity product has a typical investment horizon of 3 years, with no restrictions on size, sector or location, 

with no more than 30% of their portfolio in small cap companies (defined as US $3B market cap or less) 

•• 

In 2008, Generation launched the Climate Solutions Fund to complement the Global Equity product, deploying 

capital to solve the climate crisis. The Climate Solutions Fund invests in private equities and restricted public 

equities, in addition to public equity 

Novo Nordisk (http://www.novonordisk.com) 

•• 

Generation’s view on Novo Nordisk is based on its assessment of “business quality”(BQ) and “management 

quality”(MQ), with sustainability issues a key component in the analysis of both these metrics 

•• 

For Novo Nordisk, the company’s high BQ results from three principal factors: a market with good, long-term 

volume growth; strong barriers to entry in diabetes due to manufacturing capabilities, patient loyalty and patent 

protection; and a sustainable insulin strategy in developing markets that is built around prevention and patient 

needs 

•• 

Novo Nordisk’s management quality is similarly high: sustainability is deeply embedded within the company’s 

management structure, and sustainable business practices have strong senior support (triple bottom line). The 

high management quality is also a result of a strong culture of innovation and low staff turnover and an impressive 

track record in stakeholder engagement 



•• 

Intensive primary research is used to gather the qualitative and quantitative information needed 

to make judgements on the sustainability of a business 

•• 

The firm’s Industry Roadmaps examine the long-term outlook of specific industries and identify 

the highest quality businesses and management teams and key sustainability challenges confronting 

companies within the given sector 

•• 

Generation does not disaggregate social returns from financial returns—the firm views sustainability 

as material to the financial prospects of a company and sees it as critical to determining 

an investment’s ability to deliver long-term outperformance 


•• 

Target is to outperform the market by 

9-12% above the benchmark MSCI 

World Index over 3 years (gross 

of fees) 

20 


Venture Capital 

Bridges Ventures CDV Funds 


Investor 


Equity 


Fund 


CDV Funds 

Deal 

Simply Switch 


Sustainability & Regeneration 

Geography 

United Kingdom 

15% projected IRR + 165% IRR 

“Bridges Ventures 

believes that 

market forces and 

entrepreneurship 

can be harnessed 

to create social and 

environmental benefits. 

We aim to continuously 

innovate to find new 

ways of delivering our 

investors with this 

combination.” 

Michele Giddens 

Executive Director 



•• 

Bridges Ventures’ investors range from institutions such as banks (HSBC, Cooperative Financial Services, Lloyds 

TSB, Barclays and Citigroup) and pension funds (such as Universities Superannuation Scheme and West Midlands 

Local Authority Pension Fund) through to wealthy individuals, families, trusts and endowments 

Bridges Ventures CDV Funds (http://www.bridgesventures.com) 

•• 

Bridges Ventures is a private sector, mission-driven investment company that specialises in funds that can deliver 

financial returns and make a positive social or environmental impact 

•• 

Bridges Ventures has launched two venture funds that invest in ambitious entrepreneurial businesses that have 

at least one of the following two characteristics: 

-- 

Regeneration–businesses located in the most deprived 25% of the UK 

-- 

Sustainable Business–businesses whose social/environmental impact is intrinsic to what they do 

•• 

The first £40MM venture fund was raised in 2002. Based on the track record of that fund, Bridges Ventures 

raised a second fund of £75MM in 2007, which beat its original target of £50MM and was over-subscribed 

•• 

The venture funds invest in early stage, later stage and property-backed businesses 

•• 

Bridges Ventures utilises a three-stage process to target, maximise and report upon social and environmental 

impact 

-- 

Social Screen–Setting clear social impact of location or sector, then use strictly commercial criteria to select 

amongst those companies that pass the social screen; looking for winners commercially that do good 

-- 

Engagement–Working with the portfolio companies using Bridges Social IMPACT Scorecard to find ways to 

improve their community and environmental impact while increasing the value of the business 

-- 

Reporting–Reporting back to investors on the social and environmental impact of the companies as well as 

financial and commercial performance 

Simply Switch (http://www.simplyswitch.com) 

•• 

In late 2002, Bridges Ventures invested £125K of early-stage capital in Simply Switch, an online and telephone 

based provider of comparative information for utilities suppliers. Follow-on investments resulted in a total commitment 

of £345K 

•• 

Simply Switch was sold to The Daily Mail and General Trust for £22MM in 2006, returning £7.5MM to Bridges 

Ventures and resulting in a money multiplier of 22x and an IRR of 165% to investors 

•• 

Simply Switch located itself in a Bridges Ventures target area, creating 80 new jobs in the local economy 

•• 

Simply Switch helped raise £500K for charities where it had established an affinity relationship 

•• 

By being the first provider to offer its service both online and over the telephone, Simply Switch made it easier 

for those without resources to go online to save money on their bills 



•• 

1,300 jobs created or sustained; 500 in target areas and 163 taken out 

of unemployment 

•• 

Almost all investments in the most deprived 25%; 58% in the most 

deprived 10% of the UK 

•• 

Multiplier effect of £3 of additional spending in deprived areas for each 

£1 invested by Bridges Ventures and £2.13 of Gross Value Added 


•• 

Bridges Ventures has invested over £51MM in 37 companies 

•• 

Follow-on investments have been made in over 70% of the 

portfolio 

•• 

Exit returns to date range from 29-165% IRR and from 2x to 

22x money multiples 

21

Private Equity 

ProCredit Holding 


Investor 


Profile: TIAA-CREF 



Vehicle 

ProCredit Holding 


Microfinance 

Geography 

Developing Countries 

15% ROE Expected 


•• 

ProCredit’s investor group is a varied group including financial institutions such as IFC and foundations like the 

Doen Foundation 

TIAA-CREF 

•• 

TIAA-CREF (Teachers Insurance and Annuity Association - College Retirement Equities Fund) is one of the largest 

financial services companies in the United States, with ~$400B in assets under management 

Global Microfinance Investment Program (http://www.tiaa-cref.org) 

•• 

TIAA-CREF manages the largest, comprehensively screened social investment vehicle for individuals in the US 

with ~$9.6B of assets under management (2007), representing ~2.4% of total assets under management 

•• 

The ProCredit investment is part of the firm’s Global Microfinance Investment Program ($100MM) under TIAA- 

CREF’s Socially Responsible Investing initiative 

-- 

The ProCredit investment has been larger than TIAA-CREF’s typical SRI initiatives 

-- 

Whilst this is a direct investment, most other investments will be fund investments 

ProCredit Holding AG (http://www.procredit-holding.com) 

•• 

ProCredit is a majority shareholder in 22 fast-growing banks in transition economies/developing countries 

•• 

Provides credit and other banking services to very small and medium-sized enterprises and lower and middle 

income savers: more than 93.5% of ProCredit’s outstanding loans were for amounts of less than $12,700 

•• 

TIAA-CREF made a growth investment into ProCredit to help advance economic development through the provision 

of transparent, stable banking services and financial awareness in developing countries 

•• 

TIAA-CREF’s initial investment into ProCredit was $34M 

•• 

Sample investment: Congo 

-- 

Underdeveloped banking sector with 11 banks in total for Congo, which is the size of Western Europe 

-- 

Most banking services focus on wealthy individuals, international corporations and the public sector, leaving 

the poor underserved 

-- 

ProCredit launched in 2005 to serve the many small and very small enterprises and now has 3 branches in 

Kinshasa and holds 45% of all customer deposits in Congo 



•• 

Social returns are not explicitly measured, however: 

-- 

As of June 30, 2008, more than 1 million loans with a combined 

volume of $4B were outstanding 

-- 

Since the group’s formation in 1998, the institution has grown 

rapidly, and it now operates through 704 branches with over 

19,350 employees globally 


•• 

The investment horizon is ~8 years 

•• 

Financial returns are measured by book value growth and 

potential multiple expansion at sale 

•• 

The investment is targeting 15% return on equity 

22 


Real Estate 

JP Morgan Urban Renaissance Property Fund 


Investor 


Profile: Prudential 

Equity 

Equity 

Impact investment 

fund 


Renaissance Property Fund 

15% expected return >15% expected return 

deal 

Various Real Estate 

Transactions 


Urban Renewal 

geography 

United States 

“ The idea behind 

investing in the 


Renaissance Fund was 

to earn market rate 

returns while supporting 

a project that propagates 

urban renewal and green 

development.” 

Preston Pinkett 

Head of Social Investment 

Prudential 


JP Morgan set out to create the fund by drawing investments from a variety of investors 

Prudential Financial (http://www.prudential.com/socialinvestments) 

•• 

The Social Investments group at Prudential is responsible for investing over $400MM of both the Prudential 

Corporation and The Prudential Foundation’s funds 

•• 

The SRI group takes a 3-tier approach to investing its money: about 40% of the funds target market returns, 20% 

target significantly below-market returns but high impact investments and the remaining 40% target the middle 

of the two bookends, usually delivering strong returns, but low compared to the risk undertaken for the 

investment 

•• 

Prudential purchased $10MM of equity in one of the Fund Investment Vehicles (FIVs) of the JP Morgan Urban 

Renaissance Property Fund 

•• 

Prudential was attracted to the investment due to the ability to invest in both green certified development and 

urban renewal through commercial and residential projects 

JP Morgan Urban Renaissance Property Fund 

•• 

The investment thesis of the fund is targeted at the development and redevelopment of real estate projects in 

market rate, affordable and workforce housing, retail, mixed-use development, hospitality and other real estate 

sectors in Urban Renaissance Markets (URMs) 

•• 

The fund hopes to target the top twenty URMs in the US including: Manhattan-Bronx, San Francisco, Philadelphia, 

Chicago, Los Angeles, Minneapolis, and Newark 

•• 

The Fund intends, when feasible, to invest in residential and retail properties that are subject to “green” specifications, 

such as geothermal, and/or solar heating and cooling system, photovoltaic glass, and recycled building 

materials 

•• 

The Fund is also including cultural amenities and market-based after-school educational providers in its retail and 

mixed-use projects 

•• 

The Fund has $175MM of fully subscribed capital with $75MM more in the investor pipeline 

•• 

The targeted financial returns of the Fund are at market rate levels of ~15% net of fees 

880 Glenwood Avenue, Atlanta 

•• 

The Fund made an investment in this 300K square foot luxury mid-rise apartment community in Atlanta 

•• 

The apartment complex comprises 325 one and two bedroom units 

•• 

The total development cost of the apartments was ~$46MM 



•• 

The 880 Glenwood Avenue investment has won several neighbourhood 

green recognition awards including: 

-- 

2006 Urban Land Institute Development of the Year 

-- 

2005 Earthcraft House Development of the Year 

-- 

2003 Charter Award from the Congress of New Urbanism 

•• 

Greater environmental efficiencies will be achieved through the green 

building strategy 


•• 

Targeted financial returns at market rate levels of ~15%, net 

of fees 

23

other real assets 

Lyme Northern Forest Fund 


Investor 


Market rate return less Fund fees 


fund 

Lyme Northern Forest 

Fund Limited Partnership 

Investment in Real Estate 

Above market rate return 

deal 

Chateaugay Woodlands 


Sustainable Forestry 

geography 

United States 

“We seek to recover 

development and nonconservation 

values of 

real estate through the 

sale of conservation 

easements and other 

ecosystem services 

(e.g. wetland mitigation 

credits and carbon 

offsets). We like these 

sales to occur within the 

first two to three years of 

our investment. During 

this time and afterwards, 

we and future owners 

are obligated to manage 

the property sustainably. 

On timberland 

properties, our goal is 

to demonstrate that 

sustainably managed 

properties can generate 

attractive cash flows.” 

Jim Hourdequin 

Managing Director 

The Lyme Timber Company 


•• 

The Lyme Northern Forest Fund (LNFF) investors include high net worth individuals, university and college endowments, 

pension funds and foundations such as the Rockefeller Foundation 

The Lyme Timber Company (http://www.lymetimber.com) 

•• 

The Lyme Timber Company was formed in 1976 to invest in timberland and real estate using its own capital 

•• 

In 2002, the Company created its first timberland investment fund, the Lyme Northern Forest Fund, with $65MM 

in capital commitments and a 3-year investment window 

•• 

In 2005, the Company formed a second fund, The Lyme Forest Fund, with $190MM in capital commitments and 

a 3-year investment window 

•• 

The Lyme Timber Company’s investment thesis is to make timberland investments in partnership with conservation 

agencies or government entities to mitigate risk. In many investments, Lyme will retain the rights to 

sustainably manage the timberland on parts or all of the purchased real estate and will sell an option to a partner 

organisation allowing the partner to acquire fee interest portions of the property with high conservation value and 

one or more ‘conservation easements’ over the remainder of the property. The conservation easements permanently 

restrict development and require The Lyme Timber Company and future owners to sustainably manage the 

property 

•• 

The investments are typically exited by sale to another timberland investor; a part of the real estate is therefore 

perpetually conserved as managed timberland 

•• 

The deal sizes range from $4MM - $80MM; the nominal return on the investments ranges from 11-25% 

Chateaugay Woodlands, Upstate New York 

•• 

Chateaugay Woodlands is an 85,000 acre property adjoining the Adirondack Park in Northern New York 

•• 

The LNFF purchased the property from Domtar, a forests product company, for $18.5MM in late 2004 

•• 

The purchase was made in partnership with the Nature Conservancy, a conservation agency, which paid $600K 

for the option to subsequently purchase a conservation easement over the woodland property 

•• 

LNFF financed half of the investment using $9MM of New Markets Tax Credit Financing at attractive rates 

•• 

In late 2008, LNFF sold a conservation easement to the State of New York for $10MM 

•• 

In early 2009, LNFF sold the timberlands, subject to the terms of the conservation easement, for $20 million 



•• 

The sale of the conservation easement to the State of New York (facilitated 

by The Nature Conservancy) will 

-- 

allow full public access to 38,400 acres of the property under a 

public recreation plan; 

-- 

maintain private hunting club leases on the property; and 

-- 

restrict all further development of the property. 

•• 

The structure of the conservation easement contract requires that 

sustainable forestry practices continue under successive owners 

•• 

The Forest Stewardship Council (FSC) has certified the property as 

adhering to its standards and criteria for forest management 

•• 

The Lyme Timber Company has been recognised with multiple awards 

for the quality of its management of the Chateaugay lands 


•• 

Taking into account operating income and losses, the sale of 

the conservation easement, and the sale of property subject 

to the conservation easement, the investment produced an 

equity internal rate of return of approximately 22% for the 

Lyme Northern Forest Fund (does not include asset management 

and promote fees paid to The Lyme Timber Company) 

24 


absolute return (hedge funds) 

BelAir SA Fund 


Investor 




fund 

BelAir SA Fund 

deal 

SRI compliant hedge 

funds 


Broad SRI 

geography 

Global 

> Libor+300bp 

“SRI is important to 

many of our investors 

and they have few 

options available, 

especially in hedge fund 

strategies.” 

Erik Eidolf 

Executive Director Nordic 

Harcourt Investment Consulting AB 


•• 

The Harcourt BelAir Sustainable Alternatives Fund has several investors – notable lead investors and co-founders 

are Folksam (Swedish Insurance Group) and Storebrand (Norwegian Insurance Group) 

•• 

Assets in BelAir exceed $345MM (as of March 2009) 

•• 

Folksam and Storebrand have a long history of SRI investing and invested seed capital of $200MM as part of their 

UN PRI (Principles for Responsible Investment) strategy 

•• 

The lead investors take an active role in SRI screening of investment instruments along with Harcourt, which is 

the fund manager and specialises in hedge fund manager selection and portfolio management 

•• 

Some other well-known investors of Harcourt are Barclays UK, Sumitomo Japan, and Swisscom Pension Fund 

The Harcourt BelAir Sustainable Alternatives Fund (http://www.harcourt.ch) 

•• 

Harcourt was the first fund-of-hedge-funds firm to sign the United Nations PRI initiative 

-- 

Tracks global hedge fund data and meets over 1,000 hedge fund managers per annum 

-- 

Screens the global hedge fund universe to find high quality managers that employ strategies that are 

suitable to implement in the internally defined SRI (Socially Responsible Investing) Policy developed jointly 

with Folksam and Storebrand 

-- 

Performs rigorous due-diligence of hedge funds and monitors all the invested funds for SRI compliance 

•• 

Investment in hedge funds is based on 

-- 

relevance and compliance to the defined SRI policy which spans 5 criteria 

-- 

financial performance 

-- 

quality of the manager 

•• 

The BelAir “universe” of screened companies consists of 2,800 companies as of Q1 2009. All underlying hedge 

funds in BelAir constrain themselves to only be exposed to the SRI approved list of instruments 

•• 

As of March 2009 BelAir portfolio consisted of 24 underlying hedge fund managers 



•• 

BelAir implements a strict SRI Policy that results in an approved list of 

SRI compliant instruments to which the underlying hedge funds limit 

their exposure 

•• 

As such, the investor is guaranteed not to be exposed to companies 

and countries that are not SRI compliant 

•• 

SRI impact affects a broad number of instruments covering over 2,800 

companies globally 

•• 

BelAir has strong Social and Environmental impacts through the SRI 

analysis conducted which includes engagement and dialogue with 

companies to improve their practices in a SRI context 


•• 

Investors can gain exposure to absolute return hedge fund 

strategies while being able to make CSR/SRI investments 

•• 

BelAir provides diversified global hedge fund exposure across 

asset classes, regions and hedge fund strategies 

•• 

Returns: overall portfolio targets returns > Libor +300bp with 

limited downside 

•• 

Between inception in November 2007 and February 2009, 

BelAir has appreciated by 1.1% compared to -55.4% MSCI 

World Index 

25

Cash 

Charity Bank 

Impact First Investor 

Investor 


Cash 


Vehicle 

Charity Bank 


Various Sectors 

geography 

Predominantly UK 

0.5-3% return 

“Perhaps now more 

than ever there is a 

need for intermediaries 

like Charity Bank that 

offer alternatives to the 

traditional commercial 

banks. People who are 

as concerned about the 

impact their money 

achieves as the financial 

return they seek can 

place their money with 

confidence in such 

institutions.” 

Julia Novy-Hildesley 


Lemelson Foundation 

“Talking to participants 

of schemes enabled by 

Charity Bank allows me 

to better understand the 

difference that my and 

others investments have 

made to people’s lives.” 


•• 

Charity Bank is unusual among charities in having share capital 

•• 

Shares are held by Charities Aid Foundation, the National Council for Voluntary Organisations (NCVO), 15 charitable 

trusts and foundations, and Barclays Bank (not for its own profit but in trust for charity) 

•• 

Shareholder types include ordinary, non-cumulative B and C preference shareholders and holders of 10-year 

subordinated loan notes 

•• 

Charity Bank is currently raising capital from HNWI’s and already has commitments in principle of £2MM in preference 

share capital. The Bank is aiming to raise up to £12MM of core capital long term 

•• 

In 2007, Charity Bank received £3MM of capital investment, as including share capital from the LankellyChase 

Foundation, Community Foundation for Northern Ireland and DB Microcredit Development Fund 

Charity Bank (http://www.charitybank.org) 

•• 

By saving with Charity Bank, depositors can earn a modest amount of interest to protect their capital, knowing 

that they can get their money back at the end of the term 

•• 

Returns depend on the length of the deposit and can vary between 0.5% and 3%, some opt for zero 

•• 

Deposits can be made into a variety of products, including savings accounts, Charity ISA, CITRA and 

Deposit Bonds 

•• 

100% of personal deposits of up to £50k are protected under the financial services compensation scheme 

•• 

100% of deposits are used to provide affordable loan finance and advice to enable charities, community associations, 

voluntary organisations, community businesses and social enterprises predominantly across the UK to grow 

•• 

Loans are mostly made to organisations within the areas of social/health care, affordable housing, education, 

sustainable development, community transport, the arts and community regeneration 

-- 

For example, Charity Bank provided a loan of £300k to a charity (CHICKS) that organises respite breaks for 

disadvantaged inner-city children 

-- 

The loan enabled the charity to purchase a much-needed building to house its operations 

-- 

CHICKS are on target to provide 1,000 breaks per year from 2010 – they currently provide 800 

Depositor 

Charity Bank 



•• 

100% of deposits used for lending to organisations delivering solutions 

to social problems 

•• 

Charity Bank has committed over £83.4MM to charities and other 

socially driven organisations since its launch in 2002 which has levered 

in an extra £48.2MM of funding. The bank’s borrowers work with more 

that 3MM people in the UK 

•• 

Charity Bank is currently devising a formal reporting system to measure 

the impact its loans create 


•• 

Returns depend on length of deposit, varying between 0.5% 

and 3% 

26 


senior debt 

Root Capital 


Investor 

Multiple Investors Profile: 

Lemelson 

Senior Debt 


fund 

Root Capital 

2.5% expected return 9% return 

deal 

Kilicafe 


“Missing Middle” 

geography 

Africa 

“Currently nearly 

90% of our funds are 

given out as grants and 

only 10% are spent for 

investments. We are 

however looking to 

increase our investments 

and move that ratio to 

70-30 or 60-40.” 

Julia Novy-Hildesley 


Lemelson Foundation 

“Our first screen 

involves validating that 

there will be a net social 

and environmental 

return. We then follow 

that with financial due 

diligence including 

micro and macro risk 

assessment.” 

Namrita Kapur 

Vice President 

Root Capital 


•• 

Root Capital attracts investments from industry partners, foundations such as the Lemelson Foundation, SRI 

funds and high net worth individuals 

The Lemelson Foundation (http://www.lemelson.org) 

•• 

The Lemelson Foundation focuses on investing in entrepreneurs and technology dissemination 

•• 

The foundation has an asset allocation of 5% for mission related investments and is particularly keen on making 

cleantech investments 

•• 

The foundation was impressed with Root Capital’s operating history and was keen to invest in its project of 

propagating water efficient technology for coffee farmers in Tanzania 

Root Capital (http://www.rootcapital.org) 

•• 

Root Capital targets the “missing middle”, a gap existing between microfinance and corporate banking 

•• 

It bridges this gap by providing capital, delivering financial education, and strengthening market connections of 

rural small and growing businesses 

•• 

It employs a form of value chain finance where the main security is future sales contracts from buyers, primarily 

in North America and Europe. It provides short-term and long-term loans against factoring agreements or signed 

purchase orders between grassroots businesses and their buyers 

•• 

It provides an average return of 2.5% to investors 

Kilicafe (http://www.kilicafe.com) 

•• 

Kilicafe provides support services to ~100 farmer groups, representing approximately 8,000 small-scale coffee 

farmers in Tanzania 

•• 

With loans amounting to over $1MM, Root Capital financed acquisitions of central pulperies which process raw 

coffee beans (2006 and 2008) and the construction of a warehouse (2007) 

•• 

The pulperies use a fraction of the water required by conventional technology. This step in coffee processing is 

critical to managing the quality of the product 

•• 

Root Capital used Starbucks purchase contracts as collateral for the loans 



•• 

Membership in Kilicafe has grown approximately 28% from 2006 

to 2008 

•• 

Turnover has outpaced membership growth, adding $1MM to the local 

rural economy 

•• 

Overall income per member has increased providing easier access to 

education and health services 

•• 

The pulperies have decreased water usage by 80%, critical to a region 

with scarce water resources 


•• 

The loan was disbursed at an interest rate of 9% (in line with 

local market rates) 

•• 

Kilicafe has repaid its short term loan and is on track to 

repay its long term loans; in general, it is a borrower in 

good standing 

27

quasi-equity instruments 

Bridges Ventures Social Entrepreneurs Fund 


Investor 


3-5% 


fund 

Bridges Ventures Social 

Entrepreneurs Fund 


Scaling Up Social Enterprises 

geography 


“While Bridges 

Ventures’ CDV Funds 

aim to maximise 

financial returns 

subject to a social 

screen, the Bridges 

Social Entrepreneurs 

Fund aims to maximise 

social impact subject 

to financial criteria, 

including a sustainable 

business model.” 

Skye Heller 

Associate 



•• 

The Bridges Social Entrepreneurs Fund has raised over £8MM from leading individuals, institutions and foundations 

from the financial sector, government and NESTA, the National Endowment for Science, Technology and 

the Arts 

•• 

The funds have been raised through a mixture of donations to the Bridges Charitable Trust and Investments into a 

Limited Partnership structure. If the fund can demonstrate a track record of returns, Bridges Ventures believes it 

can raise further funding from socially motivated investors rather than further philanthropy 

The Bridges Ventures Social Entrepreneurs Fund (http://www.bridgesventures.com) 

•• 

Social enterprises are businesses with social objectives whose surpluses are principally reinvested for that purpose 

in the business or community, rather than being driven by the need to maximise profit for shareholders and 

owners 

•• 

Successful social enterprises deliver an important and innovative means of achieving a sustained social impact 

•• 

Bridges Social Entrepreneurs Fund seeks to address the funding gap that exists for social enterprises that are 

looking to scale up but cannot generate market rate returns or offer the usual exit opportunities and therefore 

cannot attract commercial equity 

•• 

The fund targets enterprises based in England that deliver high social impacts and that operate scalable and 

sustainable business models 

•• 

The fund expects to make around 10-15 investments in the £500K - £1.5MM range over the next 4-5 years 

•• 

The investments will be through equity or quasi-equity instruments with flexible structures, such as subordinated 

debt with royalty payments that rise with revenues 

•• 

The fund will also play an active role in providing strategic and operational assistance to the social enterprises 

that it backs 

•• 

The fund will maintain a balanced portfolio of early stage and growth capital investments and acquisitions; 

the investments will also be made in a wide variety of sectors and models 



•• 

Social Impact is measured using the Bridges Social IMPACT Scorecard 


•• 

The Fund aims to maximise social impact whilst seeking a 

positive financial return 

•• 

The financial returns target for the Fund, net of fees and 

losses, is 3-5% 

28 


Venture Capital 

Aavishkaar 


Investor 


Profile: Rockefeller Foundation 

Below market return 

less fund fees 

Equity 


fund 

Aavishkaar 

Below market return 

deal 

Servals Automation 


Rural Poverty 

geography 

India 

“At Aavishkaar we 

wouldn’t want to think 

of ourselves separating 

the social impact from 

the financial one or 

seeing one as distinct 

from the other. We see 

social impact as being 

implicit in the business 

model of the enterprise. 

The growth in the 

business fortunes of 

this company is directly 

linked to the social 

impact it makes; more 

products sold means 

higher energy efficiency 

to poor households and 

therefore improvement 

in their quality of life.” 

Pradeep Pathiyamveetil 

COO 

Aavishkaar 


•• 

Aavishkaar’s investor base includes foundations, high net worth individuals and other impact-oriented investors 

Rockefeller Foundation (http://www.rockfund.org) 

•• 

Rockefeller Foundation has invested in numerous socially motivated investment vehicles through their programrelated 

investing (PRI) work 

Aavishkaar (http://www.aavishkaar.org) 

•• 

Aavishkaar is a micro economic fund, targeting investments in India 

•• 

Aavishkaar also runs a microfinance fund as a joint venture with Goodwell, a Netherlands-based microfinance 

company 

•• 

Looks to invest in SMEs and very small companies engaging in entrepreneurship 

•• 

Screens companies from an impact perspective first, and after convincing themselves of strong impact, looks at 

the financial metrics like growth and profitability 

•• 

Typical investment size of INR 1MM (~$25K) 

•• 

Primarily equity players, but permitted to provide debt in deals where equity is already present 

•• 

Due to Indian regulations on venture capital firms, pure debt can only make up 20% of deals, so debt funding 

tends to be bridge loans to take care of small requirements for limited time periods 

Servals Automation Pvt Ltd (http://www.servalsgroup.blogspot.com/) 

•• 

Servals Automation was founded by P Mukundan as a platform to launch rural innovations 

•• 

Servals products include a kerosene saving stove burner targeting the rural poor and a rain gun which at half the 

price of imported products which uses water more efficiently at half the price of imported products 

•• 

The company, headquartered in Chennai, is aligned with the Rural Innovation Network (RIN) 

•• 

Servals approached Aavishkaar for an equity investment to help strengthen its assembling, marketing and distribution 

channels as well as to help promote its products 

•• 

Aavishkaar has invested INR 1.119MM (~$25K) in the company through two rounds of equity investment. 

It has also extended a bridge loan to Servals in order to cover working capital gaps 



•• 

The products sold by Servals have impacted 450,000 low income 

households 

•• 

Average fuel savings have been around 72L of kerosene annually per 

household 

•• 

Financial savings have been INR 3000 (~$70) annually per household 

•• 

Servals currently has 60 employees, of whom 60% are women 


•• 

Starting with no revenues in 2003, the company has grown to 

a turnover of INR 11.4 MM (~$225K) in 2008 

•• 

The working capital bridge loan offered by Aavishkaar was 

repaid in full by the company 

•• 

Aavishkaar has received strong dividend payback from the 

investment after revenues have started to grow 

•• 

Aavishkaar looks to exit the investment close to 5 years after 

the initial equity round 

29


Acumen Fund 


Investor 




fund 

Acumen Fund 

deal 

Ziqitza Healthcare 


Health Services 

geography 

India 

10-15% return 

“We look at investments 

that don’t just have a 

social impact in them but 

also are breakthrough 

innovations or business 

models.” 

Sasha Dichter 

Director of Business Development 

Acumen Fund 


•• 

Acumen has a wide variety of investors who have invested between $10k and $5MM+ into the Fund 

•• 

Investors include foundations, family offices and corporations 

Acumen Fund (http://www.acumenfund.org) 

•• 

The total fund size is $34.1MM 

•• 

Acumen Fund is a non-profit global venture fund that uses entrepreneurial approaches to solve the problems of 

global poverty 

-- 

Established in 2001 with seed capital from the Rockefeller Foundation, Cisco Systems Foundation and 

three individual philanthropists 

•• 

Invests exclusively in businesses that 

-- 

directly serve the poor 

-- 

have economically sustainable business models 

-- 

have a significant innovation element to them 

•• 

Has created portfolios in four areas: Health, Water, Energy and Housing. In each area it identifies and supports 

social innovators 

-- 

Capital commitments range from $300,000 to $2MM in equity or debt with a payback or exit in roughly 

five to seven years 

Ziqitza Healthcare: 1298 Ambulances (http://www.1298.in) 

•• 

In 2007, Acumen invested equity to help the company grow their services and fleet of ambulances 

•• 

The total investment amount is ~$1.5MM, as part of the Health Portfolio 

•• 

Up until recently, Mumbai lacked in any reliable ambulance or emergency medical response service 

•• 

1298 provides affordable ambulance services for all by using a sliding price scale driven by the patient’s ability to 

pay for a certain kind of hospital 

-- 

The poorest patients who are typically admitted to general wards of a government hospital, pay a reduced 

rate (50%) or do not have to pay 

-- 

Approximately 20% of the services are offered free of charge or at subsidised rates 



•• 

About 50,000 calls have been made in the last 3 years 

•• 

Increased in ambulances from 10 (Q1 2007) to 81 (Q4 2008); another 

14 expected by Q1 2009 

•• 

1298 plans to scale to 7 more cities in India by adding more than 400 

ambulances in the next 2 years 

•• 

1298 has also developed training programs, certified by the American 

Heart Association and New York Presbyterian Hospital, to train its own 

emergency care doctors as well as educate the general public 


•• 

The investment horizon is from five to ten years, usually with 

rights that allow investors to seek an exit around year 5 

•• 

IPOs are preferred exit strategy although trade sales are more 

common 

•• 

Overall portfolio of equity investments has a gross return 

potential of 10-15% 

30 


eal estate 

Ignia 


Investor 


Profile: Omidyar 

Market rate return less 

fund/management fees 


fund 

Ignia 

Investment in Real Estate 

Market rate return 

deal 

Premin, Mexico 


Affordable Housing 

geography 

Latin America & Mexico 

“Ignia’s potential to act 

as a model for other VC 

firms looking to invest in 

businesses serving the 

low income segment in 

Mexico is great.” 

Matt Bannick 

Managing Partner 

Omidyar Network 

“We are big believers 

in finding business 

solutions to social 

problems... We found 

that there are many 

services that the poor 

simply do not have 

access to. We thought a 

catalyst was needed – 

the answer was a fund.” 

Alvaro Rodríguez Arregui 


Ignia 


•• 

Ignia’s investors include institutional investors, multilateral institutions, high net worth individuals and foundations 

such as the Inter-American Development Bank and Omidyar Network 

Omidyar Network (http://www.omidyar.com) 

•• 

Omidyar Network (ON) is a philanthropic investment firm that makes investments in the areas of access to capital 

in developing countries and media, markets and transparency in the developed world 

•• 

ON’s spending is split between grants and for-profit investments; it believes that for-profit models do a better job 

of achieving scale and sustainability and also in staying responsive to customer needs 

•• 

For all investments, the primary aim is to achieve maximum social impact. There is a simultaneous drive towards 

achieving market rate financial returns for the for-profit investments 

•• 

The way Omidyar measures social impact depends on the investment area. The number of people impacted and 

depth of impact are the basic metrics 

•• 

ON was impressed with Ignia’s management expertise and the fact that social impact was embedded in its 

business plan 

Ignia (http://www.ignia.com.mx) 

•• 

Ignia is a Mexican Venture Capital firm that invests in businesses that provide products and services to the underserved 

low income population of Latin America 

•• 

It aims to invest in profitable and scalable businesses that create social impact by achieving systemic change 

•• 

It believes that there is a strong market for high quality products and services delivered to the poor at affordable 

rates 

•• 

Ignia raised an initial fund of about $60MM and has completed 2 investments in the areas of affordable housing 

and healthcare services and it hopes to have completed 6 investments by the end of 2009 

Premin - Jardines del Grijalva Project 

•• 

In 2008, Ignia made a $2MM investment in Premin for its Jardines del Grijalva housing project in Chiapas, Mexico 

•• 

The homes are being built for families that earn less than $10,000 a year 

•• 

The idea behind the investment is that small local developers of affordable housing suffer from a lack of capital 

and large developers seldom go into the South of Mexico or into smaller communities. As a consequence, there 

is a shortage of housing and families are forced to build their own homes 

•• 

Ignia also identified a microfinance institution that would provide mortgages to families without access to them 



•• 

Around 1,800 families have been provided access to affordable but 

quality housing 

•• 

The 1,800 families were also provided with affordable mortgages 

•• 

While Ignia does not capture any other specific metric for social impact, 

it is always conscious of the need to serve the low income segment 

that is underserved and of making sure that the impact is scalable 


•• 

Ignia expects to earn above market rate returns on the project 

•• 

Ignia believes that generating high returns is imperative in the 

low income segment because: 

-- 

the market perceives the segment to be high risk: 

-- 

the customers in this segment do not have a lot of 

choice and so high margins are sustainable: 

-- 

it is the best way to achieve scale when creating products 

and services serving poor people. 

31

other real assets 

Pico Bonito 


Investor 


20% projected return 


fund 

Pico Bonito, LLC 

Investment in Operating Entity 

> 20% expected return 

deal 

Bosques Pico Bonito SrL 


Sustainable Forestry 

geography 

Honduras 

“We are moving down 

the learning curve 

quickly and are confident 

that we can do similar 

projects on a larger 

scale.” 

Robert Lapides 

Chairman and CEO 

Pico Bonito LLC 


•• 

Pico Bonito’s investors include institutions, multilateral organisations, high net worth individuals, and foundations 

Pico Bonito, LLC 

•• 

The Pico Bonito project was founded in 2006 by the Pico Bonito National Park Foundation, an NGO based at 

the project site in Honduras, and the Ecologic Development Fund, a U.S. non-profit focussing on environmental 

stewardship with local community collaboration in Latin America 

•• 

The mission of the company is to establish and manage business models that achieve triple-bottom-line results in 

the areas of sustainable forestry, environmental and biodiversity restoration and protection, and social equity 

•• 

Future plans include establishing a portfolio of 6-12 projects in multiple Central and South American markets 

utilising capital in the $50-75MM range 

Bosques Pico Bonito SrL (http://www.bosquespicobonito.com) 

•• 

The main idea behind the project was to develop a sustainable business solution to the problems plaguing the 

areas in and around the Pico Bonito National Park in Honduras including deforestation, endangerment of rare plant 

and animal species, pollution, and rural poverty that drives further environmental destruction 

•• 

The company raised approximately $5MM in capital and developed a for-profit model to establish and sustainably 

manage native species and generate carbon offsets, while preserving the natural environment and biodiversity of 

the park and engaging local communities to enable them to share in the benefits achieved by the project 

•• 

The company operates in and around the buffer zone of the national park by acquiring threatened or already damaged 

and deforested land areas and establishing sustainable forestry practices 

•• 

To establish sustainable land management practices and create short term food supplies and cash crops for the 

local communities, the company initiated agro forestry activities which yield such crops such as coffee, corn 

and beans 



•• 

The company has already planted 500K trees and aims to plant 

another 500K 

•• 

It employs over 150 people from the local communities around the park 

•• 

The company was one of the first to have its tropical forestry carbon 

sequestration methodology approved by the United Nations Clean Development 

Mechanism which has generated significant carbon offsets 

•• 

Local farmers have been trained in agro-forestry techniques, soil conservation 

and pest management 

•• 

The project has also gone a long way in protecting the water supply for 

the region around the park 


•• 

The project has an overall expected IRR of 20% which is 

significantly above the risk-adjusted market rate for the 

timber sector 

•• 

Revenue streams include carbon offsets and sales from sustainable 

forestry including timber, cherry, mahogany, 

and rosewood 

32 


senior debt 

Root Capital 

Layered Structures 

Is it possible to structure a deal that satisfies the needs of both Financial First 

investors and Impact First investors? This is a common question that arises when 

investors contemplate Impact Investment. The AAF extends not only to singular 

examples that serve a specific intention and asset class, but also to cases 

that are layered in nature. In these deals Financial First and Impact First investors 

(sometimes even pure philanthropists using grants) come together to set-up deal 

structures that otherwise would not be possible or as effective. 

Below we discuss a few examples of how these layered structures can work to 

satisfy the motivations and objectives of different Impact Investors. 


Asset classes 

Alternative Instruments 

Cash 

Senior 

Debt 

mezzanine 

/quasi 

equity 

Public 

Equity 

Venture 

Capital 

Private/ 

Growth 

Equity 

real 

estate 

other real 

assets 

absolute 

return 

(hedge 

Funds) 


2 Bank 

Consortium 

1 Retail 

& Comm. 

Investors 

(IFFIm 

Bonds) 


1 Various 

Countries 

2 City 

of NY + 

Foundations 

1 International Finance Facility for Immunisation (IFFIm) 

2 The New York City Acquisition Fund 

33

International Finance Facility for 

Immunisation (IFFIm) 



Prime Rate 

Retail and Commercial 

Investors 

Bonds 

$1.6 B 


Vaccination 

geography 

70 Poorest Nations 

Grant Providers 

(Various Nations) 

20 year 

grants 

$5.3 B 

2006 2026 

“There certainly is 

no discount; each 

transaction is priced 

at market so someone 

doesn’t have to 

differentiate between 

our product and another 

based upon returns. 

When faced with a 

decision between 

buying a government 

bond or an IFFIm bond 

with a slightly higher 

yield and helping the 

immunisation effort, 

most people will take the 

second .” 

George Richardson 

World Bank 

International Finance Facility for Immunisation (IFFIm) 

(http://www.iff-immunisation.org) 

•• 

IFFIm was launched in 2006 through an initiative of the United Kingdom government to support the GAVI 

Initiative 

-- 

The GAVI Initiative was launched with a $1.5B grant from the Gates Foundation to fund immunisation 

in the world’s 70 poorest nations 

•• 

Realising that the social impact of their committed funds will be greater immediately vs. over the 20 year 

commitment period, the government sponsors decided to set up IFFIm to tap the financial markets to access 

funds immediately 

•• 

The World Bank, as IFFIm’s agent, manages IFFIm’s finances and capital markets activities. The World Bank 

also coordinates with IFFIm’s donors, manages their pledges and payments as well as IFFIm’s disbursements 

for immunisation and health programmes through the GAVI Alliance 

Grant Providers (Various Nations) 

•• 

IFFIm was able to gather $5.3B in grants from 6 European nations (UK, France, Italy, Spain, Sweden and 

Norway) when IFFIm was set up, as well as South Africa who joined later 

•• 

The grant money was donated over a 20 year period through legally binding payment obligations, starting in 

2006 and growing in aggregate amount every year until 2021 before declining through 2026 

•• 

Encouraged by the large donations from the Gates Foundation, the nations wanted to provide support to the 

global immunisation effort underway by the GAVI Alliance partners 

Retail and Commercial Investors 

•• 

IFFIm so far has tapped the financial markets to help raise immediate funds based on the $5.3B in 

committed dollars 

•• 

With a AAA/Aaa rating from numerous rating agencies, they are able to offer returns at a slight premium to 

government bonds, offering slightly higher than market returns for their rating compared to governments 

with the same rating 

•• 

So far IFFIm has been able to raise funds from investors in the US, Europe and Asia through its inaugural 

transaction in 2006 and in Japan through two issues specifically for the Japanese market. The latest offering 

will target both retail and commercial customers in the UK with an offering by HSBC 



•• 

With money from IFFIm and donors such as the Gates Foundation, 

GAVI has been able to protect 213MM additional children with new 

vaccines since 2000 

•• 

Due to increased vaccination, GAVI has been able to prevent more than 

3.4MM premature deaths 

•• 

New and underused vaccine coverage has risen substantially, doubling 

in most areas 


•• 

IFFIm has been able to raise $1.6B through three offerings to 

date 

•• 

Due to contractual guarantees from various governments, 

IFFIm has been able to retain their AAA/Aaa status 

34 


The New York City 

Acquisition Fund 




Investors 

Prime Rate 

Bank Consortium 

Senior 

Debt 

~$160mm 

NYC Acquisition 

fund 


Affordable Housing 

geography 

United States 


Investors 

City of NY + 

Foundations 

Sub. Debt + 

Guarantees 

~$40mm 

Sub-Market Rate 

Investors 

•• 

The New York City Acquisition Fund is an example of a layered structure where Financial First and Impact First 

investors invest together in a project with the former earning market rate returns and the latter earning submarket 

returns 

•• 

The Financial First investors in the New York City Acquisition Fund are a consortium of banks including Bank of 

America, JP Morgan Chase and HSBC 

•• 

The group of Impact First investors is led by the City of New York and includes a number of foundations including 

the Ford Foundation and the Rockefeller Foundation 

The New York City Acquisition Fund (http://www.nycacquisitionfund.com) 

•• 

The New York City Acquisition Fund was formed in 2006 to overcome the shortage of property available for the 

development of affordable housing in New York City 

•• 

The fund seeks to facilitate affordable housing development by providing flexible, advantageous capital for the 

acquisition of property to developers of affordable housing 

•• 

The fund is worth approximately $200MM with $162MM provided by the bank consortium and the balance 

provided by the Impact First investors led by the City of New York and allied foundations 

•• 

The bank consortium provides senior debt as lending capital while the group of Impact Investors provides 

guarantees in the form of low-interest subordinated loans 

•• 

Developers either refurbish existing affordable housing units or engage in new construction of affordable housing 

•• 

The maximum loan amount is $15MM for the acquisition of existing occupied buildings and $7.5MM for the 

acquisition of vacant land although the Fund has the flexibility to provide exceptions to these limits 

•• 

The fund lends to both for-profit and non-profit developers; for-profit developers are eligible for loans up to 95% 

of the lesser of appraised value or purchase price while the number goes up to 130% for non-profit developers 

•• 

All borrowers must contribute 5% of the total acquisition and pre-development costs as equity 



•• 

The fund aims to develop 30,000 units of affordable housing in a 10 

year time span in New York City 

•• 

The success of the fund has spurred the creation of similar funds in 

Los Angeles, Atlanta and Louisiana 


•• 

The interest rate on loans disbursed by the banks is indexed 

to the prime lending rate 

35

Acknowledgements 

While this report was spearheaded by Bridges Ventures and the Parthenon Group, it was very much a collective 

effort among many experts in the industry. Through feedback and guidance we received from many, we were 

able to paint a clearer picture of the history and key trends in the sector, as well as provide insights that will 

hopefully serve as guidance and education for those investors who are beginning to explore this sector. The 

thoughts and ideas presented here are the work of many great minds and no single individual or institution can 

claim them as their own. 

Tracy Palandjian, Managing Director at The Parthenon Group and Michele Giddens, Executive Director at Bridges 

Ventures provided leadership for the report. The case team was led by Pedro Sanches and included JJ 

O’Brien, Venugopal Mruthyunjaya, Lisa Heidemanns, and Srivaths Swaminathan, all of The Parthenon Group. 

Antony Bugg-Levine of The Rockefeller Foundation and Lila Preston of Generation Investment Management 

played crucial roles as key advisors to this paper and, from its inception, helped shape many of the ideas presented 

throughout this work. 

We would also like to thank those who helped shape our main theses and took time reviewing drafts of the 

report, including Doug Bauer, David Carrington, Katherine Collins, Jed Emerson, Jessica Freireich, Katherine 

Fulton, John Goldstein, Charly Kleissner, John Kingston, Andrew Robinson, Jason Scott, and Helen Wildsmith. 

Interviews 

Without the help of numerous experts in the sector, this report would never have reached fruition. We would 

like to thank all those listed below who spent valuable time with the team on the phone or in person, helping 

make this report as impactful and insightful as possible. 

Pradeep Pathiyamveetil, Aavishkaar 

Sasha Dichter, Acumen Fund 

Brad Presner, Acumen Fund 

Ben Powell, Agora Partnerships 

Christa Velasquez, Anne E. Casey 

Foundation 

Demmy Adesina, Aquifer 

Arthur Wood, Ashoka 

Alvaro Rodriguez Arregui, Ignia 

Bill Marvel, Baldwin Brothers 

John Campagna, Benchmark Capital 

Roger Frank, Benchmark Capital 

Lynn Martin, Blue Orchard Finance 

Michele Giddens, Bridges Ventures 

Skye Heller, Bridges Social 

Entrepreneurs Fund 

Yasmin Tong, California Community 

Foundation 

Malcolm Hayday, Charity Bank (UK) 

Christine Eibs-Singer, E + Co 

Terry O’Day, Environment Now 

David Blood, Generation IM 

Lila Preston, Generation IM 

Amit Bouri, Global Impact Investing 

Network 

Steven Godeke, Godeke Consulting 

Steve Hardgrave, Gray Matter 

Capital 

Raul Pomares, Guggenheim Partners 

Eric Eidolf, Harcourt 

John Goldstein, Imprint Capital 

Pawan Mehra, Intellecap 

Geoff Burnand, Investing for Good 

Teddy Rice, IronWood Equity 

Tom Reiss, Kellogg Foundation 

Oliver Karius, LGT Venture 

Philanthropy 

Jim Hourdequin, Lyme Timber 

Gavin Watson, New Energies (E + Co) 

Matt Banick, Omidyar Network 

Jim Bunch, Omidyar Network 

Rob Lapides, Pico Bonito 

Preston Pinkett, Prudential 

Antony Bugg-Levine, rockefeller 

foundation 

William Foote, Root Capital 

Namrita Kapur, Root Capital 

Monica Pressley, San Francisco 

Foundation 

Mark Campanale, Social Stock 

Exchange 

Dan Crisafulli, The Skoll Foundation 

Richard Fahey, The Skoll Foundation 

Scott Budde, TIAA-CREF 

Cherie Santos, TIAA-CREF 

Bob Assenberg, Triodos Bank 

Alex Connor, Triodos Bank 

Adam Ognall, UKSIF 

John Kingston, Venturesome 

Anders Ferguson, Veris 

Patricia Frivas, Veris 

David Carrington 

Katherine Collins 

36 


Appendix 

Methodology 

The Investing for Impact: Case Studies Across Asset Classes report builds on the work previously developed 

by the Monitor Institute and also draws on the work conducted by Rockefeller Foundation and F.B. Heron 

Foundation on the Impact Investment sector. The report aims to educate key stakeholders and practitioners on 

the opportunities they have in Impact Investment. These groups include potential investors (High Net Worth 

Individuals, Foundations and Institutional Investors) and investment gatekeepers (private bankers and investment 

advisors). 

The report takes an empirical approach by mapping the Impact Investment market along two key dimensions: 

investor motivation (Financial First vs. Impact First) and asset class (as per traditional asset allocation). The paper 

proposes an Asset Allocation Framework (AAF) combining the two dimensions to illustrate a comprehensive 

perspective of the Impact Investment market using language familiar to investors. The report provides detailed 

case studies in each of the “cells” in the AAF, including profiles of an investor (LP), the Impact Investment fund 

(GP) and an underlying investment, as well as financial return and impact to society. 

The report was created after an extensive review of existing literature on Impact Investment as well as a large 

number of original interviews with sector participants. It reflects more than 40 interviews conducted with a 

range of investors - including foundations, high net worth individuals, institutional investors, advisors, consultants 

and family office representatives - about their experiences with Impact Investment and their motivations 

for particular investments made across various asset classes. 

The interviews were subsequently translated into case studies to provide concrete examples of the Impact 

Investments that are being developed in each asset class. Cases selected were from existing funds rather than 

the many that are currently in the fund-raising process. In each asset class, there are other compelling case 

studies that have not been covered and the authors do not seek to make investment recommendations through 

this report; rather they wish to illustrate the range and breadth that is emerging in the sector. 

Further Reading 

Research Papers 

•• 

Monitor Institute: Investing for Social & Environmental Impact, 2009 

Examines the emergence of impact investing, exploring how it might develop and how leaders can accelerate the 

industry’s evolution 

http://www.monitorinstitute.com/impactinvesting/documents/InvestingforSocialandEnvImpact_FullReport_004.pdf 

•• 

Good Capitalist: February Newsletter, 2009 

Update on social capital market including participants’ initiatives 

http://archive.constantcontact.com/fs047/1101902708153/archive/1102453118973.html 

•• 

UKSIF: Review of Activities, 2008 

Review of UK Social Investment Forum’s 2008 activities including useful figures on the sector 

http://www.uksif.org/cmsfiles/uksif/UKSIF_Review_of_Activities_2008.pdf 

•• 

UKSIF: Sustainable Investment Opportunities for Pension Funds in Alternative Asset Classes, 2008 

Aims to increase pension funds’ awareness of sustainable investment options available across asset classes 

http://www.uksif.org/cmsfiles/281411/SustainableAlternatives.pdf 

•• 

Boston College: Handbook on Responsible Investment Across Asset Classes, 2008 

Aims to help investors understand sustainable investment and identify opportunities within it across asset classes 

http://www.cof.org/files/images/ExecEd/bcrespinvesthndbk.pdf 

•• 

Rockefeller Philanthropy Advisors: Solutions for Impact Investors: From Strategy to Implementation 

http://rockpa.org/ideas_and_perspectives/publications 

37

•• 

Rockefeller Philanthropy Advisors: MRI - A Policy and Implementation Guide for Foundation Trustees, 2008 

Policy and implementation guide for foundation trustees 

http://www.cof.org/files/images/ExecEd/RockefellerPhilAdvisors.pdf 

•• 

Stanford Social Innovation Review: The Power of Strategic Mission Investing, 2007 

Suggests that foundations should make strategic mission investments to complement grant making 

http://www.ssireview.org/images/articles/2007FA_feature_kramer_cooch.pdf 

•• 

Commission of Unclaimed Assets: Social Investment Bank, 2007 

Overview of the Third Sector and role of a social bank within it 

http://www.unclaimedassets.org.uk/downloads/CUA_report_FINAL.pdf 

•• 

F.B. Heron Foundation: Impact Across the Mission-Related Investment Portfolio, 2007 

Illustrates a spectrum of asset classes within which mission-related investment can take place 

http://www.fbheron.org/documents/ar.2007.mri_gatefold.pdf 

•• 

Said Business School: From Fragmentation to Function, 2007 

Paper on the social capital’s market structure, operation and innovation 

http://www.universitynetwork.org/sites/universitynetwork.org/files/files/Skoll_FromFragmentationtoFunction.pdf 

•• 

Jed Emerson: The Blended Value Map, 2003 

Snapshot of international players and institutions within the social investment sector 

http://www.blendedvalue.org/media/pdf-bv-map.pdf 

•• 

New Economics Foundation: Mission Possible, 2008 

Considers how foundations use part of their endowments for mission connected investment 

http://www.cof.org/files/images/ExecEd/NewEconomicsFoundation08.pdf 

•• 

Margaret Bolton: Foundations and social investment—making money work harder in order to achieve more, 

2003 

Providing foundations with information about social investment and its relevance to their goals and strategies 

http://www.esmeefairbairn.org.uk/docs/EFF_foundations_report.pdf 

•• 

Venturesome: Financing Civil Society, 2008 

Practitioner’s view of the UK social investment market 

http://www.cafonline.org/pdf/Venturesome%20-%20Financing%20Civil%20Society%20-%20Sept%2008.pdf 

•• 

Venturesome: The Three Models of Social Enterprises, 2008 

Examines how to create social impact through trading activities using three theoretical models 

http://www.cafonline.org/pdf/Ventursome%20-%203%20Models%20Of%20Social%20Enterprise_Part1%20-%20Jan%20 

08.pdf and 

http://www.cafonline.org/PDF/Venturesome%20-%203%20Models%20Of%20Social%20Enterprise_Part2%20-%20 

July%202008.pdf 

•• 

FSG: Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries 

Guide to mission investment intermediaries that foundations or funders may employ 

http://www.fsg-impact.org/ideas/section/277 

•• 

Antony Bugg-Levine: Impact Investing - Harnessing Capital Markets to Drive Development at Scale 

Provides an overview of the proliferation of innovation occurring in the Impact Investment sector globally and addresses 

the structural causes and likely prospects of the sector’s growth in light of the current financial crisis 

http://www.rockfound.org/efforts/impact_investing/beyond_profit_bugg_levine.pdf 

38 


Websites 

•• 

Bridges Ventures: http://www.bridgesventures.com/ 

•• 

Rockefeller Foundation: http://www.rockfound.org/ 

•• 

Generation IM: http://www.generationim.com/ 

•• 

Global Impact Investing Network: www.globalimpactinvestingnetwork.org 

•• 

Skoll Foundation: http://www.skollfoundation.org/ 

•• 

Heron Foundation: http://www.fbheron.org/ 

•• 

Annie E. Casey Foundation: http://www.aecf.org/ 

•• 

More for Mission Investing: http://www.moreformission.org/ 

•• 

Working with legislators to encourage passage of L3C acts: http://www.americansforcommunitydevelopment. 

org/ 

•• 

Non-profit organisation offering interesting research perspectives: http://www.lightyearsip.net/index.shtml 

•• 

UK Social Investment Forum: http://www.uksif.org/ 

•• 

US Social Investment Forum: http://www.socialinvest.org/ 

•• 

European Social Investment Forum: http://www.eurosif.org/ 

•• 

European Foundation Centre: http://www.efc.be/ 

•• 

International Association of Microfinance Investors: http://www.iamfi.com/ 

39

Appendix: Market Benchmarking 

Impact Investors, whether they are Financial 

First or Impact First in their motivations, have 

a keen interest in measuring and reporting 

the financial and social returns on their investments. 

It is critical to benchmark these returns 

against commonly accepted standards as this 

facilitates meaningful comparisons between 

investments and, moreover, allows for judgement 

of the extent of impact or relative success 

of an investment. 

On the financial returns side, investment 

returns are typically measured against benchmark 

indices corresponding to specific asset 

classes. The indices are typically composites of 

representative investment instruments in that 

asset class; for example, the MSCI World Index 

is a market capitalisation weighted index of 

public equities in 23 developed countries. The 

year on year change of the representative index 

provides a measure of ‘market rate’ returns on 

average for that asset class; the growth in the 

MSCI World Index provides a measure of the 

average return of investing in a public equity 

strategy in a developed market. 

It is important to note that for most asset 

classes, the market return benchmark can vary 

significantly with geography and the actual sector 

in which the investment is made. The return 

rate for a real estate investment can be quite 

different depending on whether the investment 

was made in a developed or developing 

country and an agricultural commodity can 

yield significantly different returns as compared 

to a precious metal. There can also be cases 

where no meaningful benchmark exists. When 

Omidyar Network was considering investing 

in Ignia, a Mexican Venture Capital firm that 

makes investments in businesses that cater 

to the low income segment of the population, 

Omidyar found that there were insufficient 

precedents of Latin American Venture Capital 

firms investing in social enterprises. Says Matt 

Bannick, Managing Partner at Omidyar, “We 

found that there were no historical datasets 

corresponding to our investment space and as 

a result there was no benchmark to draw from. 

We built our own financial model and by testing 

the sensitivity of our assumptions, narrowed 

down to a target range for financial return.” 

On the social and environmental impact front, 

the metrics used to measure return vary quite 

widely. Common metrics include jobs created 

and extra income and carbon offsets generated. 

But the lack of standardisation of these 

metrics renders the process of benchmarking 

social and environmental returns difficult. 

However efforts such as those by the B Lab, 

Veris, Rockefeller Foundation, Global Impact Investing 

Network and Acumen are underway to 

create standardised metrics and this will help 

make benchmarking social impact feasible. 

The following table provides the average upper 

and lower bounds of 5-year compounded annual 

growth rates of benchmark indices 4 in each 

asset class by decade. It must be reiterated 

that the market return benchmarks presented 

here may not be applicable across all geographies 

and sectors. 

4 

Benchmark Returns/Indices used: 

Cash: 3 month discount rate on US Treasury bills 

Quasi Equity, Buyout, VC: Cum. Vintage Year Return, US Private 

Equity Performance Index, Thomson Financial 

Public Equity: MSCI World Index 

Real Estate: Dow Jones Wilshire US REIT Index 

Commodities: Dow Jones AIG Commodity Index 

40 


Cash 

Quasi Equity 

Public Equity 

Buyout 

VC 

Real Estate 

Commodities 

1981-1990 

1991-2000 

2001-2005 

Average Lower 

Bound 

Average Upper 

Bound 

Average Lower 

Bound 

Average Upper 

Bound 

Average Lower 

Bound 

Average Upper 

Bound 

6% 7% 10% 16% 8% 5% N/A 

10% 13% 16% 22% 18% 15% N/A 

3% 4% 5% 8% 25% 8% 3% 

6% 8% 10% 14% 45% 15% 12% 

1% 5% 4% -10% -12% 12% 5% 

4% 10% 10% 2% 2% 20% 15% 

5 

Range considered was 2001-2008 for Quasi Equity, Buyout and VC 

All photos purchased from istockphoto.com. 

Photographer credits listed from top to bottom, left to right on each page. 

Cover: Alberto L. Pomares G., blackred, Rob Belknap, brytta 

Page 4: Denis Jr. Tangney, blackred, Terraxplorer, Johnny Lye 

Page 7: Peter Ramsey, Michael Flippo, Keith Lamond 

Page 8: Peter Ramsey, Michael Flippo 

Page 9: Keith Lamond 

Page 10: blackred, Greg Randles, Vikram Raghuvanshi, Keith Lamond, Mark Kuipers 

Page 11: King Ho Yim, Christa Brunt, blackred, Melodie Sheppard, Simon Owler 

Page 12: Terraxplorer 

Back Cover: brytta, Alberto L. Pomares G. 

41

Impact investing, defined as actively placing capital 

in businesses and funds that generate social and/ 

or environmental good as well as financial returns, 

is a growing industry. Impact investment funds are 

attracting investors ranging from high-net-worth 

individuals to institutional investors, corporations 

and foundations. Diverse impact investments are 

emerging across multiple asset classes. 

This report is intended for the investment 

community. It takes a case study approach, 

mapping examples of Impact Investments on 

a traditional asset allocation framework to help 

investors understand this emerging industry. 


www.bridgesventures.com 

Parthenon Group 

www.parthenon.com 


www.globalimpactinvestingnetwork.org 

Copyright Designation: This work is licensed under 

a Creative Commons copyright that allows the 

copying, distribution and display of this material if 

credit is given to the authors. 

Printed on Revive Pure Offset, a recycled grade 

containing 100% post consumer waste, using vegetable 

based inks. This document has been printed 

by Impress Print who are FSC certified. 

Design: J Sherman Studio llc

Page 116 of 140

Attachment B 

Social Impact Investment: Building the 

Evidence-Base 

Page 117 of 140

SOCIAL IMPACT INVESTMENT: BUILDING THE EVIDENCE BASE 

FOREWORD 

New and innovative approaches are needed for addressing social and economic challenges. Social 

impact investment has become increasingly relevant in today’s economic setting as social challenges have 

mounted while public funds in many countries are under pressure. This report provides a framework for 

assessing the social impact investment market and focuses on the need to build the evidence base. The 

report highlights the importance of further international collaborations in developing global standards on 

definitions, data collection, impact measurement and evaluation of policies. In a fast evolving new area, 

experience sharing between players in the market is also vital. International organisations, such as the 

OECD can play an important role in facilitating these collaborations as well as conducting further analysis 

and data collection. 

The project has been managed by Karen Wilson, consultant in the Structural Policy Division of the 

Directorate for Science, Technology and Innovation at the OECD. The report was written by Karen 

Wilson, Filipe Silva, Junior Policy Analyst in the Structural Policy Division of the Directorate for Science, 

Technology and Innovation and Dominic Richardson, Policy Analyst, Directorate for Employment, Labour 

and Social Affairs. 

Social impact investment has become a growing area of interest within the OECD, linking to two 

strategic OECD initiatives, New Approaches to Economic Challenges (NAEC) and Inclusive Growth as 

well as ongoing work across a number of Directorates. 

The OECD Committee for Industry, Innovation and Entrepreneurship (CIIE) agreed to the 

declassification of this report in January 2015. 

© OECD 2015 3


ACKNOWLEDGEMENTS 

The OECD is grateful to the Department of Employment and Social Development in Canada, the 

U.K. Cabinet Office, and the Bertelsmann Foundation for their support of this work. 

In addition, the OECD would like to thank the Social Impact Investment Taskforce, established by the 

G8 during the UK Presidency, for their input throughout the process. A particular acknowledgement is 

extended to the Chair of the Taskforce, Sir Ronald Cohen, for his leadership, vision and drive in catalysing 

a global movement to build the social impact investment market. 

The authors would like to thank the many experts who contributed to this work including all of the 

members of the Social Impact Investment Taskforce, their colleagues and others serving on the Working 

Groups and National Advisory Boards. 

During the course of the project, the OECD held two Social Impact Investment Expert Group 

meetings and would like to thank all of those experts for their time and input. The full list of attendees is 

available in Annex A. 

The authors would also like to thank Dirk Pilat, Deputy Director of the Directorate for Science, 

Technology and Innovation and Nick Johnstone, Head of the Structural Policy Division in the Directorate 

for Science, Technology and Innovation for their support of this work and input during the process and on 

drafts of the report. 

In addition, the authors thank the Directorate for Employment, Labour and Social Affairs for their 

contributions to this work, particularly in Chapter 5 which uses data from the OECD Social Expenditure 

database and builds upon their work on social policy. 

The authors also thank colleagues from other OECD Directorates for their input including the Centre 

for Entrepreneurship, specifically Antonella Noya and the Development Centre’s Network of Foundations 

Working for Development. Other Directorates engaged in the work have included Development Cooperation 

Directorate, Statistics Directorate, Directorate for Financial and Enterprise Affairs, and 

Directorate for Public Governance and Territorial Development. 

4 © OECD 2015


TABLE OF CONTENTS 

ABBREVIATIONS ......................................................................................................................................... 9 

1. EXECUTIVE SUMMARY ....................................................................................................................... 10 

2. OVERVIEW OF SOCIAL IMPACT INVESTMENT .............................................................................. 13 

2.1. The need for new approaches to address social and economic challenges ......................................... 13 

2.1.1. Motivation for the OECD report .................................................................................................. 14 

2.2. Evolution and trends in the social impact investment market ............................................................. 15 

2.3. Parallels to the evolution of capital markets ....................................................................................... 18 

References .................................................................................................................................................. 21 

3. THE SOCIAL IMPACT INVESTMENT FRAMEWORK ...................................................................... 23 

3.1. The Social Impact Investment Framework ......................................................................................... 23 

3.2. Social needs ........................................................................................................................................ 24 

3.3. Demand-side ....................................................................................................................................... 24 

3.4. Supply-side ......................................................................................................................................... 26 

3.5. Intermediaries ..................................................................................................................................... 29 

3.5.1. Social Venture Funds ................................................................................................................... 29 

3.5.2. Social Stock Exchanges................................................................................................................ 30 

3.5.3. Building Market Infrastructure and Capacity ............................................................................... 30 

3.5.4. Social Investment Instruments ..................................................................................................... 32 

3.6. Enabling environment ......................................................................................................................... 34 

References .................................................................................................................................................. 37 

ANNEX 3.1. LIST OF SIBS ......................................................................................................................... 40 

4. DEFINITIONS AND CHARACTERISTICS OF SOCIAL IMPACT INVESTMENT ........................... 42 

4.1. Existing definitions and challenges .................................................................................................... 42 

4.2. Definitional Characteristics, Attributes and Eligibility ....................................................................... 43 

4.2.1. Social Target Areas ...................................................................................................................... 46 

4.2.2. Beneficiary context ...................................................................................................................... 47 

4.2.3. Good\Service ................................................................................................................................ 48 

4.2.4. Delivery organisation intent ......................................................................................................... 51 

4.2.5. Measurability of Social Impact .................................................................................................... 52 

4.2.6. Investor intent ............................................................................................................................... 53 

4.2.7. Return expectation ........................................................................................................................ 54 

4.3 OECD working definition of SII .......................................................................................................... 55 

List of characteristics, attributes and eligibility ......................................................................................... 56 

References .................................................................................................................................................. 57 

5. CONTEXT SETTING: DIFFERENCES IN SOCIAL NEEDS AND SERVICE DELIVERY ACROSS 

SELECTED COUNTRIES ............................................................................................................................ 58 

5.1 Introduction .......................................................................................................................................... 58 

5.2 Social outcomes and social spending ................................................................................................... 58 

© OECD 2015 5


5.2.1 The need (for better) social services: trends in social outcomes ................................................... 59 

5.2.2 The evolving size of the public share: public social expenditure by sector .................................. 67 

5.3 Models of Social Service Provision: Who does what and how? .......................................................... 72 

5.3.1 Practices in public social service delivery ..................................................................................... 72 

5.3.2 The governance of public benefits and budgets ............................................................................ 73 

5.4 Evaluating what works in social service provision .............................................................................. 75 

5.4.1 Good practice in service provision ................................................................................................ 75 

References .................................................................................................................................................. 78 

6 SOCIAL IMPACT INVESTMENT MARKET DATA: INITIAL FINDINGS ......................................... 80 

6.1. Introduction ......................................................................................................................................... 80 

6.2. Data types and data collection purposes ............................................................................................. 81 

6.3. Review of Existing Data Sources: Data sources by framework component ....................................... 81 

6.3.1. Demand- side data ........................................................................................................................ 82 

6.3.2. Supply-side data ........................................................................................................................... 85 

6.3.3. Intermediaries and transactions .................................................................................................... 89 

6.4. Current Approaches to Data Collection .............................................................................................. 92 

6.4.1. Top-down approach ...................................................................................................................... 92 

6.4.2. Bottom-up approach ..................................................................................................................... 93 

6.4.3. Surveys ......................................................................................................................................... 94 

6.5. Current SII data and market estimation .............................................................................................. 96 

6.5.1. Academic literature building on SII data...................................................................................... 97 

6.5.2. Industry reports ............................................................................................................................ 98 

6.6. Challenges in SII data collection ...................................................................................................... 100 

6.7. Possible Future Approaches for Data Collection .............................................................................. 101 

References ................................................................................................................................................ 105 

ANNEX 6.1. LIST OF EXISTING DATA SOURCES .............................................................................. 108 

ANNEX 6.2. LIST OF OECD DATA SOURCES RELEVANT TO SII ................................................... 110 

7. POLICY ACTIONS AND IMPLICATIONS .......................................................................................... 112 

7.1. Policy Actions and Implications ....................................................................................................... 112 

7.2. Policy actions to date ........................................................................................................................ 112 

7.3. Recommended policy actions for building the evidence base .......................................................... 114 

7.3.1 Developing common definitions ................................................................................................. 114 

7.3.2 Building the necessary data infrastructure .................................................................................. 115 

7.3.3 Primary impact measurement ...................................................................................................... 115 

7.4. Evaluation of Broader Social Impact Investment Outcomes ............................................................ 117 

7.4.1 Evaluating cost effectiveness or cost-benefit ratios? ................................................................... 118 

7.4.2. Measuring social impact: selecting social outcome measures.................................................... 119 

7.4.3. Methodologies and challenges for evaluating outcomes ............................................................ 122 

References ................................................................................................................................................ 123 

ANNEX 7.1. EXAMPLES OF POLICY INSTRUMENTS IN G7 COUNTRIES AND AUSTRALIA .... 125 

8. CONCLUSIONS AND NEXT STEPS ................................................................................................... 127 

GLOSSARY ................................................................................................................................................ 129 

ANNEX A. OECD EXPERT MEETINGS: LIST OF PARTICIPANTS ................................................... 135 

6 © OECD 2015


Tables 

Table 4.1. List of attributes for Social Target Areas .................................................................................. 47 

Table 4.2. List of attributes for Beneficiary Context ................................................................................. 48 

Table 4.3. List of attributes for Good\Service Characteristics ................................................................... 49 

Table 4.4. Social Returns and Economic Efficiency ................................................................................. 50 

Table 4.5. List of attributes for Delivery Organisation Intent .................................................................... 51 

Table 4.6. List of attributes for Measurability of Social Impact ................................................................ 52 

Table 4.7. List of attributes for Investor Intent .......................................................................................... 54 

Table 4.8. List of attributes for Return Expectation .................................................................................. 55 

Table 5.1: Although younger and older cohorts have experienced little change in unemployment risks, 

more unemployed people are out of work for a year or more .................................................................... 61 

Table 5.2: Indicators of Policing safety and crime trending in the right directions, but still have some 

way to go .................................................................................................................................................... 64 

Table 5.3: Cross-nationally, changes in aggregate childcare enrolment do not map to female 

(un)employment figures ............................................................................................................................. 66 

Table 5.4: Old-age and Health spending dominate public social protection budgets, and have been 

increasing in almost all countries ............................................................................................................... 71 

Table 5.5 The governance of social services is complex and varied across countries ............................... 74 

Table 6.1. Summary of demand-side players, challenges and data sources............................................... 82 

Table 6.2. Summary of supply-side players, challenges and data sources ................................................ 86 

Table 6.3. Summary of intermediaries and transactions, challenges and data sources .............................. 90 

Table 6.4. Examples from academic literature .......................................................................................... 97 

Table 6.5. Some market estimates from industry reports .......................................................................... 99 

Table A.6.1. Types of NPIs ..................................................................................................................... 111 

Table 7.1 Examples of Types of Policy Actions taken in G7 Countries and Australia ........................... 113 

Figures 

Figure 2.1. A Spectrum of Capital ............................................................................................................. 13 

Figure 2.2. The Impact Continuum ............................................................................................................ 16 

Figure 2.3. Microfinance: clients and institutions globally, 1997-2011 .................................................... 18 

Figure 2.4. Financial Intermediation .......................................................................................................... 18 

Figure 2.5. Financial Sector Development................................................................................................. 19 

Figure 2.6. Life-cycle of a firm and stages of financing ............................................................................ 19 

Figure 3.1. Social Impact Investment Market Framework ........................................................................ 23 

Figure 3.2. The SIB model ......................................................................................................................... 33 

Figure 4.1. List of characteristics ............................................................................................................... 44 

Figure 4.2. Defining Characteristics, attributes and eligibility .................................................................. 45 

Figure 4.2. Defining Characteristics, attributes and eligibility .................................................................. 45 

Figure 4.3. Social needs and investment sectors ........................................................................................ 46 

Figure 4.4. Degree of Publicness ............................................................................................................... 49 

Figure 5.1: One in 20 over 60’s have dementia, on average one in 8 over 65’s are subject to long-term 

care, and in the next 30 years rates the support ratio for older people will halve ...................................... 60 

Figure 5.2 Australia has the most success in activating low skilled youth ................................................ 61 

Figure 5.3: Satisfaction with affordable housing increased in recent years, but experiences of difficulty in 

meeting costs also increased ...................................................................................................................... 62 

Figure 5.4: Prisons in France, Italy and the United Kingdom are overfull ................................................ 65 

© OECD 2015 7


Figure 5.5 In countries where there is low childcare enrolment and low part-time employment, there is 

likely to be unmet demand for childcare .................................................................................................... 66 

Figure 5.6: Social protection, health, housing and education account for over 60% of total public 

spending ..................................................................................................................................................... 68 

Figure 5.7 Expenditure trends show services are taking up more of the social protection budget, in some 

case exceeding cash spending .................................................................................................................... 69 

Figure 5.8: In most countries old-age spending is growing, in Australia and Japan, services are 

increasingly used ........................................................................................................................................ 70 

Figure 5.9 How much of central government funds are devolved to local authorities for social 

interventions varies widely ........................................................................................................................ 75 

Figure 6.1. Social enterprise in UK surveys .............................................................................................. 85 

Figure 6.2. Financial assets of institutional investors ................................................................................ 87 

Figure 7.1. WGIM Guidelines for impact measurement.......................................................................... 117 

Boxes 

Box 3.1. Financing challenges for social enterprises ................................................................................. 25 

Box 3.2. PRI: Bill & Melinda Gates Foundation (US) .............................................................................. 27 

Box 3.3. Big Society Capital (BSC) .......................................................................................................... 31 

Box 3.4. Global Impact Investing Network (GIIN) ................................................................................... 32 

Box 3.5. European Social Entrepreneurship Funds ................................................................................... 35 

Box 6.1. Social Enterprise Sector Survey .................................................................................................. 83 

Box 6.2. GIIN\JP Morgan Survey .............................................................................................................. 89 

Box 6.3. Benchmarking SII: EngagedX..................................................................................................... 91 

Box 6.4. Satellite Account on Non-Profit Institutions ............................................................................... 94 

Box 6.5. CASEi3 work on building the evidence base .............................................................................. 95 

Box 6.6. Certification & labels: B-corp example ..................................................................................... 102 

Box 7.1. First Peterborough SIB outcome results .................................................................................... 121 

8 © OECD 2015


ABBREVIATIONS 

CBA 

CEA 

CIC 

CSR 

DFIs 

EVCA 

EVPA 

GIIN 

LCC 

MRI 

NAB 

NPI 

NSO 

NVCA 

PRIs 

SE 

SIFI 

SII 

SIITF 

SPO 

SRI 

WGAA 

WGIM 

WGMA 

Cost-Benefit Analysis 

Cost-Effectiveness Analysis 

Community Interest Company 

Corporate Social Responsibility 

Development Finance Institution 

European Venture Capital Association 

European Venture Philanthropy Network 


Limited Liability Company 

Mission-Related Investing 

National Advisory Board 

Non-Profit Institution 

National Statistical Office 

National Venture Capital Association 

Program Related Investments 

Social Enterprise 

Social Investment Finance Intermediary 

Social Impact Investment 

Social Impact Investment Taskforce established under the UK’s presidency of the G8 

Social Purpose Organization 

Socially Responsible Investing 

Working Group on Asset Allocation 

Working Group on Impact Measurement 

Working Group on Mission Alignment 

© OECD 2015 9


1. EXECUTIVE SUMMARY 

Social impact investment is the provision of finance to organisations addressing social needs with the 

explicit expectation of a measurable social, as well as financial, return. Social impact investment has 

become increasingly relevant in today’s economic setting as social challenges have mounted while public 

funds in many countries are under pressure. New approaches are needed for addressing social and 

economic challenges, including new models of public and private partnership which can fund, deliver and 

scale innovative solutions from the ground up. 

Social impact investment has evolved over the past decade as the result of a number of factors, 

including a growing interest by individual and institutional investors in tackling social issues at the local, 

national or global level. The recent economic crisis has further highlighted the tremendous social and 

economic challenges facing countries across the globe. Governments are seeking more effective ways to 

address these growing challenges and recognizing that private sector models can provide new innovative 

approaches. Chapter 2 provides further background on the evolution of the market as well as highlights 

parallels to traditional capital markets. 

Awareness of the potential opportunities of social impact investment has grown considerably across 

several OECD and non-OECD countries including in the G8 and G20. In the context of the UK’s G8 

presidency in 2013, the UK Prime Minister hosted a G8 Social Impact Investment Forum in London in 

June 2013 and launched the Social Impact Investment Taskforce. As one of the outcomes of the G8 Social 

Impact Investment Forum, the OECD was asked to produce a report on the social impact investment 

market. This report seeks to provide a framework for building the evidence base of the evolving social 

impact investment field. It follows an overview paper on social impact investment, published by the OECD 

in July 2014. 1 

A growing range of actors are emerging in the social impact investment market to form an ecosystem 

consisting of social ventures, intermediaries and investors committed to addressing social needs. 

Government also plays a key role in the ecosystem, in terms of setting conditions for the enabling (or 

hindering) environment as well as potential indirect or direct engagement in the market. Framework 

conditions (e.g. tax and regulation) have a significant impact on the social impact investment market. 

Chapter 3 provides a framework for looking at the various components of the social impact investment 

ecosystem and the different channels through which SII takes place. 

The social impact investment market is in the early stages of development. The international 

initiative, led by the Social Impact Investment Taskforce, established under the UK’s presidency of the G8, 

has helped in raising awareness and clarifying the broader definition of social impact investment. 

However, for purposes of scoping and sizing the market, it is essential to work towards a precise common 

understanding of what is meant by social impact investment and agree upon a working definition to clarify 

what is included and what is not. This is important for policy makers, researchers and practitioners as well 

as for the overall development of the market. 

Chapter 4 of this report expands on the definition with the aim of spelling out the underlying criteria 

for assessing a social impact investment. It also provides a framework to help in working towards a 

common detailed definition, which in turn will facilitate data collection and a better understanding of the 

market. Seven key characteristics of social impact investment are identified in the paper including the 

1 . Wilson, K. E. (2014), "New Investment Approaches for Addressing Social and Economic Challenges", OECD Science, Technology 

and Industry Policy Papers, No. 15, OECD Publishing. DOI: 10.1787/5jz2bz8g00jj-en 

10 © OECD 2015


social target areas, the beneficiary context, the nature of good\service provided (public/private), delivery 

organisation social intent, measurability of social impact, investor social intent and return expectations. 

Within each characteristic, a further set of related attributes are highlighted and possible boundaries are 

suggested to help further the discussion about what should and should not be considered social impact 

investment. 

The market is evolving in various ways across OECD countries. This is influenced by the differences 

in the country context including history, social needs and value systems. In addition, the ways in which 

social and financial systems are structured will determine the role and mix of public and private capital and 

therefore the potential role of social impact investment. The variation in these contexts can provide 

indications in terms of which SII approaches may be more appropriate in some sectors than in others, and 

easier to implement in some countries than in others. 

Social needs have been increasing in many countries requiring both more efficient and more effective 

social service delivery. Trends in public expenditure show that services are taking up more of the social 

protection budget, in some cases exceeding cash spending. However, social service delivery is complex 

and entails a number of specificities and potential challenges for social delivery organisations as well as for 

social impact investment models. The extent to which any investment can make a social impact will rely 

on the type and extent of need – and demand for improvement – across an array of social outcomes. Social 

outcomes are evolving in different directions, in different social sectors, for different reasons. These topics 

are discussed in detail in Chapter 5. 

A stronger evidence base is critical to increasing engagement in the social impact investment market 

and encouraging a global market to develop. Different players involved in the market, including 

policymakers, have been calling for more data as well as a better and more accurate understanding of the 

size, scope, evolution and potential of the market. However, the specific data requirements for each of 

these players can differ. It is therefore important to clarify these needs before embarking on a data 

collection exercise, especially given the challenges in collecting social impact investment data. 

Currently, available data on social impact investment is very limited. Various approaches have been 

used to collect data and estimate the scope of the social impact investment market, but each of these 

approaches requires strong assumptions or has other limitations. Being able to collect comprehensive 

transaction data in an efficient manner would help in building a better understanding of market activity. 

This would require specific common definitions of social impact investment as well as harmonisation of 

data collection efforts to ensure comparability across countries and regions. Various efforts are underway 

but the best way forward will likely involve a partnership between key players involved in data collection 

across countries. These approaches are outlined in Chapter 6. 

The public sector can play a catalytic role in the social impact investment market in terms of creating a 

conducive regulatory environment, encouraging greater transparency and taking concrete steps to help 

develop the market. Policy actions in some of these countries have addressed regulatory issues, notably in 

terms of setting up legal structures to accommodate SII-specific types of market actors. Also, several 

policy interventions have sought to enhance SII supply. Some governments have provided support through 

tax credits (and tax-advantaged funds), guarantees or subsidies, established and co-invested in SII funds. 

Other governments have focused on developing the social impact investment market infrastructure through 

the creation of intermediaries such as SII wholesale banks, exchanges (or trading platforms) and other 

channels to facilitate the links between supply and demand for SII (investors and delivery organisations). 

Additionally some have sought to stimulate SII demand by providing support to delivery 

organisations/investees through technical assistance or by encouraging procurement. 

© OECD 2015 11


Depending on the type of actions taken, they might be implemented at the international, national or 

local level. However, actions initiated in one country or region may not be appropriate for another – policy 

objectives, experience and local context must be taken into account. In particular, differences in the context 

of developed and developing countries should be considered when applying social impact investment 

models. SII can also catalyse additional capital flows into developing economies, critical to the current 

high-level dialogue on Financing for Development and the development of the new Sustainable 

Development Goals. 

When or if policies with the objective of supporting SII, such as tax incentives, are put in place, it is 

important that the policy interventions are well targeted, transparent and well-coordinated with existing 

policies as well as with the market. Policies should also be consistent so that market players both 

understand the implications of the policies and have some visibility in terms of how long the policies might 

be in place. Evaluation of the policies is also important to make sure that they are having the intended 

results. Chapter 7 highlights some of the social impact investment policies currently in place in the G7 

countries and Australia and discusses broader policy implications in building the market. 

Social impact investment can potentially provide new ways to more efficiently and effectively 

allocate public and private capital to address social and economic challenges at the global, national and 

local levels. While these innovative new approaches will not replace the core role of the public sector or 

the need for philanthropy, they can provide models for leveraging existing capital using market-based 

approaches with potential to have greater impact. However, given that social impact investment is a 

nascent field, concrete evidence is needed in terms of its impact to date. In particular, further work is 

needed to demonstrate the gains from the social impact investment approach compared to existing social 

service delivery models. 

This report provides a framework for assessing the social impact investment market and focuses on 

the need to build the evidence base. The report highlights the importance of further international 

collaborations in developing global standards on definitions, data collection, impact measurement and 

evaluation of policies as well as experience sharing between players in the market. International 

organisations, such as the OECD can play an important role in facilitating these collaborations as well as 

conducting further analysis and data collection. 

12 © OECD 2015


2. OVERVIEW OF SOCIAL IMPACT INVESTMENT 

This chapter provides an overview of social impact investment highlighting its policy 

relevance in today’s economic and social environment. It starts by discussing the 

growing need for new approaches for solving economic and social challenges and the 

role that social impact investment can play in that respect. It then provides an 

overview of current trends, opportunities and challenges in the social impact 

investment market. It also shows how the market is evolving and compares that to 

parallels in the evolution of the capital markets. 

2.1. The need for new approaches to address social and economic challenges 

2.1 Social impact investment (SII) is the provision of finance to organisations with the explicit 

expectation of a measurable social, as well as financial, return. Social impact investment has become 

increasingly relevant in today’s economic setting as social challenges have mounted while public funds in 

many countries are under pressure. New approaches are needed for addressing social and economic 

challenges, including new models of public and private partnership which can fund, deliver and scale 

innovative solutions from the ground up. 

2.2 SII involves private investment that contributes to the public benefit. Investors can range 

from those who are willing to provide funding for organizations that are not able to generate market returns 

to more traditional investors but with an interest in also having a social impact. 

Figure 2.1. A Spectrum of Capital 

Source: SIITF WGAA (2014). 

© OECD 2015 13


2.3 A growing number of high net worth individuals, family offices, foundations and institutional 

investors have become interested in finding investments that deliver both a social and a financial return. 

Financial goals can range from capital preservation to a market rate of return. Social goals can include 

improving socio-economic, social or environmental conditions. 

2.4 Social impact investment has evolved over the past decade as the result of a number of factors, 

including a growing interest by individual and institutional investors in tackling social issues at the local, 

national or global level. The recent economic crisis has further highlighted the tremendous social and 

economic challenges facing countries across the globe. Governments are seeking more effective ways to 

address these growing challenges and recognising that private sector models can provide new innovative 

approaches. 

2.5 The growth of social enterprises over the past several decades (Noya, 2009; OECD/EU 2013) has 

also contributed to the emergence of social impact investment. Social enterprises seek to develop 

innovative ways to tackle social challenges. These organisations need capital to grow but often face greater 

obstacles than mainstream firms (Noya, 2009). In response, a social impact investment market has grown 

over the past decade to address these needs as well as to develop additional approaches for financing 

solutions to social issues. 

2.6 Increasingly, experts suggest that social or environmental factors can impact a company’s 

bottom line and therefore are important factors in business, markets and competition (Porter and Kramer, 

2011). The traditional view has been that pursuing social or environmental objectives could require some 

financial trade-off, although not necessarily a financial loss. As experience in the market has developed, a 

growing number of examples demonstrated that, in certain areas, social impact investments can generate 

both a financial and social return. It is in these areas that social impact investors can play a role in 

providing private capital to address social challenges in innovative news ways. 

2.7 The market is evolving in various ways across OECD countries. This is influenced by the 

differences in the country context including history, socials needs and value systems. In addition, the ways 

in which social and financial systems are structured will determine the role and mix of public and private 

capital and therefore the potential role of social impact investment. 

2.1.1. Motivation for the OECD report 

2.8 Social impact investment has become increasingly relevant in today’s economic environment as 

the global financial crisis has highlighted the need for long term value creation (Addis et al, 2013). Interest 

in social impact investment has grown considerably across several OECD countries including the G8 and 

G20. 

2.9 In the context of the UK’s G8 presidency in 2013, the UK Prime Minister hosted a G8 Social 

Impact Investment Forum in London in June 2013 (HM Government, 2013c). The Forum was attended by 

ministers and other policy, business and civil society leaders from across the G8 countries and provided an 

opportunity to launch processes and initiatives to facilitate the development of the market on a global scale. 

A Social Impact Investment Taskforce (SIITF) was established, consisting of one public and one private 

sector representative from each of the G7 countries and the EU. 2 The taskforce includes an observer from 

Australia and one from OPIC as a representative of Development Finance Institutions. 

2. In mid-2013, Russia had chosen not to participate as the topic was not a priority for Russia. 

14 © OECD 2015


2.10 As one of the outcomes of the G8 Social Impact Investment Forum 3 , the OECD was asked to 

produce a report on the Social Impact Investment market. The work on the OECD report took place in 

parallel with the work of the Social Impact Investment Taskforce and its four Working Groups. National 

Advisory Boards, created in late 2013 in the G7 countries and Australia, met on a regular basis to provide 

input to the work of the Taskforce as well as to identify ways to develop the social impact investment 

market in each country. Reports from the Taskforce, its Working Groups and its National Advisory Boards 

were published in September 2014. 4 These reports were developed to feed into future international policy 

discussions, with G8 and G20 countries and beyond. 

2.11 This report is the result of the first phase of the OECD work in the context of this international 

initiative. The paper seeks to provide a framework for building the evidence base of the evolving social 

impact investment market. This report, which was supported by several G8 member countries, builds upon 

existing work at the OECD including the research on social impact investment and new investment 

approaches conducted with support from the Bertelsmann Foundation during 2013 (Wilson, 2014) as well 

as other work across the OECD. 

2.12 Social impact investment has become a growing area of interest within the OECD, linking to two 

strategic OECD initiatives, New Approaches to Economic Challenges (NAEC) and Inclusive Growth as 

well as ongoing work across a number of Directorates. This includes ongoing work within the Directorate 

for Science, Technology and Innovation on entrepreneurship financing and innovation, including inclusive 

innovation. It also builds upon work conducted in the Directorate for Employment, Labour and Social 

Affairs related to social policy. In addition, the project links to work conducted over the past decade in the 

Centre for Entrepreneurship’s LEED programme on social enterprise, the Development Centre’s Network 

of Foundations Working for Development and their recent work on venture philanthropy and the 

Development Cooperation Directorate’s initiative on public/private financing for development. There are 

also further connections to ongoing work by the OECD Secretariat in the Statistics Directorate, Directorate 

for Financial and Enterprise Affairs, the Directorate for Public Governance and Territorial Development, 

and other OECD Directorates. 

2.13 The field of social impact investment is expanding rapidly with a growing number of players 

entering the market; however there is not yet enough knowledge and evidence about the market, activity 

and outcomes. This initiative is therefore timely and will help inform OECD member countries as well as 

non-OECD countries about developments in this area and the potential role of policy. 

2.2. Evolution and trends in the social impact investment market 

2.14 Social impact investment began to emerge about a decade ago, although there was significant 

activity prior to that (Saltuk et al, 2013). However, socially-conscious investing is not a new phenomenon 

and has origins dating back several centuries. 

2.15 A number of decades ago, Socially Responsible Investing (SRI), a practice in which investors 

screen out companies with perceived negative products or practices, began to interest investors (Bridges 

Ventures, 2012). This later led to a broader and growing group of “responsible” investors seeking socially 

responsible and sustainable investments (Addis et al, 2013). Today, a growing number of companies have 

begun focusing on environmental and social issues or practicing corporate social responsibility (CSR). 

However, as noted by the SIITF, these investments have “tended to focus on the intentions and approaches 

3. Further information available at: https://www.gov.uk/government/groups/social-impact-investmenttaskforce. 

4. The Taskforce, NAB and Working Group reports are available at: http://www.socialimpactinvestment.org/ 

© OECD 2015 15


of companies rather than on the measured achievement of impact goals” as required by social impact 

investors (see Chapter 4 for further details on definitions of SII). 

2.16 Figure 2.2 below, developed by the Social Impact Investment Taskforce, shows the impact 

continuum in which social impact investment lies in between “sustainability” (specifically referring to 

CSR, ESG and SRI) and philanthropy but does not include either – only investments (e.g. not grants) that 

proactively seek a measurable social impact alongside a financial return. However, many providers of 

grants, such as foundations, are also social impact investors. Also, some businesses that have traditionally 

practiced CSR, ESG or SRI have also moved into the social impact investment space. The role of 

foundations and other investors is discussed further in Chapter 3. 

Figure 2.2. The SIITF Impact Continuum 

Source: SIITF (2014). 

2.17 Social impact investors seek market-based solutions to the world's most pressing challenges, 

including sustainable agriculture, affordable housing, affordable and accessible healthcare, clean 

technology, and financial services for the poor (GIIN, 2014). Chapter 4 discusses the areas that fall within 

the OECD SII definition. 

2.18 Social impact investments can be made across geographies, sectors, and asset classes and can 

have a wide range of return expectations. Often these investments are made with multiple types of 

investors providing different forms of capital. By combining various forms of capital with different return 

requirements, social challenges can be addressed in more scalable ways than possible by government alone 

(Rangan et al, 2011). 

16 © OECD 2015


2.19 Initiatives being led by governments, foundations, investors and others have helped accelerate the 

market in the past few years (Jackson and Associates, 2012). A number of OECD countries, such as the 

UK, US, France and Australia, have played a leading role in developing the social impact investment 

market. There have also been significant developments and experiments in the past several years in many 

other developed and developing countries which are contributing to the development of new models and 

approaches. 

2.20 Given that countries are at different stages of development, the experience sharing process of the 

Social Impact Investment Taskforce established by the G8, and the associated National Advisory Boards in 

the G7 and Australia, has been helpful in raising awareness about social impact investment and how 

countries might engage. These activities have also helped spur additional action within those and other 

countries and attract new players to the market. 

2.21 While Phase I of the international initiative focused on the social impact investment markets and 

policies in G7 countries and Australia, there was a Taskforce Working Group looking into the implications 

for international development 5 .The next phase of the initiative is planned to expand its engagement and 

focus to the G20 countries and beyond. There is a growing recognition that traditional sources of 

development financing, in particular official development assistance (ODA), are not sufficient to address 

the scale and complexity of today’s global development challenges. Partnerships are needed that encourage 

better collaboration between the public and private sectors and ways need to be found to use ODA in a 

smart way to facilitate these partnerships as well as mobilise additional resources. 

2.22 International aid agencies are searching for new tools, including results-based financing, 

outcomes-based approaches, market-based solutions and different forms of public-private partnerships, to 

increase their effectiveness and long-term development impact while working with the limitations of 

tighter budgets. Social Impact investing has the potential to catalyse new capital flows into developing 

economies, translating experiences, policies and approaches from developed countries into the emerging 

and less developed country context. 

2.23 While the social impact investment market has been growing significantly and has drawn 

increasing interest and attention, it is still in the early stages of development (Kohler et al, 2011) and is 

only a small share of the global capital markets today (Saltuk et al, 2014). While difficult to measure for a 

variety of reasons including the lack of clear definitions and the diversity of sectors and approaches across 

geographies, the social impact investment market potential has been estimated to be significant. This is due 

to growing interest among foundations and mainstream investors as well as an intergenerational transfer of 

wealth, estimated at USD 41 trillion that is expected to take place over the next 50 years with nearly 

USD 6 trillion of that expected to be directed towards social issues (Rangan et al, 2011). 

2.24 The microfinance industry was an early model of changing approaches to financing which also 

addressed social needs. The microfinance market is estimated to include over USD 50 billion of loans 

given to over 100 million micro-entrepreneurs, mostly in developing countries (Rangan et al, 2011). From 

1997-2007, microfinance grew at a rate of 38% per year in terms of the number of clients although growth 

has slowed in more recent years (Addis et al, 2013). The Monitor Institute and J.P. Morgan estimated 

similar possible annual growth rates for the social impact investing market (Freireich and Fulton, 2009; 

O’Donohoe et al., 2010). 

5. See the Working Group report for further details: Social Impact Investment Taskforce (2014), Subject 

Paper of the International Development Working Group: International Development 

© OECD 2015 17


Figure 2.3. Microfinance: clients and institutions globally, 1997-2011 

Source: OECD based on Maes and Reed (2012). 

2.25 It should be noted, however, that the microfinance industry had a lot of government support, in 

the form of grants and low-interest loans, before it got to the more stable and self-sustaining commercial 

state that it has now reached. 

2.3. Parallels to the evolution of capital markets 

2.26 Social impact investment financing models are emerging at multiple levels and in parallel to 

traditional markets. As in capital markets, financial intermediation plays a critical role as there are 

information asymmetries between investors and investees. Intermediaries play a critical role in connecting 

demand and supply, particularly in financial markets that are less developed. 

Figure 2.4. Financial Intermediation 

Demand 

Intermediaries 

(Transactions) 

Supply 

Source: OECD. 

2.27 In the traditional capital markets, intermediation is focused on financial dimensions. The social 

impact investment market is more complex as social dimensions also need to be valued. Transaction costs 

in social impact investment are high due to fragmented demand and supply and the complexity of deal 

structuring. For these reasons, coordinating capital for social ventures is more difficult than in the venture 

capital industry (Kohler et al, 2011). Given the high costs and early stage of market development, there is a 

lack of brokers, advisors, exchanges and other market mechanisms, resulting in a market with imperfect 

market competition. 

18 © OECD 2015


2.28 The degree of financial sector development within a country can potentially have an influence on 

the development of the social impact investment. Figure 2.5 below shows the difference in financial sector 

development in the G7 countries and Australia according to a 2012 World Economic Forum report. It can 

be noted that the most active social impact investment markets are currently in the two countries with the 

most developed financial sectors. 

Figure 2.5. Financial Sector Development 

Scores 1 to 7, as of 2012 

Banking financial services Non-banking financial services Financial markets 

7 

6 

5 

4 

3 

2 

1 

0 

USA UK Japan Australia Canada Germany France Italy 

Source: OECD based on WEF (2012). 

2.29 The development of capital markets often leads to availability of a range of products across the 

risk return spectrum. Different types of financing instruments may be more appropriate for different stages 

of the development of a venture (Wilson and Silva, 2013). Figure 2.6 illustrates a typical life-cycle of a 

firm along with the various stages of financing and types of financing instruments. The figure below 

highlights the complexity of financing and the need for a mix of instruments to address the various growth 

phases of a firm. 

Figure 2.6. Life-cycle of a firm and stages of financing 

Source: OECD (2013a) based on Natusch (2003). 

© OECD 2015 19


2.30 As in the mainstream financial markets, investment evolution is not necessarily linear, although 

it is often assumed to follow a path from individual transactions, to boutique offerings to funds, funds of 

funds and ultimately fully ‘liquid’, or tradable, capital markets where investors have a range of choices to 

buy and sell investments (Bugg-Levine and Emerson, 2011). 

2.31 While the players, financing needs and mix of instruments differ from traditional finance, social 

impact investment instruments span asset classes and can include equity, quasi-equity, loans and bonds. A 

growing range of social impact investment instruments have been developed, all with a different 

financial/social return profile. However, given the early stage of market development, there is a lack of 

products across the risk/return spectrum making it more difficult to attract investors, particularly more 

mainstream ones. 

2.32 The existence of vibrant entrepreneurial finance markets can facilitate the development of the 

social impact investment market as experience with financial market tools can help in building the SII 

market. In fact, many people in SII were active in investment banking, private equity, venture capital 

and/or angel investing. 

2.33 Comparisons are sometimes made between the evolution of the social impact investment market 

and the venture capital industry (Cohen and Sahlman, 2013). The venture capital industry, which was first 

created in 1946, grew over several decades through a series of U.S. government interventions, including a 

legislation in the 1950s that allowed privately funded investment firms to provide capital to early-stage 

funds, ERISA in 1978 which enabled pension funds to invest in venture capital firms and a lowering of the 

capital gains tax rate (Freireich and Fulton, 2009). In the 1970’s, the industry began growing in Europe and 

later in other parts of the world. Pioneers in the venture capital industry included Sir Ronald Cohen, one of 

the leaders and key drivers of the social impact investment movement, in the U.K. and globally, and the 

Chairman of the Social Impact Investment Taskforce established by the G8 in 2013. 

20 © OECD 2015


References 

Addis, R., J. McLeod, and A. Raine (2013), “IMPACT Australia: Investment for Social and Economic 

Benefit”, Australian Government, Department of Education, Employment and Workplace Relations, 

November. 

Bridges Ventures (2012), “Sustainable & Impact Investment - How we define the market”, London, 

August. 

Bugg-Levine, A and J. Emerson, (2011), “Impact Investing: Transforming how we make money while 

making a difference“, Wiley: Jossey-Bass, September. 

Cohen, Sir R. and W.A. Sahlman (2013) “Social Impact Investing Will Be the New Venture Capital”, 

HBR Blog Network, 17 January, http://blogs.hbr.org/2013/01/social-impact-investing-will-b/. 

O’Donohoe, N., C. Leijonhufvud and Y. Saltuk (2010), “Impact Investments: An Emerging Asset Class”, 

J.P. Morgan Securities plc, GIIN and Rockefeller Foundation, November. 

Freireich, J. and K. Fulton (2009), “Investing for Social and Environmental Impact: A Design for 

Catalyzing an Emerging Industry”, Monitor Institute, January. 

GIIN (2014), Global Impact Investing Network website. Available at: www.thegiin.org/cgibin/iowa/resources/about/index.html, 

accessed 3 February 2014 

HM Government, UK (2013c), “G8 Social Impact Investment Forum: Outputs and Agreed Actions”, UK 

Cabinet Office, London, July. 

Jackson, E.T. & Associates (2012), “Accelerating Impact: Achievements, Challenges and What’s Next in 

the Impact Investing Industry”, The Rockefeller Foundation, July. 

Kohler, J., T. Kreiner, and J. Sawhney (2011), “Coordinating Impact Capital: A New Approach to 

Investing in Small and Growing Businesses: An examination of impact investors and phased 

investing for the launch and growth of social enterprises”, Santa Clara University and The Aspen 

Network of Development Entrepreneurs (ANDE), Santa Clara, California, July. 

Maes and Reed, State of the Microcredit Summit Campaign Report, Microcredit Summit Campaign, 2012. 

Natusch, Ingo (2003), “Mezzanine Method of Financing”, Round Table Talks, IKB – Deutsche 

Industriebank, October; Document available at: 

http://www.brsi.de/pdfs/Mezzanine_Finanzierungsformen_engl.pdf. 

Noya, A. (ed.) (2009), The Changing Boundaries of Social Enterprises, Local Economic and Employment 

Development (LEED), OECD Publishing. doi: 10.1787/9789264055513-en 

OECD (2013a), “Alternative Financing Instruments for SMEs and Entrepreneurs: the Case of Mezzanine 

Finance”, internal working document, Centre for Entrepreneurship, SMEs and Local Development, 

CFE/SME(2012)9/FINAL. 

OECD/EU (2013) Policy brief on social entrepreneurship, Luxembourg Publications Office of the 

European Commission 

© OECD 2015 21


Porter, M and M. Kramer (2011), “Creating Shared Value: How to reinvent capitalism and unleash a wave 

of innovation and growth”, Harvard Business Review, January – February. 

Rangan, K.V., S. Appleby, and L. Moon (2011), “The Promise of Impact Investing”, Harvard Business 

School, Background Note No. 512-045, Boston. 

Saltuk, Y, A. Bouri, A. Mudaliar and M. Pease (2013), “Perspectives on Progress: The Impact Investor 

Survey”, Global Social Finance, J.P. Morgan and the Global Impact Investing Network, London, 

January 7. 

Saltuk, Y., A. Idrissi, A. Bouri, A. Mudaliar, and H. Schiff (2014), “Spotlight on the Market: The Impact 

Investor Survey”, Global Social Finance, J.P. Morgan and the Global Impact Investing Network, 

London, 2 May. 

SIITF (2014), “Impact Investment: The Invisible Heart of the Markets”, Social Impact Investment 

Taskforce, London, September. 

WEF (2012), “World Economic Forum Financial Development Report 2012”, World Economic Forum, 

Geneva. 

WGAA (2014), “Allocating for Impact”, Working Group on Asset Allocation (WGAA), Social Impact 

Investment Taskforce established by the G8, September. 

Wilson, K. E. (2014), "New Investment Approaches for Addressing Social and Economic Challenges", 

OECD Science, Technology and Industry Policy Papers, No. 15, OECD Publishing. DOI: 

10.1787/5jz2bz8g00jj-en 

Wilson, K. and Silva, F. (2013), Policies for Seed and Early Finance: Findings from the 2012 OECD 

Financing Questionnaire, OECD Science, Technology and Industry Policy Papers, No. 9, OECD 

Publishing. 

22 © OECD 2015


3. THE SOCIAL IMPACT INVESTMENT FRAMEWORK 

This chapter provides a framework for looking at the social impact investment 

market, starting with social needs and then looking at the demand and supply sides of 

the market as well as the role of intermediaries. Examples of key types of players in 

the market are given to provide further context. The role of the enabling environment 

is also discussed as a key part of the framework. 

3.1. The Social Impact Investment Framework 

3.1 A growing range of actors are emerging in the social impact investment market to form an 

ecosystem consisting of investors, social ventures and intermediaries and a comprehensive picture of the 

SII market requires assessing the different components of the market (Figure 3.1). The main components of 

the ecosystem are driven by SII demand (including social needs and social service providers), SII supply 

(i.e. pools of capital and investors) and the role of SII intermediation and intermediaries (including 

transactions and financing instruments). The enabling environment, including framework conditions (e.g. 

social systems, tax and regulation), also can play a critical role in the social impact investment market and 

must be taken into consideration when looking at the SII ecosystem. 

Figure 3.1. Social Impact Investment Market Framework 

Source: OECD. 

© OECD 2015 23


3.2 Progress in the social impact investment market will depend on different stakeholders working 

together to build critical mass by developing the market, tools and practice. Those stakeholders include 

investors, investees and intermediaries as well as policy makers, all with varying interests and motivations. 

Building trust is important, and market transparency is essential to building this trust (IIPC, 2014). 

3.2. Social needs 

3.3 Social impact investment starts with the social need being addressed. These can cover a wide 

range of social need areas such as ageing, disability, health, children and families, affordable housing, 

unemployment, etc. The types of beneficiaries of social impact investment can also vary. These issues are 

described in further detail in Chapter 4. In addition, the social context and social systems within a country 

can vary dramatically and have a huge impact on the potential opportunities for SII. This is discussed in 

detail in Chapter 5. 

3.3. Demand-side 

3.4 The key drivers in addressing social needs are the service delivery organisations. These 

organisations can include community organisations, charities or non-profit organisations, social 

enterprises, social businesses, and social impact-driven businesses. In some countries, only non-profit 

organisations are considered “social”, however rules are changing to include for-profits with a targeted 

social purpose. 

3.5 Demand-side actors seek to find new models to deliver social impact and create new markets 

through their social ventures (HM Government 2012). The term “social enterprise” began gaining visibility 

in the 1990s (OECD, 2000) as an innovative business model for meeting social and economic objectives, 

that embodies constraints on the distribution of profits and/or assets, however, the organisational structures 

and legal forms vary widely across countries (Noya, 2009). 

3.6 Social delivery organisations operate in a wide range of geographies and sectors and therefore 

have varying financing needs. The development of financial instruments across the full risk/return 

spectrum is needed to meet the varying needs of these enterprises. However, this requires a better 

understanding of which financial instrument and funding model would be most effective for social 

ventures at various stages of development (Evenett and Richter, 2013). In addition, some of these 

organizations are becoming hybrids (Glänzel et al., 2013) and therefore are pursuing a mix of funding 

approaches. The OECD CFE\LEED has worked extensively on social enterprises, particularly at the local 

level (e.g. OECD, 2013b). 

24 © OECD 2015


Box 3.1. Financing challenges for social enterprises 

Access to capital is vital to the creation and development of social enterprises. Social enterprises are usually financed 

by a combination of market resources (e.g. the sale of goods and services), non-market resources (e.g. government 

subsidies and private donations or investments), and non-monetary resources (e.g. volunteer work). 

Grant financing, whether from governments, foundations or others, may be required at an early stage of development 

and can be reduced as social enterprises build scale and market capacity. However, in some cases, secure long-term 

funds may be needed, for example, in certain sectors in which social enterprises are not able to become self-financing 

but whose activities provide public benefits and/or reduce public costs. 

For social enterprises that are to obtain additional financing, a diversity of private market financial products that 

correspond with the life-cycle of social enterprises (from start up or even pre-start up, to consolidation and growth) is 

needed. One of the key financial products used by most mainstream enterprises is bank loans. However, in most 

OECD countries, social enterprises have difficulty obtaining access to credit. Traditional financial institutions generally 

refuse to lend to social enterprises because they do not meet their established client criteria and are not seen as 

offering sufficient guarantees. Consequently, they must seek new financial partners or reduce their development 

ambitions. 

OECD countries are seeing the emergence of a number of new financial instruments and actors to support social 

enterprises, together with broader investment criteria for existing financial actors and behavioural shifts among actors 

already engaged in supporting civil society initiatives (Noya, 2009). Interest and activity in social impact investing, 

which focuses on proactive investment choices aimed at supporting social enterprises that can have a strong social 

impact while seeking some financial return, is growing and can contribute to the scaling and growth of social 

enterprises. 

Source: OECD/EU (2013). 

3.7 A recent survey showed that business model execution and management is seen by investors as 

the highest risk to their investments in social ventures (Saltuk et al, 2014). As with traditional businesses, 

some new ventures will fail to achieve their goals. The reasons for failure of these ventures can vary from 

management, strategy or funding to regulatory and administrative barriers. However, reports have shown 

that social enterprises do better and fail less than for-profits because they are built on real problems and 

(unfortunately) the market is there and growing. 

3.8 Social impact investors, as well as targeted policies, can play a role in improving the 

effectiveness of social ventures (Jackson and Associates, 2012). Social impact investors can help social 

delivery organisations by providing not only financing but perhaps more importantly, support on strategy, 

management and growth (Bannick and Goldman, 2012). Helping social entrepreneurs grow their ventures 

to scale is the key to maximizing impact (Koh et al., 2012). The success of social impact investment is 

reliant on the long term sustainability and performance, both social and financial, of the impact 

organizations, for-profit and not-for-profit, in which the investments are made (Bannik and Goldman, 

2012). 

3.9 Investment readiness remains a key issue for social ventures in many countries. Enhancing the 

investment readiness and business capability of these organisations is important to enable them to access 

SII (HM Government, 2011). Creating more investable social ventures will require improving financial 

skills in the social sector as well as developing a better understanding of risk and how to price it (Brown 

and Swersky, 2012). 

3.10 The UK launched a GBP 10 million strategic fund, the Investment Contract and Readiness Fund, 

to help social enterprises secure capital. The Fund helps with investment readiness and enables social 

ventures to access new forms of investment and compete for public service contracts. Grants between 

GBP 50 000 and GBP 150 000 are available to social ventures which go on to raise at least GBP 500 000 

© OECD 2015 25


investment, or which want to bid for contracts over GBP 1 million. The Boston Consulting Group (BCG) 

conducted an independent interim review by in April 2014 and determined that the fund was having a 

“significant and positive impact” (BCG, 2014). 

3.11 Social ventures can also face challenges in a number of other areas including finding adequate 

legal forms or conforming to impact assessment standards. Transaction and reporting requirements can be 

high for social enterprises (OECD, 2013b). As the focus on impact measurement has increased, so have the 

pressures on social enterprises to comply with a varying set of standards, many of which can be time 

consuming and do not always feed back into the management and objective setting processes within the 

organisation. Efforts are being made to develop a streamlined set of reporting standards. 

3.12 Mission drift is another challenge for social impact investors and entrepreneurs. This can be 

overcome, to some degree, by incorporating social parameters (clauses in term sheets and covenants) into 

investment documents to make sure both the investor and investee remain aligned to the social mission. A 

Working Group of the SIITF was dedicated to this important topic and it is also covered further in 

Chapter 4. 

3.4. Supply-side 

3.13 On the supply side, capital providers are increasingly interested in social impact investment as a 

way to diversify their investments and pursue social, as well as financial, goals. These include foundations, 

high net worth individuals and philanthropists, banks and other financial services firms and intermediaries. 

To date, the most active social impact investors have been high net worth individuals (HNWI) and family 

offices, who have more flexibility and autonomy than other investors (WEF, 2013). Interested high net 

worth individuals may invest individually or possibly through the small but increasing number of angel 

investment groups focused on social impact investment (OECD, 2011). 

3.14 Foundations have played a critical role in the development of the social impact investment 

market (Koh et al., 2012). This role can range from building market infrastructure, such as Rockefeller 

Foundation has done in the U.S. and the Bertelsmann Foundation in Germany, to providing “catalytic” 

capital or actively investing, through programme related investments (PRI) programmes. Private 

foundations have the advantage of being independent from government and the markets and therefore are 

in a position to take on greater risk than other private investors and provide long-term ‘patient’ capital. 

This gives them the freedom to explore and create innovative ways to address social, economic and 

environmental challenges. 

3.15 Grants, both public and private, continue to play an important role by providing “first loss” or 

“catalytic” funding (GIIN, 2013). Grants and technical assistance are often needed before or alongside SII 

to help social ventures addressing social challenges develop commercially-viable solutions (Bridges 

Ventures, 2012). In addition to foundations, Development Finance Institutions (DFIs) have also played an 

important role as “catalytic” funders in the market. 

3.16 While grants are not considered social impact investment, foundations can and do engage in the 

market through market building activities as well as through mission-related or program-related 

investments (Rangan et al, 2011). However, in those cases, it is important for the foundations to distinguish 

between grants, which in reality provide a 100% “subsidy” versus investments which involve risk and 

therefore an expectation of returns. In essence, there are various forms of support and financing for social 

ventures and different types of investors will look at the spectrum of investment options with their own 

risk/return requirements in mind. Return expectations are discussed in further detail in Chapter 4. 

26 © OECD 2015


Box 3.2. PRI: Bill & Melinda Gates Foundation (US) 

The Gates Foundation focuses on tackling poor health and extreme poverty globally, as well as education 

challenges in the US. The Gates Foundation has been a very active and leading player in SII, in particular through a 

PRI approach that was adopted in 2009. Since then, funds through PRIs, to organisations tackling social issues have 

risen considerably reaching an allocation of more than $1.5 billion as of 2012. PRIs allow the foundation to work in 

close collaboration with the private sector to align the foundation’s programmatic (social) goals with the financial 

objectives of other investors. 

The Table below provides examples of investments that while having the potential to generate financial returns, 

are made within the scope of the programmatic and charitable objectives of the Gates Foundation. In particular, the 

Africa Health Fund tackles poor health and ASA International contributes to ending extreme poverty in Africa and Asia. 

The investments into Aspire Public Schools, a charter school management organisation in the US, address educational 

challenges of low-income communities and students. 

Examples of Gates Foundation PRI activity 

PRI Name Social focus Financing Instrument Goal 

Africa Health Fund 

ASA International 

Aspire Public Schools 

Tackling poor Health 

Financial Services for the 

poor (microfinance) 

Education 

Private Equity Fund 

(co-investment) 

Low Interest Loan 

Partial backstop guaranty 

(with co-guarantors) 

Improve access to finance for 

African healthcare companies 

Affordable financial services to 

low-income individuals and 

small businesses in 

underserved markets in Africa 

and Asia 

Aspire opens and operates 

charter schools in low-income 

neighborhoods 

Source : Gates Foundation website: www.gatesfoundation.org/How-We-Work/Quick-Links/Program-Related-Investments/ 

3.17 The PRI approach goes beyond grant-making models traditionally used by foundations insofar as 

it builds on a set of financial instruments ranging from direct debt, equity, guaranties and (debt or equity) 

funds. At the same time, PRIs are linked to the foundation’s grant programme themes. These financing 

instruments are used to further the programmatic and charitable objectives of foundations. The use of 

innovative funding mechanisms allows foundations to attract other (co-) investors and involve them in the 

social mission. In doing so, PRI is a model aiming to tackle social challenges and yield social outcomes as 

its primary objective. In some cases PRIs have the potential to generate financial returns (usually below 

market), but this is never the main purpose of the investment. These investments count towards the 

foundation’s charitable distribution requirement, but can be considered as assets (or liabilities) that 

leverage the foundation’s endowment. 

3.18 According to the recent J.P. Morgan and Global Impact Investing Network (GIIN) survey, 

program-related investments (PRI) allow foundations to use “more appropriate tools for achieving 

programmatic objectives in certain instances” and “access to additional vehicles through which impact can 

be delivered (e.g. investment funds)” (Saltuk et al, 2014). A growing number of foundations are engaging 

in PRI. Box 3.2 below provides some examples from the Bill & Melinda Gates Foundation’s approach to 

programme related investing. 

3.19 Some pension funds, insurance companies and other institutional investors have also entered this 

market (Wood et al, 2012). However, these mainstream investors tend to focus on investments with at least 

a market risk adjusted financial return due to fiduciary responsibilities (WEF, 2013). At the same time, 

other private firms, such as investment banks, private banks and private equity funds are exploring areas in 

© OECD 2015 27


which they can provide capital to profitably grow businesses in various social sectors. A recent World 

Economic Forum report provides practical steps to be taken in order for mainstream investors to engage in 

social impact investment (WEF, 2014). 

3.20 Despite the increased interest among institutional investors, securing commitment from 

traditional investors continues to be a challenge. The approach to institutional investors needs to be 

structured in way that works for them and in a language they can understand. Initiatives, such as GIIN, 

ANDE and SOCAP, which build links between mainstream and social impact investors, can help to create 

awareness and increase interest. Institutional investors also have certain legal requirements which can 

create barriers to social investing (Wood et al, 2012). These issues are discussed further in the recent SIITF 

Working Group paper “Allocating for Impact”. 

3.21 Another challenge in engaging mainstream investors is the lack of sufficient absorptive capacity 

for capital (Freireich and Fulton, 2009). There is a scarcity of high quality investment opportunities into 

which larger amounts of capital can be deployed. More products are being developed, across the risk return 

spectrum, into which institutional investors can deploy social impact investment funds. 

3.22 Some social impact investors are finding it helpful to focus on investment within specific sectors 

(Bannick and Goldman, 2012). This enables a concentration on providing expertise and building the 

necessary links within a specific sector and thinking about social businesses in the context of the sector 

ecosystem. 

3.23 Individual citizens are also able to participate, whether through investments in the local 

community or through pension funds with a social return element, such as the “Solidarity Funds” in 

France. Solidarity funds, or “90/10” funds as they are often called, are based on employee pension plans 

and savings. Companies with over 50 employees can contribute and 10% of those funds must be invested 

in government-recognised “solidarity organisations”. These funds are regulated by Finansol and managed 

in partnership with banks, microfinance institutions and investment firms. Initially, only non-profit 

organizations could earn the “solidarity” label, but the rules have changed to now also include commercial 

businesses with a social mission. Solidarity finance provides a way to engage “retail” money in the social 

sector, however, the assumption is often made that the returns on that 10% will be low (or that returns on 

the other 90% will be higher). 

3.24 According to a recent Triodos report, “retail” or citizen participation in social impact investing is 

a promising development which can be vital to the long term success of the market. The report suggests the 

creation of social impact investment funds for retail investors, the expansion of impact-enabled employee 

savings and pension plans with funds dedicated to social impact investment and tax incentives for retail 

impact investments (Triodos, 2014). 

3.25 Crowdfunding platforms are also increasingly providing access for retail investors to support 

social enterprises. While most crowdfunding for social causes is donation-based (Wilson and Testoni, 

2014), increasingly, equity crowdfunding platforms are providing investment opportunities in some 

countries, although equity crowdfunding is still not allowed in many countries due to investor protection 

rules. 

3.26 Finally, the public sector clearly plays a central role through the commissioning of social services 

by national government departments, local authorities and other government agencies as well as through 

direct or indirect support of the SII market. These topics are discussed in further detail in Chapter 5. 

28 © OECD 2015


3.5. Intermediaries 

3.27 Intermediaries can play a pivotal role in developing the social impact investment ecosystem. 

They provide the links between investors, investees and others in the market and provide innovative new 

solutions to improving efficiencies in the market. They play functions such as creating liquidity in the 

market and facilitating payment mechanisms which can also help to lower costs and reduce risks in the 

market (WEF 2013). They also provide advice as well as help in structuring deals and in managing funds. 

3.28 The lack of efficient intermediation in the social impact investment market translates into higher 

transaction costs caused by fragmented demand and supply as well as complex deal structuring (Freireich 

and Fulton, 2009). The early stage of ecosystem infrastructure development impedes the dialogue between 

investors and social ventures, which makes it difficult to break down historical barriers between 

philanthropy and investment (Freireich and Fulton, 2009). Platforms are needed to provide accessible 

distribution systems and offer comparable product performance (Jackson and Associates, 2012). This will 

also allow better matching of investor and investee risk/return profiles. 

3.29 Intermediaries can include commercial banks, investment banks, independent financial advisors, 

brokers, dealers, and exchanges. The creation of new specialist intermediaries and the strengthening of 

existing ones are important for creating a well-functioning ecosystem as well as enabling deal flow 

(Jackson and Associates, 2012). Various types of intermediaries are needed to serve all sizes of impactdriven 

organisations (Addis et al, 2013) and players in the ecosystem need to be encouraged and 

incentivised to collaborate. 

3.5.1. Social Venture Funds 

3.30 Social venture funds started over a decade ago and are becoming more prevalent. However, most 

of the funds are young and small, often without a track record, making it difficult to attract institutional 

investors (GHK, 2013). These typically follow a venture capital type of model but can include a mix of 

instruments beyond equity. Like venture capital funds, social venture funds take a portfolio approach to 

investing to balance risks and returns (Saltuk, 2012). 

3.31 The number of social investment funds is increasing. Some of these funds are independent while 

others are affiliated with large banks or development institutions. Funds might focus on certain sectors, 

geographies or investment stages. They typically target market returns, investing through a mix of grants, 

subsidized loans and equity investments. More recently, fund-of-funds have been created to provide greater 

scale and diversity for institutional investors (WEF, 2013). 

3.32 Social investment fund managers often have a close hands-on relationship with the social purpose 

organisation they support, driving innovative and scalable models of social change (EVPA, 2011). Some 

may take board seats at these organisations, and most are more involved at the strategic and operational 

levels. 

3.33 Models for these funds can vary. For example, Social Venture Fund (headquartered in Germany 

but expanding to other countries as well) invests in social enterprises, which have innovative and 

entrepreneurial driven solutions for urgent social and environmental challenges. Bridge Ventures, a private 

investment firm, created in the U.K. in 2002, is dedicated to using an impact-driven investment approach 

to create superior returns for both investors and society at-large. Bridges Ventures began by investing in 

for-profit ventures in underserved communities and later created a Social Entrepreneurs Fund. 

3.34 Social venture investors face challenges in assessing the growing number of projects. It requires 

systems, structures and processes. Mission drift can be a danger. It is important for there to be in as much 

© OECD 2015 29


direct contact as possible between fund managers and the “front line” (i.e. to listen to people who are 

actually doing the work) to truly understand the operating model and key success factors. 

3.5.2. Social Stock Exchanges 

3.35 Over the past several years, social stock exchanges have been created in both OECD and non- 

OECD countries. These include Social Stock Exchange (SSE) in London, Nexii in South Africa, and 

Impact Investment Exchange (IIX) Asia in Singapore (the latter two have since merged). These exchanges 

target smaller high growth enterprises in sectors such as health, education, environment, social and 

affordable housing, sustainable forestry and organic agriculture and other “base of the pyramid” 

interventions. Social stock exchanges seek to build a platform for social businesses to attract capital from 

individuals, private clients, family offices, foundations and institutional investors who are seeking both a 

social and a financial return. 

3.36 These markets facilitate the purchase of stocks and bonds in companies that have both economic 

and social returns. These could be either non-profit or for-profit companies. For-profit companies can 

either issue shares representing ownership in their companies or issue bonds. Not-for-profit companies can 

utilise the stock exchange to issue bonds. The London Social Stock Exchange was launched in 2013 with 

the aim to become a FSA-authorised and regulated investment exchange for trading in securities of social 

enterprises and other social purpose businesses (HM Government 2013a). Supported by the London Stock 

Exchange Group, the SSE has a number of listed member companies. 

3.37 The London SSE seeks to connect socially focused businesses with investors looking to generate 

social or environmental change as well as financial return from their investment. This is done by providing 

investors with information to identify and compare organisations that deliver value to society and the 

environment. The London SSE seeks to have a transparent, independent and rigorous admission process to 

ensure that the companies listed adhere to a clear set of values, standards and disclosures. 

3.38 In 2013, Nexii and IIX Asia agreed to collaborate to strengthen and standardise the impact 

investing sector and later merged. Impact Exchange aims at being a social stock exchange with significant 

global reach, from Africa to Asia, two regions in need of capital assistance for sustainable development. 

Impact Exchange aims at becoming a platform for the public to invest in and trade shares of social 

enterprises while assuring mission alignment to social and/or environmental impact. 

3.39 Intermediaries/advisors pay an application fee as well as an annual membership fee, which allows 

them to become members of the exchange. The companies or organisations don’t need to be profitable 

when they join as the rules allow a three year window to become profitable (but based on a clear plan to do 

so). They pay for advisors as well as for the application and listing fees. Rigorous reporting requirements 

are part of eligibility. Organizations can be delisted or suspended if they do not comply. 

3.5.3. Building Market Infrastructure and Capacity 

3.40 Creating the necessary infrastructure and building capacity is important to the development of the 

market and, as a result, a number of these initiatives have been led by governments, foundations and others 

(IIPC, 2014). To build the market, collaboration is crucial for ensuring that the roles of the various players 

are complementary (HM Government, 2013c). Trust and open communication is important for the process 

of market building. This provides the basis for the creation of new innovative models, which can be tested 

in a continual process of development and growth of the market. 

30 © OECD 2015


Box 3.3. Big Society Capital (BSC) 

Big Society Capital (BSC) is an independent financial institution in the U.K. established to develop and shape a 

sustainable social impact investment market in which social sector organisations can access the capital they need to 

increase their positive impact on society. BSC was launched in April 2012 and is the first social impact investment 

bank in the world. 

BSC is a ‘social impact investment wholesaler’ which provides finance to social impact investment finance 

intermediaries (SIFIs). These are organisations that provide appropriate and affordable finance and support to frontline 

charities, social enterprises and voluntary organisations (the social sector). BSC seeks to achieve its objectives by 

addressing key market failures in the social impact investment market, ultimately increasing the social impact achieved 

by frontline social sector organisations. 

The five key areas of activity include supporting or providing: capitalisation and balance sheet growth; risk and 

working capital; sustainability and organisational growth; market mechanisms and infrastructure; advice, skills and 

information. 

BSC was funded from GBP 400 million in dormant bank accounts and with GBP 200 million from the four major 

banks (Barclays, HSBC, Lloyds, and Royal Bank of Scotland). Most of BSC’s GBP 600 million in capital is for 

investment in social finance investment intermediaries. BSC seeks to achieve financial sustainability over the long 

term. 

Source: www.bigsocietycapital.com. 

3.41 In the U.K., Big Society Capital (BSC) acts as a wholesale investor for social impact investment 

by investing in intermediaries and championing the sector to the public, stakeholders and investors 

(Box 3.3). BSC has also commissioned a number of research reports on the social impact investment 

market and created guides and standards for investors and social enterprises (Addis et al, 2013). 

3.42 However, in most countries, intermediaries either do not exist or are not sufficiently developed to 

effectively facilitate the matching of SII demand and supply. Intermediaries and advisors are hard to 

finance due to high operating costs. Currently, most survive through donations. Others take transaction fees 

or a share of equity. Policy makers, foundations and others can play a role in the early stages of building 

the market but need to identify ways that the intermediaries can be sustainable in their own right over time. 

3.43 Intermediaries, such as the Global Impact Investing Network (GIIN), described in Box 3.4, can 

also play an important role in encouraging “traditional” financial players to enter the market. 

© OECD 2015 31


Box 3.4. Global Impact Investing Network (GIIN) 

The Global Impact Investing Network (GIIN) is a nonprofit organization dedicated to increasing the scale and 

effectiveness of impact investing. The GIIN was conceived in October 2007, when the Rockefeller Foundation 

gathered a small group of investors to discuss the needs of the emergent impact investing industry. In June 2008, a 

broader group of 40 investors from around the world met to discuss what it would take for the impact investing industry 

to be able to solve more social and environmental challenges with greater efficiency. Just over a year later, the GIIN 

was formally constituted as an independent organization. 

The GIIN addresses systemic barriers to effective impact investing by building critical infrastructure and 

developing activities, education, and research that attract more investment capital to poverty alleviation and 

environmental solutions. Specific initiatives include outreach, network membership, the Investors Council, ImpactBase 

(an online global directory of impact investment vehicles) and IRIS. 

Impact Reporting and Investment Standards (IRIS) is a set of metrics that can be used to describe an 

organization's social, environmental, and financial performance. IRIS is designed to address a major barrier to the 

growth of the impact investing industry - the lack of transparency, credibility, and consistency in how organizations and 

investors define, measure, and track their performance. 

Source: www.thegiin.org. 

3.44 For investors to enter the SII market, the measurement of social impact is critical. Rating and 

certification agencies therefore play an important role in the market (WEF, 2013). The IRIS initiative, 

mentioned in the above box, aims to encourage the adoption of a standard format for reporting for social, 

environmental, and financial performance. The Global Impact Investing Ratings System (GIIRS) is a 

ratings agency and analytics platform for impact investors. GIIRS reviews, evaluates and scores the social 

and environmental impact of companies and funds along a number of dimensions of social and 

environmental impact. 

3.5.4. Social Investment Instruments 

3.45 As referenced in Chapter 2, the social investment market is developing in parallel to the current 

investment market in terms of products, funds and market structures. Typically, social impact investment 

entails the use of debt or equity instruments to deliver a social or environment “return” as well as a 

financial return. The balance between the two will differ depending on where the instrument lies on the 

spectrum as well as how well the investors and investees perform (Kramer and Cooch, 2006). New 

products and structures are continuing to be developed to meet the growing needs in the market (HM 

Government, 2013a). 

3.46 As in traditional finance, social investment instruments can include grants, loans, guarantees, 

quasi-equity, bonds and equity. However, more products, in the form of tailored financial instruments, are 

needed to match the various risk profiles and development stages of social ventures. Currently, there is a 

lack of a capital aggregation ladder (capital needed for social enterprises to grow and scale their business 

models) common to other asset classes. 

3.47 While there are differences across countries, in general there is a shortage of risk capital 

available, at both the early stage as well as at the growth stages. The ecosystem needs to be able to take 

risks and have the capital to fund innovative ventures. In some countries there are still some legal 

complications for social equity investment but attempts are being made to solve it with quasi-equity and 

other instruments. 

32 © OECD 2015


3.48 Today, most social investment is still in the form of grants, primarily from the philanthropic 

community, or secured loans. Venture philanthropists, who can operate across the spectrum of investment 

return, typically offer non-returnable grants for a purely social return while others use loan, mezzanine or 

quasi-equity finance for blended risk-adjusted financial and social returns (EVPA, 2011). Venture 

philanthropists provide substantial and sustained financial support to a limited number of organisations. 

Support typically lasts three to five years although it can also be longer with a goal of helping the 

organisation become financially self-sustaining by the end of the funding period (EVPA, 2011). 

Foundations have become increasingly interested in these models. A recent OECD publication highlights 

some foundation’s experiences to date in developing countries (OECD, 2014). 

3.49 There is a need for hybrid models using a combination of instruments. Increasingly, foundations 

are co-mingling traditional grants with social investment funds to combine their own experience and assets 

with those of commercial investors (HM Government, 2013a). Most deals require a mix of different types 

of instruments. 

3.50 “Pay for Success” instruments such as Social Impact Bonds (SIBs), first launched in the U.K. a 

few years ago, are capturing attention within the industry as well as in the broader public as an innovative 

new way to finance solutions to social issues. These public-private partnership models can contribute to 

much needed innovation in financing models as well as improvement in public service delivery. However, 

they can also be complex and time consuming to structure and implement (Addis et al, 2013). 

3.51 A SIB is a type of public-private partnership that embeds a pay-for-success scheme, 

commissioned by public authorities, foundation or corporations to provide social (goods and) services. SIB 

commissioners have clear priorities in terms of social goals that need to be achieved in a more efficient 

way. So, they set up predefined and measurable target social outcomes. As depicted in Figure 3.2 below, 

social service providers, with a track record in addressing that particular social need, are provided funding 

in the form of investment by private investors. The investors in the SIB are then repaid based on the 

achieved outcomes, defined a priori by the SIB commissioner. 

Figure 3.2. The SIB model 

Source: UK Cabinet Office, available at: https://www.gov.uk/social-impact-bonds. 

© OECD 2015 33


3.52 It is important to note that the focus on measuring outcomes (e.g. reduction of infection rates) is 

different from a focus on measuring outputs (e.g. number of vaccines provided). Transparency is ensured 

as outcomes are evaluated by an independent entity. The investors will be repaid, in tranches over time, 

only if the agreed upon outcomes are achieved. The payments and any positive returns on investment 

should reflect the innovation and more efficientsocial service provision provided by the social service 

delivery organisation.. For information on the evaluation of the first SIB created (in the U.K), see Chapter 

7. 

3.53 The SIB model spread quickly across the U.K. and to other countries, including the 

United States., Australia and other countries. These SIBs focus on a range of social issues including, for 

example, criminal justice, child/family support, homelessness, employment, and health. These and many 

other new models are currently being developed in a growing number of countries. A list of SIBs is 

provided in Annex 3.1. 

3.54 Building on the SIB model, Development Impact Bonds (DIB) are also structured as pay-forsuccess 

schemes but focused on developing countries. As with SIBs, investors are paid on the basis of 

whether the pre-defined social\development outcomes are achieved. DIBs seek to improve the 

effectiveness of traditional donor-funded projects by shifting the focus onto implementation quality and the 

delivery of successful results by introducing private sector actors who may be better-positioned than the 

public sector to take on risks associated with innovation. However, it should be noted that applying these 

models in developing countries might entail additional challenges such as the extent to which DIB 

contract terms can be enforced. Annex 3.1 includes a number of DIBs currently being developed in 

countries such as India, Mozambique or Uganda. Contrary to SIBs, the typical DIB commissioner is not 

local governmental authorities but rather international organisations or development agencies — e.g. the 

UK’s Department for International Development recently announced a DIB to invest in the prevention of 

deadly sleeping sickness in Uganda. 

3.6. Enabling environment 

3.55 The general framework conditions in a country can have a significant impact on the development 

of financial markets in general and the social impact investment market in particular. The existence of 

vibrant entrepreneurial finance markets can facilitate the development of the social impact investment 

market as experience with financial market tools can help in building the SII market (in fact, many people 

in SII were active in investment banking, private equity, venture capital and/or angel investing). 

3.56 The SII market is evolving in various ways across countries. This is influenced by the differences 

in the country context and, in particular, the ways in which social and financial systems are structured 

which determines the role and mix of public and private capital (Wilson, 2014). Chapter 5 provides further 

details on the social systems in the selected countries. 

3.57 In addition, political economy considerations also play an important role, since SII may be 

perceived differently across and even within countries. Indicators that might proxy social perceptions can 

shed some light on these aspects. Information on social perspectives is usually obtained through surveys 

such as the World Values Survey or the European Social Survey Additional data may also be available 

from the OECD (e.g. Society at a Glance; Better Life Index, Annex 6.2), World Bank indicators or the 

Social Progress Index. Annex 6.1 provides a list of data sources with links to where this type of data can be 

found. 

3.58 For the SII market to function well, the necessary legal frameworks and structures need to be in 

place for social ventures as well as streamlined regulations and requirements for investment (Thornley et 

al, 2011). This includes corporate structures more suitable to social ventures as existing structures (either 

34 © OECD 2015


for-profit or non-profit) may restrict the ability or flexibility of these organisations to attract investments in 

some countries. A number of new corporate structures are developing in various countries to meet the 

needs of hybrid social ventures. Hybrid corporate structures seek to blend for-profit and non-profit sources 

of funds to enable social organisations to pursue their mission (Rangan et al, 2011). Legal structures are 

discussed in further detail in Chapter 4 and also in Chapter 6. 

3.59 Barriers to the development of the SII market include legal and civil frameworks for the creation 

and regulation of social organisations, as well as the availability of finance and market information for 

start-ups in this field. A number of countries have established legal precedents or civil codes for social 

ventures which aim to facilitate new social start-ups, reduce risks for both entrepreneurs and potential 

investors, as well as make up part of the system of regulation and review needed to assess social impact in 

countries. 

3.60 Regulation, however, is a more complex contributor to the picture; on the one hand regulation 

may facilitate third party evaluation of social impacts (as with benefit corporations – see Reiser, 2013) and 

in turn help lower the risk for investors seeking social returns, and on the other may create additional costs 

for the enterprises themselves. 

3.61 As discussed earlier, the availability of financial capital for social enterprises is a critical factor to 

facilitating or restricting private partners in social sectors. These can be from public or private sources with 

varying conditions attached. Also, the balance between private and public ‘interest’ might signal different 

expectations for financial/social returns from these enterprises. 

3.62 Finally, the principle of a private social delivery organisation rests on having a social impact, 

which means the SII market in a given country is dependent on the availability of social outcome data, 

comparable public costs, and the present role of private finance in the delivery of social services. For a 

country to identify a possible ‘market space’ for SII, data is needed for assessing the business case for 

across multiple sectors or social target areas. Chapter 5 presents some of this ‘market space’ data for the 

G7 countries and Australia. 

3.63 There are several legal and regulatory issues that impact institutional investors including the new 

Solvency II (insurance companies) and Basel III (banks). In addition, the EU Structural and Investment 

Funds (EUSIF) initiative is meant to be helpful to the social impact investment market by creating lighter 

regulation but may create additional barriers as decisions on how each fund will be treated will be 

determined at the national or local level. The legislation came into effect in the summer of 2013 and is 

described in further detail in Box 3.5. 

3.64 Tax laws within countries have a huge impact on setting the conditions for social impact 

investment, primarily in terms of the rules surrounding non-profits, donations and investments. In some 

countries, governments have provided support to social impact investors and social sector organisations 

through tax credits, guarantees or subsidies. Additionally some have provided support to investees through 

technical assistance or procurement. 

3.65 In the 2014 Budget, the U.K. Government announced a new Social Investment Tax Relief 

which will give individuals who invest in qualifying social sector organisations a reduction of 30% of that 

investment in their income tax bill for that year. The government’s aim in introducing this new tax relief is 

to encourage private investment in social sector organisations (HM Government, 2013c). In 2002, the 

Community Investment Tax Relief (CITR) scheme was devised to encourage private investment into 

CDFIs. The U.K. has several other tax incentive schemes for investments in small and medium-sized 

businesses (HM Government, 2013b), including the Enterprise Investment Scheme (EIS), the Seed 

Enterprise Investment Scheme (SEIS) and the Venture Capital Trust (VCT). 

© OECD 2015 35


3.66 The U.S. also has some tax incentives in place. This includes the New Markets Tax Credits 

which provides a credit against U.S. federal income taxes to taxpayers who make qualified equity 

investments (investments where substantially all of the equity investment is used to provide loans to, or 

make investments in, low-income communities). The program was authorised by the Community Renewal 

Tax Relief Act, which was signed into law in December 2000. 6 

Box 3.5. European Social Entrepreneurship Funds 

The European Social Entrepreneurship Funds regulation (EuSEF) provides a label for investment funds that 

address social issues. To qualify as an EuSEF, a fund has to prove that at least 70% of the capital received from 

investors is invested in social businesses and that no more than 30 % of its available capital is used in the acquisition 

of non-qualifying assets. 

For investments to qualify, the investee must not be a listed company and must have a social goal, defined as 

“the achievement of measurable, positive social impacts as its primary objective” clearly stated in the documents 

establishing the business (statutes, mission, etc…). In addition, the investee must use its profits to achieve the social 

goal and ensure that any profit distribution does not undermine the social goal. 

The investee is considered a social enterprise if it i) provides services or goods to vulnerable or marginalised, 

disadvantaged or excluded persons; ii) uses a method of production of goods or services that embodies a social 

objective; or iii) provides financial support exclusively to social businesses as described in i) and ii). 

The EuSEF regulation foresees the following social areas for social entrepreneurship: 

1. Employment and labour markets; 

2. Standards and rights related to job quality; 

3. Social inclusion and protection of particular groups; 

4. Equal treatment, equal opportunities and non-discrimination; 

5. Public health and safety; 

6. Access to and effects on social protection and on health and educational systems. 

Investments can be made through a number of financing instruments such as: 

Equity or quasi-equity instruments; 

Securitised and un-securitised debt instruments; 

Units or shares of other eusef (with exceptions); 

Secured or unsecured loans granted by the eusef. 

 

A number of reporting obligations apply. In particular, EuSEFs must include in their annual report details of the 

social outcomes achieved with the investment policy as well as the social outcome measurement methodologies used. 

In addition, they must also report a number of investment-specific features, such as the: 

Social impact being targeted 

Criteria used to select the investments 

Risk profile 

Valuation and pricing methodology 

Methodologies used to assess social impact 

 

Source: Regulation (EU) No 346/2013 of the European Parliament and of the Council on European social entrepreneurship funds. 

6 . The Community Renewal Tax Relief Act can be found at: 

http://portal.hud.gov/hudportal/documents/huddoc?id=19129_actof2000.pdf 

36 © OECD 2015


References 



November. 

Bannick, M. and P. Goldman (2012): “Priming the Pump: The Case for a Sector Based Approach to Impact 

Investing”, Omidyar Network, London, September. 

BCG (2014), “Ready, Willing and Able: An interim review of the Investment and Contract Readiness 

Fund”, Boston Consulting Group, London, April. 

Bridges Ventures (2012), “Sustainable & Impact Investment - How we define the market”, London, 

August. 

Brown, A. and Swersky, A. (2012), “The First Billion: A forecast of social investment demand”, Boston 

Consulting Group, London, September. 

DPMC (2012) Government Response to Senate Economics References Committee Report ‘Investing for 

good: the development of a capital market for the not-for-profit sector in Australia’, June 2012, 

downloaded at http://www.dpmc.gov.au/publications/docs/government-response-investing-forgood.pdf, 

August 2014. 

ECNL (2009) ECNL Study on Recent Public and Self-regulatory Initiatives Improving Transparency and 

Accountability of Non-profit Organisations in the European Union, April 2009. 

Evenett, R. and K. Richter (2011), “Making Good in Social Impact Investment: Opportunities in an 

emerging asset class”, The Social Investment Business, TheCityUK, October. 

EVPA (2011), “European Venture Philanthropy Association: An Introduction”, European Venture 

Philanthropy Association, Brussels, October. 



GHK (2013), “Growing the Social Investment Market: The Landscape and Economic Impact” report 

prepared for the City of London, Big Lottery Fund, Big Society Capital, and Her Majesty’s 

Government by ICF GHK in association with BMG Research, July. 

GIIN (2013), “Catalytic First-loss Capital”, New York, October. 

Glänzel, G., Krlev, G., Schmitz, B. and G. Mildenberger (2013), “Report on the feasibility and 

opportunities of using various instruments for capitalising social innovators” TEPSIE, European 

Commission – 7th Framework Programme, Brussels: European Commission, DG Research 

HM Government, UK (2013a), “Achieving Social Impact at Scale: Case Studies of Seven Pioneering 

co-Mingling Social Investment Funds”, UK Cabinet Office, London, May. 

HM Government, UK (2013b), “Growing the Social Investment Market: 2013 Progress Update”, UK 

Cabinet Office, London. 

© OECD 2015 37




HM Government, UK (2012), “Growing the Social Investment Market: HMG social investment 

initiatives”, UK Cabinet Office, London. 

HM Government, UK (2011), “Growing the Social Investment Market: A vision and strategy”, UK 

Cabinet Office, London, February. 

IIPC (2014), “Impact Investing Policy in 2014: A snapshot of global activity”, Impact Investing Policy 

Collaborative, November. 



Koh, H., A. Karamchandani, and R. Katz (2012) “From Blueprint to Scale: The Case for Philanthropy in 

Impact Investing”, Monitor Group and Acumen Fund, April. 

Kramer, M. and S. Cooch (2006) “Investing for Impact: Managing and Measuring Proactive Social 

Investments”, Shell Foundation, January. 

Noya, A. (ed.) (2009), The Changing Boundaries of Social Enterprises, Local Economic and Employment 

Development (LEED), OECD Publishing. doi: 10.1787/9789264055513-en. 

OECD (2000), Social Enterprises, OECD Publishing. 

DOI: 10.1787/9789264182332-en 

OECD (2011), Financing High-Growth Firms: The Role of Angel Investors, OECD Publishing. doi: 

10.1787/9789264118782-en 

OECD/EU (2013) Policy brief on social entrepreneurship, Luxembourg Publications Office of the 

European Commission 

OECD (2013b), “Innovative Financing and Delivery Mechanisms for Getting the Unemployed into Work”, 

OECD LEED Forum on Partnerships and Local Governance, Handbook #.7, Paris, March. 

OECD (2014), “Venture Philanthropy in Development Dynamics, Challenges and Lessons in the Search 

for Greater Impact”, OECD Publishing, Paris. 

Reiser, D. (2013) Regulating Social Enterprise, Contribution to the 2013 Columbia Law School Charities 

Regulation and Oversight Project Policy Conference on the “The Future of State Charities 

Regulation”, downloaded at http://academiccommons.columbia.edu/item/ac:168586, August 2014. 




SIITF (2014) Impact Investment: The Invisible Heart of Markets, September. 

Triodos (2014), “Impact investing for everyone: A blueprint for retail impact investing”, Triodos Bank, 

September. 

38 © OECD 2015


WEF (2013), “From the Margins to the Mainstream: Assessment of the Impact Investment Sector and 

Opportunities to Engage Mainstream Investors”, World Economic Forum, Geneva, September. 

WEF (2014), “Charting the Course: How Mainstream Investors can Design Visionary and Practical Impact 

Investing Strategies”, World Economic Forum, Geneva, September. 

Wilson, K. E. (2014), “New Investment Approaches for Addressing Social and Economic Challenges”, 

OECD Science, Technology and Industry Policy Papers, No. 15, OECD Publishing. 

http://dx.doi.org/10.1787/5jz2bz8g00jj-en. 

Wilson, K.E. and M. Testoni (2014), "Improving the role of equity crowdfunding in Europe's capital 

markets”, Bruegel Policy Contribution Issue 2014/09, August. 

Wood, D., Thornley, B., and Grace, K (2012): “Impact at Scale: Policy Innovation for Institutional 

Investment with Social and Environmental Benefit”, Pacific Community Ventures, Institute for 

Responsible Investment at Harvard University and Rockefeller Foundation, February. 

© OECD 2015 39


ANNEX 3.1. LIST OF SIBS 

Geography 

Operational 

(as of 2014) 

Social Need 

Duration 

(years) 

Outcome 

Payment 

New South Wales, Australia No Intensive Family Support Services 5 N/A 9.2 

New South Wales, Australia Yes New Parent and Infant Family Support 7 7+ 6.4 

Brussels, Belgium Yes Employment 2 N/A 0.2 

Nova Scotia, Canada No N/A N/A N/A N/A 

Saskatchewan, Canada Children at risk of care N/A N/A N/A 

Medellin, Colombia No Teenage Pregnancy 4-5 N/A N/A 

Rajasthan, India No Education N/A N/A N/A 

Israel No Prevention of Type 2 Diabetes N/A N/A N/A 

Israel 

No 

Workforce development for Arab Israeli 

women N/A N/A N/A 

Israel 

No 

Dropout rates from engineering studies 

in tertiary education N/A N/A N/A 

Israel No Recidivism N/A N/A N/A 

Mozambique No Malaria N/A N/A 25-30 

Punjab, Pakistan No Primary education N/A N/A 25 

Swaziland No Prevention of HIV and TB 3 N/A 10 

Uganda No Sleeping sickness 8 N/A 20-30 

Uganda No Secondary education 10 N/A 35 

Peterborough, UK Yes Recidivism 8 12.2 7.6 

Essex County, UK Yes Foster care 5 10.6 4.7 

Greater Merseyside, UK Yes 

Workforce development (Innovation 

Fund) 3 6.8 3 

Shoreditch, London, UK Yes 


Fund) 3 4.9 1.4 

Stratford, Canning Town, 

Royal Docks (Newham), 


Cathall (Waltham Forest), UK Yes 

Fund) 3 2.0 4.9 

West Midlands (Birmingham), 


UK 

Yes 

Fund) 3 5.0 N/A 


Nottingham City, UK 

Perthshire and Kinross, 

Scotland, UK 

West London, UK 

Cardiff and Newport, UK 

Greater Manchester, UK 

Thames Valley, UK 

Yes 

Yes 

Yes 

Yes 

Yes 

Yes 

Fund) 3 4.4 N/A 


Fund) 3 1.8 N/A 


Fund) 3 4.6 N/A 


Fund) 3 3.0 N/A 


Fund) 3 5.0 N/A 


Fund) 3 5.6 N/A 

London, UK Yes Homelessness 4 7.6 8 

Manchester Yes Childcare N/A N/A N/A 

Wales, UK No Foster care N/A N/A N/A 

Cornwall, UK No Aging in place N/A N/A N/A 

Country-wide, UK Yes Adoption 10 N/A 3 

Illinois, US No N/A N/A N/A N/A 

Investment 

Needed\Raised 

40 © OECD 2015


Massachusetts, US Yes Recidivism 7 27 18 

New York City, US Yes Recidivism 4 2.1 9.6 

Employment for formerly incarcerated 

New York State, US Yes 

individuals 5.5 21.5 13.5 

National, US No Workforce development N/A 20 N/A 

Massachusetts, US No Homelessness 3 25 N/A 

Salt Lake City, US Yes Early Childhood Development 1 N/A 7 

California, US No Asthma Management N/A N/A N/A 

Neonatal care (Nurse Family 

South Carolina, US 

No 

Partnership) N/A N/A N/A 

Cape Town, South Africa No Criminal justice N/A N/A N/A 

Note: This table lists all the existing or announced SIBs by geography and social need as of 18, July, 2014. Figures on outcome 

payments and investment needed are expressed in millions of USD. 

Source: Instiglio, available at http://www.instiglio.org/en/sibs-worldwide/, accessed on 30 August, 2014. 

© OECD 2015 41


4. DEFINITIONS AND CHARACTERISTICS OF SOCIAL IMPACT INVESTMENT 

This chapter discusses the challenges related to definitions in the social impact 

investment market and provides a working definition based on a set of criteria for 

determining what might or might not be included as social impact investment. This 

includes a discussion of the core characteristics and definitional attributes. 

4.1. Existing definitions and challenges 

4.1 While in the early stages of a market’s development, it can be difficult to have precise 

definitions, for purposes of scoping and sizing the market, it is essential to work towards a common 

understanding of what is meant by social impact investment and agree upon a working definition to clarify 

what is included and what is not. This is important for policy makers, researchers and practitioners as well 

as for the overall development of the market. 

4.2 The term “impact investing” was coined in 2007 through an initiative coordinated by the USA’s 

Rockefeller Foundation and its use has spread more widely since then. According to the Global Impact 

Investing Network (GIIN), impact investments are defined as investments made into companies, 

organisations, and funds with the intention to generate social and environmental impact alongside a 

financial return. Impact investments can be made in both emerging and developed markets, and target a 

range of returns from below market to market rate, depending upon the circumstances. GIIN further 

defines the practice of impact investing by the following four core characteristics: 

 

 

 

 

Intentionality – The intent of the investor to generate social and/or 

environmental impact through investments is an essential component of 

impact investing. 

Investment with return expectations – Impact investments are expected to 

generate a financial return on capital and, at a minimum, a return of capital. 

Range of return expectations and asset classes – Impact investments generate 

returns that range from below market (sometimes called concessionary) to 

risk-adjusted market rate. 

Impact measurement – A hallmark of impact investing is the commitment of 

the investor to measure and report the social and environmental performance 

and progress of underlying investments. 

(GIIN, 2014) 

4.3 The term social investment was established in 2000 by the UK’s Social Investment Taskforce and 

was more traditionally used in Europe until recently. In 2013, following the G8 Social Impact Investment 

Forum hosted by the U.K., the SIITF and others involved in the international process that followed began 

using the term social impact investment, defined as investments made into businesses and social sector 

42 © OECD 2015


organisations, directly or through funds, with the intention of generating a measurable, beneficial social 

and environmental impact alongside a financial return (SIITF, 2014a). 

4.4 Essentially the terms – impact investing, social investment and social impact investment – mean 

the same thing. For the purposes of this paper and the OECD research, which has also been part of the 

international social impact investment initiative, the term social impact investment is used. 

4.5 At this early stage of development in the market, many players prefer to keep the definitions 

broad, also as a way to engage more people in the market. However, for the market to progress globally, it 

will be important for definitions to be clarified to make sure that there is a common language and 

understanding of what is considered social impact investment – and what is not. This chapter therefore 

seeks to deepen the discussion about social impact investing to provide a framework identifying what 

might or might not be considered to be SII. 

4.2. Definitional Characteristics, Attributes and Eligibility 

4.6 While there is a growing consensus about the broader framing of social impact investment, there 

is significant debate about the definitional scope of SII. This section seeks to provide a framework for 

working towards a SII definition by focusing on a set of defining characteristics and attributes as well as 

raising questions about possible eligibility boundaries. The goal is to allow enough flexibility for the 

consideration of various forms of SII, while helping to clarify what might be considered to be in or out of 

the commonly understood meaning of SII. 

4.7 A number of characteristics can be used to describe a transaction and to classify it as either 

corresponding to SII or not. We have identified seven key characteristics (dark blue boxes in Figure 4.1 

below) which are described further in the subsequent subsections. 7 A chart of all attributes and possible 

eligibility boundaries for each characteristic is provided in each of the corresponding sections below and 

then consolidated at the end of this chapter. 

4.8 The characteristics are grouped according to the SII framework components described earlier. 

For example, while return expectations are identified at the investor level, the measurement of social 

impact is typically carried out by delivery organisations. Transactions are at the centre and are the units of 

assessment. 

7 . Other characteristics could possibly be used. However, these seven characteristics are necessary and 

sufficient to: i) identify the SII “space” in the economy; ii) cover all SII players (and the profiles) relevant 

for a definition and iii) discuss the scope for policy action. 

© OECD 2015 43


Figure 4.1. List of characteristics 

In dark blue boxes, grouped by SII component 

Source: OECD. 

4.9 Within each characteristic, suggested boundaries could help to address the variability in the 

definition (which attributes are in and out). It is important to note that while some characteristics have 

attributes that can be quantified (e.g. return expectation), others have attributes that are discrete in nature 

distinguishing between different classes (e.g. different social target areas). Some fall in between the two, 

with different classes that can be “rank ordered” (e.g. investor intent). When attributes are quantified or can 

be ordered, thresholds are used to decide upon what is within the scope of SII. When no ordering is 

possible, deciding upon what is SII or not requires selecting the eligible attributes (or “buckets”) that fit 

within the criteria for SII. 

4.10 Figure 4.2 below provides two examples of characteristics, their attributes and the eligibility 

conditions. In the case of Social Target Areas, setting the eligibility boundaries means deciding which 

“buckets” are in (e.g. Education, in light blue) and which are out (e.g. Culture, in light red). With regards 

to return expectations, potential thresholds are also depicted in Figure 4.2 by black bars indicating that a 

transaction is only considered SII if returns are expected to be at least return of capital (black bar on the 

left), with an expected return that does not exceed the market rate of return (black bar on the right). Using 

this approach, investments can be classified as SII by comparing them against each characteristic and the 

related set of attributes and eligibility boundaries, based on a perspective of what should or should not be 

considered SII for each of the dimensions. 

44 © OECD 2015


Figure 4.2. Defining Characteristics, attributes and eligibility 

4.2a. Social Target Areas 

4.2a. Return Expectation 

Notes: The figure depicts two defining characteristics in dark blue: Social Target Areas and Return Expectation. Attributes are in light 

colour. Attributes in social needs provided here are examples and not an exhaustive list of all possible social needs. While returns on 

investment are continuous, social needs are discrete and can be thought of in terms of “buckets”. Social Target Areas may overlap, 

but are considered here as discrete for the sake of simplicity. 

Source: OECD. 

4.11 While all of the characteristics are necessary, none of them are sufficient to define SII on their 

own. A transaction can be considered SII only if it meets the suggested eligibility boundaries for each of 

the seven characteristics. Accordingly, an investment can be classified as SII if, for every characteristic, it 

pertains to an eligible class for those characteristics which are discrete in nature, and passes the threshold 

for those characteristics which can be quantified or ranked.. Most importantly, these eligibility boundaries 

can be adjusted according to context and perspectives. For example, researchers may use a set of eligibility 

boundaries for data collection purposes, while a policymaker may find another set more useful for policy 

instrument design purposes. In addition, OECD countries may use one set of boundaries for thinking about 

SII while developing countries might use another. As a result, this approach allows for variation in the 

boundaries of SII that accommodate different purposes for defining SII. It is also important to note that 

some characteristics will be more relevant depending on the context and objectives of defining SII. 

4.12 As an example, if a country decides that it should introduce a tax break for social impact 

investments, the practical question is to decide who is eligible for such tax break. In the UK, with the 

recent introduction of the Social Investment Tax Relief, the boundaries were set by legal structure and size 

(based on employees and assets): “Charities, community interest companies or community benefit societies 

carrying out a qualifying trade, with fewer than 500 employees and gross assets of no more than 

GBP 15 million may be eligible” (HMT, 2014). 

4.13 Different views exist in terms of where the boundaries lie for SII. This approach helps to explain 

these differences, while operationalising definitions for practical purposes such as data collection or policy 

implementation. Bringing all characteristics together, it is possible to devise a framework for setting clear 

boundaries according to the different perspectives and definitional purposes. The following sections 

discuss each defining characteristic in further detail. 

© OECD 2015 45


4.2.1. Social Target Areas 

4.14 Social target areas include a myriad of social needs in which SII can be put to work. Depending 

on the context, these can range from social needs, such as disability and unemployment to more traditional 

sectors, which applied in a certain context (see section 4.2.2) can have a high social impact. 

4.15 Views on social areas to include in SII can vary according to the different perspectives of the 

players involved in each transaction. For example, the SIITF, which during the first year included only 

developed countries, focused on social issues while organisations operating in developing countries may 

take a broader view. GIIN is a global network seeking to attract mainstream investors to SII so for both of 

these reasons, they tend to categorize target areas in line with more traditional investment sectors. 

Figure 4.3 below provides a comparison of the social areas focused upon by the SIITF with the sectors 

outlined by the GIIN for global investors and intermediaries. Surprisingly, only three areas overlap (health, 

affordable housing and education), which illustrates how broadly perspectives can differ. 

Figure 4.3. Social needs and investment sectors 

Source: OECD based on Social Impact Investment Task Force established by the G8 and GIIN website, http://www.thegiin.org/, 

accessed 21 July, 2014. 

4.16 Table 4.1 below provides a range of social areas that could potentially be considered SII under 

various circumstances. The first three areas include Community, Culture and Arts, which have typically 

been covered by philanthropic grants. The last five include Agriculture, Energy/Environment, Financial 

Services, Water and Sanitation, and ICT, which can be considered more mainstream investment sectors. 

Therefore on both of these ends of the spectrum, inclusion as SII depends on the other characteristics of the 

transaction, which will likely vary by subsector or location of provision of the service (described further in 

section 4.2.2 below). 

4.17 Dementia is an example of a social need in which SII can play an important role — this is clear 

from the G8 initiative launched in this area last year by the U.K. Active Minds (UK), which provides 

products and activities that help people suffering from dementia, is an example of an organisation into 

which investment could clearly be considered. On the other hand, the Big Idea Cooperative (US) is a café 

and bookstore that focuses on reaching out to the community and selling books promoting “social, 

economic and environmental justice”. It is a certified B-corp, incorporated as a limited liability company 

(LCC) and running on a not-for-profit basis. However, while providing books (literature) can be 

considered “culture”, it is not clear that this organisation would fit within most SII definitions (including 

OECD) as it does not set outcome objectives and measure their achievement. 

46 © OECD 2015


Table 4.1. List of attributes for Social Target Areas 

CHARACTERISTICS Attributes of the Characteristic Eligibility * 

Typically 

Philanthropy 

Community 

Culture 

Arts 

1. Social Target Areas 

Core SII 

areas 

Ageing 

Disability 

Health 


Public order and Safety 

(Affordable) Housing 

Unemployment 

Education and Training 

IN 

IN 

IN 

IN 

IN 

IN 

IN 

IN 

Other areas, 

leaning 

towards 

mainstream 

Agriculture 

Environment and Energy 

Water and Sanitation 

Financial Services (incl. Microfinance) 

ICT 

* Eligibility used in the OECD definition for the purpose of this report. The areas not clearly listed as being core SII are context 

dependent (see section 4.2.2). 

Source: OECD. 

4.18 It should be noted that there is often a degree of overlap between social areas. Not only can 

issues cut across various social areas, but actions in one area can have an impact or spillover into other 

areas. Chapter 5 discusses social issues and their implications in further detail and also points to examples 

such as the intersection between health and ageing areas. 

4.2.2. Beneficiary context 

4.19 As discussed in the section above, some investment activity might target areas that would not fit 

within the typical SII. However by addressing the needs of populations at risk or those living in 

underserved or developing areas, regions or countries, some of those transactions might be considered to 

be SII (Table 4.2 below). Financial services can be used as an example. In developing regions, in which 

access to financial services may be limited, providing financial services in economically disadvantaged 

areas, with eventual returns on investments would be considered SII as these investments can lead to 

improvements in the living conditions of the population. While some of these types of investments may be 

considered in the sphere of development finance, they can also be considered to be in a broader definition 

of SII. 

4.20 The same principle applies to IOT, an agriculture company whichbreeds sea cucumbers in 

Madagascar and one of the portfolio companies of Investisseurs and Partenaires, a SII intermediary (see 

WGIM, 2014). 8 While such a business would not be considered SII if operating in developed countries, the 

social dimension arising from the contribution to the fight against hunger and through the improvement of 

employment and living conditions for local populations, means it could be considered to meet SII criteria. 

8 . Further information can be obtained through I&P’s website, available at: 

http://www.ietp.com/entrepreneurs_en/#profil 

© OECD 2015 47


Table 4.2. List of attributes for Beneficiary Context 


Population 

at risk 

IN 

Age 

Social Demographics: Family type 

Other 

2. Beneficiary context 

Location: 

Underserved 

Developing 

Developed 

Population 

not at risk 

* Eligibility used in the OECD definition for the purpose of this report. 

Source: OECD. 

Income 

OUT 

4.21 In terms of populations at risk, family type, age (life cycle needs) and other social demographics 

can result in social exclusion of some people. This occurs not just because of income and wealth factors, 

but also due to the combination of socio-demographic risks that may result in costly social exclusion if not 

managed or supported properly. Therefore, identifying whether populations are at risk of social exclusion 

due to social demographics also helps determining whether the beneficiary context falls within the scope of 

SII. For the purposes of the OECD definition, SII should target populations at risk. 

4.22 While providing affordable housing for populations at the risk of social exclusion (or de facto 

socially excluded) can have a social impact (e.g., accommodation for people that live on the streets), 

affordable housing that targets well-off people may improve the living conditions of the beneficiaries but 

not necessarily address social needs such as reducing homelessness figures. In London, a social impact 

bond (SIB) that aims at providing accommodation for “rough sleepers” is currently in place (see Chapters 

3 & 7 for further detail on SIBs) and would fit within most SII definitions. 9 

4.2.3. Good\Service 

4.23 The type of the specific good or service (hereafter referred to as “good”) being provided, either 

pure private, pure public, or mixed, is relevant to understand whether there is a market for SII. Only the 

two extremes (public and private) are provided in Table 4.3 for simplification. While on one extreme, a 

good can be classified as “public”, on the other extreme it can be classified as a “private”. SII eligibility 

will apply to goods within the continuum between the two boundaries as illustrated, for example, by the 

dotted black lines in Figure 4.4 below. 

9 . Further information on the London “rough sleepers” SIB can be found at: 

https://www.london.gov.uk/priorities/housing-land/tackling-homelessness-overcrowding/roughsleeping/social-impact-bond-for-rough-sleepers 

48 © OECD 2015


Figure 4.4. Degree of Publicness 

Source: OECD. 

4.24 Social goods have different characteristics than pure private or public goods insofar as they 

would not completely exclude benefits accruing to non-target beneficiaries, but there are barriers which 

limit the opportunities for non-target beneficiaries to access the good without incurring any additional cost 

(important for the profit-principle). On one hand, goods and services that are excludable could more 

efficiently be provided under a fully private model. On the other hand, goods and services for which it is 

very difficult to exclude potential beneficiaries tend to be provided under a public delivery approach. In a 

list of SII attributes, each social good or service can be categorised according to its “degree of publicness" 

(see table 3). 

Table 4.3. List of attributes for Good\Service Characteristics 


3. Good\Service 

Degree of 

publicness 


Source: OECD. 

Public 

(SII) 

Private 

4.25 The practical use of this attribute for defining SII goods is to some extent limited, because it is 

challenging to accurately measure the “degree of publicness” of a good\service and fully identify the scope 

of the spillover effects of providing such good\service. However, this characteristic is crucial for devising 

policy because while a fully public good should be provided within a public model, private goods should 

be left for the private initiative, without any intervention of public sector authorities beyond acting upon 

the regulatory side. 

4.26 The hybrid nature of some social goods\services might require some forms of public-private 

collaboration, in which some SII-like models of provision fit. The decision of whether a good is public or 

private or semi-public will be left to policymakers. 

4.27 Table 4.4 depicts a matrix that provides a framework for further clarifying why the SII approach 

should be defined as between the pure public and pure private models of provision. The table builds on the 

expectation of SII to produce social benefits, and measures these as social outcomes (the two rows 

distinguish social impacts at the individual and society levels) and cost benefits, or efficiency gains (the 

two columns distinguish economic efficiency at the individual level from systemic/society efficiency 

gains). 10 

OUT 

IN 

OUT 

10 . Please note that these should not be regarded as dichotomous but rather as vectors flowing from the 

individual to the societal\systemic levels. There is also a parallel deliberately implied here with spillovers 

and externalities as well as with macro and micro impacts. 

© OECD 2015 49


Table 4.4. Social Returns and Economic Efficiency 

Impacts at the individual or societal\systemic level 

Degree of publicness 

Social impact on the 

individual 

Social impact on the 

society 

Source: OECD. 

Individual efficiency 

gains 

PRIVATE 

Possible SII 

Systemic efficiency 

gains 

Possible SII 

PUBLIC 

4.28 Two levels of “Social” are defined here: 1) the provision of goods that address the social needs of 

an individual or society to improve life outcomes (social impacts); and 2) the provision of goods that result 

in savings in the costs or improvements in the effectiveness of providing for social need (efficiency gains). 

The provision of goods that have no social impact is not discussed here, as they are screened out in the 

discussion of Social Target Areas. 

4.29 Where the consumption of a good has a social impact at the individual level only (very limited 

spillovers) and does not result in meaningful systemic efficiency gains these are considered ‘private’ – as 

the benefits/costs of the consumption is limited to the individual alone. Where the consumption of a good 

has both a social impact on society as a whole and result in systemic efficiency gains these are considered 

‘public’ – as their consumption is in the broadest social interest, as well as the potential for ‘free-riders’. 

4.30 Where the consumption of a good has only individual efficiency gains, but there are social 

returns to the society as a whole there may be space for SII; this would be the case for lowering the cost of 

consumption for ‘social impact’ private goods at the individual level – such as affordable housing. 11 Where 

the consumption of a good creates social impact primarily at the individual level but also results in 

systemic efficiency gains (e.g. lowering recidivism rates, to reintegrate offenders and lower costly prison 

budgets) there is also potential for SII. 

4.31 When the consumption of a good favours individual efficiency, but has broader social returns, it 

is important that any social impact spillovers are correctly factored in the SII instrument (e.g. through the 

use of SIBs). The consumption of affordable private goods with broad social impacts is clearly desirable, 

but nonetheless challenging for private enterprise models because the incorporation of externalities and 

monetisation of outcomes into businesses objective function is not always straightforward. 

4.32 The Social Impact Bond (SIB) model is based on a “pay for success” feature that allows setting 

outcomes (and objectives for providers and investors) that take into account externalities. This model is 

described in detail in Chapters 3 and 7. As an example, the Development Impact Bond (DIB) addressing 

malaria in Mozambique has a clearly defined outcome measure - reducing incidence rates by at least 30%. 

The approach is to provide anti-mosquito nets and indoor spay to at-risk populations. By focusing on 

incidence rates, the DIB incorporates not outputs at the level of non-affected individuals, but also a 

systemic health issue. 

11 . In the U.K., the percentage of the population living in households where the total housing costs (net of 

housing allowances) represent more than 40% of disposable income (housing cost overburden rate) was 

almost 41%, well above the EU average of 25% (OECD, 2013c, pp. 61). 

50 © OECD 2015


4.2.4. Delivery organisation intent 

4.33 The intent of delivery organisations can be an important characteristic in defining SII even 

though it is not straightforward to operationalise due to the subjective nature of the implicit attributes. A 

possible approach is to build on verifiable demonstrations of social intent. The intent of delivery 

organisations, as well as investors (discussed in a following section) is subjective and challenging to 

capture. 

4.34 Social intent can vary from an incidental outcome (i.e. whereby a social outcome is attained 

despite the fact that there was no intent beforehand) to a legally binding objective (Table 4.5 below). While 

difficult to identify precisely, the intermediate levels in this case might be disentangled, in particular by 

looking at the organisation’s mission and vision. Having the intention to address social challenges might 

not be sufficient for a social venture to be considered to be eligible for SII. For the purposes of the OECD 

definition, merely having the intent stated on the mission is not enough to be considered SII as the delivery 

organisation must put sufficient effort into demonstrating that they are committed to the social cause. 12 

Table 4.5. List of attributes for Delivery Organisation Intent 


4. Delivery organisation intent 

Incidental Social outcome 

Social Mission Intent 

Compulsory reporting 

(Seeks and obtains) External Certification or Label 

Legally binding constraints 

OUT 

OUT 

IN 

IN 

IN 


Source: OECD. 

4.35 A strong level of commitment can be demonstrated through some form of compulsory reporting 

of social outcomes to shareholders within the organisation’s statutes. Within the work of the SIITF, the 

Mission Alignment Working Group has identified different degrees of impact intent: i) simply comply with 

minimum legal requirements to create impact; ii) intention to create impact and iii) a primary commitment 

to create impact (WGMA, 2014). Only the latter is considered to be within the scope of SII (social 

enterprises and “profit with purpose businesses”). 

4.36 A number of initiatives have focused on developing metrics for impact assessment as well as 

assigning labels to companies (see Chapter 6). These help to identify companies within the scope of SII 

because they provide a good indication of commitment to social issues. However, while not all SII-related 

companies will be certified as so, some certified companies may not fully correspond to a certain definition 

of SII. For example, B-Corp certifies companies based on a number of variables, some of which may be 

considered to go beyond SII, under a narrower SII definition. 

4.37 Legally binding constraints provide the strongest indication of commitment to social goals. The 

Financing Agency for Social Entrepreneurship (FASE) in Germany helps social entrepreneurs raise money 

and, in the financing contracts managed by FASE, clauses are included in order to prevent social mission 

drift (WGMA, 2014). 

12 . Please note that the combination of social intent expressed in the mission combined with, for example, a 

formal measurement and valuation of social impact should be duly considered 

© OECD 2015 51


4.38 It is also important to distinguish “intent” from actions taken by companies to limit negative 

externalities arising from their business activity. The later should be considered Corporate Social 

Responsibility (CSR) and would not be included within SII. 

4.2.5. Measurability of Social Impact 

4.39 Just as with financial returns, SII investors require some form of measurement of social impact to 

factor both financial outcomes and social impact into their investment decisions (WGAA, 2014). This 

characteristic can range from the lack of measurement to formal evaluation with monetary valuations of 

social impact (see Table 4.6 below). Without having any form of social impact measurement a transaction 

cannot be considered SII. 

Table 4.6. List of attributes for Measurability of Social Impact 


No measurement 

OUT 

5. Measurability of Social Impact 

Informal evaluation, not valued 

OUT 

Formal evaluation but not valued 

IN 

Formal evaluation and valued 

IN 


Source: OECD. 

4.40 Impact assessment can be carried out in a qualitative (e.g. “improved the healthcare provision”), 

quantitative (more robust analysis, e.g. “increased the number of patients treated that would otherwise 

would remain untreated”) and\or by the monetisation of outcomes (e.g. attaching a value to the benefits for 

each treated patient as well as to the benefit to the society). It is important to attach a measure of the 

benefits (e.g. tangible changes in social outcome indicators or even in pecuniary terms) to impact 

measurement so that it is possible to understand if the workings of the delivery organisation and the 

investment have a de facto social impact. 

4.41 The measurement of social impact is not straightforward, and difficulties associated with its 

elaboration resulted in the creation of a working group to focus on impact measurement within the process 

of the SIITF. The Working Group identified four main phases of the impact measurement process, 

hereafter “formal” impact evaluation process. First, planning requires agreement upon impact goals 

(including a priori selection of indicators) and the strategy to achieve them (see Chapter 5 for a discussion 

on selecting indicators). Second, building the evidence base includes collecting, storing and validating 

data. Third, the quality, level and efficacy of the impact are assessed based on the analysis of data 

gathered. Finally, the impact and the measurement process are reviewed, providing input to future 

improvements in impact measurement (WGIM, 2014). 

4.42 In addition, a working group on impact measurement for social enteprises was created in the 

framework of the GECES, the European Commission's Group of Experts on Social Entrepreneurship, 

which released a report on “proposed approaches in European Commission legislation and in practice 

related to EuSEFs and the EaSI” (Clifford et al 2014). 

4.43 Building on the results of these working groups and expanding the analysis to the policy 

dimensions of social impact measurement, the OECD (forthcoming 2015) underlined the importance of 

encouraging experimentation and further analysis of ongoing developments in social impact measurement 

by social enterprises. This could help to foster a social impact measurement culture among stakeholders. 

The issue of proportionality of measurement is also important. Measurement should only be done if, and to 

52 © OECD 2015


the extent that it will actually influence decision-making, and the cost of measurement is not excessive 

compared to the significance of that decision. 

4.44 Evaluation processes are very challenging because ideally they require having a comparison 

group — i.e. what would have been the social outcomes if the delivery organisations would not exist. 

Given that running experiments and\or alternative empirical testing methodologies can be very resource 

intensive and require special skills, most intermediaries and companies do not take such an approach but 

rather use a mix of qualitative information with a range of quantitative indicators on social impact. 

4.45 As an example, Investisseurs and Partenaires have a clear strategy for measuring impact (WGIM, 

2014). Impact measurement does not follow an impact evaluation approach based on counterfactuals due to 

significant data challenges (and high costs of running experiments). Instead focus is given to impact data 

provided by investee companies. The impact assessment framework is nevertheless well developed 

(WGIM, 2014). 13 

4.46 Active Minds, briefly described above, reports the achieved social impacts on a yearly basis. 14 

This report provides an overview of data regarding business activities (e.g. number of devices sold) and 

features the result of a survey conducted with 7% of their customers regarding the impact that the devices 

have had on the quality of care (for corporates) or on the life quality of dementia-suffering family members 

(for individuals). Even though such an approach is far from a formal and thorough assessment of social 

impact, it reveals awareness for the need to provide information on social impact. 

4.47 The most comprehensive (but also challenging) approach to impact measurement requires a 

formal evaluation that also allows translating social impact into value. For example, the design of SIB 

contracts requires that predetermined social outcomes are attained before any payment is made by the 

contractor. This means that social impact needs not only to be measured but also to be valued in designing 

the “impact value equation” that balances the interests of outcome funders and investors (SIITF, 2014b). 

4.2.6. Investor intent 

4.48 Investors’ social impact intent is also a characteristic that features in most SII definitions (e.g. 

GIIN, SIITF). As discussed above, clearly identifying intent is challenging. 

4.49 On the one hand, investors can have a social impact even without having any social intent in the 

first place, if their investments happen to produce an unexpected or unintentional social outcome 

(incidental social outcome). For example, VantagePoint Capital Partners was awarded the 2013 financial 

investor in the cleantech industry. Investments in clean technologies create positive environmental impacts, 

but the main purpose of VantagePoint Capital Partners is to make profitable investments. Since there is no 

clear intent in achieving a social impact, such investments will not be considered as SII. Conversely, 

CANOPUS Foundation has been investing in solar power in Africa with a clear mission towards 

environmental sustainability. 15 

4.50 On the other hand, some investment contracts may formally require intentionality to achieve 

specified social outcomes. As an example, having a social intent may be compulsory under certain settings 

13. Further information about Investisseurs and Partenaires is available at http://www.ietp.com/. The impact 

measurement report can be found at: http://ietp.com/our-esg-impacts-annual-report-online 

14. The report can be retrieved from Active Minds website at: http://www.active-minds.co.uk/index.php 

15. Further information about VantagePoint Capital Partners can be found at: www.vpcp.com Further 

information about CANOPUS Foundation is available at: www.canopusfund.org 

© OECD 2015 53


— e.g. within a SIB structure, the government contractor will have specific payment terms that will depend 

on achieved outcomes, thus requiring a legally binding social intent. Accordingly, investor intent will 

range from incidental outcome (which is not included in SII) to legally binding constraints (which are 

included). 

4.51 In between these two extremes, varying levels of intent can be observed (see Table 4.7 below). 

For example, social intent may be expressed in a statement or other document regarding the investment 

made or investor profile. Citizen Capital is an investment fund that clearly states its intent to invest in 

social businesses and labels itself as an impact investing fund. The attainment of social goals is expressed 

in the vision as well as in a set of investment criteria that go beyond financial aspects (e.g., “investing in 

disadvantaged areas”; “addressing the needs of vulnerable populations”). 16 

Table 4.7. List of attributes for Investor Intent 



OUT 

6. Investor intent 

Social intent expressed in statement 

OUT 


IN 


IN 


Source: OECD. 

4.52 Foundations also have a clearly defined social mission both in statutes, as well as by legal 

requirements related to legal status. Some foundations have increasingly focused on SII approaches as a 

way to tackle social issues (Rangan et al, 2011). For example, as discussed earlier, the Gates Foundation 

makes Program Related Investments (PRI) in a wide variety of social areas such as education (e.g. Civic 

Builders), health (Global Health Fund, BiologicalE Vaccines). 17 PRI investments, which can involve a mix 

of instruments including debt and equity, aim to tackle social issues targeted by foundations while 

potentially generating some financial return. 

4.2.7. Return expectation 

4.53 Return expectations for investors are an important characteristic for defining the scope of SII. 

This characteristic is considered in most definitions being used in the SII market. In particular, there has 

been considerable debate regarding the risk-return profiles of SII (see WGAA, 2014). It is still unclear 

where the lower and upper bound of returns should stand in terms of considering an investment as SII. The 

last column of Table 4.8 below depicts the OECD approach to this issue. Donations stand at one of the 

extremes, in the sense that there is no expectation of getting part of the money back. As noted earlier, this 

is philanthropy and clearly cannot be considered as “investment”. 

16. Information on Citizen Capital can be found at: http://www.citizencapital.fr/ 

17 . Further information available at: www.gatesfoundation.org/how-we-work/quick-links/program-relatedinvestments. 

54 © OECD 2015


Table 4.8. List of attributes for Risk Adjusted Return Expectation 


7. Return expectation 

Grants 

Return of Capital 

Profit =< market RR 

Profit > market RR 


Source: OECD. 

4.54 At the other extreme, are expectations of profits above the market risk adjusted rate of return. On 

the one hand, investments made with the purpose of exceeding risk adjusted market rates of return would 

be no different from the mainstream for-profit market, thus not considered SII for the purpose of the 

working definition. On the other hand, effective rates of return on SII may turn out to be as high, or in 

some cases, higher than market rates of return. It is important to note, however, that investors expecting a 

return above risk adjusted market rates indicate that they regard such an investment to be no different from 

a mainstream for-profit investment and therefore it should fall outside the scope of SII. As noted earlier, 

rates of return vary across social sectors, and would also be taken into consideration by investors. Of 

course, the main issue is defining the “market rate of return” for social impact investment. To some degree, 

this characteristic is therefore a matter of principle in terms of the intention of the investors. 

4.55 The profit distribution policy of companies can be a determinant of whether a certain flow can be 

considered as SII. The discussion of this characteristic has stirred significant debate — in particular, on the 

extent to which social enterprises should be defined by reinvesting their profits (e.g. Galera & Borgaza, 

2009). Some degree of profit distribution might be needed to guarantee that investments yield positive 

returns. The extent to which social businesses are able to redistribute profits is also dependent upon their 

legal structure. For example in Italy, the legislation on social enterprises is currently being reviewed to, 

amongst other aspects, allow social enterprises to distribute profits (WGMA, 2014 and NAB-ITA, 2014). 

4.3 OECD working definition of SII 

4.56 For the purposes of this report, the OECD has sought to draw some initial eligibility boundaries 

for each of the core characteristics of SII. A summary of these suggestions is listed in the table below and 

in the draft OECD working definition of SII. 

OECD Working Definition of SII: 

OUT 

IN 

IN 

OUT 

Social Impact Investment is a transaction between an investor and investee in a social area, targeting 

beneficiaries in need. Beneficiaries targeted should be at risk populations and the good provided 

should have a mix of public and private good characteristics. These transactions are often made using 

intermediaries. The investee in the transaction should, at least, inscribe a compulsory reporting clause 

of its social activity in the statutes, as well as provide a formal evaluation of social impact. In parallel, 

the investor should, at least, have a compulsory reporting clause for social impact investments and 

have return expectations above or equal to zero, but not above the market rate of return (actual return 

may be higher). 

4.57 As discussed earlier, while all of the characteristics listed in the chart below are necessary, none 

of them alone are sufficient to define SII. A transaction can be considered SII only if it meets the defined 

eligibility boundaries for each of the seven characteristics. 

© OECD 2015 55


List of characteristics, attributes and eligibility 


Typically 

Philanthropy 

Community 

Culture 

Arts 

1. Social Target Areas 

Core SII areas 

Ageing 

Disability 

Health 


Public order and Safety 

(Affordable) Housing 

Unemployment 

Education and Training 

IN 

IN 

IN 

IN 

IN 

IN 

IN 

IN 

Other areas, 

leaning 

towards 

mainstream 

Population at 

risk 

Agriculture 

Environment and Energy 

Water and Sanitation 

Financial Services (incl. Microfinance) 

ICT 

Social Demographics: 

Age 

Family type 

Other 

IN 

2. Beneficiary context 

Location: 

Underserved 

Developing 

Developed 

Population not 

at risk 

3. Good\Service Degree of publicness 

Income 

Public 

(SII) 

OUT 

OUT 

IN 

Private 


Clear Social Mission Intent 

4. Delivery organisation intent Compulsory reporting 

(Seeks and obtains) External Certification or Label 


No measurement 

Informal evaluation, not valued 

5. Measurability of Social Impact 

Formal evaluation but not valued 

Formal evaluation and valued 


Social intent expressed in statement 

6. Investor intent 



Grants 

Return of Capital 

7. Return expectation 

Profit =< market RR 

Profit > market RR 

* Eligibility criteria used in the OECD definition for the purpose of this report. 

Source: OECD. 

OUT 

OUT 

OUT 

IN 

IN 

IN 

OUT 

OUT 

IN 

IN 

OUT 

OUT 

IN 

IN 

OUT 

IN 

IN 

OUT 

56 © OECD 2015


References 



November. 

Clifford J, Hehenberger L, and Fantini M (2014), "Proposed approaches to social impact measurement in 

European Commission legislation and in practice related to: EuSEFs and the EaSI" 

http://ec.europa.eu/internal_market/social_business/docs/expert-group/social_impact/140605-subgroup-report_en.pdf 

Galera, G., and C. Borzaga (2009), "Social enterprise: an international overview of its conceptual evolution 

and legal implementation", Social Enterprise Journal, 5(3): 210-228. 


accessed 15 May 2014 



HMT (2014), “Social investment tax relief guidance”, HM Treasury, London, March. Available at: 

https://www.gov.uk/government/publications/finance-bill-2014-legislation-explanatory-notes-andguidance 

NAB-ITA (2014), “La finanza che include: gli investimenti ad impatto sociale per una nuova economia”, 

National Advisory Board Report, Italy, Social Impact Investment Taskforce established by the G8, 

September. 

OECD (2013c), OECD Economic Surveys: United Kingdom 2013, OECD Publishing. 

doi: 10.1787/eco_surveys-gbr-2013-en 

OECD/EU (forthcoming 2015), “Policy Brief on Social impact measurement for social enterprises EU 

Commission/OECD, Luxemburg”, Publication Office of the European Union. 



SIITF (2014), “Impact Investment: The Invisible Heart of the Markets”, Social Impact Investment 

Taskforce, London, September. 

SIITF (2014b), Social Impact Investment Taskforce Report, Policy levers and Objectives – Explanatory 

Note for Governments, London,September. 

Thornley, B., D. Wood, K. Grace and S. Sullivant (2011), “Impact Investing: A Framework for Policy 

Design and Analysis”, Pacific Community Ventures, Institute for Responsible Investment at Harvard 

University, and Rockefeller Foundation, January. 

WGAA (2014), “Allocating for Impact: Harnessing private capital for public good”, Working Group on 

Asset Allocation (WGAA), Social Impact Investment Taskforce established by the G8, September. 

WGIM (2014), “Impact Measurement: Shifting the Paradigm”, Working Group on Impact Measurement 

(WGIM), Social Impact Investment Taskforce established by the G8, September. 

WGMA (2014), “Profit with Purpose”, Working Group on Mission Alignment (WGMA), Social Impact 


© OECD 2015 57


5. CONTEXT SETTING: DIFFERENCES IN SOCIAL NEEDS AND SERVICE DELIVERY 

ACROSS SELECTED COUNTRIES 

This chapter looks at the context for social impact investment across the G7 and 

Australia. This includes looking at changes in social needs and direct public sector 

provision over time as well as a discussion of the different models of social service 

provision in each country. This chapter covers: a review of trends in social needs in 

key service sectors (health, employment and education, housing, criminal justice and 

family services); trend changes in public spending in the above areas; models of 

social services provision; evidence of best practice in this area; and, methods and 

issues for measuring social impact. 

5.1 Introduction 

5.1 The contexts in which Social Impact Investment (SII) takes place, country-to-country, will have 

a significant bearing on the potential for SII to have a lasting and positive role in society. Key contextual 

factors include: the extent to which present legislation and financial regulation plays a role in facilitating 

social impact investment; the extent of social need by sector; the evolving size and role of public 

intervention, also by sector; varying models of social service provision in each country, stakeholders and 

their present effectiveness; and, the political economy of private intervention. 18 

5.2 The variation in these contexts can inform how different SII approaches may be more appropriate 

in some sectors than in others, and easier to implement in some countries than in others. The purpose of 

this chapter is to contribute to the discussion of how SII could fit in to present forms of social impact 

investment by mapping key social-contextual factors in the G7 and Australia. 

5.2 Social outcomes and social spending 

5.3 The space in which SII could take a positive role in social development provides further 

contextual information for assessing the need for SII, and its likelihood to have a meaningful and lasting 

effect. Understanding how different countries achieve preferred social outcomes, relative to the extent of 

public social interventions, is important for gauging this ‘SII market space’. Of course, the final ‘market 

space’ will also be determined by the extent to which SII might want to go ‘above and beyond’ the public 

efficiency and effectiveness, but because governments are the largest investor in social causes in every 

country, the specific role of public spending relative to key social outcomes is the most appropriate starting 

point for such an estimate. 

5.4 Below, two sections will discuss trends in social outcomes and public expenditure from across a 

range of social sectors, with a focus on what these data might mean for SII. 

18. Historical factors also play a role, but are beyond the scope of this paper. 

58 © OECD 2015


5.2.1 The need (for better) social services: trends in social outcomes 

5.5 The extent to which any investment can make a social impact will rely on the type and extent of 

need – and demand for improvement – across an array of social outcomes. Social outcomes are evolving in 

different directions, in different social sectors, for different reasons – and social services can take a 

supporting role in both positive and negative settings. For instance, increasing life expectancy and ageing 

societies increase demand for long-term care of various kinds (frailty, dementia, in-home or institutional 

care), whereas the increase in single-parent families or families in which both parents work will need to be 

facilitated by family care services in preschool and after-school. 

5.6 The following subsections provide some examples of evolving needs in health, employment and 

activity (including education), housing, public order, and family service sectors. 

5.2.1.1 Health and care needs of the elderly 

5.7 Although there are many health outcomes and services to consider across the population, the 

long-term health care needs of the elderly are of particular interest for the SII discussion for two reasons. 

First, the health of the elderly is an important social consideration as societies age, and people live and 

work longer. Second, because it is here where the highest voluntary private social spending occurs because 

of the intersection of health and old-age spending (OECD, 2014a). 

5.8 Figure 5.1 reports on the extent of social need for elderly care, and predictions for social need in 

the future. Panel A maps the rates of people aged 65 years receiving long-term care at home or in 

institutions (bars), and plots over these figures the prevalence of dementia among the population aged 60 

years and over. The demand for elderly long term care (LTC) in OECD countries is high, with 1 in 8 

people over 65 receiving LTC, two-thirds of whom are receiving this care at home. Long-term care needs 

are determined by health needs, and so by using the example of dementia – a concern for old age in 

particular, resulting in progressively high-intensity health and care supports – it can be estimated that at 

least half of LTC receivers over 60 will need some high-intensity services at some point in their lives. 19 

5.9 The juxtaposition of the figures in Panel A, read alongside the evidence in Panel B, gives the 

strongest message for the need for innovative social delivery organisations in these countries. First, 

although LTC provision varies widely, the demand for these provisions is likely to be very similar across 

countries – and so there is unmet demand. Second, as the scale of dependency increases, demand for care 

will increase substantially relative to the working-age population in the coming decades. 

19 . As noted earlier in the paper, the G8 has put a special spotlight on the issue of dementia and has been 

investigating the role that SII can play in helping to address this growing social concern. 

© OECD 2015 59


Figure 5.1: One in 20 over 60’s have dementia, on average one in 8 over 65’s are subject to long-term care, and 

in the next 30 years rates the support ratio for older people will halve 

Panel A: Population aged 65 years and over receiving long-term 

care, 2011 (or nearest year) and prevalence of dementia among 

the population aged 60 years and over, 2009 

Panel B: Over 65 population as a ratio of working age population 

(15-64) 

Note: For long-term care estimates, data is missing for the United Kingdom, and is for different dates in other countries (Japan (2006), 

United States (2007), Canada (2009), and France (2010)). The long-term care OECD average is for 21 countries (see online data 

annex). For prevelance of Dementia, OECD average is for 34 countries. 

Source: OECD Health Statistics 2013 (OECD, 2013d), (http://dx.doi.org/10.1787/health-data-en and citing Wimo et al [2012] for 

dementia estimates) and Society at a Glance, (OECD, 2014b). 

5.2.1.2 Unemployment, inactivity and school drop-outs 

5.10 Helping people into good quality and secure employment is critical for a range of desirable social 

outcomes today and in the future. Today, the private and public social gains from employment include a 

reduction in household poverty – and the improved quality of life this brings – increases in productivity, 

and reductions in benefit dependency. For tomorrow, employment is critical for building the social 

contributions needed to pay for a person’s own pension and elderly care, as well as for tax contributions 

that fund much of the present public social spending in the areas of health, education, and social protection 

among others. Helping youth into quality employment or stay in education settings is the foundation for 

success in this area, as well as a healthy economy and society. 

5.11 Table 5.1 presents experiences of long-term unemployment spells, unemployment rates for older 

workers, education drop-out rates for older youth, and rates of inactivity in youth (NEET – "not in 

education, employment or training") in younger and older cohorts. Percentage point movements up or 

down in the past five years are presented in parentheses, where available. Altogether, the data highlight 

need, and to a degree a lack of effective policy development, in present social ‘activation’ systems: two 

factors which would indicate demand for SII-type innovation in this sector. 

5.12 More specifically, many country systems are struggling to produce effective employment or 

‘activation’ outcomes in older youth cohorts, and, with the exception of Germany, people who are 

unemployed are facing much greater challenges in returning to work now than they did 5 years previously 

(Italy and Japan have notable challenges to contend with here, and across the OECD as a whole the rate of 

longer term unemployment has increased by 50% in 5 years). 

60 © OECD 2015


Table 5.1: Although younger and older cohorts have experienced little change in unemployment risks, more 

unemployed people are out of work for a year or more 

Long-term 

unemployment 

(2013) 

Unemployment (55 to 64 

years, 2013) 

Dropout rates 

for youth aged 

20-24 (2011) 

NEET rates (2011) 

Male Female 15-19 20-24 

Australia 19.2 (4.4) 4.3 (0.6) 3.2 (0.3) 13.9 7.8 (1.4) 11.7 (1.0) 

Canada 12.7 (4.9) 6.9 (-1.1) 5.8 (0.1) 8.3 7.7 (0.5) 14.6 (0.9) 

France 40.4 (5.1) 7.5 (1.1) 6.5 (0.5) 14.5 7.1 (0.8) 20.3 (2.4) 

Germany 44.7 (-0.8) 6.2 (-1.8) 5.3 (-2.8) 12.1 3.5 (-0.7) 12.6 (-2.7) 

Italy 56.9 (12.5) 6.7 (2.9) 4.1 (1.4) 20.5 11.4 (1.2) 28.4 (5.8) 

Japan 41.2 (12.7) 4.4 (-1.0) 2.8 (-0.5) … 10.1 (2.5) … 

United Kingdom 36.3 (11.8) 5.4 (-0.5) 3.8 (0.9) 12.4 9.5 (-1.2) 19.1 (1.1) 

United States 25.9 (9.7) 5.6 (-1.5) 5.0 (-1.0) 9.0 7.1 (0.8) 18.5 (2.3) 

OECD countries 35.3 (11.6) 6.1 (-0.1) 5.0 (0.0) 15.0 8.2 (0.1) 18.5 (2.4) 

Note: Employment figures are rates in given years, figures in parentheses record the difference in the rates compared to 5 years 

previously. Dropout rates are for the share of 20-24 year-olds having left school and not holding an upper secondary degree. 

Source: OECD dot.stat employment and education series, 2014c, OECD 2014d. 

5.13 Educational dropout rates also represent a variable challenge across countries and a predictor of 

hard-to-place inactive youth; preventing dropouts from education is realistic and measureable intervention 

space for SII, with as many as 1 in 7 older youth not leaving school with only a lower-secondary. 

Figure 5.2 maps the NEET rates for older youth to the dropout rates, and shows that in all cases, with the 

exception of Australia, it is unlikely to be low education alone that inhibits the activity of youth as NEET 

rates outstrip drop-out rates. In Canada, Italy, the United Kingdom and the United States the difference 

might suggest an unmet demand for services to place qualified youth into work. 

Figure 5.2 Australia has the most success in activating low skilled youth 

Note: Both series are for 2011. Data for Japan are missing. Dropout rates are for the share of 20-24 year-olds having left school and 

not holding an upper secondary degree. 

Source: OECD dot.stat education series, 2014c, OECD 2014d. 

5.14 In the area of employment support, a number of countries are encouraging SII through the 

introduction of Social Impact Bonds (SIBs), including one to reduce youth unemployment in the United 

Kingdom, see Chapter 5 for details. 

© OECD 2015 61


5.2.1.3 Housing affordability and quality 

5.15 A further sector related to important social outcomes is housing. Providing all members of 

society with a secure and good quality accommodation is not only a human right and an ethical priority, 

but stable good-quality homes provide the foundation from which stable employment is achieved, families 

are formed, communities are built, local environments are protected, and social cohesion can develop. 

5.16 Figure 5.3 presents two panels of housing data from the Gallup World poll and shows overall, 

that while there has been some falls in the rates of dissatisfaction with housing options over recent years, 

these have generally been from high levels (on average over 1 in 3 respondents in the OECD reported 

dissatisfaction with the level of good quality affordable housing in the city or area where they lived). At the 

same time, respondents also reported an increase in experiences of being unable to meet hosing costs. 

5.17 Across the OECD, almost one in ten people have trouble meeting housing cost at some point in 

the year, in Australia this is now as low as 1 in fifty, and nearer 1 in 7 in the United States (where the 

financial crisis would have had an effect). The message for SII is that there remains high demand for 

affordable housing in most countries, as well as for services to improve the quality and affordability of 

present housing stock (although to a lesser extent). 

Figure 5.3: Satisfaction with affordable housing increased in recent years, but experiences of difficulty in 

meeting costs also increased 

Panel A: dissatisfied with affordable housing 2008, 2012 

Panel B: recent difficulty providing adequate housing 

Note: The Gallup World Poll was conducted by telephone in approximately 140 countries in total, and all OECD countries, using a 

common questionnaire translated into the main national languages. Samples are nationally representative of the resident population 

aged 15 and over in the entire country, including rural areas in most cases. Sample sizes are limited to around 1 000 persons in most 

countries (exceptions include Iceland and Luxembourg [c. 500]; Japan and New Zealand [c. 750]). Data for Germany and Japan are 

the average of four quarterly samples. Observed data points on each trend line are 'filled', estimates are 'empty'. Panel A records the 

proportion of respondents reporting being dissatisfied with the level of good quality affordable housing in the city or area where they 

live'. Panel B records the proportion of respondents who answered 'Yes' to the question 'Have there been times in the past twelve 

months when you did not have enough money to provide adequate shelter or housing for you or your family?'. 

Source: Gallup World Poll, 2014. 

62 © OECD 2015


5.18 An example of how SII can meet demand for affordable housing comes from the United 

Kingdom’s Tesco Supermarket chain which recently responded to debates on housing needs (as well as 

changing demand form their customer base) by unlocking it’s land banks for housing projects (reportedly 

including their own GBP 1 billion house-building project [see Guardian, 2014]). Contributions to housing 

stock, particularly when unlocking banked land, should contribute to macro-social goals for increasing 

available, and in turn affordable, housing stock (for a detailed discussion of the range and definitions of 

what constitutes a social impact investment see Chapter 4). 

5.2.1.4 Policing, safety and crime 

5.19 Crime is a blight on societies, and depending on the severity of the crime experienced, can have 

severe personal and social impacts. Reducing crime and the fear of crime are major social goals, and 

whether present systems are coping with expectations or not will provide an insight as to whether SII has a 

role in this sector. 

5.20 Crime statistics are difficult to interpret accurately because they often rely on crimes being 

reported, and convicted, and this may result in important variations in different countries (and in turn 

national-level reporting biases). For this reason nationally-relative measures of contact with the police are 

report in Table 5.2, and show that although numbers are rising overall, and in France and Italy (but not for 

Italian juveniles), most countries report lower rates of people being in formal contact with the police since 

the mid-2000s. 

5.21 Whether increases in contact with the police are a proxy for improvement in policing, and an 

improvement in overall safety is generally open to debate (lower rates might equally be due to higher risks 

and lower policing standards), and so indicators of safety and policing are also reported in Table 5.2. 

Results for confidence in policing and feeling safe in your locality would suggest that increased contact 

with police in France does not proxy a worsening social situation. In fact, across all countries, both 

confidence in the police and feeling safe in the locality at night have improved (with the exception of small 

falls in the latter indicator in Italy and Japan). For SII, although social outcomes seem to be improving in 

this sector, innovation may still be required, because progress is slow in many countries, and on average 3 

in 10 people still report feeling unsafe outside at night or not having trust in the police. 

© OECD 2015 63


Table 5.2: Indicators of Policing safety and crime trending in the right directions, but still have some way to go 

Confidence in local 

police between 2007 

and 2012 

Do you feel safe walking 

alone at night in the city or 

area where you live? 

Persons brought into formal 

contact with the police 

and/or criminal justice 

system, all crimes (Index 

2004=100) 

Prison rates 

of over 18s 

per 100,000 

Prison 

occupancy 

rates 

2007 2012 All Juveniles 2007 2012 2011 c.2013 

Australia 78 80 … … 77.2 84.3 167.1 96.0% 

Canada 88 87 97 89 77.5 82.6 96.4% 

France 73 74 112 134 66.6 78.2 131.4 116.8% 

Germany 76 82 … … 64 76.1 82.4% 

Italy 74 76 118 93 75.3 74.8 132.5 128.8% 

Japan 70 74 83 67 72.5 72.3 65.8 77.2% 

United Kingdom 69 76 … … 63.1 68 111.2% 

United States 78 78 89 73 57.9 67.9 939.5 99.0% 

OECD 70 72 106 105 68.3 72.2 193.8 … 

Note: For crime rate changes OECD average is an average of data for 23 countries. For prison rates (“Prisons, Penal Institutions or 

Correctional Institutions” means all public and privately financed institutions where persons are deprived of their liberty. The 

institutions may include, but are not limited to, penal, correctional, and psychiatric facilities under the prison administration. “Persons 

Held” should exclude non-criminal prisoners held for administrative purposes, including persons held pending investigation into their 

immigration status and foreign citizens without a legal right to stay held prior to removal) Canadian data is for 2010. Prison occupancy 

rates United Kingdom data is for England and Wales only, data for Australia, England & Wales, France, Germany, and Italy are from 

2013; 2012 in Japan and the United States, and 2009 in Canada. 

Source: Society at a Glance (OECD, 2014b); citation of sources: Gallup world Poll, 2014 and United Nations Office on Drugs and 

Crimes (UNDOC - www.unodc.org/). For prison occupancy rates author’s calculations of national informant data (available on 

request). 

5.22 Finally, prison rates and prison occupancy rates are interesting indicators of social outcomes for 

the SII discussion because recidivism was the first social outcome to be linked to a social impact bond 

(recidivism data is not available due to problems with comparability across countries – see Richardson, 

2009). The standout case in this picture is the United States, where prison rates are 5 times higher than the 

OECD average. Providing for prisoners is a costly process, and so innovation in crime / recidivism 

prevention services will be in general demand, which may create a space for SII products. Moreover, when 

prisons are over their capacity (above 100% occupancy rates – see Figure 5.4) this signals a pressing unmet 

demand for these services, or even alternative services to incarceration. 

64 © OECD 2015


Figure 5.4: Prisons in France, Italy and the United Kingdom are overfull 

Note: Prison occupancy rates United Kingdom data is for England and Wales only, data for Australia, England & Wales, France, 

Germany, and Italy are from 2013; 2012 in Japan and the United States, and 2009 in Canada. 

Source: Author’s calculations of national informant data (available on request). 

5.2.1.5 Family care and the employment of women 

5.23 The social value of childcare for child development, family formation and female employment 

has been recognised for many years (OECD, 2011a), and has been supported by increases in public 

investment in this area in many OECD countries before the crisis (ibid) and one area of family policy that 

has seen expansions during the crisis period (OECD, 2014a). Childcare is also seen as an important 

contributor to the efficiency of social systems, preparing children for later schooling, increasing 

productivity in adulthood and reducing the likelihood of anti-social outcomes (see for instance Heckman 

and Masterov, 2007). Related to the provision of childcare, and important for achieving important gender 

equity goals for societies, is helping women access good quality secure employment. 

5.24 Table 5.3 presents data on recent developments in childcare enrolment and prime-age female 

unemployment and part-time employment (Figure 5.5 maps female part-time employment to preschool 

enrolment). Together these data point towards changing demand for childcare services, as well as changes 

to childcare take-up, yet a general message is hard to interpret because the expected finding of an increase 

in childcare for both age groups is not reflected in positive changes to broad employment patterns for 

women of prime working age. Nonetheless, some country-specific findings can inform the SII discussion, 

including: a suggestion of a need for innovation in non-childcare support for unemployed Italian women, 

and an expansion in the provision of childcare in the United States, where there is likely to be unmet need 

in the pre-school years (3-5) in particular (see Figure 5.5). 

© OECD 2015 65


Figure 5.5 In countries where there is low childcare enrolment and low part-time employment, there is likely to 

be unmet demand for childcare 

Source: OECD dot.stat, education and employment series, the OECD Family database (both 2014e), and the Health Behaviour in 

School-aged Children Study (2010). 

Table 5.3: Cross-nationally, changes in aggregate childcare enrolment do not map to female (un)employment 

figures 

Pre-school 

enrolment rate 

children aged 3-5 

years 

% children < 3 in 

formal childcare and 

pre-school 

Women - Part-time 

employment 

Women – 

Unemp. rate 

Children 11-15 in 

foster or child 

homes (per 

thousand) 

2007 2011 2006 2010 2009 2013 2009 2013 2010 

Australia 54.9 59.1 33.2 33.9 32.8 4.6 4.7 

Canada 46.7 19.8 19.1 6.1 5.6 11.4 

France 100 99.2 42.4 48 21.2 20.7 8.2 8.7 14.1 

Germany 91.2 94.2 13.6 23.1 39.1 37.6 6.9 4.6 4.4 

Italy 98.3 95.3 28.6 24.2 30.2 32.5 8.5 12.4 17.4 

Japan 88.7 88.8 22.5 25.9 30.5 32.1 4.9 3.9 

United Kingdom 89.8 94.1 39.7 42 35.1 35.1 5.2 5.6 5.7 

United States 59.1 70.3 43.2 13.6 11.7 7.2 6.3 3.5 

OECD - Average 77.4 80.9 28.8 32.6 22.7 22.8 7 7.5 7.4 

Source: OECD dot.stat, education and employment series, the OECD Family database (both 2014e), and the Health Behaviour in 

School-aged Children Study (2010). 

5.25 Another ‘family’ social need of interest for SII is children in out-of-home care. Supporting these 

children has the potential for large social impacts in terms of providing secure, supportive, and long-term 

home environments that maximise the child’s development opportunities and also reducing costs 

associated to institutional care (public and private). Table 5.3 presents rates of "looked after" children per 

1 000 children aged 11 to 15 and shows that Italy and France have almost twice as many children in foster 

or child homes than the OECD average. Examples of SIBs already at work in this area, in the case of 

adoption in the United Kingdom and support for "looked after" children in Australia, however it must be 

stressed that care for the most vulnerable children should prioritise quality of placement over quantity of 

placements, and be carefully monitored for children’s living standards following placement. 

66 © OECD 2015


5.2.2 The evolving size of the public share: public social expenditure by sector 

5.26 There are a number of important reasons to introduce the size and type of public expenditure on 

social interventions for the SII discussion. First, how much public bodies in different countries presently 

spend on social interventions can be considered an indication of the revealed willingness to invest in social 

impact measures. Second, comparing spending amounts by sector can be used as a proxy for assessing the 

size and priority of different social impact investment ‘markets’ (prior to factoring-in the ambitions of SII). 

Third, comparing social spending across countries alongside social need can be used to highlight cost 

efficiency issues in the public sector, leading to an indication of the extent of need for innovation and new 

approaches, such as SII. 

5.27 A number of dichotomies are important for understanding how SII, in its different forms, might 

fit into public service management: large companies and SMEs, cash and service benefits, and national and 

local markets and governance. Across these dichotomies there are links; with larger companies more likely 

to be involved in cash investments or financial services (insurance, micro-finance) rather than services 

which are more often managed at the local government level and within the potential remit of small to 

medium sized enterprise. 

5.2.2.1 Government spending: where the money goes 

5.28 Figure 5.6 maps government expenditure in the areas of social protection, education, health 

housing and public order (each linked to a social outcome area measured above) and clearly shows that 

human and social services account for the majority of government expenditure across OECD countries. 

The different ways in which public sector services are financed will inevitably result in different challenges 

for reform. For instance, where public benefits are financed though social contribution payments, 

recipients are likely to expect predefined conditions of delivery to be met (rates of payments, services 

standards, or services providers themselves) years into the future. Compared to services financed through 

general taxation, the contribution conditions are more likely to challenges to innovation. 

5.29 Social protection alone makes up one third of total government expenditure on average, and is 

over 40% of total government expenditure in France, Germany Italy and Japan. Social expenditure 

includes old-age care and pensions, as well as payment to families for childcare (family allowances and 

childcare, but not education), and unemployment and social assistance payments. Education and health 

also make up a large part of government spending, with around 1 in every 4 dollars going to these services 

across the OECD. In countries where social protection spending is relatively low, like Australia and the 

United States, education and health spending is higher. Over the three sectors of social protection, heath, 

and education each country spends around 60% to 70% of its budget. 

5.30 Small but socially-relevant interventions of ‘housing and community amenities’ and ‘public order 

and safety’ top up the expenditure on social interventions by around 5-8% of total. France stands out as a 

country with relatively high housing expenditure, whereas the Anglophone countries are spending more of 

total on public order and safety. 

5.31 Other research has mapped the trends in government expenditure, and shows that across the 

OECD as a whole, the biggest falls over the last decade came in the areas of general public services and to 

a lesser extent defence. Health, social protection, and economic affairs show the biggest relative increases 

(OECD, 2011b). 

© OECD 2015 67


Figure 5.6: Social protection, health, housing and education account for over 60% of total public spending 

Structure of general government expenditures by function (2011) 

Note: ‘General public services’ includes general services, and spending on defence, economic affairs, environmental protection, and 

recreation, culture and religion. Canada is missing due to incomplete expenditure data. OECD average is for 30 countries (Chile, 

Mexico and New Zealand also missing). 

Source: Government at a Glance, 2013e analysis of OECD National Accounts Statistics (database). Data for Australia are based on 

Government Finance Statistics provided by the Australian Bureau of Statistics. 

5.32 An idea of the ‘openness’ of public services by sector to third party interventions can be gleaned 

from available estimates of the extent to which the public sector is co-producing 20 in these sectors. An 

OECD survey of 26 countries in 2011 (OECD 2011b – Brazil, Egypt, Russia and the Ukraine plus 

22 OECD countries) mapped ‘significant’ civil society involvement in the delivery of public series and 

showed that of 58 examples of co-production, 19% were in social protection, 16% were in housing and 

community amenities, and 10% were in each of the areas of environmental affairs, economic services, 

education and health. In each sector, co-production in service delivery was found at all levels of 

governance (local, state and federal or national levels - ibid: 23). 

5.2.2.2 Trends in social protection spending in cash and in-kind 

5.33 The following section explores the evolving market space for SII by breaking down available 

government expenditure trends in total social protection, housing and health spending in terms of service 

provision and cash spending. The purpose here is to get a better idea of changing demand for social 

services, as it is in this area that SII might be possible for entrepreneurs from small, medium and large 

enterprises alike. 21 

5.34 Figure 5.7 maps the trends in cash spending and service expenditures in each of the G7 countries 

and Australia between 1996 and 2011. Across all OECD countries, on average, cash spending was falling 

20 . The OECD report defines co-producing as “a way of planning, designing, delivering and evaluating public 

services which draw on direct input from citizens, service users and civil society organisations” (OECD, 

2011b). This definition differentiates between voluntary involvement citizens and services users and civil 

society organisations (including via contractual and semi-contractual obligations) and formal contracting or 

outsourcing, services to the private sector (which are not included here). 

21 . Although there may be a role for SII in the provision of cash transfers (pensions, social insurance 

[maternity pay or hospital costs for childbirth] or micro-credit) these are high-risk large-scale areas more 

suitable for larger social enterprises. 

68 © OECD 2015


pre-crisis only to pick-up again with increasing demand for low-income cash benefits following 2009. In 

contrast, service spending has been steadily increasing. 

5.35 Not all countries follow the OECD trend however. Australia, Canada and Germany (the latter 

being a traditionally high cash spender) have all seen rates of cash spending fall over the period, whereas 

Italy and Japan have seen marked increases in cash spending. In regards to services, all countries with the 

exception of France and Germany have seen increases in expenditure of at least 1-2% of GDP or more. 

Service spending has increased by close to one-third in Australia and the United States, and almost doubled 

in total in Japan. 

5.36 Although there is not much difference in service expenditure across the countries, three broad 

expenditure groupings are clearly shown here. The European countries of France, Germany and Italy are 

high spending countries, favouring cash expenditures. The Anglophones are lower-spenders but are more 

balanced by type, to the point where in Australia, the United Kingdom and the United States, expenditure 

levels are now favouring services. Finally, Japan is reporting stable upward trends across both spending 

types. 

Figure 5.7 Expenditure trends show services are taking up more of the social protection budget, in some case 

exceeding cash spending 

Note: Data report aggregate public social protection spending by type and do not include private social expenditure or education 

expenditure (public or private), but do include housing and health spending. Data for 2011 are provisional. Service spending reflects 

running costs of public services, cash spending reflects the value of cash transfers without administrative costs. OECD average is for 

34 countries. 

Source: OECD Social Expenditure Database, 2014a. 

5.37 A limitation with Figure 5.7 is that it does not break down the social expenditure by sector, which 

is an important task for the SII discussion because of the different sector-specific challenges to this type of 

social entrepreneurship. For instance, one driver of the shift to greater service delivery overall is likely to 

be demographic change. In the area of social protection there are generally high rates of service 

intervention for the preschool years and end of life care, compared to higher rates of cash intervention 

© OECD 2015 69


across childhood as a whole, and into employment and living supports in adulthood (tax credits, minimum 

income guarantees and so on). 

5.38 Figure 5.8 and Table 5.4 below introduce the breakdowns of spending types by sector, as well as 

trends of these breakdowns, for the G7 and Australia (covering old-age spending, health, housing, family 

and (un)employment). Results clearly show that increases OECD-wide in old-age, health, and family, and 

no consistent reductions elsewhere across all countries (a small drop in overall unemployment spending). 

In old-age, all countries with the exception of the Germany and the United States have seen both increases 

in overall spending and service spending, although in some cases this is small. The change in old age 

spending is likely to reflect the increasing need for elderly long-term care (personal and household 

services) as populations’ age. 

Figure 5.8: In most countries old-age spending is growing, in Australia and Japan, services are increasingly 

used 

Notes and Source: Left-hand axis is for % of GDP, right-hand axis is for in-kind spending as a percentage of total spending. See 

table 5.4. 

5.39 The OECD’s social expenditure database also maps private (or non-government) social 

expenditures – where finances are managed by private bodies (Adema et al, 2011) – and shows that 

aggregate mandatory private and voluntary private spending by sector are highest for old age and health. 

Mandatory private spending refers to ‘social support stipulated by legislation but operated through the 

private sector, e.g., direct sickness payments by employers to their absent employees…’ whereas voluntary 

private spending refers to monies managed through ‘privately operated programmes that involve the 

redistribution of resources across households’ via collective support arrangements (see Adema et al, 2011c, 

93:94 for more details). 

70 © OECD 2015


Table 5.4: Old-age and Health spending dominate public social protection budgets, and have been increasing 

in almost all countries 

Australia Canada France Germany Italy Japan 

United United 

Kingdom States 

OECD-30 

Old age 

1996 

3.9 4.2 10.8 8.0 11.0 5.4 5.4 5.1 6.5 

14.1% n.d. 2.0% 0.2% 0.6% 4.2% 8.5% 0.8% 7.3% 

2011 

5.0 4.0 12.5 8.6 13.4 10.4 6.0 6.0 7.4 

33.6% n.d. 3.3% 0.2% 0.9% 15.7% 8.7% 0.5% 7.9% 

Health 

1996 

4.6 5.8 8.0 7.8 5.1 5.3 5.3 5.8 4.9 

… … … … … … … … … 

2011 

5.8 7.2 8.6 8.0 7.0 8.2 7.7 8.0 6.2 

… … … … … … … … … 

Family 

1996 

2.8 0.8 2.7 2.0 0.7 0.5 2.3 0.5 1.8 

21.2% 13.8% 42.1% 37.8% 35.3% 62.4% 20.8% 52.9% 27.8% 

2011 

2.8 1.2 2.9 2.2 1.5 1.4 4.0 0.7 2.2 

31.3% 17.9% 57.7% 44.6% 50.2% 34.8% 34.6% 87.3% 43.1% 

(Un)employment 

1996 

1.7 1.6 2.9 2.9 1.0 0.8 1.1 0.5 1.9 

31.3% 28.4% 41.9% 44.1% 34.9% 38.8% 34.8% 32.3% 32.2% 

2011 

0.8 0.9 2.5 2.0 1.2 0.6 0.8 0.9 1.6 

35.9% 25.6% 37.2% 40.1% 33.9% 47.2% 51% 13.8% 35.8% 

Housing 

1996 

0.2 0.6 0.9 0.3 0.0 0.0 1.7 n.d. 0.4 

… … … … … … … n.d. … 

2011 

0.3 0.3 0.8 0.6 0.0 0.1 1.5 n.d. 0.4 

… … … … … … … n.d. … 

Note: Cells in white report the total public spending by year on each sector as a proportion of GDP, shaded cells report the proportion 

of this spending delivered in services with the exception of (un)employment where shaded cells represent the proportion of total 

spending on active labour market policies. “n.d.” is for no data, and “…” replaces 100% for health and housing services where total 

spending matches total service spending. 2011 data is provisional. 

Source: Author’s calculations of OECD Social Expenditure data, 2014a. 

5.40 Perhaps surprisingly, voluntary private spending outstrips mandatory spending in all countries 

(with the exception of Italy – total voluntary spending is almost 4 times as high at 2.3% of GDP on average 

in 2011) and Old Age interventions (via pension contributions, at 1.3% of GDP on average) generally 

receive more voluntary private investment than health (with the exception of France, Germany and the 

United States via health insurance and pharmaceutical purchases). Notably for social enterprises, 

particularly in what might be small to medium sized enterprises, service interventions play a very small 

role in private social expenditure. 

5.41 Across the OECD as a whole, total education expenditures from public and private sources are 

also rising (as well as in all of the G7 countries and Australia, with the exception of France and Germany – 

see online data annex, and Education at a Glance [OECD, 2013c]). On average in 2010, total public 

education spending in the OECD countries stood at 6.3% of GDP compared to 5.4% of GDP in 1995. It is 

important to note however, for interpreting where space may exist for SII, these education figures do not 

disentangle private spending – whether promoted through mandatory systems, paid by families, or paid by 

local voluntary or professional services – from public spending. In most countries private spending is small 

relative to public and will more likely go to fees and variable costs associated with education provision 

(educational items, books and so on), and not fixed capital costs (buildings and their up-keep and wages) 

that public funds cover. SII may look very different in education space depending on which type of 

education service is being provided, and which market will provide the custom (private or public). Further 

breakdowns might be made in future research, and some countries will be more affected by this than 

others, including Japan where private education spending is higher-than-average. 

© OECD 2015 71


5.2.2.3 Limitations of the data and appropriate interpretation of the data by sector 

5.42 Social expenditure figures are taken from the OECD Social Expenditure Database (SOCX), 

education spending figures are taken from OECD Education Database. In theory all government 

expenditure should be in the Social Expenditure Database; however it is easier to collect federal spending 

than regional or local spending because state governments or devolved authorities do not always report to 

national governments how the money they managed is being spent (that which is raised, or devolved 

through block grants or other mechanisms). In practise this may mean social expenditure data may not 

fully represent all spending in countries where money is managed independently at local or regional levels. 

5.43 Correct interpretation of the spending figures is important for accurate estimation of the need, 

and the potential boundaries, for SII – and so some caution is required. In some cases, missing spending is 

more likely to be found in some benefit types and sectors rather than others. For instance the Swiss and 

U.S federal systems allow for parental and maternity leave benefits to be provided by cantons or states, and 

as such are examples of where family spending can be missed, and cash-based interventions under stated. 

Yet, issues to do with missing expenditure are not restricted to federal countries or cash benefits. In the 

Netherlands for example, block grant expenditure from central to local government can hide additional 

spending on children as municipalities provide the childcare support, and they may finance this service out 

of the general block-grant made to municipalities. 

5.44 Finally, social expenditure figures do not cover administrative costs (particularly in cash) or 

spread the value of large one-off costs (buildings for instance), which in both cases mean that annual 

estimates represent an underestimation of the total public cash or service intervention. 

5.3 Models of Social Service Provision: Who does what and how? 

5.45 Having looked at the broadly at the potential market space for SII, this section looks in more 

detail at how governments are presently meeting the demand for social services. 

5.3.1 Practices in public social service delivery 

5.46 In practice, the process of public social service delivery is not too different from providing 

services in the private sector. Simply put, the delivery cycle of a social service includes a planning stage, 

delivery process and review. In more detail: planning covers when service decisions are made (the ‘gap in 

the market’ or ‘social need’ is indicated), and the services are planned and designed; the delivery process 

involves commissioning services or service delivery by public employees; and, the review process involves 

service evaluation and service re-design (OECD, 2011b). 

5.47 In the majority of cases the process of delivery is a cycle; unless a new need is identified or 

system innovation is undertaken (this can be driven by effectiveness or efficiency reasons). Recently, two 

factors have driven the need for innovation in social services delivery, the first being increased demand for 

multiple services in the most vulnerable populations, and the second being reductions in available 

resources driven following the onset of the financial crisis and global recession (OECD, 2014f). 

5.48 Innovation in social services, increases in demand, and pressures to lower public budgets all point 

towards a potential role for new models in delivering social services, including a potential role for social 

enterprises. However, the nature of public service delivery can create specific challenges to social 

enterprise involvement, and so are salient to the SII discussion, such as: 

72 © OECD 2015


 

 

 

 

 

Governance: whether services are managed and financed at the central, regional or local level, or 

even a combination can mean many actors, with different political and financial pressures, 

influencing the service delivery methods and desired social impacts. Complex forms of governance 

can create different challenges for private social service delivery organisations joining the social 

market space particularly in the case of integrated social services, discussed below. 

System planning: Public interventions are designed to fit into systems, meaning complementary 

public services are considered in the design. SII will exist in a system of complementary public 

services which may be relied upon to regulate demand for an SII service, or facilitate outflow from 

a service (e.g. social protection will limit/regulate the inflow of homeless people into an SII 

homeless service, and homeless treated with SII may benefit from public employment services on 

exit). These complementary services will inevitably impact on the achievability of social impact 

goals set for an SII, and may create sustainability risks. 

‘Cross-sectoral’ returns and ‘wrong’ pockets: Related to system planning are the possibilities 

for cross-sector returns, which for SII may mean returns ending up in the ‘wrong pockets’ (see 

OECD, 2014f). Where public finances control multiple sectors, systems planning can allow for 

returns to accrue in sector A from interventions undertaken in sector B. Moreover, not all returns 

will need to be tracked or monetised, in the public system, or achieved within a pre-determined 

timeframe – in each case an important challenge for SII reporting. 

Fixed capital and human capital: At present, in many countries, public service systems have 

large banks of fixed capital and many employees. These bring hidden costs to social service 

spending (rates in Figure 5.5 report running costs), but can also represent additional policy options 

(with social outcomes) for governments if the location of the service and the employment 

conditions therein are part of national plans for employment creation, retention and safe 

employment. Both costs and purposes can result in a small market space and lower liquidity of 

public funds for private social delivery organisations. 

Borrowing, funding streams, and sustainability: Public services are backed by nations and 

traditionally have had access to borrowing or funding streams to allow for the treatment of social 

need even in the most difficult economic circumstances. They do not have a profit principle, 

meaning they can trade-off low cost cases with cases business might see as too costly to work 

with. Critiques of SII highlight the profit-principle which may ‘trump’ social efforts at the 

individual or community level if the business model becomes unsustainable (Yunus cited in 

Esposito, 2013). 

5.49 Meeting these challenges effectively is essential for the general SII business case, as well as for 

the SII business case by sector (where these issues can be more or less important). The following sections 

address both the governance issues and issues with gaps in public service, data, evaluations and measuring 

social impact. For the other points there is no further discussion, but this should not detract from their 

importance, or the need for effective solutions. 

5.3.2 The governance of public benefits and budgets 

5.50 Table 5.5 records the level of governance involved in the delivery of services in the sectors of 

social protection, employment services, housing, health, education, and public order. Where data is 

available, each country row records the level of governance at which social services are managed by sector. 

5.51 At first glance this table highlights the complexity of social service delivery across the G7 

countries and Australia, with all countries involving different government levels across the sectors, 

© OECD 2015 73


sometimes mixing government stakeholders within sectors, and involving multiple stakeholders in a single 

service area in just over one-third of cases (40 out of 112 examples, sometimes including private 

providers). Australia, France, Japan and the United Kingdom have the most centrally-managed services, 

Australia and Canada have many regionally-managed services (state or provincial level), and local 

government is involved in 7 settings out of 12 in Germany. The United States has by far the most tiered 

settings, with no area involving fewer than two government partners. 

Table 5.5 The governance of social services is complex and varied across countries 

Note: C/F is central or federal, R is regional (referring to states, provinces or counties), L is local (municipalities, local governments, 

city governments), Pr. denotes private provider involvement. Data is provisional. 

Source: OECD, correspondence with national-expert reviewers. 

5.52 A number of issues for the SII discussion can be derived from the above. First, SII by sector will 

involve different business models by country, designed to ‘fit’ into pre-existing public models, and so 

transferability of good SII practice will therefore need to be assessed accordingly. Second, the complexity 

of systems and number of stakeholders in public settings is likely to limit the size of social enterprise startups 

generally, as the potential of co-production to scale will be limited or otherwise transaction costs may 

be high. Third, where sector investment and sector impact are not aligned in terms of management 

(primary health services improving school attendance in the United Kingdom for instance) additional 

challenges to measuring assessing the value an impact, and delivering reimbursements, will be additionally 

complex creating further transaction costs. Fourth, private enterprise is already a notable co-producer in the 

United Kingdom and the United States (cases are highlighted in bold in Table 5.5), the examples of which 

can inform practices in other countries. Finally, in some cases, the management and the resources by sector 

will not be aligned, for instance when central government block grants pay for local level service delivery 

(including outsourcing), which can create uncertainty and risk in regards to sustainability of SII funding 

sources, complementary public services, and the expectations for the social impact made by any given SII. 

5.53 Evidence on how public resources are shared between levels of governance is shown in 

Figure 5.9. Using the example of Canada, on the top right-hand side of the figure, shows that sub-centrally 

derived revenues (y-axis), at below 60%, are lower than the proportion of total government expenditure 

undertaken at the sub-central level (x-axis) at over 60%. This means that some central government funding 

74 © OECD 2015


is being devolved to the sub-central level for administration (around 10% of total). All countries under the 

45 degree line receive devolved funds to some degree. Notably, in Australia and the United States 

sub-central governments only administer their own revenues; in Japan, some sub-central revenues are 

administered at the central level. 

5.54 For SII, as noted above, not only will this shift of funds create levels of uncertainty about streams 

of revenue etc. to social enterprise where it exists, but the information on the share of revenue administered 

at different levels highlights the potential for SII to function differently in different countries (nationally 

administered services will have different ‘business’ plans compared to locally administered services, for 

example in the areas of fixed capital and employee ‘banks’, economies of scale, underlying legislation and 

reporting/auditing mechanisms). 

Figure 5.9 How much of central government funds are devolved to local authorities for social interventions 

varies widely 

Note: G7 countries and Australia are highlighted. 

Source: OECD (2013b). 

5.4 Evaluating what works in social service provision 

5.55 The evidence on social outcomes and social spending shown sections 5.2 and 5.3 can be used to 

highlight challenges and opportunities for SII. However, together these only highlight the space into which 

SII might move, and they do not provide any clear messages as to how to implement processes that might 

‘fill these social outcome gaps’. 

5.56 This section reviews briefly the mix of evidence on good practice in public service provision in 

the area of elderly care and childcare, highlighting potential opportunities for SII. What is most evident is 

that better data and evaluations are needed. Chapter 7 discusses briefly ways to address this gap, and 

provides a point of departure for meaningful outcome measurement for impact evaluation in this area. 

5.4.1 Good practice in service provision 

5.57 Reading the data on social outcomes above alongside the data on public interventions clearly 

shows continued and sometimes expanding social need in the context of increases of public spending in 

most social sectors. In particular, the areas of elderly care and childcare stand out as priorities. For SII to 

© OECD 2015 75


make a meaningful contribution to these areas it is important to have an understanding of what makes for 

good practice in these areas. 

5.4.1.1 Services supporting long-term elderly care: what works? 

5.58 Increasing demand for long-term care of the elderly in many OECD countries is putting 

increasing pressures on many public budgets through increasing health costs (and creating social care 

service and pension needs) and this is projected to almost double in most countries over the next 3 decades. 

For these reasons integrated care services for the frail elderly have received much attention from 

policymakers in recent years. Below are some examples of integrated care practices and their social 

outcomes evaluations (focussing on reduction in hospital care) for the frail elderly: 22 

 

 

 

 

A longstanding integrated care service for the over 75’s in Canada (the Programme of Research 

to Integrate the Services for the Maintenance of Autonomy or PRISMA) coordinates integrated 

care provision through a joint governing board, and in some cases, pooled funds. A Randomized 

Controlled Trial (RCT) evaluation of PRISMA found reduced functional decline of programme 

participants, more satisfaction with their care, and reduced likelihood to re-use emergency 

department services 10 days after discharge (Hebert et al., 2005). 

Two small integrated care pilot programmes, Rovereto and Vittorio Veneto, were undertaken in in 

two provinces in Italy in the 1990s and provided integrated community-based medical and social 

services to the elderly. Evaluations of both programmes showed reductions in acute hospital 

admissions, and positive health outcomes amongst programme participants (MacAdam, 2008). 

In Victoria, Australia, the Hospital Risk Admission Programme (HARP) pilot provided services 

to elderly people who regularly attended hospital emergency departments. Through engagement 

with the elderly person’s carer, case management, multi-disciplinary teams, and outreach, the 

service achieved a reduction in emergency department admissions (of 20.8%), inpatient care (of 

27.9%) and number of bed days for inpatient care (of 19.2%) (Bird et al., 2007). 

In England, in 2008, the Integrated Care Pilots programme (ICPs) involved number of 

organisations integrating the care of older people with long-term conditions (via case 

management or care planning) for the purpose of lowering the risk of hospital admission. The 

evaluation of these two-year pilots showed decreases in planned admissions, outpatient service 

use and process improvements (e.g. use of care plans, professional training – without associated 

measurable social outcomes), but no increase in patient satisfaction was recorded, and there was 

no reduction in emergency department admissions (RAND, 2012). 

5.59 Services delivery practices that were successful at reducing high cost emergency services use and 

hospital care included involving the elderly person’s carer (HARP), case management of individuals, 

service planning and single point of entry to multiple service providers (all examples with the exception of 

ICPs), multi-disciplinary teams (HARP and Rovereto / Vittorio Veneto), screenings or assessments 

(PRISMA, Rovereto / Vittorio Veneto), outreach (HARP), service coordination boards (PRISMA). 

5.60 Integration practices are gathering momentum in OECD countries as political interest in cost 

effectiveness grows – meaning SII and private social delivery organisations can embrace these approaches, 

and find solutions to the specific challenges of working in complex governance settings. 

22 . The following evidence is summarised from OECD 2014f, Chapter 3, section 3.5. 

76 © OECD 2015


5.4.1.2 Services supporting families with young children: what works? 

5.61 Services to support families represent a different type of ‘investment’ expenditure and clear links 

with later life outcomes (in some cases creating returns decades after an intervention). Relative to the 

‘treatment’ of frailty in old-age, family supports are an investment designed to ‘prevent’ children from 

being unprepared for school, the economy and society. Moreover, there is evidence of unmet demand for 

childcare in different countries of the OECD, as well as evidence of increasing public commitment to 

family services in every country in relative terms (the exception is Japan, where overall family spending 

has tripled, and although absolute level of family service spending has increased, this is relatively lower 

than cash spending). 

5.62 Service interventions for families and children in France, the United Kingdom and the United 

States that have been subject to RCTs, show that: 23 

 

 

 

Nurse-family partnerships and home health visits providing pre- and post-natal care for low 

income mothers and their infants in their own homes in New York, Memphis, and Washington 

produced positive gains in intended child well-being (including educational outcomes) and 

parenting outcomes including parenting practices (Greenberg and Shroder, 2004). 

Integrated childcare interventions in the United States (North Carolina’s Abecedarian programme 

and Michigan’s Perry Preschool), although relatively small (109 and 123 participants, respectively) 

produced large, long-term gains in education and health. These results have persisted over several 

decades, and in the case of the Perry Preschool service, early childcare also produced benefits in 

adult income and employment (Schweinhart and Weikart, 1993; Schweinhart, 2003). 

Evaluations of general family supports had mixed outcomes, with positive outcomes from the 

French intervention in Créteil that actively engaged parents and school to remedy truancy and 

disciplinary issues, and the Carrera programme in the United States which offered integrated 

support services to teenagers to improve educational engagement. Among the other family support 

interventions aimed at providing services for parent and child well-being, there were few benefits. 

Practices here included: case management and integrated service delivery (U.S. Comprehensive 

Child Development Programme), home visits by “supportive listeners” or community groups 

(British Social Support and Family Health Programme), and case management to teen mothers (the 

Young Families Can, Phoenix, United States) (OECD, 2014f). 

5.63 Mobile home health units, and delivery of services in the home were successful in producing the 

desired social outcomes due to benefit of home service that reduce service take-up barriers (affordability, 

motivation etc.) and the chance it provides to professionals to gauge the full extent of the family living 

conditions and needs (McKeown, 2000). Childcare practices were successful where multiple integrated 

services (e.g. education, nutrition, health) are provided in childcare settings for the most at-risk children 

and less successful where fewer at-risk families took up the service (see OECD, 2104f). Finally, for more 

general family service interventions, successful interventions included engaging with parents in the school 

(for truancy and discipline), and less successful interventions included comprehensive support (parent and 

child well-being), case working (teen pregnancy) and supportive listening (maternal and child health – see 

OECD, forthcoming 2014). 

5.64 Some key messages for SII here include: the highest social returns are found in the most 

vulnerable groups, although these groups will often require more intensive services; returns on social 

interventions in childhood may take many decades to come to fruition; and, providing services in people’s 

homes, and to family units, creates unique opportunities for tailoring care to specific needs. 

23 . The following evidence is summarised from OECD 2014g, Chapter 3, section 3.4. 

© OECD 2015 77


References 

Adema, W., P. Fron and M. Ladaique (2011), “Is the European Welfare State Really More Expensive?: 

Indicators on Social Spending, 1980-2012; and a Manual to the OECD Social Expenditure 

Database (SOCX)”, OECD Social, Employment and Migration Working Papers, No. 124, OECD 

Publishing. http://dx.doi.org/10.1787/5kg2d2d4pbf0-en 

Bird, S., Kurowski, W., Dickman, G K, Kronborg, I. (2007) “Integrated care facilitation for older patients 

with complex health care needs reduced hospital demand” Australian Health Review August 2007 

Vol 31 No 3. 

DPMC (2012) Government Response to Senate Economics References Committee Report ‘Investing for 

good: the development of a capital market for the not-for-profit sector in Australia’, June 2012, 

downloaded at http://www.dpmc.gov.au/publications/docs/government-response-investing-forgood.pdf, 

August 2014. 

ECNL (2009) ECNL Study on Recent Public and Self-regulatory Initiatives Improving Transparency and 

Accountability of Non-profit Organisations in the European Union, April 2009. 

Esposito, R. (2013) The Social Enterprise Revolution in Corporate Law: A Primer on Emerging Corporate 

Entities in Europe and the United States and the Case for the Benefit Corporation. William and Mary 

Business Law Review, Vol.4, Issue 2, Article 7. 

Gallup World (2014) Gallup World Poll, www.gallup.com/strategicconsulting/en-us/worldpoll.aspx. 

Greenberg, D. and M. Shroder (2004), The Digest of Social Experiments: Third Edition.” The Urban 

Institute Press, Washington, DC. 

Guardian (2014) Tesco Unlocks its Landbank to Build 4,000 New Homes: downloaded here, August 2014. 

HBSC (2010) Health Behaviour in School-aged Children Study. See HBSC.org. 

Heckman, J. J., and Masterov, D. (2007) The Productivity Argument for Investing in Young Children, 

NBER Working Paper. No. 13016, Cambridge. 

MacAdam, M. (2008) “Frameworks of Integrated Care for the Elderly: A Systematic Review” CPRN 

Research Report, April 2008. 

OECD (2011a) Doing Better for Families, OECD Publishing, Paris. 

OECD (2011b) Together for Better Public Services: Partnering with citizens and civil society, OECD 

Publishing, Paris. 

OECD (2013d) OECD Health Statistics 2013, http://dx.doi.org/10.1787/health-data-en 

OECD (2013e) Government at a Glance, OECD Publishing, Paris. 

OECD (2013c), Education at a Glance 2013 – OECD Indicators, OECD Publishing, Paris, 

http://dx.doi.org/10.1787/eag-2013-en. 

78 © OECD 2015


OECD (2014a) Social Expenditure database, OECD Publishing, Paris. 

OECD (2014b) Society at a Glance, OECD Publishing, Paris. 

OECD (2014c) OECD dot.stat: employment series, OECD Publishing, Paris. 

OECD (2014d) Investing in Youth: Brazil. OECD Publishing, Paris. 

OECD (2014e) OECD Family database. OECD Publishing, Paris. 

OECD (2014f), Integrated Service Delivery for Vulnerable Groups, forthcoming. 

RAND (2012) "National Evaluation of the Department of Health’s Integrated Care Pilots: Final Report" 

RAND Europe, Ernst & Young LLP, prepared for the Department of Health, March 2012. 

Reiser, D. (2013) Regulating Social Enterprise, Contribution to the 2013 Columbia Law School Charities 

Regulation and Oversight Project Policy Conference on the “The Future of State Charities 

Regulation”, downloaded at http://academiccommons.columbia.edu/item/ac:168586, August 2014. 

Richardson, D. (2009) Extreme Poverty and Vulnerability on OECD Countries: A Scoping Paper. OECD 

DELSA-ELSA-WP1 (2009)6. 

Schweinhart, Lawrence (2003), "Benefits, Costs, and Explanation of the High Scope Perry Preschool 

Program." Paper presented at the Meeting of the Society for Research in Child Development, 

Tampa, Florida. 

Schweinhart, L. And D. Weikart. (1993), “Success by Empowerment: the High Scope/Perry Preschool 

Study through Age 27.” Young Children. 

SII Taskforce (forthcoming) Impact Investment: The Invisible Heart of Markets, September 2014. 

United Nations Office on Drugs and Crimes UNDOC (2011) Crime Series: www.unodc.org. in OECD 

(2014) Society at a Glance, OECD Publishing, Paris. 

© OECD 2015 79


6. SOCIAL IMPACT INVESTMENT MARKET DATA: INITIAL FINDINGS 

This chapter summarizes the initial work on data collection, focusing on the G7 

countries and Australia. It reviews the available data and current data collection 

processes and highlights some of the data challenges, including in terms of pulling 

together reliable and internationally comparable data. It also provides 

recommendations for moving forward. 

6.1. Introduction 

6.1 As seen in the development of other parts of capital markets (venture capital, angel investment, 

etc.) data on activity and performance can play an important role in helping to grow the market. Even at 

this early stage of development of the social impact investment market, a stronger evidence base would 

help in encouraging a global market to develop (HM Government, 2013c). Different players involved in 

the market, including policymakers, have been calling for more data on SII as well as a better and more 

accurate understanding of the size, scope, evolution and potential of the market. 

6.2 The OECD has sought to gather information on SII data sources and data collection processes. 

The research process included reviewing the academic literature that focuses on SII-related data, industry 

reports that bring together information on the size and scope of SII in the different countries and 

information from other data sources. The OECD conducted further research to provide an overview of 

existing SII data sources and data collection approaches, pinpointing main data-related challenges. 

6.3 As an integral part of this process, the OECD worked together with SII data experts and 

academics to identify major data gaps and challenges, as well as to discuss ideas for better data collection 

in the future. The OECD organised two SII Expert Meetings in the first half of 2014. The first meeting 

took place on the 21 st March, 2014 at the OECD headquarters in Paris. The second meeting was held on the 

18 th June, 2014 at the U.K. Cabinet Office, London. The OECD thanks the UK Cabinet Office for hosting 

the meeting as well as all participants in both workshops for their input into the process. The list of 

participants in both workshops can be found in Annex A. 

6.4 A number of data challenges are common to all the parts of the SII framework. First, data needs 

to be collected in a more comparable way across countries. Harmonised definitions of social enterprises, 

social impact investors and social impact investment transactions are needed to facilitate cross country data 

collection efforts. Second, with unclear definitional boundaries, deciding what exactly is being measured 

(target population) is a major challenge and limits the scope for any sampling exercise. Third, and also as a 

result of definitional challenges, measurement errors are common, either overstating or understating the 

target population. Finally, it is unclear how detailed the data breakdown should be. Higher levels of 

granularity are more informative, but require data collection efforts that are more resource intensive and 

involve further related challenges in terms of deciding what should or should not be included as SII. 

Overcoming such barriers can help unlocking data that is not yet accessible. 

6.5 This section discusses different data types, reviews which data are currently available, what types 

of data collection processes are currently in place and what other data is needed. 

80 © OECD 2015


6.2. Data types and data collection purposes 

6.6 Before engaging in data collection it is important to clarify the goal of collecting the data. 

Policymakers might be interested in collecting data to monitor market developments, forecast future 

developments or evaluate policy interventions. Such data will necessarily need to include information on 

social needs and social outcomes. These objectives are different from those of other market participants 

that might want to collect data, for example, to inform investors of investment opportunities. In this case, 

relevant data will include current risk-return profiles, benchmarking, and forecasting potential market (and 

segment) growth, inter alia. Some players (mostly intermediaries) collect data as part of their business 

model, as it will be discussed later. 

6.7 Different data types serve these different purposes. For example, while monitoring the market 

essentially requires data on SII transactions (deals and volumes), forecasting will need a good 

understanding of potential demand and supply. In doing so, we make a clear distinction between potential 

demand and supply on the one hand, and effective demand and supply and transactions (i.e. satisfied 

demand) on the other hand. 

6.8 For example, looking at the demand-side for SII ( a parallel can be drawn to the supply-side), 

potential demand for SII originates from unmet social needs (discussed in Chapter 5) and is translated into 

the SII market through delivery organisations that require funding to address such needs. Most currently 

available data on SII demand concerns potential demand (see Section 6.3). In other words, it measures a 

population of social delivery organisations that could potentially be SII investees. However, it is important 

to note that not all social delivery organisations will become investees. This will depend on their financing 

needs and funding preferences as discussed in Chapter 3. Legal structures are also important as they may 

inhibit some SII-type of funding (e.g. NPIs). Therefore, only a fraction of the social enterprise sector, for 

example, will be SII investees. 

6.9 Second, it should be clear that identifying the potential demand for SII is different from 

measuring effective demand for SII. Some reports (e.g. NAB reports; Brown and Swersky, 2012) focus on 

identifying the scope for future SII demand, which contrasts for example with the information coming 

from surveys that aims at identifying financing needs within delivery organisations (see Section 6.3). 

6.10 Third, satisfied demand is the effective demand that is matched by capital providers\investors 

(possibly through intermediaries) and results in SII transactions, including deals and flows. 24 The nature 

and sources of data that allow identifying the scope of potential and\or effective demand\supply, as well as 

transactions is likely to be different. For example, while transaction data will mainly come from 

intermediaries, estimating potential demand will require, inter alia, a combination of governmental data 

and detailed financial information on delivery organisations. Therefore, it is very important to decide a 

priori what type of data is needed to serve the purpose of a specific data collection effort. 

6.3. Review of Existing Data Sources: Data sources by framework component 

6.11 Overall, current data availability on SII is very limited. A comprehensive picture of the SII 

market requires sizing the different components as discussed in Chapter 3: i) SII demand (including social 

needs and social service providers); ii) SII supply (i.e. pools of capital and investors); iii) SII 

intermediaries and financing instruments. 

6.12 Annex 6.1 provides a list of SII data sources for G7 countries and Australia. The UK is the 

country in which most data is available, as a result of 10 year track record of SII market building, as well 

24 . Returns and other relevant data associated with SII flows is considered here to be part of transactions. 

© OECD 2015 81


as a series of commissioned surveys and research papers. The list contains information gathered through 

desk research and further information received from participants in the Social Impact Investment Expert 

meetings. The data sources are organised in accordance to the SII framework. Three main data categories 

are identified and correspond to information on the demand (SII investees), supply (SI investors) and 

transactions (SII intermediaries). For each category, examples and some of the specific data challenges are 

described below. 

6.3.1. Demand- side data 

6.13 Demand-side data for SII includes information — both demographics and financial information 

— about a number of different market players that deliver social services or goods and are potential (or 

effective) investees. Table 6.1 below summarises the key demand-side players, data-related challenges as 

well as some examples of data sources. Demand side data can be obtained from different types of data 

sources. 

Table 6.1. Summary of type of demand-side players, challenges and data sources 

Organisation Type Definition & Data 

Challenges 

Social entrepreneurs (SE) 

Charities 

Non-profits institutions (NPIs) 

Social purpose organisations (SPOs) 

Cooperatives 

Development trusts 

Mutuals 

No consensus on the type of 

organisation to be considered 

within the scope of SII 

Taxonomy is country-specific 

“Solidarity” companies, FRA 

Notes: Some examples are provided in italic below each point. 

Source: OECD, based on desk research. 

Legal form of companies varies by 

country 

No match between legal form and 

the SI investee 

Types of Data Sources 

Business Registers \ Statistical 

Offices (legal structure) 

Community interest Companies 

(CIC), UK 

Surveys 

SESS, CAN; ICSI2007, ITA 

Certification Organisations 

B-Corporation; IRIS; GIIRS 

Associations 

Cooperative Association, GER 

Directories 

Groupe SOS, FRA; Non-Profit 

Finance Fund, US; 

6.14 Some SII demand-side organisations have a specific legal structure or a generally accepted 

classification (e.g. community interest companies in the U.K, "entreprise solidaire" in France). It is 

possible to collect SII demand data, based on aggregation of data from organisations with specific legal 

form(s). The underlying information can be obtained from National Statistical Offices (NSOs) or other 

agencies that compile business register data. However, social enterprises and other social providers are 

defined by their objective of providing social outcomes, thus organized in many different legal forms 

(GHK, 2013). By providing incentives for social enterprises to report information (e.g. certification, 

visibility and investor networks), some organisations have been able to collect information on SII demand 

(e.g. B-Corporation, GIIRS). 

6.15 Legal structures and certification do not always allow a precise mapping of SII demand-side 

organisations, nor do they necessarily provide financial data (important to understand financing needs). 

Creating a common and well defined legal type category for social businesses can help in identifying social 

companies and sizing the market as well as targeting policy. While in some countries, legal mechanisms 

82 © OECD 2015


that recognise some form of SII-related business structures are already in place, further efforts to create the 

appropriate formal enterprise structures are needed (WGMA, 2014). 

6.16 An alternative to drawing upon legal form is to conduct demand side surveys, specially designed 

to identify the scope for SII demand. Surveys are the most common form of obtaining SII data and are 

discussed at length later in the chapter. The Non-profit Finance Fund survey in the United States is an 

example of a demand-side survey specifically aimed at understanding the financing needs of social 

enterprises. This was also the approach followed by the provincial-level Social Enterprise Sector Surveys 

initiative (SESS) in Canada described below in Box 6.1. Close collaboration with local institutions and 

organisations was important to ensure a good coverage of the survey. The major drawback is that mapping 

SII using this approach can be extremely time consuming and resource intensive. 

Purpose 

Box 6.1. Social Enterprise Sector Survey 

The Social Enterprise Sector Surveys (SESSs) are conducted within a project that aims at highlighting “the size, 

scope and impact of social enterprises at a provincial level”. Identifying the demand for SII is not the original purpose of 

these surveys. However, by mapping the social enterprise sector along with the financial performance of identified 

social enterprises, SESSs can provide an indication of the scope for SII in the surveyed Canadian provinces. The first 

surveys were launched in 2010 (British Columbia and Alberta) and by the end of 2014, most Canadian provinces will 

have been covered at least by one survey wave. A total of 15 SESSs have either been completed or are currently 

being carried out. 

Definition of social enterprise and survey approach 

In order to conduct the surveys, a social enterprise (SE) were defined as follows: 

In terms of function, the enterprise should “provide goods and services in the marketplace, motivated by 

a clear social, cultural, environmental or employment mission”. 

In terms of legal structure, the enterprise should i) be incorporated as a NPI or ii) be a private company 

100% owned by a NPI. 

This definition excludes a number of important organisations active in the SII market such as co-operatives, 

voluntary associations and, most importantly, social purpose business ventures and other forms of social business 

activity by the private sector. Therefore, this approach results in conservative estimates of the scope of the SE sector. 

The objective is to survey the population of social enterprises in each Province, using the following steps: 

Identify potential social enterprises through a close collaboration with local institutions and 

organisations, knowledgeable about the potential scope of the SE sector in each province; 

Contact potential social enterprises to screen out those that would not be considered as SE according 

to the working definition; 

Send the questionnaire to identified SE 

Sampling challenges remain, in particular since it is not fully clear what is the representativeness of the sample. 

In addition, of those organisations identified as social enterprises, the response rate has, so far, been around 30-40% 

and obtaining further information on non-respondents still remains a challenge. Nevertheless, the strength of this 

approach is to focus on the local level and engaging with local organisations and institutions involved in the social 

enterprise sector, which allows for a better understanding of the potential scope of the sector in each region. 

Resulting indicators 

Indicators developed include business demographics, sales and revenue, expenditures, employment and 

volunteer engagement. These provide a broad overview of the scope of the SE sector as well as key characteristics of 

social enterprises across the different Provinces. More importantly, they contain information on the financial 

performance of social enterprises. 

© OECD 2015 83


In addition to objective information on financial performance from expenditures and sales (and other forms of 

revenues), the new wave of surveys launched in 2014 also includes a number of questions regarding social 

enterprises’ access to finance. As an example, the 2014 SESS for Alberta explicitly asks whether access to loans, 

access to grants or cash-flow management were a significant challenge for social enterprises. Together with objective 

financial information, survey results can provide a baseline estimate for the scope for SII in each Province. 

Source : Elson and Hall (2013); http://www.sess.ca/english/ 

6.17 In addition, some types of social ventures belong to various associations and networks. This is, 

for example, the case of the Cooperative Association in Germany. The existence of such associations can 

help with sampling. Moreover, associations of specific types of delivery organisations (e.g. cooperatives) 

may also collect data on members. It is often in the interest of associations to disclose some information 

about their members for promotion purposes. Some organisations involved in SII activity also maintain 

directories of delivery organisations. This is, for example, the case of some NPIs active in SII such as the 

Groupe SOS in France, or financial intermediaries that share a list of its portfolio companies (e.g. 

Oltreventure; ClearlySo). 25 These associations and networks can be a key interlocutor in future data 

collection efforts. 

6.18 Analysing the demand side of the SII framework involves a number of challenges. First, it is not 

yet clear what type of organisation should be considered within the scope of SII. For example the 

discussions are still evolving in terms of what exactly can be considered a social enterprise. Literature 

shows that social enterprise definitions have changed across time and geographies (Kerlin, 2010), and is 

strongly influenced by differences in social context. As an example, in the analysis of the 2013 Alberta 

SESS above, Elson et al. (2013) note that the definition of social enterprises “excludes social purpose 

business ventures and other forms of socially responsible business activity by the private sector, as well as 

enterprising activities by all orders of government”. Changing definitions over time result in challenges for 

data interpretation. Focusing on the social intent of organisations, as described in Section 4, could help in 

identifying the demand side of the SII framework. However, collecting data based on social intent would 

require an objective and consensual measurement of intent. 

6.19 Teasdale et al (2013) show how different criteria to identify social enterprises in the UK, used in 

surveys over time, has resulted in biased estimates of the growth of the social enterprise sector 

(Figure 6.1). While for example initial surveys such as the ECOTEC, 2003 could understate the full extent 

of the social enterprise population (Type I error), the ASBS dataset compiled in 2007 might have included 

companies that are beyond the scope of the social enterprise concept (Type II error) — Type I and Type II 

errors are discussed at length in Section 6.4. Therefore, any interpretation of the increase from around 

5 300 social enterprises in 2003 to around 60 000 in 2007 must take into account changing criteria over 

time. 

6.20 Second, legal forms do not match what could be understood as an SII investee. Even if they did, 

these would not necessarily be comparable across countries. Due to the different systems, taxonomy varies 

from country to country. As an example, “solidarity” companies in France are not directly comparable to 

social cooperatives in Italy or community interest companies in the UK. In mapping the social enterprise 

sector across EU countries, Wilkinson et al. (2014) finds a wide range of legal forms and classifications in 

different countries. 

25 . Oltreventure’s directory can be found at http://www.oltreventure.com/index.php/investimenti/riepilogo. 

ClearlySo provides a directory of social enterprises around the world, available at 

http://www.clearlyso.com/directory.html. 

84 © OECD 2015


Figure 6.1. Social enterprise in UK surveys 

Note: DTI stands for Department for Trade and Industry. In 2002 DTI defined social enterprise as “a business with primarily social 

objectives, whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven 

by the need to maximise profit for shareholders and owners” (DTI, 2002). ASBS stands for the Annual Small Business Surveys where 

questions were added by DTI in order to assess the percentage of social enterprises in mainstream businesses. NSTSO is the 

National Survey of Third Sector Organisations. Please also refer to ECOTEC (2003) and ITF (2005). 

Source: Teasdale et al. (2013). © 2013 The Author(s). Published by Taylor & Francis is licensed under 

http://creativecommons.org/licenses/by/3.0/. 

6.21 Third, most of the information available on the demand side provides general demographic 

information on organisations that may require SII funding, but information on actual financing needs is 

scarce. Social enterprises do not necessarily disclose the relevant financial information needed to 

understand whether pressing financing needs exist. Therefore, information available is usually limited to a 

sample of firms for which financial information is available (e.g. Unicredit Foundation, 2012) or based on 

surveys that specifically ask for financing needs. In order to derive effective SII demand, it is necessary to 

look at how much financing delivery organisations need. Further efforts to collect data on financing 

constraints of social enterprises or information that allows for the estimation of the underlying financing 

needs (e.g. detailed financial information on social enterprises) are still needed. 

6.3.2. Supply-side data 

6.22 While not much data is available on effective supply of SII financing, except that obtained from 

surveys, investor platforms and transaction data sources, different data sources exist that provide 

information on potential pools of capital that could be deployed — Section 6.2 discusses the distinction 

between data on potential and effective SII activity. Also, SII supply forecasting exercises are increasingly 

common, but require strong assumptions such as the percentage of assets that may be committed to SII. As 

mentioned before, sources of data that allow measuring effective supply are likely to be different from 

those used for potential supply and forecasting. 

© OECD 2015 85


6.23 Some data sources provide information on social impact investors and, more broadly, 

organisations providing finance to social ventures. As discussed earlier, the supply of SII can include a 

wide variety of players from foundations and venture philanthropy funds to institutional investors and high 

net worth individuals (HNWI). Governments also play an important role. Traditionally, they have been the 

largest providers of funding to address social issues, either through cash transfers or direct provision of 

social goods or services (see Chapter 5). 

6.24 Table 6.2 below summarises the key supply-side players, data-related challenges as well as some 

examples of data sources. Supply-side data can be obtained from different types of data sources. Data 

related to the role of the government as a social impact investor can be obtained from NSOs. However, 

different levels of administration (central; regional; local) can entail measurement challenges. In countries 

in which some tax breaks may apply, for example in the UK, National Tax Offices will store information 

about eligible companies. 26 Also, in the US, the IRS discloses a list of all organisations eligible to obtain 

tax-deductible charitable contributions. 27 Other institutions in the public sphere, such as central banks, 

financial market regulators and other financial supervisory bodies, monitor and compile information on 

investment activity and capital pools. The information is usually too aggregate, but can still be useful to 

estimate the potential capital that could be deployed into SII on the basis of a top-down approach due to 

difficulties in tracing-down actual SII amounts (Addis et al., 2013). 

Table 6.2. Summary of type of supply-side players, challenges and data sources 


Challenges 


Government (National and local) 

Foundations 

Social venture funds 

Venture philanthropy funds 

Institutional investors 

Corporations 

High Net Worth Individuals (HNWI) 

Mass retail (crowdfunding) 

Untapped pools of capital 

(dormant funds) 

Most information is on potential 

assets to be deployed 

The actual amount of SII is hard to 

trace. 

Sizing and assessing potential 

entails significant assumptions. 

Confidentiality issues 

National Statistical Offices 

Social expenditures, National 

Accounts 

Networks\Associations 

Japan Foundation Center; EVPA, 

Europe 

Surveys 

JP Morgan\GIIN; 

National Tax Offices 

Tax breaks 

Financial system 

Financial Market Authorities; 

Central Banks 


Source: OECD, based on desk research 

26 . Information on the UK’s Social investment tax relief is available at 

https://www.gov.uk/government/publications/social-investment-tax-relief-factsheet/social-investment-taxrelief. 

27 . Available at: http://apps.irs.gov/app/eos/forwardToPub78Download.do. 

86 © OECD 2015


6.25 Associations and networks also track some data on investors. Examples of these include the 

Japan Foundation Centre for foundations; ACRI for bank foundations in Italy or EVPA for venture 

philanthropists across Europe. However, they typically only provide information on specific types of 

investors and coverage is limited to membership and to certain categories of data that fall short of what is 

needed for an effective mapping of SII. 

6.26 Information about institutional investors sourced from the financial system (central banks and 

financial market authorities) as well as international organisations (e.g. OECD, IMF) and associations can 

also provide an indication of the size of assets that could potentially be deployed into SII, assuming a small 

percentage of those investors might be interested in SII. That interest would be conditional on a number of 

factors such as monetising social returns and the creation of adequate financial vehicles to attract 

investments from these investor types. A report by the World Economic Forum notes that these 

mainstream investors require at least a market risk adjusted financial return due to fiduciary responsibilities 

(WEF, 2013). The Asset Allocation Working Group report (WGAA, 2014) analyses how the fiduciary duty 

perception that SII cannot deliver required financial returns (amongst other challenges) has been limiting 

the allocation of funds to SII financial instruments. It also discusses how this challenge can be tackled and 

SII integrated into portfolio structures of mainstream investors in the future, increasing the opportunity for 

portfolio diversification. 

6.27 Figure 6.2 below overviews financial assets held by major types of institutional investors for G7 

and Australia. In comparison to GDP, these institutional investors hold large sums of money, even though 

investments may often take place overseas. In some cases representing more than 90% of GDP (e.g. 

pension funds in UK and insurance companies in France), institutional investors can steer the SII market 

even if committing extremely small shares of their total portfolios into SII. 

Figure 6.2. Financial assets of institutional investors 

As a percentage of GDP, 2011 

Source: OECD (2013f). 

© OECD 2015 87


6.28 As in other areas, surveys have been the main tool to profile social impact investors and quantify 

available capital. For example, in the JP Morgan\GIIN Impact Investor Survey series (Box 6.2 below) the 

survey sample has been increasing. This imposes some limits to a longitudinal analysis — in the last 

survey a subsample of respondents overlapping with the previous edition (67 out of 125) was used to make 

a comparative statics analysis. The most important is to guarantee that the sample provides a good idea 

about the effective distribution of characteristics across different investors. 

6.29 The GIIN\JP Morgan survey is particularly interesting because it combines quantitative 

information (e.g. investments; assets under management; returns) with qualitative information (e.g. growth 

perspectives; return expectations). If efforts are made to obtain a representative sample with longitudinal 

data, it is possible to track if investors’ expectations regarding the SII market are actually being met (e.g. 

Saltuk et al., 2014). 

88 © OECD 2015


Box 6.2. GIIN\JP Morgan Survey 

J.P. Morgan and the GIIN have been collecting data on impact investors through surveys since 2011. The joint 

surveys target investing organizations such as foundations, funds or financial institutions and apply a broad definition 

of impact investment, as described in Chapter 4. Individual investors are however excluded from the analysis. Also, 

only investors with assets under management above USD 10 million are included. As a consequence, the resulting 

sample is not representative of the whole SII market. Nevertheless, it is amongst the most comprehensive sets of 

information on the supply side of the SII market. 

So far, three different survey waves have been carried out (2011, 2012 and 2013) and the sample of investors 

has been increasing (52, 99 and 125, respectively). Also, respondents do not necessarily overlap which means that 

caution is needed when interpreting trends along the different survey waves —The table below provides a comparison 

of targeted SII (amounts that investors are willing to invest) and the actual investment volumes in 2011, 2012 and 2013 

survey waves. It is possible to see significant investment leaps between the survey waves. These cannot be regarded 

as market growth but rather sampling changes. Saltuk et al. (2014) make a comparative analysis that carefully focuses 

on the 67 survey respondents that had participated the year before (Saltuk, 2013). Tracking the exact same individuals 

would allow comparing a priori targeted investments for a given year with the subsequent volume of investments in that 

year. 

2011 survey 2012 survey 2013 survey 

n=52; n=88 n=87 (2013) n=125 n=124 (2014) 

Targeted 

2012 

Transactions 

(volume) 

2012 

8,0 

investments 

Targeted 

2013 

Transactions 

(volume) 

2013 

10.6 

investments 

Targeted 

2014 

3.8 

9,1 

investments 

investments 

Note: in billion USD. Information on survey response rates is not available 

12.7 

investments 

The survey results convey information on a number of different investor characteristics, including investor size 

(AUM), investor type (e.g. family office, fund manager, foundations, etc…), headquarters and geographical focus, 

sector focus, asset class focus, investment stage focus, return expectations, sources of capital (for intermediaries). 

In addition, information is also gathered with respect to investors’ perspectives, in particular regarding: i) 

Adequate risk and return profiles; ii) Motivations for impact investments; iii) Evolution of the SII market (e.g. usage of 

standards, investment opportunities, availability of capital for SII); iv) Major challenges for impact investing; v) Role of 

policy; vi) Planned investments in the near future (1 year); vii) Importance of metrics to evaluate performance. 

Source: Saltuk et al. (2011; 2013; 2014) 

6.30 An important challenge in collecting supply-side data relates to confidentiality requirements. This 

is also an issue for data collection in the venture capital and angel investment markets, in which supply 

side data is collected by survey from investors. For example, while most information from financial system 

regulators is not disclosed, data originating from survey exercises often needs to be anonymised (e.g. if it 

requires the disclosure proprietary or other types of sensitive data). For example, confidentiality issues can 

be particularly relevant for high net-worth individual. 

6.3.3. Intermediaries and transactions 

6.31 In terms of sizing the SII market, obtaining transaction data is crucial. However, this type of data 

is very hard to access, perhaps due to the fact that the market is still in embryonic phase in most countries 

and the necessary data collection processes have not been put in place. Currently the data remains in small 

pockets, used only by those directly involved in the transactions. 

© OECD 2015 89


6.32 Table 6.3 below summarises the key intermediaries, data-related challenges, as well as some 

examples of data sources. Data on intermediaries and transactions can be obtained from different types of 

data sources. Transaction data is collected by social banks and wholesale banks such as Big Society Capital 

in the UK. Social exchanges have recently been established in some G7 countries such as the UK (Social 

Stock Exchange) and Canada (SVX) although the earliest exchanges were developed in other countries. 

With increasing deal activity, these exchanges can become an important source of SII transaction data in 

the near future. Nevertheless, transactions through social stock exchanges will likely only account for a 

small share of total SII activity. 

Table 6.3. Summary of types of intermediaries, challenges and data sources 


Challenges 


Social banks 

Social investment wholesale banks 

Community Development Finance 

Institutions (CDFIs) 

Fund managers & Tax advantage 

funds 

Social exchanges 

Crowdfunding platforms 

SII Networks/platforms 

DFIs and development banks 

Several organisations collecting 

data but different types and in 

various ways. 

Data usually collected to address 

investor needs. 

Market still in embryonic phase in 

most countries. 

Identifying the set of 

intermediaries can be helpful to 

identify all potential players 

collecting transaction data 

Banks/Wholesale banks 

BSC, UK; Bpifrance, France 

Funds 

Impact Assets; NCIF, US; 

Social exchanges 

Social Stock Exchange, UK; SVX, CAN 

Investor platforms 

Impact Base, GIIN; Maximpact; 

Engaged Investment, UK 

Crowdfunding platforms 

Masssolution, US 

Networks\Associations 

Finansol, FRA; CFDA, UK 



6.33 In parallel, the number of SII investor platforms has been increasing in recent years. These 

platforms provide a useful tool for investors interested in investing with a social impact. In addition, they 

gather information on investees, investors and, in some cases, transactions. Impact Base from GIIN or 

Maximpact (yet to become operational) are examples of platforms from which transaction data can be 

obtained. Some platforms, such as Engaged Investment in the UK, are not only collecting raw SII 

transaction data, but also developing taxonomy with the objective of constructing SII market indexes (see 

Box 6.3). In addition, there are specific types of platforms, such as Massolution in the US, that gather 

information on certain types of transactions (in this example, crowdfunding), some of which might be 

classified as SII. 

6.34 Tax can play an important role in the SII market (City of London, 2013). Information on special 

tax regimes exists for example in the UK for social impact investment (Social investment tax relief). Tax 

offices would, in theory, be able to gather and aggregate such information, based on any tax credits and tax 

rebates that may apply. This approach could potentially provide a more comprehensive overview of both 

the number and volume of SII deals. However, accessing such administrative data is not always possible 

and requires overcoming confidentiality issues. 

90 © OECD 2015


Box 6.3. Benchmarking SII: EngagedX 

EngagedX collects SII transaction data with the objective of aggregating it into time-series market data that can 

be used to benchmark the performance of individual investments, funds or capital managers. Anonymised transaction 

data is being shared by leading SII intermediaries and fund managers in the UK, with plans to scale globally. 

EngagedX has been commissioned by the Social Investment Research Council (comprising Big Lottery Fund, Big 

Society Capital, the Cabinet Office, Citi and The City of London Corporation) to assemble a dataset of historic 

performance of the UK market. This dataset will bring together comparative data about outturn risk and returns of 

investments in relation to capital pricing. 

Data is collected and normalised according to a reporting framework developed collaboratively by EngagedX and 

industry practitioners. This helps categorise and compare transactions according to a number of characteristics, 

including product type, risk banding, sectors, investor and investee characteristics as well as the nature of social 

outcomes. The figure below depicts the high level architecture of the EngagedX data model. 

Source: EngagedX Investment STandards (EXIST), Version 2.2.2 (5 June 2014) 

The resulting information will help showcase the risk-return profiles of SII in relation to mainstream capital 

markets. It will also identify the different drivers of social and financial performance in SII as well as how risk-return 

benchmarks vary across different social areas, geography or other relevant market segmentation. 

Source : http://www.engagedinvestment.com, accessed on July 18, 2014 

6.35 Surveys have also been used to gather information on intermediaries. An example can be found 

in the Impact Investing 2.0 initiative (see Box 6.5), in which 30 out of 350 funds analysed met the criteria 

to be considered social impact investment, and 12 were selected for in-depth analysis. The samples are 

small and not necessarily representative of the market, but these efforts are useful in helping to build the 

evidence base. 

6.36 As noted earlier, associations and sector networks can play an important role as data providers. 

Establishing the parallel to the venture capital market discussed earlier in this paper, most of the current 

transaction data sources are venture capital associations (e.g. EVCA in Europe or NVCA in the US). These 

© OECD 2015 91


associations collect data directly from the venture capital firms. Some national angel investment 

associations also play a data collection role. 

6.37 Even though data from some of these venture capital associations or angel investor networks can 

be fairly comprehensive, usually it only covers information obtained from members or associates. This 

caveat is even more important in areas where the association\network might only represent a small share of 

the market players. This is, for example, the case of business angel associations and networks. The case 

with SII is even more challenging given the varying views on definitions and the potential incentives for 

investors to classify themselves as social impact investors when they might not qualify. Rapidly growing 

SII-related associations such as Venture Philanthropy Associations (e.g. EVPA in Europe or AVPN in 

Asia) will certainly be important in future data collection efforts. 

6.38 The main challenge in sourcing data from intermediaries is that it is usually collected to address 

investor needs. Data disaggregation, in terms of social areas, relevant to a policymaker might be very 

different from the breakout and labels that would be appealing to an investor. It is important to distinguish 

the data requirements of investors, researchers and policymakers as outlined in Section 6.2. For example, 

while data collected for investors should reflect mostly financial characteristics (e.g. risk-return profiles, 

investor perspectives and investor practices, track record), data for policymakers should make the link with 

social outcomes and collected in such a way to provide the basis for informed policy action. Further work 

is needed to obtain data in a way that can provide insights for policy guidance. 

6.4. Current Approaches to Data Collection 

6.39 Various approaches might be used to collect SII information depending on which parts of the 

market are being assessed. However, none of the currently available approaches are optimal. The first is a 

top-down approach where key national aggregates are identified that allow the estimation of the SII market 

conditional on (strong) assumptions. The second is to compile information from players that have a 

common legal form directly linked to SII. The third is to collect data via surveys from market actors. Data 

requirements can also vary depending on who is seeking the data (market players, academics, policy 

makers). The details, advantages and disadvantages of each approach are described below. 

6.4.1. Top-down approach 

6.40 Some of the components of the SII framework can be estimated using a top-down approach. 

Within this approach, the first step is to obtain data on national aggregates. Since this data are highly 

aggregated, it combines a myriad of different information sets that go beyond SII. Therefore, the key is to 

single out the SII components. For this exercise a number of (rather strong) assumptions are required. First, 

it requires that some (rough) idea of the shares of the SII component, which needs to be based either on 

perceptions or historical information. 

6.41 While using shares based on perceptions can be misleading, depending on historical data assumes 

that it is: i) representative of the SII market; and, ii) there are no structural shifts, and thus percentages 

remain the same. On one hand, significant challenges still remain in terms of sizing the market. On the 

other hand, the SII market is evolving and growing rapidly, which means that assuming stable shares of the 

SII component might be unrealistic. In addition, it is important to note that even if shares provide a good 

representation of reality in one country, it will likely not be the case in different countries with different 

social systems. As a result, this approach has significant limitations. Although it can be useful to provide 

rough estimates of the market and foresights of demand and supply in the coming years, it does not allow 

effective measurement of SII demand or supply, nor is it able to provide insights into SII deal flows. 

92 © OECD 2015


6.42 Examples of the use of this approach can be found in measurement exercises focusing on 

potential funding from institutional investors or funding from governments. As an example, work being 

carried out by NABs has provided information on the scope of public expenditures and public procurement 

based on National Accounts aggregates. The potential SII demand was identified by narrowing down to 

social service delivery funded by government. Another potential use of this approach is the measurement 

of potential investments by institutional investors as described in section 6.3.2. 

6.4.2. Bottom-up approach 

6.43 A different approach to sizing SII components is to focus on individual units (e.g. social 

enterprises, specific types of investors or intermediaries). This approach requires that sufficiently detailed 

information is available at a high level of disaggregation that allows identifying individual units within SII. 

Information to identify SII delivery organisations would include sector of economic activity, legal form, 

business description\mission, inter alia. This information could either come from NSO micro databases or 

from commercial data providers. As a second step, it is then essential to understand whether the individual 

units gathered represent the population or a subset of it. In the most likely case that it only represents a 

subset of the population, it is important to ensure that the sample is representative (e.g. through observing 

characteristics contained in the data). Finally, based on the information gathered, the SII component can be 

measured either through aggregation (if the population is observed) or by inference (if using a subset of the 

population). 

6.44 The key challenge of using this approach is ensuring that either the whole population is observed 

or the sample is representative. Section 6.6 discusses sampling challenges at length. The emphasis given to 

NSOs derives from the fact that they usually provide information on a population set or at least on a 

representative sample. In addition NSOs have expertise in collection of high quality data in a consistent, 

cross country comparable way. The United Nations Handbook on Non-Profit Institutions in the System of 

National Accounts (UN, 2003) provides guidance for NSOs to identify and collect data on NPIs. An 

interesting feature is the practical solution to the measurement approach to non-market output (i.e. social 

impact). As a long term goal, it would be important to consider agreement on definitions and legal 

structures in such a way that (demand) data can be collected in a systematic and internationally comparable 

way by NSOs. 

6.45 Examples of this approach can be found in efforts to size the demand side of the SII framework 

(specifically measuring the social enterprise sector). In a study of the Italian social enterprise sector, Fedele 

and Miniaci (2010) use commercial data sources (Amadeus database from Bureau van Dijk) to distinguish 

the capital structure of cooperatives (proxy for social companies) vis a vis for profit enterprises. 

© OECD 2015 93


Box 6.4. Satellite Account on Non-Profit Institutions 

The Satellite Account on Non-Profit Institutions (NPIs) was introduced to respond to a growing non-profit sector 

that was not taken into account in the agreed System of National Accounts (SNA 1993). The Handbook (UN, 2003) 

provides guidance regarding the identification of all NPIs, in particular through a clear definition of NPI, the valuation of 

volunteer work and by introducing a classification system for NPIs based on their function. The need for improved data 

coverage — insofar as there were no incentives for NSOs to collect data on NPIs — and the increased policy 

relevance, were also key motives for developing this system. 

There are a number of distinctive characteristics in NPIs that required a specific statistical approach, different 

than the applied to corporations and governmental units. Some of these characteristics, such as the revenue structure, 

capital sources or tax treatment, can also be found in SII. By classifying NPIs into 12 group types (see Table A.6.1, 

Annex) and providing a system for categorising revenues and expenses as well as volunteer work, donations, as well 

as non-market output, the Satellite Account for NPIs provides a harmonised framework for mapping the NPI sector. 

Also, it provides data on the extent to which foundations fund other parts of the non-profit sector such as health or 

research 

For the case of SII, it would be important to highlight the measurement of non-market output. While the traditional 

SNA measures output through sales revenue. For the case of some NPIs and SII, part of the output will not be 

measured this way and output will be undervalued. This is particularly the case if an organisation has a significant 

portion of its revenue coming from donations and other non-sales types of revenue. The measurement approach does 

not attempt to value non-market output. Instead, the valuation of non-market output is based on the difference between 

costs and sales. If negative the non-market output will be zero, if positive it will be equal to the difference between 

sales and costs. Even though this approach is not optimal, it provides a practical solution to the measurement issue. 

Source: UN (2003). 

6.4.3. Surveys 

6.46 The most direct source of data is to conduct surveys of key actors in the market. Surveys can be 

very resource-intensive, but provide extremely rich information if well designed and implemented. The 

first step in a survey process is to identify key SII players — social enterprises, investors or intermediaries, 

depending on the SII component under analysis. This is challenging, since depending on the type of survey 

respondent, greater detail and data granularity can be achieved. 

6.47 Recently, the OECD carried out a survey of Social Economy Organisations (SEOs), understood 

as organisations with non-profit objectives, operating in 14 different regions, corresponding to 8 countries 

(OECD 2013g). The geographical scope was limited, but the results insightful. The survey was answered 

by 655 SEOs and revealed that, on average, SEOs finance themselves mostly through internal resources — 

i.e. their “profit”\cash generating ability — (31.8%) and subsidies (30.6%). In addition, as the level of 

detail increases, so do survey costs. 28 

6.48 Second, survey design is crucial for efficiently and effectively achieving the objectives of the 

analysis. In designing surveys, it is important to reach the right balance between the amount of information 

requested and simplicity — i.e. respondents may feel less encouraged to complete the survey if it becomes 

too complex and time consuming. Also it is important to consider sampling frames to be able to know what 

part of the population is being surveyed (ensure representativeness). To date, most surveys on SII have 

focused on selected networks of key market players in certain geographies and therefore it is not clear 

whether the data is representative of the population. 

28 . Sample size varied by region (between 16 and 145 SEOs). Response rates where unknown in many regions 

due to lack of information on the number of surveys distributed. Where available, response rates varied 

between 6.4% and 17.7%. 

94 © OECD 2015


6.49 Survey response rates are often lower than initially expected. It is important to understand why 

there are non-respondents. Designing the appropriate incentives for reporting good quality data is essential. 

Moral hazard issues in previous data collection efforts were identified during the OECD SII Expert 

Meeting in Paris. Incentives should ensure that, for example, portfolio losses are reported in a rigorous 

way. In addition, it is important to note that incentives should be tailored to the type of SII player being 

surveyed. For example, showing respondents part of the survey outcomes could provide a good incentive 

to some types of respondents such as fund managers. 

6.50 Third, data control and verification mechanisms are crucial to ensure high data quality standards. 

In some surveys carried thus far, data was checked through registration documents (e.g. Saltuk et al., 2011, 

2013, 2014). Finally, building upon the sample collected while ensuring its representativeness, it is 

possible to draw broader conclusions about SII activity (inference making). 

6.51 The CASE initiative on impact investing (CASE i3) provides good examples of surveys aimed at 

building the SII evidence base. Launched in 2010 it partners with different market players (social 

entrepreneurs, investors, academics and policymakers) in order to provide build the SII evidence base 

(Box 6.5). An interesting feature of this initiative is the simultaneous focus on the demand and supply sides 

of SII. 

Box 6.5. CASEi3 work on building the evidence base 

Case is a recent initiative launched in 2010 by the Center for the Advancement of Social Entrepreneurship 

(CASE), based at Duke University's Fuqua School of Business, US. 

Within CASE i3, a number of surveys have been carried out, either focusing on social entrepreneurs or on 

investors. The surveys are done in partnership with B Lab (focusing on social entrepreneurship) and with GIIRS (aimed 

at impact investment funds). Two separate datasets on companies and impact funds are maintained by CASEi3. As of 

March 2013, the company dataset covered over 8000 for-profit impact entrepreneurs. In terms of the funds database, it 

covers a total of over $4.5Bn in AUM. 

CASE i3 also runs a MBA on Impact Investing. This is an interesting approach that accrues benefits in terms of 

increased research capacity, since students are involved in consultancy and research work, while engaging with 

academics and practitioners in the field of Impact Investing. 

Case i3 also has the capacity to commission research to outside academics and consultants which further 

enriches the contribution of the initiative to advancing the knowledge about the SII empirical base. In particular, it 

commissioned research in 2012 to work with the data collected on social entrepreneurs with the objectives of i) making 

comparative analysis of the effects of being a B-corporation and ii) improving the data collection mechanism (including 

streamlining the survey). A new call for research proposals is expected for September 2014 and will focus on analyzing 

the supply side data. A sample of the survey can be found online. 

The data on funds has been used for a report (Clark et al., 2013), where 12 out of 12 major funds selected 

between 30 very successful Impact funds (out of initial list of 350 potential impact funds). These accounted for $1.3bn 

total assets. 

Data collected includes proprietary information so it is only disclosed to the greater public at aggregated levels 

through a series of reports and working papers. Nevertheless B-corp profile information is made available and includes 

company general information and 

Source : CASE i3 website at http://sites.duke.edu/casei3/ 

6.52 Since the beginning, CASE i3 has been collecting data via surveys on social entrepreneurs and 

impact funds, in collaboration with B-Corporation and GIIRS, respectively. The survey of demand side 

organisations is used to label companies as a B-corp (Box 6.6). Therefore, there is a high incentive for 

companies to report the data because they can benefit from the label. The survey has been being improved 

© OECD 2015 95


over time (will soon be in its third version) and efforts have been made to reduce the number of questions 

(above 100). Since the main goal is to profile companies, financial information is very scarce (only 

includes one variable on total revenue), which would be important for the purposes of estimating SII 

demand. Also, the focus is on for-profit organisations, so, again, it might not fully cover what is 

understood as SII (e.g. including NPIs; Cooperatives). CASE i3 has also commissioned research in 2012 to 

investigate the benefits of being labelled as a B-corp (this research is still ongoing). With this respect, the 

challenge is to have an unbiased and representative sample of B-corps and non-B-corps so that robust 

comparisons can be made. 

6.53 The survey on the supply side provides information on fund performance that can then be linked 

to portfolio company data. The objective is to provide input for the GIIRS rating system that rates both 

funds and portfolio companies. The ratings do not result from financial performance but rather focus on the 

(potential) for social\environmental impact. The underlying survey and quality check procedures used in 

GIIRS follow the same structure as those used for B-corp but the survey questions and type of information 

requested is adapted to serve the rating purposes. The data reporting burden is shared between the fund and 

portfolio companies as both benefit from being rated. 

6.54 Surveys are extremely resource intensive and entail significant challenges in terms of identifying 

appropriate samples. Population and sampling issues are discussed at length in Section 6.6. Developing a 

resource-efficient way to exhaustively map the SII market remains a challenge. 

6.55 Scoping exercises and pilot surveys can provide valuable input to improving SII survey design. 

However, new survey initiatives should be made in collaboration with existing efforts, to build upon 

existing experience as well as avoid survey fatigue. This is particularly relevant at early stages of market 

development, when different organisations may end up collecting data simultaneously. To collect globally, 

cross-country comparable data, new survey instruments may be needed, but should be implemented in 

partnership with existing initiatives and provide a broader coverage of SII activity across countries. 

6.56 Different data approaches might be more appropriate to size different parts of the SII market 

given its current embryonic state. For the demand side, bottom-up approaches that rely on some form of 

SII-related legal form or classification might be preferable; however, for investors a top-down approach 

could be sufficiently informative. However, surveys appear to be the best overall option at the moment — 

despite high costs, sampling issues and survey fatigue risks — since not much information on SII is 

available. 

6.5. Current SII data and market estimation 

6.57 The SII market and concepts are new in most countries, thus the evidence base is very scarce. 

Market estimates mainly come from industry reports, while some academics have focused on measuring 

the scope of SII activity. This process has been facilitated by the work of the National Advisory Boards set 

up by the Social Impact Investment Taskforce established by the G8 and new initiatives such as Expert 

Group on Social Entrepreneurship in EU or the CASE i3 in the US have helped building the evidence base 

and pushing forward the data discussion. 29 

29. Information on the Expert Group on Social Entrepreneurship can be found at: 

http://ec.europa.eu/internal_market/social_business/expert-group/index_en.htm 

96 © OECD 2015


6.5.1. Academic literature building on SII data 

6.58 Even though academic literature on social enterprises is large, academic literature on SII is 

relatively scarce. In particular, academic papers that attempt to measure the scope of SII are rare. Table 6.4 

below provides examples of the academic literature that focus on gathering and analysis SII-related data. 

6.59 In terms of market components, most of the advances in data analysis have been on the demand 

side. The academic literature on social enterprises is extensive. For example, international research 

networks specifically devoted to social enterprises (e.g. EMES; TEPSIE) have been established and 

contributed to advances in the understanding of the social enterprise sector. 30 Mapping of social enterprises 

(lactu sensu) exist for a number of countries. Smith and Rothbaum (2013) provide an overview of business 

demographics trends related co-operatives across several countries, including Canada, France, Germany, 

Italy, UK and US. 

Table 6.4. Examples from academic literature 

Article Country Data Source 

Alcock et al (2012) UK Case study (SEIF) Survey covering 1653 companies 

(285treated+1368non-treated) 

Lyon et al (2010) UK Case study (SEIF) Survey –See Alcock et al (2012) 

Nicholls (2010b) UK Rough UK Landscape Different reports 

Nicholls (2010a) 

Global Broad mapping N\A 

(focus UK) 

Anttonen and Haikio 

(2011) 

Finland Demand indicators in 

elderly-care sector 

Documents provided by Min. 

Social Affairs and Health 

Hazenberg (2011) UK 15 SIFIs (out of 22 Interviews w\ fund managers 

identified) 

Florek (2013) UK Community interest 

companies 

National Survey of Third Sector 

Organisations 

Mendel and Barbosa Global Exchange platforms Exchange platforms websites 

(2013) 

Blazy (2011) FRA; USA Sizing social sector. SII 

in USA 

Government sources for FRA 

(e.g. DARES). Reports and Gvt 

Wells (2012) UK Case study 

(Futurebuilders) 

Borzaga et al (2010-WP) ITA sample of 320 Italian 

social cooperatives 

Fedele and Miniaci (2010- ITA 2007 balance sheet data 

WP) 

for 504 companies, of 

which 226 are 

cooperatives (proxy for 

Smith and Rothbaum 

(2013) 


sources for US (e.g. CDFI Fund) 

FBE Annual Review Data 

ICSI2007 database; see also 

Scalvini et al (2007) 

Bureau van Dijk – Amadeus. 

social companies) 

Global Cooperatives Canada: Rural and Co-Operatives 

Secretariat; 

France: Les Scop and INSEE 

Germany: DGRV; 

Geschäftbericht 

Italy: Census on Cooperatives 

UK: Co-operatives UK; 

US: University of Wisconsin 

Center for Cooperatives 

30 . Information on the EMES network can be found at http://www.emes.net/. Information from the European 

project TEPSIE is available at http://www.tepsie.eu/. 

© OECD 2015 97


6.60 The academic literature is not very prolific in terms of studies analysing and mapping investors 

and intermediaries. While some papers go into detail on a specific market component (e.g. Mendel and 

Barbosa, 2013 overview existing exchange platforms), others focus on case studies of specific instruments 

(e.g. Alcock et al., 2012 evaluate the impact of the SEIF in the UK). Therefore, the mapping of SII is 

always very incomplete. Recent research initiatives such as the CASE i3, described before in Box 6.5, are 

aiming at providing robust evidence on the SII market as a whole. 

6.5.2. Industry reports 

6.61 While there are few academic papers, an increasing number of industry reports have attempted to 

size the SII market. These reports look at the market from different angles and often use different 

definitions that may include different things. Many of these reports focus on certain countries, geographies 

or sectors providing a window into parts of the SII market but a fragmented and sometimes contradictory 

view on the overall market. Without a comprehensive picture — either in terms of market potential, 

effective demand\supply or actual transactions —, data collection efforts can result in significant biases. 

6.62 A number of these reports build on the same few data sources and on limited evidence from case 

studies (and many of the same cases are used repeatedly). To date, most SII data obtained comes from 

surveys (e.g. Saltuk et al, 2011, 2013, 2014) and interviews that have been conducted by SII 

intermediaries, government agencies and/or consulting firms. Even though the information collected in 

these reports is a big step forward towards a better understanding of SII, sample sizes are often limited and 

estimates of the SII market often require strong assumptions. 

6.63 A number of industry reports have provided some estimates on the actual (or potential) size of the 

SII market. Table 6.5 below provides examples of SII market estimates as well as a brief explanation of the 

approached followed. Few reports focus on actual transactions, rather measuring effective demand and 

(quite often) estimating the market potential and forecasting future market growth. These numbers should 

be regarded with caution since they rely on rather strong assumptions and the underlying market estimation 

effort entails a non-negligible number of challenges. The estimates presented in the table are just 

illustrative since the underlying data and methodologies are very different due to data availability in each 

country. Therefore, any comparison of estimates across reports should be avoided. 

6.64 The strategies to collect data previously described can broadly be found in the existing industry 

estimates of the SII market. As an example, Weber and Scheck (2012) take a bottom-up approach to size 

the German SII market, by compiling information on a number of major SII investors. Specifically, they 

sum up the assets, investments and funding from BonVenture, the Social Venture Fund, Auridis gGmbH 

and the KfW funding. Therefore the estimates might be downward biased since not all SII players are 

included due to data collection challenges. 

6.65 As discussed before, estimating the actual size of the market requires a different approach, as 

well as different data and respective sources. The strategy followed by Brown and Swersky (2012) to 

forecast future SII investment demand was the following. First, a number of key SII sectors were identified 

and further disaggregated into 26 subsectors. Second, the share of economic activity performed by social 

organisations was calculated for each subsector. Third, the capital requirements of social organisations 

were calculated by sector. Finally, by comparing present with future capital requirement (based on sector 

growth and capital depreciation assumptions), it is possible to calculate the investment needs and thus 

forecast future SII demand. The underlying raw data is obtained through a combination of a survey to 

40 SII market players, interviews and publicly available data sources, in a mixed bottom-up (sector level) 

and survey approach. 

98 © OECD 2015


Report 

Brown and Norman 

(2011) 

Brown and Swersky 

(2012) 

Table 6.5. Some market estimates from industry reports 

Country Estimate \ 

Estimate 

Type 

Approach 

\Region MKT potential 

year 

England £165 million Potential Survey (78 SIFIs) 2010/11 

England £750 million potential 

demand (£1bn in 2016) 

Potential 

Mixed, but essentially 2015 

Bottom-up (starting from 

sector level demand) 

Survey (125 investors) 2013 

Saltuk et al (2014) Global USD 10.6bn 

commitments 

Effective and 

Transactions 

Addis et al.(2013) AUS A$ 300m investment, Potential Top-down 2012 

A$2 billion AUM 

Harji et al. (2014) CAN >CAN$1.6bn in AUM Effective and Survey & interviews 2013 

Transactions 

Chua et al. (2011) Asia USD 44-74bn potential Potential Bottom-up (starting from 2020 

AUM 

sector level demand) 

La Croix (2014) FRA EUR 6.02bn Solidaritybased 

Effective and Member reporting 2012 

AUM 

Transactions 

Clark et al. (2013) Global USD 1.3bn total assets Effective Survey 2013 

(12 funds) 

Weber and Scheck GER EUR 24m market Effective Bottom up (Sum of key SII 2012 

(2012) 

volume 

investors) 

Hope Consulting USA USD 120bn (willingness Potential Survey (5,227 individuals; 2010 

(2011) 

to invest in high 

873 investment advisors; 

performing non-profits) 

727 foundations) 

Freireich and Fulton US USD 26bn community Transactions N\A 2007 

(2009) 

investing 

Notes: Estimate year refers to the date to which the estimate corresponds to (usually different from publication date). AUM stands for 

assets under management. 


6.66 The pure survey approach is followed by Saltuk et al. (2014) and is described in Box 6.2. As 

previously discussed, the key for successfully estimating the SII market is to guarantee that the sample is 

representative of the target population and that selection biases are mitigated. These remain key challenges 

in nearly all SII surveys because the boundaries of the target population (and definition) are still blurry. 

6.67 A common caveat found in most industry reports relates to the strategies employed to estimate 

the current (or potential) market. Strong assumptions, such as constant shares (across time and geography) 

for the SII component of more aggregate measures can induce significant biases. Also, it is sometimes 

assumed a nexus\relationship between SII demand and supply that is not self-evident. For example, Chua 

et al. (2011) first calculate a sector-level SII demand projection assuming that 5% to 15% of total demand 

in each sector is satisfied through SII. Second, building on the demand estimate, the SII total invested 

capital is calculated through a formula based on estimated profit margins (by sector), return on equity and 

average cost of capital. 

6.68 An additional caveat found in some industry reports is an emphasis on case studies and\or a 

selection of very successful SII transactions, investors or social enterprises (e.g. Clark et al., 2013). In 

particular if such small (and biased) samples are built upon to draw conclusions on the evolution of the SII 

market. It should be noted however, that such reports do not claim to size the whole SII market, but rather 

provide a kick-start to the discussion on building the evidence base. Avoiding selection biases is crucial 

and to do so, it is crucial to include in the samples not only the best and the good, but also the not so well 

performing cases (Bloom and Clark, 2011). The right incentives need to be devised in order to ensure the 

survey participation of, at least a representative sample of the target population. Providing feedback on 

interim survey results can be a good incentive to increase survey participation (Bloom and Clark, 2011). 

© OECD 2015 99


6.6. Challenges in SII data collection 

6.69 Scoping and sizing the global SII market is an enormous challenge. There is no consensual 

definition across different geographies and, above all, market players and researchers involved in SII. This 

implies that most market estimates are not directly comparable. Data is not being collected in a 

standardised and systematic way. 

6.70 Most importantly, the lack of a consensual definition creates enormous challenges in identifying 

the target population — i.e. what exactly is being measured. For example, the scope of SII demand cannot 

possibly be identified as long as the boundaries of SII delivery organisations are blurry. Sampling schemes 

avoid the need to capture information about the whole population by focusing on a representative subset. 

However, sampling requires a clear definition of the population along with a number of key observable 

characteristics. So, in the case of SII, even if a sampling frame is properly devised and a robust sampling 

methodology is used, it results in biased estimates because it is unclear what the population of interest 

should be in the first place. In other words, it is not possible to find a subset of the populations that, 

according to some observable characteristics, is representative of the population. Therefore, estimates of 

SII scoping exercises are usually biased towards certain sectors, instruments or investor types. 

Accordingly, extrapolating total market sizes based on limited and unrepresentative samples should be 

regarded with caution. Chapter 4 of this report provides a structure that helps defining SII, the basis for 

engaging in data collection efforts. 

6.71 In most measurement exercises, a common error is to exclude data that could be relevant (Type I 

error). In the case of SII, focusing on a narrower scope can result in significantly incorrect measurements. 

For example in Clark et al. (2013) only a selected number of intermediaries were analysed. The coverage 

in the series of GIIN\JP Morgan investor surveys (Saltuk et al., 2011; 2013; 2014) has been increasing, 

which reveals that some important investors might be (or have been) left out. 

6.72 However, the early stage of SII market development can potentiate another type of measurement 

errors: including data that is not relevant for SII (Type II error). For example, applying the working 

definition described in Chapter 4, some delivery organisations can be wrongly included as SII investees. 

As discussed in that section of the paper, some certified B-corps may not be included in the potential 

demand for SII, because some of the certified companies would not meet the other necessary eligibility 

criteria for SII. Another example can be found in the ASSB dataset in the UK, which samples social 

enterprises from all existing firms with less than 250 employees (see Section 6.3). 

6.73 The lack of a statistical definition of SII means that data is embedded in other broader data 

categories. Disentangling what is the subset of information that corresponds to SII can be extremely 

challenging. For example, in top-down approaches very strong assumptions are usually required, as 

discussed earlier in this section. In addition there are several SII data layers (e.g. social need granularity) 

which add substantial complexity to the analysis. A more granular approach may require data collection 

efforts that are more resource intensive and might entail additional confidentiality issues. The trade-off 

between level of detail and comprehensiveness of the information should be taken into account when 

deciding to collect data. As an example, for the purpose of analysing SII transactions, survey respondents 

might include investor platforms or the investors themselves. While focusing on investors provides a 

greater level of detail, it multiplies the number of respondents, thus increasing data treatment and survey 

management needs. 

6.74 Finally, a common challenge in data collection is clarifying why, what and for whom data should 

be collected. This is particularly important because different goals require different data types (and data 

sources). Having a clear goal for data collection and well-defined data requirements is crucial. Two types 

of measurement objectives were identified in the OECD SII Expert Meeting in London. On the one hand, it 

100 © OECD 2015


is important to further understand the evolution and behaviour of the SII market to inform policymakers of 

any regulatory adjustments that might be needed. On the other hand, data collection efforts should also 

serve to inform investors about SII market potentiality. 

6.75 Priority should be given to capturing objective data before stepping into areas where definitions 

are not yet established and data is deemed subjective. This may apply to either demand, supply or 

transaction data. However, given that transaction data usually entails some information on both demand 

and supply, a thorough collection of this type of data can be a valuable starting point. In early stages of 

market development surveys can be a valuable tool. However, these are resource intensive and entail 

significant challenges in terms on ensuring representativeness. In the long run, data collection needs to be 

based on standardised reporting because, as the market grows, surveys will become increasingly expensive. 

6.7. Possible Future Approaches for Data Collection 

6.76 Different players are engaged in collecting data on SII components from different angles, with 

different approaches and using different definitions. The plethora of new initiatives and reports attempting 

to size the SII market is a positive trend and suggests growing interest in understanding SII. However it 

makes it harder to identify key sources of data and compare and consolidate estimates. In addition, effort 

duplication and data overlapping is a serious risk. Collaboration between those players currently involved 

in data collection efforts is key. Some steps in this direction are already being taken. For example, the 

“Social Investment Research Council” was recently created in the UK to consolidate research efforts and 

avoid duplication. 31 Also, efforts to increase data comparability across countries are being made through 

initiatives such as the GIIN or the work of the SIITF. 

6.77 To ensure comparability across data collection efforts taking place in different geographies, 

metadata is crucial as it helps understanding what exactly is available and how detailed are currently 

available data. This is particularly relevant when SII definitions are not yet established. Moreover, 

transparency requirements can help moving towards common standards. Such transparency requirements 

might be burdensome on the different players involved in the market, but they necessarily come with a 

standardisation exercise, whose benefits can outweigh the costs. It is however important to note that 

standards might limit the scope for innovation. The right balance should be found so that the 

standardisation procedure does not gridlock the SII market and prevents it from further innovating and 

growing. 

6.78 A system based on automatic reporting would bring some advantages in terms of coverage and 

quality of the data. Such data can then be complemented with further information collected via surveys for 

specific purposes. Data reporting can be very costly for companies (especially for small social businesses), 

investors, intermediaries, while a significant part of the data obtained might end up not being used. It is 

important to note that the direct benefits SII players accrue from reporting are relatively small, so the 

adequate incentive mechanism needs to be put in place. 

6.79 Requiring certification is an approach that can work as an incentive for companies to make the 

effort to report. By being certified (see Box 6.6 for the case of B-corp certification procedure), social 

enterprises gain more visibility as was as it sends a positive signal to potential investors. The certification 

procedure by B-corp is burdensome as it involves a survey, an interview, request for documentation and 

random checks, but it guarantees high data quality standards. 

31. The Social Investment Research Council is a joint venture between Big Society Capital, Big Lottery Fund, 

City of London, Citi and the Cabinet Office. 

© OECD 2015 101


6.80 Certification can also have positive effects in terms of more formalised outcome measurement 

practices that support the development of the SII market. However, from the viewpoint of businesses, 

certification can significantly increase reporting costs, thus the benefits of a move towards more stringent 

certification procedures should also be balanced against the increased regulatory burden. The certification 

requirements necessarily need to be mandated by public authorities in each country and possibly 

coordinated internationally. Public authorities can also play a role though regulation because it necessarily 

implies a standardisation exercise. Since SII is a new concept, data collection agencies, regulators and 

authorities have not yet developed standardised and internationally comparable definitions and 

classifications that would allow a systematic collection of data. 

Box 6.6. Certification & labels: B-corp example 

B-Corporation is a NPI that certifies for-profit companies according to their practices in terms of achieving social 

impact. The certification is based on a set of company information obtained through an online survey (done in 

collaboration with CASE i3, Box 6.5). Scores are attributed to companies according to a previously set methodology 

that values survey answers (thus company characteristics) differently through a weighting procedure. 

For example a question on the commitment to achieve social impact embedded in the company’s mission is 

given a higher weight than a different question regarding stakeholder engagement. Other characteristics include 

different indicators on transparency, reporting, treatment of employees, work environment, the type of impact, targeted 

populations, community involvement and impact, inter alia. In total, around 130 company characteristics are surveyed 

through an equal number of questions. 

Base on the set of predetermined scores, companies are profiled and evaluated across the different set of 

characteristics, after which they are given a final overall score that will be the basis for the eligibility to become a 

B-corp (above a certain global score threshold. To become a B-corp, companies are also required to make 

amendments to the articles of incorporation, explicitly recognising the importance of other stakeholders beyond 

shareholders. A snapshot of the profile information is provided in the table below. After a there is a clarification 

procedure through which B-corp reviews the data provided together with the company. This and further quality checks 

(e.g. requests for official documents) are time and resource consuming, but help ensuring that the data is accurate. 

Table. Snapshot of the B-corp profile information 

Name City State Industry Overall 

Score 

Accountability Beneficial Method Local Community 

*** San Francisco CA NULL 137.4 16.8 NULL NULL 

*** Poulsboro WA Consumer Products & Services: Housewares NULL NULL NULL NULL 

*** Richmond BC NULL NULL NULL 29.7 2.1 

*** Vancouver BC Technology: Information Technology Serv. NULL NULL NULL NULL 

*** Belvedere CA NULL NULL NULL 50.7 5.2 

*** Philadelphia PA NULL 83.5 8 27.2 6.1 

*** Fremont CA NULL 145.2 23.6 NULL NULL 

*** Haleiwa HI NULL 88.1 7.5 NULL NULL 

Note: Only four variables out of 133 are shown here. The variable Overall Score is an aggregation of the 133 scores. The names of 

the companies are omitted here for anonymity purposes. The maximum score is 200 and only companies over the 80 points threshold 

can be considered a B-corp. 

Source: B-Corp Profile information available at: http://sites.duke.edu/casei3/files/2013/03/B-Corp-Profile-Information.xlsx 

Source: B-Corporation website, available at : http://www.bcorporation.net/ 

102 © OECD 2015


6.81 Certification may also evolve to a rating system. GIIRS is a recent initiative that aims at working 

as a rating organisation specialised in SII (see Section 6.4.3 for details on GIIRS data collection). 32 Such an 

approach is very important because it allows increasing informational efficiency, insofar as the creation of 

an additional layer of information asymmetry is avoided. 

6.82 Benchmarking is regarded to be one important but challenging aspect for investors in SII (Saltuk 

et al., 2011). Currently, it is very difficult to assess the risk-return profile of a social impact investment. For 

investments in mainstream capital markets, several indexes exist, against which asset performance can be 

benchmarked. However, in SII performance measures go beyond the common valuation of expected 

returns and foreseeable risks. Social outcomes create a wedge between the private pecuniary outcome and 

the benefits that accrue the larger society. 

6.83 It is important to allow investors to factor social impact into investment decisions, while rating 

systems should help clarifying and tracking impact risk (WGAA, 2014). Both social impact and impact 

risk should feature in a benchmark for SII. A number of initiatives such as GIIRS or Engaged X have been 

working towards creating benchmarks for the SII market that incorporate metrics for social impacts and 

access risks. 

6.84 Further work to develop robust and comparable impact measurement practices (in delivery 

organisations and for investors) can also help building the evidence base. The Impact Measurement 

working group set a number of principles required to work towards an “impact measurement convention” 

in the future. This would ensure a standardised approach for impact measurement and envisage a reporting 

system that ensures the availability of quality impact data (WGIM). The governance model of such process 

is however not yet clear. This would in principle entail a commitment from governments and industry to 

set up a working group with representatives from governments and industry and a steering committee that 

would agree upon the common impact measurement language, guidelines, and data infrastructure. 

International organisations could provide the appropriate forum for such discussion. 

6.85 As the SII market continues to grow in the future, commercial data providers that provide 

information for investors might be increasingly interested in compiling SII information if selling SII data 

becomes a viable business. Some of these commercial data providers have already seen value in gathering 

information on certain SII-related components. For example, Factset compiles information on the NPI 

sector, despite there is a very strong geographical bias towards the United States. 33 Given the embryonic 

state of the SII market, the policy relevance of SII models and the role that Governments might play in 

these initial stages, it would be important that efforts are made to collect (and share) systematic data within 

an open-data approach. 

6.86 Alternative strategies to gathering SII data were also discussed at the OECD SII expert meetings. 

These included polls, community feedback mechanisms and tapping into big data. Even though these 

approaches can provide rich and extensive information, data quality control and verification is extremely 

challenging. 

32. Information available at http://giirs.org/ 

33. A dataset obtained from Factset comprises 14 363 NPIs of which 97% are based in the United States. Over 

89% are owned by another NPI, around 9% by foundations and the remaining 2% by other types of 

companies (notoriously business ventures in the private sphere). Even for the United States, this dataset 

only represents about 2% of the total number of Organizations Eligible to Receive Tax - Deductible 

Charitable Contributions (IRS, available at: http://apps.irs.gov/app/eos/forwardToPub78Download.do). 

© OECD 2015 103


6.87 Collecting data is costly and its value is often not fully appreciated by the industry and\or 

policymakers. While costs should be minimised and data collection efficiency strived for, it is clear that 

further resources should be deployed into gathering the evidence base. For example, small grants or 

lottery-type prizes can be provided as an additional incentive for organisations to report data (Bloom and 

Clark, 2011). The efforts need to be made jointly between all SII market actors. Better data would be 

important for delivery organisations that would get more visibility, investors that would know better where 

to allocate their money, intermediaries that would be able to provide a better offer of investment products, 

as well as policymakers to fully understand whether the SII model is superior and should be further 

supported and incentivised. 

6.88 Providing comprehensive information can be a significant burden for delivery organisations. 

However, requiring specific information (e.g. impact measurement) for funding purposes is a key incentive 

for investee reporting that can be aligned with investor interests. Further efforts are needed to embed a data 

reporting culture in delivery organisations – and also in supply side organisations and intermediaries. 

Incentives for investor reporting, likely via intermediaries or investors networks, can include disclosure of 

part of the available data or even granting access to a dataset on potential SII investment. Also, ensuring 

that investors report actual (instead of potential) returns is essential to guaranteed data reliability. 

Incentives based on data exchange arrangements can also be important to bring SII intermediaries together 

in a platform or a network for data exchange. 

6.89 Data collection also requires technological infrastructure. It is important to have a simple 

infrastructure where all data can be put in. A possible way to further advance on data collection and 

comparability in the long run could be to work towards creating a platform in which players currently 

engaged in data collection (from the different parts of the SII framework) could come together and share 

information. 

6.90 At a first stage, increased collaboration among a few key players through meetings to share 

experience and data can contribute to further advancing the understanding about the SII market. At the 

OECD SII Expert Meetings it was noted that the group of experts could be drawn upon to help move 

beyond proprietary data, generate consensus and have a “clear” model for data collection. It would be 

important that data shared in such platform is made freely available on an open-source basis, keeping in 

mind that organisations collecting data also have to appropriate some value from their efforts. 

6.91 Optimal data on SII is currently not feasible to obtain, but it is important to push the discussion 

forward. It is however important to bear in mind that data collection should not become an end in itself and 

the purposes for data collection need to be a priori clear. The bulk of systematic evidence on SII will likely 

come from private data sources in earlier stages of market development. Fostering the collaboration 

between the different organisations collecting SII data through in surveys, polls and other approaches is 

key. While reaching a common understanding about definitions is vital, agreeing on a methodology to 

collect comparable cross-country data could provide the evidence base for a better understanding of the SII 

market. It can also help in the analysis of the role that policymaking can play in this area. Drawing upon 

private and other types of finance to meet public objectives is an opportunity, but one which requires a 

good understanding of the incentives of the different players involved. 

104 © OECD 2015


References 



November. 

Alcock, P., R., Millar, K., Hall, F., Lyon, A., Nicholls, and M., Gabriel (2012), “Start-up and Growth: 

National Evaluation of the Social Enterprise Investment Fund (SEIF)”, London: Department of 

Health Policy Research Programme (PRP). forthcoming. 

Anttonen, A., and L. Häikiö (2011), “Care ‘going market’: Finnish elderly-care policies in transition”, 

Nordic Journal of Social Research, 2. 

Blazy, C. (2011), “Le financement des entreprises sociales-une comparaison France-Californie: Accès aux 

fonds propres et aux financements moyen terme”, MPRA paper No. 33220, Munich, Germany. 

Bloom, P. and C. Clark (2011), “The Challenges of Creating Databases To Support Rigorous Research in 

Social Entrepreneurship” Center for the Advancement of Social Entrepreneurship, Fuqua School of 

Business Duke University Durham, NC, November. 

Borzaga, C., Depedri, S. and E. Tortia (2010), “Testing the distributive effects of social enterprises: the 

case of Italy”, Social capital, Corporate social responsibility, Economic Behaviour and 

Performance, Basingstoke: Palgrave MacMillan, 

Brown, A. and Swersky, A. (2012), “The First Billion: A forecast of social investment demand”, Boston 

Consulting Group, London, September. 

Brown, A. and W. Norman (2011), “Lighting the touchpaper: Growing the Market for Social Investment in 

England”, Boston Consulting Group and Young Foundation, London, November. 

City of London (2013), “The role of tax incentives in encouraging social investment”, Report prepared for 

the City of London and Big society Capital by Worthstone assisted by Wragge & Co LLP, March. 

Chua, C., A. Gupta, V. Hsu, J. Jimenez and Y. Li (2011), “Beyond the Margin: Redirecting Asia’s 

Capitalism”, Advantage Ventures, August. 

Clark, C., J. Emerson and B. Thornley (2013), “Impact Investing 2.0: The Way Forward – Insight from 

12 Outstanding Funds”, Pacific Community Ventures, Inc., ImpactAssets, and Duke University’s 

Fuqua School of Business, November. 

DTI (2002), “Social enterprise: a strategy for success”, London: Department for Trade and Industry. 

ECOTEC (2003), “Guidance on mapping social enterprise”, London: Department for Trade and Industry. 

Elson, P. and P. Hall (2013), “Ploughing the fields: Provincial surveys of social enterprises in Canada”, 

4 th EMES International Research Conference on Social Enterprise, Liège, Belgium, July. 

Fedele, A and R. Miniaci (2010). Do social enterprises finance their investments differently from for-profit 

firms? The case of social residential services in Italy. Journal of Social Entrepreneurship, 1(2), 

174-189. 

© OECD 2015 105


Florek, N. (2013), "Enabling social enterprise through regulatory innovation: a case study from the United 

Kingdom." Journal of Sustainable Finance & Investment 3(2): 155-175. 



GHK (2013), “Growing the Social Investment Market: The Landscape and Economic Impact” report 

prepared for the City of London, Big Lottery Fund, Big Society Capital, and Her Majesty’s 

Government by ICF GHK in association with BMG Research, July. 


accessed 15 May 2014 

Glänzel, G., Krlev, G., Schmitz, B. and G. Mildenberger (2013), “Report on the feasibility and 

opportunities of using various instruments for capitalising social innovators” TEPSIE, European 

Commission – 7th Framework Programme, Brussels: European Commission, DG Research 

Harji, K. J. Reynolds, H. Best and M. Jeyaloganathan (2014), “State of the Nation: Impact Investing in 

Canada”, MaRS Centre for Impact Investing and Purpose Capital, March. Available at: 

http://www.marsdd.com/mars-library/impact-investing-in-canada-state-of-the-nation/ 

Hazenberg, R., F., Seddon, A. and S. Denny (2013), “Intermediary perceptions of investment readiness in 

the social investment market”, Seventeenth Annual Conference of the International Research Society 

for Public Management,Prague,CzechRepublic,10-12April 

HM Government, UK (2013), “G8 Social Impact Investment Forum: Outputs and Agreed Actions”, UK 


Hope Consulting (2010), “Money for good: the US market for impact investments and charitable gifts from 

individual donors and investors”, July. 

IFF Research (2005), “A survey of social enterprises across the UK”, London: Small Business Service. 

Kerlin, J. (2010), "A comparative analysis of the global emergence of social enterprise", VOLUNTAS: 

International Journal of Voluntary and Nonprofit Organizations 21, no. 2 (2010): 162-179. 

La Croix (2014), “Baromètre de la finance solidaire”, Finansol and La Croix, May. 

Lyon, F. and L. Sepulveda (2009), “Mapping social enterprises: past approaches, challenges and future 

directions”, Social Enterprise Journal, 5(1), 83-94. 

Lyon, F., M., Gabriel, and R. Millar (2010), “Social Enterprise Investment Fund Evaluation-Phase one: 

scoping, review and methodology development”, Working Paper. TSRC and Health Services 

Management Centre at the University of Birmingham, Birmingham. 

Mendell, M. and E. Barbosa (2013), “Impact investing: a preliminary analysis of emergent primary and 

secondary exchange platforms”, Journal of Sustainable Finance & Investment, 3(2):111-23 

Nicholls, A. (2010a), “The institutionalization of social investment: The interplay of investment logics and 

investor rationalities”, Journal of social entrepreneurship, 1(1), 70-100. 

106 © OECD 2015


Nicholls (2010b), “The landscape of social investment in the UK”, Working Paper. TSRC and Health 

Services Management Centre at the University of Birmingham, Birmingham. 

Noya, A.(ed.) (2009),The Changing Boundaries of Social Enterprises, Local Economic and Employment 

Development (LEED), OECD Publishing. DOI: 10.1787/9789264055513-en. 

OECD (2013f), "Institutional investors indicators", OECD Institutional Investors Statistics (database). 

doi: 10.1787/data-00679-en (Accessed on 07 August 2014). 

OECD (2013g) “Job Creation through the Social Economy and Social Entrepreneurship”, OECD LEED 

Programme (Local Economic and Employment Development). 




Saltuk, Y, A. Bouri, A. Mudaliar and M. Pease (2013), “Perspectives on Progress: The Impact Investor 

Survey”, Global Social Finance, J.P. Morgan and the Global Impact Investing Network, London, 

January 7. 

Saltuk, Y., A. Bouri, and G. Leung (2011), “Insight into the Impact Investment Market: An in-depth 

analysis of investor perspectives and over 2,200 transactions”, JP Morgan and the Global Impact 

Investing Network, New York, December. 

Smith, S. and J., Rothbaum (2013), “Cooperatives in a Global Economy: Key Economic Issues, Recent 

Trends, and Potential for Development”, IZA Policy Paper No. 68. 

Teasdale, S., Lyon, F. and R. Baldock (2013), “Playing with numbers: a methodological critique of the 

social enterprise growth myth”, Journal of Social Entrepreneurship, 4(2), 113-131. 

UN (2003), “Handbook on Non-profit institutions in the system of National Accounts”. United Nations. 

Statistical Division, United Nations Publications. 

Unicredit Foundation (2012) “Ricerca sul valore economic del Terzo Settore in Italia”, Unicredit 

Foundation, April 2012. Available at: 

http://www.forumterzosettore.it/multimedia/allegati/Ricerca.pdf 

Weber, M. and B. Scheck (2012), “Impact Investing in Deutschland: Bestandsaufnahme und 

Handlungsanweisungen zur Weiterentwicklung”, Impact in Motion and Bertelsmann Foundation, 

December. Available at www.impactinmotion.com/wp/wp-content/uploads/2013/05/Impact- 

Investing-in-Detschland_08052013.pdf 

Wells, P. (2012) “Understanding social investment policy: evidence from the evaluation of Futurebuilders 

in England”, Voluntary Sector Review, 3(2), 157-177. 

Wilkinson, C. (2014), “A map of social enterprises and their eco-systems in Europe”, ICF International, 

Forthcoming. 

Wilson, K. E. (2014), "New Investment Approaches for Addressing Social and Economic Challenges", 

OECD Science, Technology and Industry Policy Papers, No. 15, OECD Publishing. 

doi: 10.1787/5jz2bz8g00jj-en. 

© OECD 2015 107


ANNEX 6.1. LIST OF EXISTING DATA SOURCES 

This list of data sources only includes organisations that currently provide raw data on SII. Therefore, only 

organisations that actually provide either raw data or data in reports were included on the list. Organisations that 

may have important links to SII market players and could potentially serve as partners in future data collection 

efforts are not necessarily included on the list, insofar as they do not currently provide data. 

In addition, some of the data sources described as currently providing raw data do not necessarily publicly disclose 

the information. Nevertheless, they feature on the list because information could, in principle, be shared under 

certain conditions. Some organisations have been collecting data, but have not yet disclosed any data-related 

information (e.g. Maximpact). In such cases a decision to include them on the list was based on the fact they have 

data and will potentially be disclosing it in the near future. 

Governmental sources, information from NSOs and sources available from financial system supervisory and 

regulatory bodies were not included here to avoid multiple entries (one per country for each type of organisation). 

The list focuses on data that are, in general, more challenging to obtain and that require further discussion and 

contribution from SII data experts. Nevertheless, the potential of data collection from some of the sources omitted in 

the list is also discussed in this note. 

Provider 

Type of data 

(ecosystem) 

Geography 

Link 

SESS Demand CAN - local http://www.sess.ca/english/report/ 

TEPSIE Demand Europe http://www.tepsie.eu/ 

Cooperative Association Germany Demand GER http://www.dgrv.de/en/home.html 

ClearlySo Demand Global http://www.clearlyso.com/about/our-publications.html 

Social Progress Imperative Demand Global http://www.socialprogressimperative.org/ 

IRIS Demand Global - focus US; UK http://iris.thegiin.org/ 

B-Corporation Demand Global- focus USA http://www.bcorporation.net/what-are-b-corps/why-b-corps-matter 

Unicredit Demand ITA http://www.forumterzosettore.it/multimedia/allegati/Ricerca.pdf 

IRIS (Italian) Demand ITA http://www.irisnetwork.it/download/ 

CIC regulator Demand UK http://www.bis.gov.uk/CICREGULATOR 

Social Enterprise UK Demand UK http://www.socialenterprise.org.uk/policy-campaigns/policy/research 

CASE at Duke University Demand USA 

Nonprofit Finance Fund Demand USA http://nonprofitfinancefund.org/tools-resources 

Comparative non-profit sector project Demand Global http://ccss.jhu.edu/research-projects/comparative-nonprofit-sector 

Social Enterprise Alliance (SEA) Demand USA https://www.se-alliance.org/ 

Australian Charities and Not-for-Profits 

Commission (ACNC) 

Demand AUS http://www.acnc.gov.au/ 

GIIRS Demand & Supply Global 

Caisse des Depots Intermediaries\Transactions FRA 

Finansol Intermediaries\Transactions FRA 

http://giirs.org/for-investors/company-directory 

http://giirs.org/for-investors/fund-directory 

http://sites.duke.edu/casei3/case-i3-basics/case-i3-research/case-i3-b-lab-andgiirs-research-project/ 

http://www.caissedesdepots.fr/activite/domaines-daction/investissementsdavenir/financement-de-leconomie-sociale-et-solidaire.html 

http://www.finansol.org/fr/nos-publications/article/le-barometre-de-la-financesolidaire.html 

Bpifrance Intermediaries\Transactions FRA http://www.bpifrance.fr/ 

NExT SSE Intermediaries\Transactions GER http://www.nextsse.com/home/news-events/ 

Impact Assets Intermediaries\Transactions Global http://www.impactassets.org/ 

Monitor institute Intermediaries\Transactions Global http://monitorinstitute.com/what-we-think/# 

Omydiar Network Intermediaries\Transactions Global http://www.omidyar.com/ 

108 © OECD 2015


GIIN/Impact Base Intermediaries\Transactions Global http://www.impactbase.org/ 

JP Morgan\GIIN Intermediaries\Transactions Global 

Maximpact Intermediaries\Transactions Global http://www.maximpact.com/ 

Engaged investment Intermediaries\Transactions Global http://www.engagedinvestment.com/ 

Toniic Intermediaries\Transactions Global http://www.toniic.com/ 

TRIODOS Bank Intermediaries\Transactions Global- focus Europe http://www.triodos.com/en/about-triodos-bank/ 

Oltreventure Intermediaries\Transactions ITA http://www.oltreventure.com/index.php/investimenti/riepilogo 

BSC- Big Society Capital Intermediaries\Transactions UK http://www.bigsocietycapital.com/ 

Comunity Development Finance 

Association (CDFA) 

Intermediaries\Transactions UK http://www.cdfa.org.uk/ 

CDFI FUND Intermediaries\Transactions USA http://www.cdfifund.gov/ 

Massolution Intermediaries\Transactions USA http://www.massolution.com/ 

National Community Investment Fund 

Intermediaries\Transactions USA http://www.ncif.org/ 

(NCIF) 

Instiglio Intermediaries\Transactions http://www.instiglio.org/en/sibs-worldwide/ 

EVPA Intermediaries\Transactions Europe http://evpa.eu.com/knowledge-centre/ 

AVPN Intermediaries\Transactions Asia www.avpn.asia 

Impact in Motion 

Suppy & 

GER 

http://impactinmotion.com/en/ 

Intermediaries\Transactions 

Philantropy Australia Supply AUS http://www.philanthropy.org.au/tools-resources/publications/ 

Productivity Comission Supply AUS 

European Foundation Centre Supply Europe 

Fondation de France Supply FRA 

Centre Francais de Fonds et Fondations Supply FRA 

http://www.thegiin.org/cgibin/iowa/download?row=334&field=gated_download_1; 

http://www.pc.gov.au/publications/publications?queries_by_type_query=Publi 

cation 

http://www.efc.be/programmes_services/resources/Pages/Foundations-in- 

Europe.aspx 

Association of German Foundations Supply GER http://www.stiftungen.org/en/association-of-german-foundations.html 

ACRI Supply ITA http://www.acri.it/3_fond/3_fond0010.asp 

The Japan Foundation Center Supply JAP http://www.jfc.or.jp/eibun/e_index.html 

GOV_UK Supply UK http://data.gov.uk/dataset/social-investment-and-foundations 

Association of charitable foundations Supply UK http://www.acf.org.uk/ 

Foundation Center Supply USA http://fconline.foundationcenter.org/ 

Impact Investing Australia Overall AUS http://impactinvestingaustralia.com/resources/ 

Purpose Capital Overall CAN http://purposecap.com/ 

MaRS Centre for Impact Investing Overall Global http://impactinvesting.marsdd.com/ 

IIPC Overall Global http://iipcollaborative.org/about-iipc/iipc-research-awards/ 

Pacific Community Ventures Overall Global http://www.pacificcommunityventures.org/uploads/reports-and-publications/ 

Stanford Social Innovation Review Overall Global http://www.ssireview.org/topics/category/impact_investing 

Social Impact Analysts Association Overall Global- focus EU; CAN http://www.siaassociation.org/ 

BCG Overall Global- focus UK 

http://www.fondationdefrance.org/Outils/Mediatheque/Etudes-de-l- 

Observatoire 

http://www.centre-francais-fondations.org/ressources-pratiques/gerer-ou-fairevivre-un-fonds-ou-une-fondation/gestion-patrimoniale/gestion-financiere/versde-nouveaux-modes-de-selection-des-placements/impact-investing 

http://www.bcg.com/expertise_impact/PublicationDetails.aspx?id=tcm:12- 

115600&mid 

http://www.cityoflondon.gov.uk/business/supporting-localcommunities/Pages/supporting-social-enterprise.aspx 

The City of London Overall UK 

OECD 

Demand, Supply & 

Enabling environment 

Global- focus OECD 

http://stats.oecd.org/ 

IMF Supply Global http://www.imf.org/external/data.htm 

World Bank 

Demand, Supply & 

Enabling environment 

Global 

http://data.worldbank.org/ 

World Values Survey Enabling environment Global http://www.worldvaluessurvey.org/wvs.jsp 

European Social Survey Enabling environment Europe http://www.europeansocialsurvey.org/ 

Eurofund Enabling environment Europe http://www.eurofound.europa.eu/publications/htmlfiles/ef1361.htm 

Social Progress Imperative Enabling environment Global www.socialprogressimperative.org/data/spi 


© OECD 2015 109

DSTI/IND(2014)11 

ANNEX 6.2. LIST OF OECD DATA SOURCES RELEVANT TO SII 

Database Type Examples Link 

Social expenditure Spending Public\Private expenditure 

www.oecd.org/els/social/expenditure 

Cash\Kind expenditures 

Breakdown by social area 

Institutional investor statistics Supply Financial assets http://stats.oecd.org/Index.aspx?DataSetCode=7IA# 

How’s Life Indicators Needs Quality of support network; Homicide rate http://stats.oecd.org/OECDStat_Metadata/ShowMetad 

ata.ashx?Dataset=BLI&ShowOnWeb=true&Lang=en 

Tax/Benefits Spending Social contributions; Housing benefits http://stats.oecd.org/BrandedView.aspx?oecd_bv_id=t 

ax-data-en&doi=data-00201-en 

Social indicators Needs Old age support rate; Prison population http://www.oecd.org/els/soc/societyataglance.htm 

National Accounts Spending NPIs serving households http://www.oecd.org/std/na/ 

Health Indicators Spending + 

Needs 

Financing health expenditure 

Life expectancy; Infant health 

http://stats.oecd.org/index.aspx?DataSetCode=HEALTH 

_STAT 

Education Indicators Spending + 

Needs 

Expenditure by funding source 

Literacy scores 

Education expenditure 

http://stats.oecd.org/BrandedView.aspx?oecd_bv_id=e 

du-data-en&doi=edu-db-data-en ; and 

http://gpseducation.oecd.org/IndicatorExplorer 

Product Market Regulation Regulation Scope of Government in specific sectors 

Specific barriers to entrepreneurship 

http://www.oecd.org/economy/growth/indicatorsofpr 

oductmarketregulationhomepage.htm 

Entrepreneurship Indicators Demand Entrepreneurial culture http://www.oecd-ilibrary.org/industry-and- 

services/entrepreneurship-at-a-glance- 

2013_entrepreneur_aag-2013-en 

Structural Indicators 

Supply 

Demand 

Financial sector (C65T74) 

Community, social and personal services (C75T99) 

http://www.oecd.org/sti/ind/stanstructuralanalysisdat 

abase.htm 

Financing Scoreboard Supply Trends in SME loans 

Government Guarantees 

http://www.oecd-ilibrary.org/industry-andservices/financing-smes-and-entrepreneurs_23065265 

Development co-operation Supply Flows: Project-type interventions http://dotstat.oecd.org/inventory.aspx?datasetcode=T 

ABLE1 

Development aid Supply Aid http://www.oecd.org/dac/stats/ 

Network of Foundations Supply Foundations http://www.oecd.org/site/netfwd/ 

Source: OECD. 

110


Table A.6.1. Types of Non-Profit Institutions 

1. Culture and recreation 1 100 Culture and arts 

1 200 Sports 

1 300 Other recreation and social clubs 

2. Education and research 2 100 Primary and secondary education 

2 200 Higher education 

2 300 Other education 

2 400 Research 

3. Health 3 100 Hospitals and rehabilitation 

3 200 Nursing homes 

3 300 Mental health and crisis intervention 

3 400 Other health services 

4. Social services 4 100 Social services 

4 200 Emergency and relief 

4 300 Income support and maintenance 

5. Environment 5 100 Environment 

5 200 Animal protection 

6 Development and housing 6 100 Economic, social and community development 

6 200 Housing 

6 300 Employment and training 

7. Law, advocacy and politics 7 100 Civic and advocacy organizations 

7 200 Law and legal services 

7 300 Political organizations 

8. Philanthropic intermediaries and voluntarism promotion 8 100 Grant-making Foundations 

8 200 Other philanthropic intermediaries and voluntarism promotion 

9. International 9 100 International activities 

10. Religion 10 100 Religious congregations and associations 

11. Business and professional associations, unions 11 100 Business associations 

11 200 Professional associations 

11 300 Labour unions 

12. Not elsewhere classified 12 100 Not elsewhere classified 

Source: UN (2003). 

© OECD 2015 111


7. POLICY ACTIONS AND IMPLICATIONS 

This chapter provides an overview of different types of policy actions to support the 

Social Impact Investment market taken to date. It reviews the challenges for 

policymakers planning to take actions to support this nascent field and makes 

recommendations focusing on the steps required to build the evidence base. These 

including developing common definitions, building the necessary data infrastructure 

and primary impact measurement as well as evaluation of broader social outcomes. 

7.1. Policy Actions and Implications 

7.1 There are a number of market failures in social impact investment. The most fundamental failure 

relates to the very nature of social impact investment. The social returns generated from social impact 

investments are primarily external to both the investor and the investee, with the primary beneficiaries 

being those groups whose needs are being targeted, or accrue to society as a whole. Given market 

inefficiencies, these externalities are not priced into social impact investment transactions (HM 

Government, 2011). 

7.2 However, in addition to this there are failures which relate to the functioning of the market itself. 

As in the mainstream financial markets, there are information asymmetries between investors and 

investees. These asymmetries are further compounded by the lack of commonly accepted standards for 

measuring social impact investment, confusion of terminology and lack of information about both existing 

investment provision as well as related government policy (HM Government, 2011). There is also 

imperfect competition in the market due to high transaction costs as well as the lack of intermediaries in 

the form of brokers, advisors, exchanges and other market mechanisms. 

7.3 The public sector can play a catalytic role in the social impact investment market in terms of 

creating a conducive regulatory environment, encouraging greater transparency and taking concrete steps 

to help develop the market. Actions can be taken at the international, national or local level. However, 

actions initiated in one country or region may not be appropriate for another – policy objectives, 

experience and local context must be taken into account. 

7.4 New and\or inefficient markets may benefit from government involvement. Certainly, the social 

impact investment market is in its early days and needs to find scalable models. As policy makers seek to 

facilitate the development of the market, they should keep in mind that public support should be a catalyst 

and avoid “crowding out” of the private sector in order to ensure the creation of a sustainable market. 

Government intervention, while well-meaning, can have unintended consequences. 

7.2. Policy actions to date 

7.5 There are various actions that governments could take to support SII, ranging from indirect to 

direct. Indirect actions can include ensuring that the necessary legal frameworks and structures are in place 

including the streamlining of regulations and requirements for investment (Thornley et al, 2011). Direct 

actions can include various forms of support to social ventures and facilitating the developement of 

112 © OECD 2015


intermediaries. It should also be noted that, the absence of any action can also have implications for the 

market. 

7.6 The Impact Investing Policy Collaborative (IIPC) has developed a framework which aims to 

create a guide for policy makers seeking to build the social impact investment market in their countries or 

communities. This includes looking at the government’s role as a market builder, participant and steward. 

The framework builds upon earlier work by the World Economic Forum (WEF, 2012) as well as upon The 

London Principles 34 , a set of guidelines intended to assist governments considering impact investing as a 

tool to address social objectives, developed by the IIPC in collaboration with policymakers, researchers 

and other stakeholders in July 2013. 

7.7 The recent Social Impact Investment Taskforce and National Advisory Board reports highlighted 

actions that have been taken to date in the G7 countries and Australia. 35 Annex 7.1 summarises some of 

these policy actions. Table 7.1 below attempts to provide a summary of the longer list of policy actions 

outlined in Annex 7.1 within the framework of the social impact investment ecosystem discussed in 

Chapter 3 (demand, supply, intermediaries and regulatory/enabling environment). 

Table 7.1 Examples of Types of Policy Actions taken in G7 Countries and Australia 

Supply 

Demand 

Tax & 

Regulation 

Intermediaries 

Other 


Development and 

Investment Funds 

(Australia) 

Social Innovation 

Forum 

(Japan) 

Loi n° 2014-856 : 

Économie Sociale 

et Solidaire 

(France) 

SVX trading 

platform 

(Ontario, Canada) 

Unit Cost 

Database 

(UK) 

Small Business 

Investment 

Company Impact 

Investment Fund 

(US) 

Investment and 

Contract 

Readiness Fund 

(UK) 

Legge delega di 

riforma del Terzo 

Settore 

(Italy) 

Big Society Capital 

(UK) 

Community 

Reinvestment Act 

(US) 

Source: OECD, based on National Advisory Board (NAB) reports — NAB_AUS (2014), NAB_CAN (2014), NAB_GER (2014), 

NAB_FRA (2014), NAB_ITA (2014), NAB_JAP (2014), NAB_UK (2014), NAB_US (2014). 

7.8 Policy actions in some of these countries have addressed regulatory issues, notably in terms of 

setting up legal structures to accommodate SII-specific types of market actors. Also, several policy 

interventions have sought to enhance SII supply. Some governments have provided support through tax 

credits (and tax-advantaged funds), guarantees or subsidies, established and co-invested in SII funds. Other 

governments have focused on developing the social impact investment market infrastructure through the 

creation of intermediaries such as SII wholesale banks, exchanges (or trading platforms) and other 

channels to facilitate the links between supply and demand for SII (investors and delivery organisations). 

Additionally some have sought to stimulate SII demand by providing support to delivery 

organisations/investees through technical assistance or by encouraging procurement. 

34. http://iipcollaborative.org/london-principles/ 

35. For further details on these policy actions see: http://www.socialimpactinvestment.org/ 

© OECD 2015 113


7.9 While there have been an increasing set of policy actions in the social impact investment market, 

to date, there have only been a few evaluations, including the ICRF evaluation referenced in Chapter 3 and 

the SIB evaluation described later in this chapter. This is also due to the fact that many of these policy 

actions are relatively new. The Social Impact Investment Taskforce and the NABs have helped to highlight 

the set of existing policy actions which has facilitated discussions about how these and other policies are 

working. 

7.10 There are also several policy instruments that, while affecting SII, do not necessarily target the 

SII ecosystem (e.g. seed funds; regulations on institutional investors’ asset allocation and risk). When 

devising broader policy instruments, it is important that governments take into consideration potential 

favouring or hindering effects upon the SII market and balance them against expected outcomes in other 

areas of the economy. 

7.11 Patience and long-term support is needed to develop a market. Creating and investing in new 

innovative social ventures and building supporting ecosystem takes time and results might only be seen 

after 10 years or more (HM Government, 2013c). Policy is long-term but politics can be short-term so 

there is a danger that the increased level of government interest and involvement in this topic might decline 

in the shorter term if the necessary results are not forthcoming. 

7.12 Given the plethora of recent reports outlining a broad set of policy recommendations (SIITF, 

Working Groups, NABs, IIPC, etc.), the recommendations below address how to build the evidence base, 

which is the overall focus of this report. 

7.3. Recommended policy actions for building the evidence base 

7.13 As social challenges mount and existing approaches are unable to keep up amidst continued 

pressure on government budgets, social impact investment provides an opportunity to develop new 

approaches to address social and economic challenges. However, given that SII is a nascent field, concrete 

evidence is needed in terms of its impact to date. In particular, further work is needed to demonstrate the 

gains from the SII approach, compared to existing social service delivery models. Therefore our 

recommendations focus on building the evidence base, including developing a common agreement on 

definitions, committing to building the necessary infrastructure for coordinated data collection processes, 

furthering efforts on the measurement of social outcomes and evaluation of policy. 

7.14 Given that additional, and more effective, funding is needed to address the increasing social 

challenges facing society, governments in a number of countries are demonstrating interest in exploring the 

opportunities that SII could also provide in terms of improved social service delivery. In fact, as described 

in Section 7.2, some countries have already set up policies to facilitate the development of SII markets. As 

there is limited evidence to date in terms of what works and what doesn’t, this section outlines some 

recommendations in terms of building the evidence base and suggestions regarding key points for policy 

makers to keep in mind, particularly in terms of outcome measures and evaluation of policies. Further 

analysis is needed in terms of specific approaches to SII, looking at a variety of instruments and sectorspecific 

developments. This would help develop a better understanding of which approaches seem to be 

working and help build and share experiences which could later lead to the scaling up of successful cases. 

7.3.1 Developing common definitions 

7.15 A stronger evidence base, both in terms of the level of market activity as well as the impact of 

SII, is critical to increasing engagement in the market and encouraging a global market to develop (HM 

Government, 2013c). This includes a better and more accurate understanding of the size, scope and 

114 © OECD 2015


potential of the market. To develop a clearer view on the market, common definitions, language and 

frameworks are necessary. 

7.16 As outlined in Chapter 4, there is broad agreement in the market regarding the core 

characteristics of SII, however, less agreement on the next level of detail, the key attributes of each of the 

characteristics. More importantly, there has been little discussion to date of where to “draw the line” on SII 

in terms of thresholds or eligibility of the various attributes. Chapter 4 of this paper makes some 

recommendations but further discussion is needed, on an international level, to develop a common 

agreement. To that end, international organisations, such as the OECD, can provide a continued forum for 

debate. 

7.3.2 Building the necessary data infrastructure 

7.17 Policy makers can help in raising awareness and understanding about social impact investment 

by supporting systematic research and data collection. However, while a growing number of industry 

reports have been supported, not enough attention has been paid to date on supporting the necessary data 

infrastructure needed to develop standardized data reporting and collection processes. These are critical for 

building the evidence base for SII and the groundwork needs to be laid for this as early as possible. 

7.18 More and coordinated data collection is needed to more effectively monitor developments in the 

market. Data collection processes which allow for wider comparability, including across countries, would 

also be useful (Addis et al, 2013). There are data collection efforts within individual organizations and 

some broader pilot efforts but to date there has not been a forum for discussing how to standardize data 

collection globally. The OECD expert meetings, which took place during 2014, were a start in this 

direction as the meetings brought together people involved in data collection efforts from a number of 

countries and focused on how to move the agenda forward in a coordinate manner. 

7.19 As noted in the section above, consensus is first needed on definitions to enable the building of 

an agreement on a common framework for data collection. A commitment of resources is then needed to 

invest in the necessary infrastructure to collect transaction level data. Trusted intermediaries will play a 

critical role in facilitating that data collection. The questions revolve around who should fund and also who 

should manage that data infrastructure. Finally, models and systems will be needed to analyse the data to 

provide the necessary evidence on what works. 

7.20 It is however important to bear in mind that data collection should not become an end in itself 

and the purposes for data collection need to be a priori clear. The bulk of systematic evidence on SII will 

likely come from private data sources in earlier stages of market development. Fostering the collaboration 

between the different organisations collecting SII data through in surveys, polls and other approaches is 

important. While reaching a common understanding about definitions is vital, agreeing on a methodology 

to collect comparable cross-country data could provide the evidence base for a better understanding of the 

SII market. It can also help in the analysis of the role that policymaking can play in this area. 

7.3.3 Primary impact measurement 

7.21 SII targets the delivery of social outcomes at the same time as targeting financial returns (at least 

a return on capital): one without the other does not qualify as SII. Therefore the need for effective, robust 

and repeatable measurement of social outcomes is critical for social enterprises and investors. However 

developing effective, robust and repeatable measurement of social outcomes is easier said than done, and is 

certainly not as simple as calculating annual profits, especially when targets are part of the process (as in 

the case of SIBs). The social outcomes selected, measured and evaluated affect how attractive the 

enterprises is to financers, the business model used, how its practices encouraged or discouraged, internal 

© OECD 2015 115


decision-making, its level of cost effectiveness, and all together, the value of and regulation of SII practices 

as a whole. In short, getting it right is critical. 

7.22 Particularly as global interest and activity in social impact investment is growing rapidly, better 

metrics for measuring at least primary (or “predetermined”) social impact is needed. However, social 

benefits are difficult to value, measure and compare. In addition, the process of tracking and measuring 

these returns can be costly in terms time and resources. 

7.23 The objectives behind measurement can differ for various stakeholders. Currently, SII 

measurement is focused on the achievements of the social delivery organisations. This information is 

helpful in evaluating the progress of the social ventures and can be useful in adjusting course as needed. 

However, it may not provide all of the necessary information investors are seeking regarding their future 

prospects (Rangan et al, 2013). 

7.24 Investors need a set of tools for assessing social impact measurement. Further work will need to 

be done, likely by intermediaries, to strengthen investor understanding of the variety of impact metrics 

currently available (Jackson and Associates, 2012). The development of standard measurement systems 

will be an important step in further engaging mainstream investors (HM Government, 2013c). At the same 

time, it is critical to help social ventures, across different sectors, build greater capacity to measure social 

outcomes (Addis et al, 2013). 

7.25 Currently many investors use proprietary measurement systems to determine social and 

environmental performance, if they are measuring impact in any systematic way at all (Rangan et al, 2011). 

Many investors rely on anecdotal evidence rather than real evidence (O’Donohoe et al., 2010). While a 

number of initiatives such as IRIS, SROI and CARS are working to develop standard measures and 

methodologies, further work in this area is needed (HM Government, 2013c). The European Commission 

has been working on this issue and one of the working groups of the international Social Impact 

Investment Taskforce has recently published a set of guidelines (WGIM, 2014), including an “impact value 

chain”(see figure 7.1 below). 

116 © OECD 2015


Figure 7.1. WGIM Guidelines for impact measurement 

Source: WGIM (2014) 

7.26 The measurement of primary social impact is important for the market functioning (so demand 

and supply can more effectively communicate about return expectation and results) and has been the focus 

on impact measurement efforts to date. However, a better understanding of the broader or “secondary” 

social outcomes (spillover effects and positive externalities) and how social goods are delivered is also 

needed to fully determine the impact of social impact investment and assist policy decision making. As 

highlighted in Chapter 3, social outcomes can range from an individual to a society level. Also, the 

efficiency of interventions can either be at the individual level or more systemic. In addition, as discussed 

in Chapter 5, actions in one social area can have positive or negative spillovers in others and therefore need 

to be taken into account in a systemic approach. The next section addresses this broader approach. 

7.4. Evaluation of Broader Social Impact Investment Outcomes 

7.27 The need for better evaluations of social impact investment outcomes for informing decisions in 

the area of SII, and its regulation, cannot be understated. What works can have long lasting effects on 

people’s lives, and is part of the picture that determines the need for costly future social interventions. Yet, 

there are too few good quality evaluations suitable for informing market participants and policy makers 

about ‘what works’, and most importantly ‘how’ new policies and social innovations might be 

implemented. 

7.28 While the context in each country is different and therefore the approaches will vary, we have 

outlined three key areas which might both make the market function more efficiently and help to evaluate 

© OECD 2015 117


the role of SII in meeting social needs, and thus the extent to which it should be supported through policy 

incentives. The first area is the development of relevant social outcome measures, that capture quality of 

life measures and their changes in both in the population (to identify need), and amongst recipients of the 

social intervention (to identify effectiveness). Second, contextual data, including general socio-economic 

conditions in households and communities and the levels and nature of general and specific social 

interventions, is required to develop appropriate controls for evaluation models. Third, robust and timesensitive 

evaluations of policies, and/or aspects of policy innovation to more broadly inform 

implementation decisions, are needed (OECD, 2014f). 

7.29 Some suggested steps to build this evidence base include: 

 

 

 

Broader social outcomes of each intervention should be defined, including expected spill-over 

effects. 

These social outcomes should be measurable independently of the policies’ target measures, and 

include at least one distributional measure to retain a check on the ‘inclusivity’ of the intervention 

effect (see 7.4.2). 

Compulsory evaluations should be incorporated into the publicly funded interventions, publically 

incentivised forms of SII, or as part of formal regulation practices; and encouraged in independent 

forms of SII (this may require the development of a business case). 

o 

o 

Evaluations need to be methodologically rigorous, and so support with the implementation 

of or methods for evaluations should be available as part of the development of a SII 

market, by sponsored independent researchers, or a formal regulatory body. 

Timing of all social intervention evaluations should be predetermined and based on when 

social returns to interventions can be expected. More than one evaluation might be needed, 

as the same intervention may contribute to more than one outcome over time (see 7.4.3). 

 

Data techniques, such as data matching to administrative sources and national surveys, could be 

facilitated by governments and independent groups to provide access to contextual data in order to 

and improve the quality and efficiency of evaluation processes. 

7.30 It is worth noting at this stage, that there is a trade-off between the need for timely policy 

interventions and the weight of - and wait for - the most rigorous evidence. Because it is important to act 

on social need in a timely way, there should be an expectation for ‘learning on the job’. Risks associated 

with such an expectation can be limited first and foremost by piloting social interventions, by undertaking 

independent evaluations on untested aspects of the intervention, and preparing a recipient-focussed (pilot) 

‘exit plan’ with appropriate funding in place (OECD, 2014f). 

7.4.1 Evaluating cost effectiveness or cost-benefit ratios? 

7.31 Many governments may not have capacity and systems in place to measure cost-effectiveness of 

public service delivery, however, social impact investment can present a strategic opportunity for initiating 

the collection of such data. Clearly, these types of approaches would need to build over time with a balance 

being found between effective measurement and effective market development.7.32 Two types of 

evaluation methods are potentially relevant for assessing SII interventions: cost-benefit analysis (CBA) and 

cost-effectiveness analysis (CEA) (see OECD 2014f for a more detailed discussion of these methods). 

Cost-benefit analysis (CBA) enables evaluators to compare the costs of a policy or intervention with its 

118 © OECD 2015


benefits measured in monetary terms (even if the benefits themselves are not pecuniary). Cost effectiveness 

analysis (CEA) compares the costs of meeting a given policy objective by alternative means. 

7.33 The distinction is important. In the case of CBA, accurate information on the costs of meeting the 

objective must be available. Secondly, and most importantly, the program benefits must be valued even if 

they are not market goods (i.e. do not have a price). By expressing costs and benefits in the same units, 

CBA is used to indicate whether a given policy objective is desirable When used on its’ own CEA cannot 

help the policymaker decide what the policy objective should be since the benefits and costs are not 

expressed in the same units. This also means that it is impossible to compare across different policy 

domains. As such it cannot be used to determine whether the policy is welfare-improving in the strict 

sense. Rather CEA is used to determine the costs of meeting a given objective, and to compare between the 

costs of meeting that given objective through alternative means. 

7.34 In the context of policy discussions related to SII the role of CBA is limited for a number of 

reasons. First, social impact investors and investees may have objectives related to social needs which are 

distinct from (and in many cases be more ambitious than) stated policy objectives. Second, the investor and 

the investee derive a value from the investment which may or nor may not be identical to that which is 

appropriate for the evaluation of public policy. 36 

7.35 The role of CEA in policy discussions about SII is more obvious. For instance, CEA can be 

applied to evaluate healthcare policies, for which it can be difficult to assess the monetary benefits but it is 

relatively straightforward to determine the desired outcome (e.g. “number of lives saved” or “DALYs” 

[EuropeAid, 2005]). CEA measures costs in monetary terms and compares them with the outcomes, 

expressed in terms of relevant units which related to the social need in question. The ratio of costs to 

effectiveness is computed in order to determine the cost per unit of effectiveness; the most effective 

projects will have lower cost-effectiveness ratios than alternatives. 

7.36 This methodology is directly relevant for the case of SII. Firstly, investors and investees may 

well be interested in knowing whether or not their investments are meeting their objectives in terms of 

social needs at least cost. Secondly, policymakers would be interested in knowing whether different policy 

measures which incentivise the development of SII may be a more efficient way to meet their policy 

objective than more traditional state-managed forms of service delivery. 

7.37 The evaluation should be as comprehensive as possible in the determination of costs and benefits, 

accounting for indirect and long-term effects of the program and reflecting the interests of all stakeholders 

involved (Better Evaluation, 2014a and 2014b). Interventions with social savings expectations and social 

outcomes expectation can undertake both forms of evaluations. 

7.4.2. Measuring social impact: selecting social outcome measures 

7.38 Any type of social intervention is designed to achieve a social goal, SII is not different. The 

importance of measuring social outcomes was highlighted by the SIITF as well as by the Working Group 

on Impact Measurement (WGIM, 2014). The social outcomes defined by a social intervention should meet 

some standards, including: being predefined, measureable, valid, repeatable, and independent (not 

distortable). Social outcome monitoring may also include the addition of spillover measures, or timesensitive 

changes to the social outcomes desired. 

36 . For example in the case of CBA it is important to draw a distinction between paternalistic and 

non-paternalistic altruism, and it is only the former which is relevant when ascertaining whether or not a 

policy intervention is welfare-improving. See Johansson (1992) for a discussion. 

© OECD 2015 119


 

 

 

 

 

Predefined: Social impact investment should predefine its purpose, this allows for the intervention 

to be assessed on a common goal for all aspects of process and implementation. It allows other 

social impact investments to run complementary to it, and set expectations for social impact 

investors in the case of SII. 

Measurable: Alone, whether an outcome is measurable is not enough to justify its selection, it also 

needs to accurately operationalise the predicted social outcome (see below). However, this is 

important because some aspects of a social intervention might be hard to measure (e.g. the 

preferences for care for dementia sufferers, or early year’s children in childcare) and selecting 

unmeasurable outcomes will ultimately devalue future evaluations and bring into question the real 

impact. Whether monetised, (as may be required for SIBs), quality of life based (reduction in 

poverty) risk reducing (reduction in criminality) or efficiency enhancing (reductions in emergency 

service use) outcomes indicators should be – proxies or otherwise – the predefined outcome should 

be measureable. 

Valid: A valid outcome measure accurately represents the desired outcomes, and is particularly 

important in the case of proxy measures for hard-to-measure outcomes. Inappropriate responses to 

social needs could occur if social enterprises focus their efforts on invalid representations of 

desired outcomes. Depending on the population being evaluated, and the type of outcomes being 

measures (particularly survey responses) outcomes measures may need to be validated during 

pilots to ensure they are not biased by gender, age or culture of the recipients – or generate biased 

non-response to evaluation requests. 

Repeatable: In the case of multiple evaluations on the same measure, to determine outcomes or 

cost-effectiveness relative to a time frame, outcome measures need to be repeatable – insofar as 

they should be measured accurately more than once over a period of time (ensuring previous 

surveys or evaluations do not affect future measurement). For external validation of an 

intervention or its methods, or the transferability of an intervention, the measurement of the social 

outcome of interest should be repeatable in other settings. 

Independent: Target setting may create incentives for selecting in easy-to-treat individuals into a 

social service, achieving measureable change but unequally. This can restrictive the inclusivity of 

social impact investment, and create further social problems down the line. Any outcome measure 

linked to payment-related targets should be measurable independently of the policies’ target 

measures in order to assess ‘real change’, and include at least one distributional measure to retain a 

check on the ‘inclusivity’ of the intervention effect. 

7.39 In some policy settings, an intervention may be expected to have spillover effects in other 

sectors, both positive and negative. Additional indicators may be needed to monitor these spillover effects 

for the purposes of addressing the ‘wrong pockets’ problem (when returns to investment are found in other 

sectors), or adjusting a social impact score for SII based on negative externalities. 

7.40 Finally, social impact investors and social delivery organisations should be prepared to adjust the 

outcome measures used to evaluate an intervention based on the time since the intervention occurred – 

these might be termed ‘accumulated outcomes’ and valued accordingly. The Perry Preschool intervention, 

mentioned in Chapter 5, is a working example of this, where early years’ interventions were still having 

positive social impacts decades later, but in the labour market and educational outcomes, as oppose to early 

years’ outcomes of child health and parenting skills development. Equally, spillover outcomes may also be 

subject to this principal. 

7.41 Another example is the recent evaluation of the first Social Impact Bond (SIB) that launched in 

2010 as a new approach to address recidivism in the UK (see Chapter 3 for further background). The 

Peterborough SIB, developed and launched by Social Finance (SIB intermediary), provides pre- and post- 

120 © OECD 2015


release help to around 2000 short-term prisoners aiming to reduce re-offending rates (by at least 7.5%) by 

the end of the pilot scheme. If the pilots are successful, outcome payments can reach USD 12.2 million 

from a total USD 7.6 investment. If social outcome thresholds are not met, investors will lose their cash. 

The initial results of the evaluation of the Peterborough SIB have recently been released and are described 

in Box 7.1 below. 

Box 7.1. First Peterborough SIB outcome results 

On August, 2014 the U.K. Ministry of Justice (MoJ) released the first results of the Peterborough SIB programme. 

This evaluation focuses on the outcome results of the SIB designed to meet pre-determined targets in terms of reconviction 

rates. 

The Government alongside the Big Lottery Fund (SIB commissioners) agreed to pay investors back their capital 

plus a return on their investment if there was an improvement of re-offending rates. These payments may reflect a 

proportion of the savings to the Government and wider benefits to the society that result from interventions by nongovernment 

delivery organisations and investors. 

The measurement of the Peterborough SIB outcomes is designed around two cohorts of adult male offenders 

discharged from Peterborough prison. The first cohort includes individuals released between 9 September 2010 and 

1 July 2012 after serving sentences of less than one year. The second cohort opened in July 2012 

The Peterborough SIB foresees that investors receive an outcome-based payment if one of the following 

scenarios materializes: 

1) A reduction of 10% in the frequency of re-conviction events in each cohort of around 1 000 prisoners (from 

the baseline generated by a matched comparison group); 

2) A reduction in re-conviction events of 7.5% or more detected across all 2 000 offenders in both cohorts, 

when measured against a matched comparison group. 

The 10% and 7.5% thresholds were calculated, based on sample sizes and historical data, to ensure that any 

observed differences in re-offending rates between matched samples would be statistically significant. A statistically 

significant difference implies that outcomes payments are made for changes as a result of the SIB intervention and not 

due to unrelated factors. 

The results of the first Peterborough cohort show a 8.4% reduction in terms of frequency of re-conviction events. 

This is below the required 10% reduction under condition 1) above, thus no payment is made to investors. However, 

the outcome result is above the 7.5% threshold under condition 2) above. Therefore, should the second cohort yield 

similar results, investors will be paid an agreed fixed sum per reduced re-conviction event. 

Propensity Score Matching was used to calculate the percentage reduction in reoffending rates resulting from the 

Peterborough SIB approach. The cohort of 936 discharged offenders from Peterborough was matched against a 

national control group control group of 9 360 matched re-offenders discharged from other 34 male local prisons during 

the same period. The pre-matching samples included 31 207 observations from other prisons and 945 for 

Peterborough. The matching was done based 36 out of 38 demographic and criminal history variables such as 

offender age, ethnicity, nationality, number of past convictions or type of offence. The analysis was done based on 

detailed individual data provided by the MoJ and further information made available by Social Finance (the 

Peterborough SIB intermediary). Jolliffe and Hedderman (2014) provide further details on the data and methodological 

approach used. 

Source: MoJ (2014) and Jolliffe and Hedderman (2014). 

© OECD 2015 121


7.42 The preliminary results of the SIB model show that it has been successful thus far, both in terms 

of attracting funding to address social needs, as well as in effectively tackling social issues. However, there 

are a number of challenges and risks that should be taken into consideration when designing and 

implementing a SIB or other SII models including incentives and risks of unintended consequences, 

spillovers and cross-sector gains, and measurement risks. 

7.43 In areas that involve complex and expensive social issues, no single SIB commissioner can 

justify making all of the outcomes payments. In the UK, the Social Outcomes Fund was created to address 

challenges related to spillovers and cross-sector gains — i.e. the returns on the provision of social services 

can accrue in distinct social areas. This fund leverages the contribution of outcomes-based commissions 

such as SIBs. 

7.4.3. Methodologies and challenges for evaluating outcomes 

7.44 Once an outcome, or set of outcomes, has been identified as a desirable result of social impact 

investment the next challenge for assessing impact of an SII-backed intervention is designing an 

appropriate evaluation. 

7.45 Below is a checklist of questions to take into consideration: 

 

 

 

 

What aspects to evaluate: Clarify whether the intervention as a whole or aspects of the 

intervention are to be evaluated. Adjust or developing appropriate outcome indicators and 

controls accordingly. 

Who to evaluate: Recipients of the interventions, control groups, and extended populations (e.g. 

families of recidivists, communities, the general population) depending on the nature of the target 

population and expected spillovers. 

When to evaluate: Depending on the intervention (childcare vs. elderly care for instance), the 

expected outcome (e.g. long-term life outcomes for childcare, shorter periods for service take-up 

goals?), and should be timetabled in advance of the intervention (as part of the SII business plan). 

How to evaluate: consider piloting in the first instance, and identifying suitable control groups 

for control trials (for details of this method see chapter 3 of OECD, 2014g), in absence of this 

tailored survey data pre, during and post interventions, or pre-existing surveys might allow for 

difference-in-difference tests. For expectation of long-term returns, longitudinal cohort data may 

be useful. Cost benefit analysis should be included as standard, as should contextual description 

of governance and implementation practice for the purposes of transferability. 

122 © OECD 2015


References 



November. 

Better Evaluation (2014a) “Cost Benefit Analysis”. Accessed at the Better Evaluation website 

16 April 2014 http://www.betterevaluation.org. 

Better Evaluation (2014b) “Cost Effectiveness Analysis”. Accessed at the Better Evaluation website 

16 April 2014 http://www.betterevaluation.org. 

O’Donohoe, N., C. Leijonhufvud and Y. Saltuk (2010), “Impact Investments: An Emerging Asset Class”, 

J.P. Morgan Securities plc, GIIN and Rockefeller Foundation, November. 

EuropeAid (2005) “Cost Effectiveness analysis”. Accessed at the EuropeAid website 16 April 2014 

http://ec.europa.eu/europeaid/index_en.htm. 



HM Government, UK (2011), “Growing the Social Investment Market: A vision and strategy”, UK 

Cabinet Office, London, February. 

IIPC (2014), “Impact Investing Policy in 2014: A snapshot of global activity”, Impact Investing Policy 

Collaborative, November. 



Johansson, P. (1992), “Altruism in Cost-Benefit Analysis” in Environmental and Resource Economics, 

6(2): 605-13. 

Jolliffe, D. and C. Hedderman (2014) “Peterborough Social Impact Bond: Final Report on Cohort 1 

Analysis”. Available at: 

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/341684/peterborough 

-social-impact-bond-report.pdf 

MoJ (2014) “Peterborough Social Impact Bond; HMP Doncaster; Payment by Results pilots: Final 

re-conviction results for cohorts 1” Statistics Bulletin, Ministry of Justice, London, August. 

NAB-AUS (2014), “Delivering on Impact”, National Advisory Board Report, Australia, Social Impact 


NAB-CAN (2014), “Mobilizing Private Capital for Public Good: Priorities for Canada”, National Advisory 

Board Report, Canada, Social Impact Investment Taskforce established by the G8, September. 

NAB-GER (2014), “Wirkungsorientiertes Investierenn: Neue Finanzierungsquellen zur Lösung 

gesellschaftlicher Herausforderungen”, National Advisory Board Report, Germany, Social Impact 


© OECD 2015 123


NAB-FRA (2014), “Comment et pourquoi favoriser des investissements à impact social ? Innover 

financièrement pour innover socialement”, National Advisory Board Report, France, Social Impact 


NAB-ITA (2014), “La finanza che include: gli investimenti ad impatto sociale per una nuova economia”, 

National Advisory Board Report, Italy, Social Impact Investment Taskforce established by the G8, 

September. 

NAB-JAP (2014), “The Social Impact Investment Landscape in Japan”, National Advisory Board Report, 

Japan, Social Impact Investment Taskforce established by the G8, September. 

NAB-UK (2014), “Building a social impact investment market: The UK experience”, National Advisory 

Board Report, United Kingdom, Social Impact Investment Taskforce established by the G8, 

September. 

NAB-US (2014), “Private Capital Public Good: How Smart Federal Policy Can Galvanize Impact 

Investing — and Why It’s Urgent”, National Advisory Board Report, United States, Social Impact 

Investment Taskforce established by the G8, June. 

OECD (2014f), Integrated Service Delivery for Vulnerable Groups, forthcoming. 

OECD (2014g), Cash or Services: What Works Best for Families?, forthcoming. 



Thornley, B., D. Wood, K. Grace and S. Sullivant (2011), “Impact Investing: A Framework for Policy 

Design and Analysis”, Pacific Community Ventures, Institute for Responsible Investment at Harvard 

University, and Rockefeller Foundation, January. 

WEF (2012), “Breaking the Binary: A Policy Guide to Scaling Social Innovation”, World Economic 

Forum, New York. 

WGIM (2014), “Impact Measurement: Shifting the Paradigm”, Working Group on Impact Measurement 

(WGIM), Social Impact Investment Taskforce established by the G8, September. 

124 © OECD 2015


ANNEX 7.1. EXAMPLES OF POLICY INSTRUMENTS IN G7 COUNTRIES AND AUSTRALIA 

Country Name Type Link 

AUS 

Social Enterprise Development and 

Investment Funds (SEDIF) 

Supply 

CAN RISQ Fund (Quebec) Supply http://www.fonds-risq.qc.ca/ 

CAN 

Fiducie du Chantier de l'économie sociale 

(Quebec) 

Supply http://fiducieduchantier.qc.ca/?lang=eng 

CAN SVX trading platform (Ontario) Intermediaries http://www.svx.ca/ 

CAN 

Social Enterprise Demonstration Fund 

(Ontario) 

Supply 

CAN Toronto’s Centre for Social Innovation Demand http://socialinnovation.ca/ 

CAN 

CAN 

Community Contribution Companies (C3, 

British Columbia) 

Community Interest Companies (CIC , 

Nova Scotia) 

Tax & 

Regulation 

Tax & 

Regulation 

CAN Social Innovation Fund (Alberta) Supply 

http://www.fin.gov.bc.ca/prs/ccc/ 

CAN Immigrant Access Fund Supply http://www.iafcanada.org/ 

Europe EUSEF 

Tax & 

Regulation 

See Box 3.5 

Europe Social impact accelerator Supply http://www.eif.org/what_we_do/equity/sia/index.htm 

FRA 

LOI n° 2014-856 : Économie Sociale et 

Solidaire 

Tax & 

Regulation 

FRA BPI France planning to provide funding Supply 

ITA 

ITA 

ITA 

ITA 

Legge delega di riforma del Terzo Settore 

Specific social cooperatives legislation 

Bank foundation legislation 

Normativa sul Microcredito 

Tax & 

Regulation 

Tax & 

Regulation 

Tax & 

Regulation 

Tax & 

Regulation 

(in certain regions only) 

http://microcreditoitalia.org/index.php?option=com_ 

content&view=article&id=335&Itemid=353&lang=it 

ITA L’Ente Nazionale per il Microcredito Other http://microcreditoitalia.org/index.php?lang=it 

ITA Titoli di Solidarietà (D.Lgs n. 460/1997) 

JAP 

Legal amendment to the corporate law 

Tax & 

Regulation 

Tax & 

Regulation 

http://employment.gov.au/social-enterprisedevelopment-and-investment-funds 

https://www.ontario.ca/business-andeconomy/social-enterprise-demonstration-fund 

http://nslegislature.ca/legc/bills/61st_4th/1st_read/b1 

53.htm 

http://humanservices.alberta.ca/social-innovationfund.html 

http://www.legifrance.gouv.fr/affichTexte.do?cidTex 

te=JORFTEXT000029313296&categorieLien=id 

www.bpifrance.fr/Vivez- 

Bpifrance/Actualites/Economie-sociale-et-solidairedecouvrez-le-rapport-d-etape-de-Bpifrance-sur-lefinancement-de-l-ESS 

http://www.governo.it/Governo/ConsiglioMinistri/de 

ttaglio.asp?d=76205 

http://www.normattiva.it/urires/N2Ls?urn:nir:stato:decreto.legislativo:1997;460 

JAP New Public Commons Other http://www5.cao.go.jp/npc/index-e/index-e.html 

JAP Social Innovation Forum Demand http://japan-social-innovation-forum.net/ 

JAP 

Osaka Prefectural Government’s Social 

Entrepreneur Support Project 

Supply 

http://www.pref.osaka.lg.jp/chiikifukushi/kigyouka/s 

yakaikigyoukafand.html 

UK Community Investment Tax Relief Tax & http://www.hmrc.gov.uk/specialist/citc_guidance.ht 

© OECD 2015 125


Regulation m 

UK Futurebuilders Supply http://www.futurebuilders-england.org.uk/ 

UK 

UK 

Community Interest Company (CIC) 

Dormant Bank and Building Society 

Account Act 

Tax & 

Regulation 

Tax & 

Regulation 

US 

US 

Small Business Investment Company 

Impact Investment Fund 

Program-Related Investments 

Supply 

Tax & 

Regulation 

US Community Reinvestment Act Other 

US 

Low-Income Housing Tax Credit 

Tax & 

Regulation 

US National Housing Trust Fund Supply http://nlihc.org/issues/nhtf 

US 

US 

US 

Riegle Community Development and 

Regulatory Improvement Act 

Community Development Financial 

Institutions Fund 

New Markets Tax Credit 

Tax & 

Regulation 

Supply \ 

Demand 

Tax & 

Regulation 

https://www.gov.uk/government/organisations/office 

-of-the-regulator-of-community-interest-companies 

https://www.gov.uk/government/publications/review 

-of-the-dormant-bank-and-building-society-accountsact-2008 

UK 

Investment and Contract Readiness Fund 

(ICRF) 

Demand http://www.beinvestmentready.org.uk/about/ 

UK Big Society Capital (BSC) Intermediaries http://www.bigsocietycapital.com/ 

UK Social Outcomes Fund Supply 

http://blogs.cabinetoffice.gov.uk/socialimpactbonds/ 

outcomes-fund/ 

UK Commissioning Academy Supply 

https://www.gov.uk/the-commissioning-academyinformation 

UK Social Value Act Other 

https://www.gov.uk/government/publications/publicservices-social-value-act-2012-1-year-on 

UK Unit Cost Database Other http://data.gov.uk/sib_knowledge_box/toolkit 

UK Social Investment Tax Relief (SITR) 

Tax & 

Regulation 

http://www.hmrc.gov.uk/sitr/ 

http://www.sba.gov/category/lender-navigation/sbaloan-programs/sbic-program/generalinformation/impact-investment-sbic 

http://www.irs.gov/Charities-&-Non-Profits/Private- 

Foundations/Program-Related-Investments 

http://www.federalreserve.gov/communitydev/cra_ab 

out.htm 

http://portal.hud.gov/hudportal/HUD?src=/program_ 

offices/comm_planning/affordablehousing/training/w 

eb/lihtc/basics 

https://www.govtrack.us/congress/bills/103/hr3474 

http://www.cdfifund.gov/ 

http://www.irs.gov/pub/irs-utl/atgnmtc.pdf 

Note: Information on Germany is available (NAB_GER, 2014) but not yet in English and will be added once available. SIBs are 

considered as policy instruments but are not included in this table because they are exhaustively covered in Annex 3.1, Chapter 3. 

This table excludes policy instruments targeting areas or activity that does not fit within the OECD working definition presented in 

Chapter 4. The table only provides information on SII-specific policy instruments. Therefore, policy instruments that affect SII but do 

not necessarily target the SII ecosystem (e.g. seed funds; regulations on institutional investors asset allocation and risk) are excluded. 

Source: OECD, based on National Advisory Board (NAB) reports — NAB_AUS (2014), NAB_CAN (2014), NAB_GER (2014), 

NAB_FRA (2014), NAB_ITA (2014), NAB_JAP (2014), NAB_UK (2014), NAB_US (2014). 

126 © OECD 2015


8. CONCLUSIONS AND NEXT STEPS 

8.1 As social needs continue to grow, social impact investment can open the door to greater 

innovation in the way that social issues are tackled and potentially provide new ways to more efficiently 

and effectively allocate public and private capital to address social and economic challenges at the global, 

national and local levels. While these innovative new approaches will not replace the core role of the 

public sector or the need for philanthropy, they can provide models for leveraging existing capital using 

market-based approaches with potential to have greater impact. 

8.2 Interest and activity in social impact investment continues to develop around the world. There is 

a greater recognition of the need for effective solutions to social challenges drawing a growing and broader 

range of capital providers. Private sector investors, such as foundations, high net worth individuals and 

institutional investors are increasingly interested in making investments that can have both a social and a 

financial impact, which has implications for developed and developing countries. 

8.3 The social impact investment market is at an important inflection point. Awareness, interest and 

activity have increased, in particular due to the international initiative launched under the U.K. G8 

Presidency in 2013 and the subsequent work of the Social Impact Investment Taskforce and the National 

Advisory Boards. These initiatives are now moving into a new phase which will include expanding to the 

G20 countries and beyond. 

8.4 This paper has attempted to provide frameworks and approaches for thinking definitions and data 

in the social impact investment market, highlighting the implications for policy. The paper seeks to deepen 

the discussions about the definitions of social impact investment to enable clearer comparisons within and 

across countries. 

8.5 The social impact investment ecosystem framework outlined in the paper highlights the 

importance of starting with the social needs and beneficiaries, not with the financial instruments being 

applied. A mix of financing instruments can then be tailored to those particular needs and beneficiaries. As 

discussed in Chapter 5, the context within each county is a critical determinant for the possible 

opportunities for social impact investment. 

8.6 Given the growing level of activity in the social impact investment market around the world, it is 

crucial to build the evidence base to understand what works and ensure that capital is put to work on 

interventions that achieve the intended impact. This includes systematically collecting data and being able 

to use the data in a cross-country comparable way to better track the development of the market. 

8.7 In particular, further work is needed to assess the role of SII in developing countries. This report 

has focused on the G7 and Australia. Further work could expand the scope to the G20 countries and 

beyond. Changes in the development finance landscape will require new measures to capture the full 

spectrum of financial instruments and facilitate the analysis of funding from all sources. The shift in 

sources of financial flows will also require further analysis of the trade-offs in terms of various types of 

financing, including SII, as well as a scoping in terms of which market settings are more appropriate for 

various types of financing. This could build upon current OECD work on financing for development. 

© OECD 2015 127


8.8 There also needs to be deeper knowledge sharing about social impact investment practices. 

Currently there is a lot of show casing but not enough learning about what is working and what is not, 

including about the true costs, efficiencies and outcomes of particular practices. More detailed case studies 

which outline the roles of various actors and the processes involved in structuring social impact investment 

products would be useful along with more formal evaluations of these practices. 

8.9 Social impact investment touches many different fields of analysis. To minimise the challenges 

of building a robust evidence base for the whole SII market, detailed analysis could initially focus on 

certain cases and\or social need areas. This more focused approach is important as there are bound to be 

variations in appropriate policies within and across sectors. As part of the next phase of the work on social 

impact investment, the OECD could, for example, focus on a particular area and work on building the 

evidence base across difference countries and cases. 

8.10 At this stage of development of the SII market, an international organisation, such as the OECD, 

could potentially play a useful role in facilitating shared definitions, common data collection processes, 

development of indicators and evaluation of policies, in addition to providing a platform for the review and 

sharing of information about policies and practices. 

8.11 The social impact investment market remains small relative to traditional markets, however, it is 

growing in visibility and importance. Further and sustainable growth would require a commitment to 

building the evidence base in terms of practices and outcomes. 

128 © OECD 2015


GLOSSARY 

Angel Investors 

An angel investor is an individual investor (qualified as defined by some national regulations) that 

invests directly (or through their personal holding) their own money predominantly in seed or start-up 

companies with no family relationships. Angel investors make their own (final) investment decisions and 

are financially independent, i.e. a possible total loss of their investments will not significantly change the 

economic situation of their assets. Angel investors invest with a medium to long term set time-frame and 

are ready to provide, on top of their individual investment, follow-up strategic support to entrepreneurs 

from investment to exit. (OECD, 2012) 

Asset Lock 

The Asset Lock is a restriction on the transfer of assets. Asset Lock is designed to ensure that the 

assets of companies (including any profits or other surpluses generated by its activities) are used for 

the benefit of the community. (adapted from BIS, 2013) 

Catalytic (first-loss) capital 

Catalytic (first-loss) capital (CFLC) entails a capital provider that will bear first losses (the amount of 

loss covered is typically set and agreed upon upfront). By improving the recipient’s risk-return profile, 

CFLC catalyses the participation of investors that otherwise would not have participated. CFLC aims to 

channel commercial capital towards the achievement of certain social and/or environmental outcomes. In 

addition, the purpose can also be to demonstrate the commercial viability of investing into a new market. 

CFLC is a tool that can be incorporated into a capital structure via a range of financial instruments. 

(authors based on GIIN, 2013) 

Community investing 

Community investing refers to the provision of financial services to underserved communities and 

includes banks, credit unions, loan funds, and venture capital funds. (Freireich and Fulton 2009) 

Corporate Social Responsibility (CSR) 

CSR is defined as the integration of business operations and values, where the interests of all 

stakeholders—including investors, customers, employees, the community, and the environment—are 

reflected in the company’s policies and actions. Special attention is given to corporate practices as they 

relate to environmental, social, and governance (ESG) performance. (Source: Adapted from Freireich and 

Fulton, 2009) 

Cost-Benefit Analysis (CBA) 

Cost-benefit analysis is a technique used to compare the total costs of a programme/project with its 

benefits, using a common metric (most commonly monetary units). This enables the calculation of the net 

cost or benefit associated with the programme. (Better Evaluation, 2014a) 

© OECD 2015 129


Cost-Efficiency Analysis (CEA) 

Cost-effectiveness analysis is an alternative to cost-benefit analysis (CBA). The technique compares 

the relative costs to the outcomes (effects) of two or more courses of action. (Better Evaluation, 2014b) 


Impact investments are investments made into companies, organizations, and funds with the intention 

to generate social and environmental impact alongside a financial return. Impact investments can be made 

in both emerging and developed markets, and target a range of returns from below market to market rate, 

depending upon the circumstances. The practice of impact investing is further defined by the following 

four core characteristics: i) Intentionality; ii) Investment with return expectations; iii) Range of return 

expectations and asset classes; and iv) Impact measurement. (Source: GIIN website) 

Market failure 

Market failure is a general term describing situations in which market outcomes are not Pareto 

efficient. Market failures provide a rationale for government intervention. (OECD Glossary of Statistical 

Terms) 

Mission-Driven Investing (MRI) 

MRI is a term used to describe mission-related investments that are market-rate investments of 

endowment funds that align with the social or environmental mission of a foundation. MRI can include the 

use of social investing tools and sometimes including shareholder advocacy and positive and negative 

screening. (Source: Rangan et al., 2011) 

Non-profit institutions (NPI) 

Non-profit institutions are legal or social entities created for the purpose of producing goods and 

services whose status does not permit them to be a source of income, profit, or other financial gain for the 

units that establish, control or finance them. In practice their productive activities are bound to generate 

either surpluses or deficits but any surpluses they happen to make cannot be appropriated by other 

institutional units. (UN, 1993) 

Program Related Investments (PRIs) 

Investments, which often take the form of loans, loan guarantees, or equity investments that are 

derived from a foundation’s assets but count toward its charitable distribution requirement. Generally, 

these investments yield below-market-rate returns for the foundation. (Source: INSEAD based on 

Lawrence and Mukai, 2011) 

Sample size 

The number of sampling units which are to be included in the sample. In the case of a multi-stage 

sample this number refers to the number of units at the final stage in the sampling. (OECD Glossary of 

Statistical Terms) 

Sample survey 

A sample survey is a survey which is carried out using a sampling method, i.e. in which a portion 

only, and not the whole population is surveyed. (OECD Glossary of Statistical Terms) 

130 © OECD 2015


Services, social 

Social (and collective) services provide final consumption for households and are distinctive for their 

non-market character in most OECD countries. Collective consumption decisions and public financing are 

common, as is production by governments, non-profit organisations and subsidised private organisations. 

Social services comprise the following International Standard Industrial Classification (ISIC) Rev. 3 subgroups: 

- government proper (civil or military); 

- health services; 

- educational services; 

- miscellaneous social services. 

Social benefits 

(OECD Glossary of Statistical Terms) 

Social benefits are current transfers received by households intended to provide for the needs that 

arise from certain events or circumstances, for example, sickness, unemployment, retirement, housing, 

education or family circumstances. (OECD Glossary of Statistical Terms) 

Social Business 

A non-loss, non-dividend company designed to address a societal problem through a market-based 

business model. It is distinct from a non-profit because the business should seek to generate a modest profit 

which will be used to expand the company’s reach, improve the product or service or in other ways 

subsidise the social mission. (Source: INSEAD adapted from Yunus, 2009). 

Social context 

Social context refers to variables that, while not usually the direct target of policy, are crucial for 

understanding the context within which social policy is developed. (OECD Glossary of Statistical Terms) 


Any private activity conducted in the public interest, organised with an entrepreneurial strategy but 

whose main purpose is not the maximisation of profit but the attainment of certain economic and social 

goals, and which has a capacity of bringing innovative solutions to the problems of social exclusion and 

unemployment. (Source: OECD, 2000) 

Social expenditure 

Social expenditure is the provision by public (and private) institutions of benefits to, and financial 

contributions targeted at, households and individuals in order to provide support during circumstances 

which adversely affect their welfare, provided that the provision of the benefits and financial contributions 

constitutes neither a direct payment for a particular good or service nor an individual contract or transfer. 

Such benefits can be cash transfers, or can be the direct (“in-kind”) provision of goods and services. 

(OECD Glossary of Statistical Terms) 

© OECD 2015 131


Social Impact Bond (SIB) 

A Social Impact Bond is a financial mechanism in which investors pay for a set of interventions to 

improve a social outcome that is of social and/or financial interest to a government commissioner. If the 

social outcome improves, the government commissioner repays the investors for their initial investment 

plus a return for the financial risks they took. If the social outcomes are not achieved, the investors stand to 

lose their investment. (Social Finance website) 37 

Social Impact Investment (SII) 

Investments made into businesses and social sector organisations, directly or through funds, with the 

intention of generating a measurable, beneficial social and environmental impact alongside a financial 

return. (SIITF, 2014a) 

Social Impact Investment is a transaction between an investor and investee in a social area, targeting 

beneficiaries in need. Beneficiaries targeted should be at risk populations and the good provided should 

have a mix of public and private good characteristics. These transactions are often made using 

intermediaries. The investee in the transaction should, at least, inscribe a compulsory reporting clause of 

its social activity in the statutes, as well as provide a formal evaluation of social impact. In parallel, the 

investor should, at least, have a compulsory reporting clause for social impact investments and have 

return expectations above or equal to zero, but not above the market rate of return (actual return may be 

higher). (OECD working definition, 2014) 

Social investment 

Social investment is the provision and use of capital with the aim of generating social as well as 

financial returns. Social investment carries an expectation of repayment of some or all of the finance. It can 

cover loans, equity, bonds, and is sometimes used alongside other instruments, such as guarantees or 

underwriting. As with any other investments, where the investee business performs well, returns generated 

may be principally reinvested in the business, as well as offered to investors. Investors in social outcomes 

weigh up the balance between the social and financial returns which they expect from an investment, 

according to their own priorities. They will often accept lower financial returns in order to generate greater 

social impact. (Source: City of London, 2012) 

Social Purpose Organization (SPO) 

An SPO, whether nonprofit, for-profit, or hybrid, seeks to create positive social impact for human 

society, animals, or the natural environment in the form of social value that is not limited to economic 

wealth for owners or consumption benefits for customers. (Source: Clark et al., 2012). 

Socially Responsible Investing (SRI) 

SRI is an investment approach that generally employs negative screening to avoid investing in 

harmful companies which are creating negative spillovers in society through their activities (e.g. Tobacco 

companies, weapon manufacturers). Today large amounts are invested under an SRI approach which has 

implications for shareholder activism/advocacy to be able to encourage corporate social responsibility 

practices. (Source: INSEAD adapted from Palandjian, 2010) 

37. Available at: http://www.socialfinance.org.uk/services/social-impact-bonds/. 

132 © OECD 2015


Target Population 

The set of elements about which information is wanted and estimates are required. Practical 

considerations may dictate that some units are excluded (e.g., institutionalized individuals, the homeless, or 

those that are not possible to access without incurring excessive cost). (OECD Glossary of Statistical 

Terms) 

Venture Philanthropy 

Venture Philanthropy is an approach to build stronger investee organisations with a societal purpose 

by providing them with both financial and nonfinancial support in order to increase their societal impact. 

The venture philanthropy approach includes the use of the entire spectrum of financing instruments (grants, 

equity, debt, etc.) and pays particular attention to the ultimate objective of achieving societal impact. The 

approach includes both social investment and high engagement grant making. (Source: EVPA website). 

© OECD 2015 133


REFERENCES 

BIS (2013) “Office of the Regulator of Community Interest Companies: information and guidance notes”, 

Department for Businesses, Innovation and Skills, London, March. 

City of London (2012), “A Brief Handbook on Social Investment”, City of London Corporation, London, 

February. Source: GIIN website 

Clark, C., J. Emerson, and B. Thornley (2012), “A Market Emerges: The Six Dynamics of Impact 

Investing”, Pacific Community Ventures, ImpactAssets and CASE at Duke University’s Fuqua 

School of Business, October. 

GIIN (2013), “Catalytic First-loss Capital”, New York, October. 

INSEAD (nd), “Glossary of Terms for Social Entrepreneurship and Impact Investing”. webpage, 

http://www.globalimpactforum.com/program/insead/glossary/index (accessed 11 September 2013). 

OECD (2000), Social Enterprises, OECD Publishing. doi: 10.1787/9789264182332-en 

OECD (2008), OECD Glossary of Statistical Terms, OECD Publishing. DOI: 10.1787/9789264055087-en 

OECD (2012), “Preliminary Results of the OECD Seed and Early Stage Financing Questionnaire”, internal 

working document, Directorate for Science, Technology and Industry, DSTI/IND(2012)24 

Palandjian, T. (2010), “Investing for Impact: Case Studies across Asset Classes”, Bridges Ventures, 

Parthenon Group and GIIN, London, January. 

UN (1993), System of National Accounts, United Nations, New York 

Yunus, M. (2009), “Creating a World Without Poverty: Social Business and the Future of Capitalism”, 

PublicAffairs. 

134 © OECD 2015


ANNEX A. OECD EXPERT MEETINGS: LIST OF PARTICIPANTS 

Paris 21 March 2014 and London 18 June 2014 

Ms. Rosemary ADDIS 

Mr. Jake BENFORD 

Ms Sandy BLACKBURN- 

WRIGHT 

Mr. Amit BOURI 

Mr. Kieron BOYLE 

Dr. Stephen BRIEN 

Mr. Adrian BROWN 

Professor Mario CALDERINI 

Ms. Radana CRHOVA 

Ms. Aimie COLE 

Ms. Carolien DE BRUIN 

Mr. François DE WITT 

Ms. Sarah DOYLE 

Mr. Guilhem DUPUY 

Dr. Danilo Giovanni FESTA 

Ms. Stephanie GIAMPORCARO 

Mr. Gunnar GLÄNZEL 

Ms. Paula GOLDMAN 

Dr. Riccardo GRAZIANO 

Dr. Siobhan HARTY 

Dr. Lisa HEHENBERGER 

Executive Director Impact Strategist 

Co-founder 


Senior Project Manager 

Bertelsmann Foundation 

Executive Director Impact Strategist 

Co-founder 

Impact Investing Australia 



Head of Social Investment and Finance 

UK Cabinet Office 

Chair’s Executive Team 

Social Impact Investment Taskforce 

Principal 

Boston Consulting Group 

Department of Management, Economics and 

Industrial Engineering 

Politecnico di Milano 

Senior Economist 

Office for Civil Society, Government Innovation 

Group 


Chair’s Executive Team 

Social Impact Investment Taskforce 

Specialist Leader 

Monitor Institute 

President 

FINANSOL 

Senior Policy Advisor 

MaRS Centre for Impact Investing 

Attaché de Direction Générale 

ECOFI Investissements 

General Director 

Ministry of Labour and Social Policy 

Senior Lecturer 

Bertha Centre for Social Innovation and 

Entrepreneurship, Graduate School of Business 

University of Cape Town 

Senior Researcher 

Centre for Social Investment, Heidelberg 

University 

Senior Director, Knowledge & Advocacy 

Omidyar Network 

Director General 

National Microcredit Agency 

Director General, Social Policy 

Employment and Social Development Canada 

Research Director 

European Venture Philanthropy Association 

Australia 

Germany 

Australia 

United States 




Italy 



United States 

France 

Canada 

France 

Italy 

South Africa 

Germany 

United States 

Italy 

Canada 

EU 

© OECD 2015 135


Ms. Diana HOLLMANN 

Mr. Richard JOHNSON 

Mr. Nigel KERSHAW 

Professor Mario LA TORRE 

Ms. Alexandra MEAGHER 

Ms. Jane NEWMAN 

Professor Alex NICHOLLS 

Mr. Nick O’DONOHOE 

Ms. Stephanie PETRICK 

Mr. Karl RICHTER 

Mr. Matt ROBINSON 

Ms. Yasemin SALTUK 

M. Hugues SIBILLE 

Ms. Julie SUNDERLAND 

Ms. Louise SWISTEK 

Dr. Volker THEN 

Ms. Marilou VAN GOLSTEIN 

BROUWERS 

Mme Nadia VOISIN 

Mr. Arthur WOOD 

Deutsche Gesellschaft für Internationale 

Zusammenarbeit (GIZ) GmbH 

Chairman, BIAC Technology Committee 

CEO Global Helix LLC 

CEO 

Chairman, The Big Issue Ltd 

Big Issue Invest 

Professor of Banking and Finance 

Department of Management - Banking and 

Finance 

University of Rome " La Sapienza" 

Policy Advisor 

Social Investment and Finance team 


International Director 

Social Finance UK 

Professor of Social Entrepreneurship 

Said Business School, Oxford University 

Chief Executive Officer 


Director 

Social Investment 

Impact in Motion 

CEO and Co-founder 

Engaged Investment - EngagedX 

Director of Strategy & Market Development 


Executive Director of Research 

J P Morgan 

Vice-Président 

Présidence 

Groupe Crédit Coopératif 

PRI Program Director 

Bill & Melinda Gates Foundation 

Investment Manager 

Le Comptoir de l’Innovation 


Centre for Social Investment 

University of Heidelberg 


Triodos Investment Management BV 

Conseillère soutien au secteur privé dans les pays 

en développement 

Direction Générale de la Mondialisation et des 

Partenariats 

Ministère des Affaires Etrangères 

Sous-Direction de la Sécurité Alimentaire et du 

Développement humain 

Founding Partner 

Total Impact Advisors 

Germany 

United States 


Italy 





Germany 




France 

United States 

France 

Germany 

Netherlands 

France 

Switzerland 

136 © OECD 2015

Page 118 of 140

Attachment C 

Impact Investments: 

An Emerging Asset Class 

Page 119 of 140

Global Research 

29 November 2010 

Impact Investments 

An emerging asset class 

J.P. Morgan Global Research 

Nick O’Donohoe 

Global Head of Research 

(44-20) 7325-0831 

nick.odonohoe@jpmorgan.com 

Christina Leijonhufvud 

(1-212) 622-8022 

christina.e.leijonhufvud@jpmchase.com 

Yasemin Saltuk 

(44 20) 7742-6426 

yasemin.x.saltuk@jpmorgan.com 

Rockefeller Foundation 

Antony Bugg-Levine 

Margot Brandenburg





2





Acknowledgements 

This report was made possible thanks to the contributions of many individuals and 

organizations. However, one partner stands out for its dedication to this project. The 

Global Impact Investing Network (the “GIIN”) collected a previously unseen set of 

data on impact investments from its Investors’ Council. The work involved designing 

and drafting the survey, choosing the respondents, and following up individually to 

ensure data collection met with the tight timeline for this analysis. The team’s 

rigorous work made possible one of the most exciting conclusions of this report – the 

analysis of impact investors’ return expectations. For this significant contribution, we 

extend our sincerest gratitude to Amit Bouri, Giselle Leung, Melody Meyer, Jacob 

Samuelson and Camilla Seth. We would also like to acknowledge and thank 

members of the GIIN Investors’ Council and the other survey participants for 

participating in the impact investing survey and contributing valuable data to this 

research. The full list of survey participants can be found in Appendix IV. 

Several other organizations and individuals offered their time to provide ideas, 

background and data, particularly in our sector sizing analysis. We thank the 

following organizations for generously sharing their knowledge to inform this report: 

B Lab, Calvert Foundation, Charity Bank, Global Impact Investing Rating System, 

Consultative Group to Assist the Poor, Gray Ghost Ventures, Impact Investment 

Exchange, Impact Reporting and Investment Standards, International Finance 

Corporation, Microfinance Information eXchange, MicroVest Capital Management, 

LLC, Monitor Inclusive Markets, Overseas Private Investment Corporation, The 

Prudential Insurance Company of America, Root Capital, Social Finance, TIAA- 

CREF, WaterHealth International, and World Resources Institute. 

Our colleagues at J.P. Morgan and the Rockefeller Foundation also contributed their 

time and energy. We thank in particular Renee Parker, Amy Bell, Mia Feldman, John 

Buley, Fred De Mariz, Debbie Bobovnikova, Eduardo Lecubarri, Marco Dion, 

Terence Strong, Brinda Ganguly and Justina Lai for their invaluable knowledge and 

contributions toward our analysis. Jed Emerson of Blended Value Group and John 

Goldstein of Imprint Capital have also been instrumental in helping us to develop our 

understandings of the impact investing field, many of which build on Jed’s 

pioneering work in this area. 

J.P. Morgan and its analysts are solely responsible for the investment opinions and 

recommendations, if any, contained in this report. Any errors or omissions are 

J.P. Morgan’s, and the Rockefeller Foundation and GIIN expressly disclaim any 

responsibility in the use of this report, including its potential distribution with any 

other materials, for investment purposes or otherwise. 

3





Table of Contents 

Acknowledgements..................................................................3 

Introduction ..............................................................................5 

Executive Summary .................................................................7 

1. The current market landscape...........................................13 

Identifying impact investments..................................................................................14 

Investors: Market participants and infrastructure.......................................................15 

Investments: Business sectors, impact objectives, investment structures and 

geography ..................................................................................................................18 

Approaches to impact investing: Financial vs. social investment thesis...................21 

2. Impact investments: An emerging asset class................24 

What makes impact investments an asset class..........................................................25 

3. Financial return expectations............................................30 

Analyzing a sample of impact investments................................................................30 

Beyond returns: Characteristics of surveyed investments..........................................34 

4. The potential BoP market opportunity .............................39 

Why the opportunity exists in BoP markets...............................................................40 

A framework for sizing the market opportunity.........................................................42 

Sector by sector analysis: Non-financial services......................................................44 

Sector by sector analysis: Financial services .............................................................60 

Segments we haven’t measured .................................................................................63 

Appendices 

Appendix I: Managing impact investments..........................66 

Appendix II: Glossary and acronyms ...................................78 

Appendix III: CDFIs.................................................................80 

Appendix IV: GIIN Survey participants .................................82 

Appendix V: Additional returns data ....................................83 

Appendix VI: Notes on market sizing ...................................87 

Appendix VII: Further reading ...............................................91 

4





Introduction 

Throughout, we use the term 

“social” to include social and 

environmental. 

Impact investments: An emerging asset class 

In a world where government resources and charitable donations are insufficient to 

address the world’s social problems, impact investing offers a new alternative for 

channeling large-scale private capital for social benefit. With increasing numbers of 

investors rejecting the notion that they face a binary choice between investing for 

maximum risk-adjusted returns or donating for social purpose, the impact investment 

market is now at a significant turning point as it enters the mainstream. In this work, 

we argue that impact investments are emerging as an alternative asset class. As such, 

we analyze the questions one would ask when adding impact investments to an 

investment portfolio. Specifically, we consider the following: 

• What defines and differentiates impact investments? 

Impact investments are investments intended to create positive impact beyond 

financial return. As such, they require the management of social and 

environmental performance (for which early industry standards are gaining 

traction among pioneering impact investors) in addition to financial risk and 

return. We distinguish impact investments from the more mature field of sociallyresponsible 

investments (“SRI”), which generally seek to minimize negative 

impact rather than proactively create positive social or environmental benefit. 

• Who is involved in the market and how do they allocate capital? 

Charting the landscape of the impact investment market, investors range from 

philanthropic foundations to commercial financial institutions to high net worth 

individuals, investing across the capital structure, across regions and business 

sectors, and with a range of impact objectives. 

• What makes impact investments an emerging asset class? 

While certain types of impact investments can be categorized within traditional 

investment classes (such as debt, equity, venture capital), some features 

dramatically differentiate impact investments. We argue that an asset class is no 

longer defined simply by the nature of its underlying assets, but rather by how 

investment institutions organize themselves around it. Specifically we propose 

that an emerging asset class has the following characteristics: 

• Requires a unique set of investment/risk management skills 

• Demands organizational structures to accommodate this skillset 

• Serviced by industry organizations, associations and education 

• Encourages the development and adoption of standardized metrics, 

benchmarks, and/or ratings 

These characteristics are present for such asset classes as hedge funds or 

emerging markets, which channel significant capital flows as a result. With each 

of these indicators having materialized, we argue that impact investments should 

be defined as a separate asset class. 

5





• How much financial return are investors expecting and realizing? 

We conducted a survey of leading impact investors, which resulted in 24 

respondents providing data on expected returns for over 1,100 individual 

investments. Reported return expectations vary dramatically: while some impact 

investors expect to outperform traditional investments, others expect to trade-off 

financial returns for social impact. Increasingly, entrants to the impact 

investment market believe they need not sacrifice financial return in exchange for 

social impact. Indeed, many have a regulated, fiduciary duty to generate riskadjusted 

returns that compete with traditional investments. 

• How large is the potential opportunity for investment in this market? 

While we have not endeavored to measure the entire impact investment market, 

we present a new framework for measuring the potential scale of invested capital 

and profit. Applying our methodology to selected businesses within five sectors 

— housing, rural water delivery, maternal health, primary education and financial 

services — for the portion of the global population earning less than $3,000 a 

year, we find that even this -segment of the market offers the potential over the 

next 10 years for invested capital of $400bn–$1 trillion and profit of $183– 

$667bn. 

• What does risk management and social performance monitoring involve? 

Our analysis of impact investment risk management includes components similar 

to those for venture capital or high yield debt investments (with country and 

currency risk components for emerging market transactions), with a unique set of 

complexities arising from social performance measurement and reputational 

exposure. Measuring and monitoring social performance are essential to track 

progress toward the intended impact and to manage the reputational exposure, but 

are challenging and potentially expensive in practice. Market initiatives are in 

place to build third party systems to facilitate these efforts. 

6





Executive Summary 

Investments intended to create positive impact beyond financial return 


financial return. This definition captures the key themes characterizing impact 

investments as illustrated in Figure 1: impact investments provide capital, expecting 

financial returns, to businesses (fund managers or companies) designed with the 

intent to generate positive social and/or environmental impact. 

Figure 1: Defining impact investing 


Provide capital 

• Transactions currently tend to be private debt or 

equity investments 

• We expect more publicly traded investment 

opportunities will emerge as the market matures 

Business designed with intent… 

• The business (fund manager or company) into which 

the investment is made should be designed with intent 

to make a positive impact 

• This differentiates impact investments from 

investments that have unintentional positive social or 

environmental consequences 

Expect financial returns 

• The investment should be expected to return at 

least nominal principal 

• Donations are excluded 

• Market-rate or market-beating returns are 

within scope 

… to generate positive social and/or 

environmental impact 

• Positive social and/or environmental impact 

should be part of the stated business strategy and 

should be measured as part of the success of the 

investment 

Source: The Rockefeller Foundation, J.P. Morgan. 

Investors and investments range broadly, across sectors and objectives 

A variety of investor types participate, including development finance institutions, 

foundations, private wealth managers, commercial banks, pension fund managers, 

boutique investment funds, companies and community development finance 

institutions. These investors operate across multiple business sectors, including 

agriculture, water, housing, education, health, energy and financial services (Figure 

2). Their impact objectives can range from mitigating climate change to increasing 

incomes and assets for poor and vulnerable people. Investments take the form of 

traditional financial structures, such as debt or equity, or more innovative structures, 

such as the Social Impact Bond issued in the UK, where returns are linked to metrics 

of social performance such as reduction in prisoner reoffending rates. 

Figure 2: Business sectors for impact investments 

Business sectors 


Basic needs 

Basic services 

• Agriculture 

• Water 

• Housing 

• Education 

• Health 

• Energy 

• Financial services 

Source: IRIS, J.P. Morgan. 

7





First coined by US President 

Franklin Roosevelt, the phrase 

“bottom of the pyramid” gained 

its modern usage in a 2004 book 

by business professor C.K. 

Prahalad, who described the 

“Fortune at the Bottom of the 

Pyramid” available to companies 

that created efficient models to 

engage poor people as customers 

and suppliers. Since then, the 

World Resources Institute has 

defined the BoP as people earning 

less than $3000 per annum per 

capita (in 2002 PPP). 

Impact investments generally target the (broad) base of the economic pyramid 

Impact investments generally aim to improve the lives of poor and vulnerable people 

or to provide environmental benefits at large. In this report, we focus primarily on 

investments that target the ‘base of the pyramid’ defined by the World Resources 

Institute as people earning less than $3000 a year 1 . In addition to this established 

definition of BoP, which applies to emerging markets, there are also people living at 

the base of economic pyramids in developed countries who may enjoy a higher 

income but can still benefit from impact investments that expand their access to 

services and opportunities. We refer to this broader population as the “BoP+”. While 

many impact investments target BoP+ populations, this report focuses on impact 

investments benefiting the BoP sub-segment in emerging countries. 

Investments generate impact in a variety of ways 

Impact investments can deliver positive social outcomes by expanding access to 

basic services for people in need or through production processes that benefit society. 

Figure 3 summarizes some of the ways in which business can deliver positive 

outcomes for BoP+ populations through their method(s) of production such as by 

providing quality jobs, enhancing energy efficiency, facilitating local asset 

accumulation and/or purchasing inputs from local or smallholder providers. Other 

businesses deliver positive social outcomes by providing customers with access to 

needed and cost effective products or services, including agriculture, water, housing, 

education, health, energy or financial services. 

Figure 3: Ways in which businesses can deliver impact 

These means of impact might be part of the impact investment thesis motivating an investor 

Means of impact 


Process 

Products for BoP+ 

• Job creation 

• Energy efficiency 

• Facilitating asset accumulation 

• Utilizing BoP+ suppliers 


• Water 

• Housing 

• Education 

• Health 

• Energy 

• Financial Services 


Defining an emerging asset class 

Over the last two decades, the definition of an asset class has shifted from one based 

solely on the financial characteristics of a given set of assets to one based on how 

mainstream institutional investors organize themselves around those assets. The 

identifying characteristics of an asset class in today's markets include: the demand 

for professionals with a unique set of investment/risk management skills; structures 

on the buy side that organize around and allocate capital to these skilled 

professionals; industry organizations and networks dedicated to the investment class; 

and the adoption by the investment community of metrics, benchmarks and ratings 

that standardize performance and risk measurement. 

Hedge funds and emerging markets are both relatively recent examples of alternative 

assets where underlying investments cut across traditional debt and equity products. 

However, the unique characteristics of the people, processes structures and risks 

1 The Next 4 Billion, World Resources Institute and International Finance Corporation, 2007. 

8





involved have resulted in mainstream institutions defining both as separate asset 

classes within the category of alternative investments. We note that this definition 

was a key catalyst in driving the institutional growth of these assets over the last 20 

years. 

We recognize an alternative view that impact investors should seek to assign their 

investments to traditional asset classes such as equity, debt and cash. We believe, 

however, that this would lead to a fragmentation of impact investing skills and 

constrain the industry's potential growth. We argue, therefore, that defining impact 

investing as an asset class in its own right is consistent with recent history and 

current practice in the investment industry and is more likely to lead to a rapid 

growth of assets. 

Financial return expectations for a sample of impact investments exhibit high 

variance 

Before identifying the potential market opportunity for investments in businesses 

serving BoP customers, we analyze a sample of current impact investments across 

business sectors and impact objectives (i.e. no longer limited to BoP-serving 

businesses). As the market is primarily private, we obtained the data by surveying a 

market leading group of impact investors, from which 24 respondents provided data 

on over 1,100 investments. 

Return expectations vary from competitive to concessionary 

Reported return expectations for impact investments vary dramatically. Figure 4 

illustrates the range of expectations with a vertical line, and we see that some 

investors expect financial returns from their impact investments that would 

outperform traditional investments in the same category, while others expect to tradeoff 

financial return for social impact. Increasingly, newer entrants to the impact 

investment market, in particular those focused on BoP consumers in emerging 

markets, believe that impact investments need not sacrifice competitive financial 

returns in exchange for social impact. The International Finance Corporation, which 

makes many impact investments, recently revealed that their emerging market equity 

portfolio has outperformed traditional emerging market venture capital and private 

equity benchmarks for investment vintages from 1989 to 2006 2 . 

Whether or not there is a return trade-off in impact investing depends on instrument 

type, investor perceptions, and of course, chosen benchmarks. Developed markets 

(DM) debt investors appear to expect some return sacrifice. This could be explained 

in part by regulatory features and, in some developed markets, tax incentives that 

encourage investment in lower-return social ventures. Emerging markets (EM) debt 

on the other hand appears to target returns that are competitive with long-term 

realized index returns. For equity, the results are mixed. If we benchmark against the 

realized DM and EM index returns, impact investors’ targets appear competitive for 

EM but concessionary for DM. If, on the other hand, we benchmark against the 20- 

25% gross or 15–20% net returns that our interviews tell us managers raising money 

in the current environment would target, then there does appear to be a trade-off for 

EM. 

2 See Appendix V. 

9





Figure 4: Average return expectations by instrument and region 

Horizontal bars: Average realized returns for benchmark and average expected returns for impact 

investments, gross annual IRR or yield, in USD. Vertical lines: Range of expected returns reported, gross 

annual IRR or yield, in USD. 

Benchmark 

11% 


0-5% 

Benchmark 

9% 


8-12% 

Benchmark 

28% 


15-20% 

Benchmark 

10% 


12-15% 

30% 

24% 

18% 

12% 

6% 

0% 

Developed market high 

yield corporate debt 

Emerging markets 

corporate debt 

Developed market 

venture capital 

Emerging market 


Source: GIIN, J.P. Morgan. Survey participants were given a predetermined choice set of return ranges (0–4.9%; 5–7.9%; 8–11.9%; 

12–14.9%; 15–19.9%; 20–24.9%; 25%+) which is why the averages are presented in the form of ranges rather than single data points. 

Benchmark returns are average annual returns for: J.P. Morgan’s Developed Markets High Yield index and Corporate Emerging 

Market Bond (“CEMBI”) Index, over the period 2002 – 2010 (our full data history); and Cambridge Associates US Venture Capital Index 

and Emerging Markets Venture Capital and Private Equity Index, for vintage years over the period 1989 – 2006. Impact investment 

return expectations are calculated by taking an average of survey responses (each of which represents a range of expected returns for 

a given investment instrument in a specified region) across the population of reported investments. The number of investors who 

responded for each instrument, and the number of investments in the sample (respectively) are: Dev mkt HY debt = 9, 219; EM HY 

debt = 10, 411; Dev mkt venture capital = 6, 91; EM venture capital = 15, 119. Readers should note the low number of Dev mkt venture 

capital investors represented. Note that the range of expected returns for developed market debt excludes a single investment 

reported by one respondent with an expected range of returns of 20-24.9%; all other data points fall within the range shown. Both the 

developed market and emerging market venture capital ranges include investments with expectations of 25%+ return (the range was 

not specified above that level). 

Choice of benchmarks 

Benchmarking performance is challenging, and in this case even more so since we 

are benchmarking return expectations against realized returns. Figure 4 shows the 

return expectations (average and dispersion) reported for various investment types in 

our impact investor survey against benchmarks that we believe are appropriate given 

the risk of the asset class. For debt we believe the indices that best replicate the credit 

quality of an impact investing portfolio are our US High Yield and Corporate 

Emerging Market indices. For equity we recognise the early stage nature and 

relatively small investment sizes of impact investments and have chosen Cambridge 

Associates US Venture Capital Index and Emerging Markets Venture Capital and 

Private Equity Index 3 for vintage years 1989 through 2006. Vintage years post 2006 

have been excluded as there are too small a number of harvested investments to make 

the data meaningful. 

In order to make a meaningful comparison of backward looking (realized) and 

forward looking (expected) returns, we use a through-the-cycle approach in choosing 

our time period of benchmarks, which results in the data shown above. The choice of 

time frame results in moderate variations for the debt returns (if we focus on the past 

five, rather than eight-plus years, both benchmarks would drop by 200 basis points), 

but has a significant impact on the resultant venture capital or equity returns. 

Narrowing our time frame to the years post the dot-com bubble (1999 – 2006 

vintages) for example results in a return of only 0.2% in US venture capital against a 

3 Cambridge Associates US Venture Capital Index and Benchmark Statistics, and Cambridge 

Associates Global (Ex. U.S.) Venture Capital & Private Equity Index and Benchmark 

Statistics, as of June 30, 2010. Reports were provided directly to J.P. Morgan by Cambridge 

Associates free of charge. 

10





return of over 14% in emerging markets. Additional five- and 10-year VC returns 

data are shown in Table 28 in Appendix V. 

We also note that the average realized returns of the investment management 

community almost always lag the expected, forecast or projected returns when the 

investment is being made. We have no reason to suppose that the impact investing 

community will be any different. Our own anecdotal experience and interviews with 

fund of fund and alternative investment managers suggest that mainstream PE/VC 

managers in both the developed and emerging markets target net returns in the range 

of 15–20%, and gross returns of 20–25%. 

Selected data show realized returns on debt broadly reflect the range of expectations 

Most of the realized data we received pertain to debt investments. We caution that all 

of this data was provided by two respondents. The data show that EM debt provides 

higher yields than DM debt, as one would expect. The realized returns for EM debt 

are in line with expected returns while the DM debt realizations appear to outperform 

average expectations. 

In our definition of what constitutes 

an impact investment, we include 

investments that serve or employ 

the BoP+. In order to make this 

particular research work tractable, 

however, we have limited our 

scope to the impact investment 

opportunities within five sectors 

serving the WRI-defined BoP. 

The market opportunity for investment is vast 

As noted in the introduction, our estimate of market size is only partial, yet still 

produces compelling results. While the market of impact investments will serve the 

BoP+, we have attempted only to size the BoP sub-segment in emerging markets and 

only for selected sub-sectors where data and case studies were readily available. We 

further narrow our focus to companies that provide products or services to BoP 

customers (the right hand side of Figure 3), excluding, for example, impact 

investments that might finance BoP suppliers or small enterprises. In each sector, we 

determine the amount of invested capital that would be required to fund such 

businesses, and the profit that could be made, over the next ten ten years, 

summarized in Table 1. In aggregate, across five sub-sectors, we estimate a potential 

over the next ten years of profit ranging from $183bn to $667bn and invested capital 

ranging from $400bn to nearly $1 trillion. 

Our methodology begins by looking at case studies in each of our covered sectors 

that illustrate the use of innovative business models to address the BoP consumer 

base. Each case study provides an estimate of the price of providing the goods or 

services and we use data from the World Resources Institute to estimate the number 

of BoP consumers to whom that price is affordable. From this we calculate the 

potential revenues, and with an assumption on average operating margins in that 

sector we can arrive at potential profits. We then make assumptions about the 

required capital necessary to support a business of that size. 

We recognize that in sizing each sector we make several assumptions, each of which 

can and will be challenged. We hope, however, that the basic framework which 

estimates the size of the impact investing market by looking at the potential for 

affordable goods and services provided through innovative business models to BoP 

customers can serve as a useful methodology for further research and more refined 

estimates of the market size. We describe our market sizing framework and outcomes 

further in Section 4. The potential BoP market opportunity. 

11





Sizing methodology, in summary 

The methodology we employ to 

produce the headline numbers in 

Table 1 combines the analysis of a 

successful impact investment 

business model in each sector with 

an analysis of the potential 

customer base for such a business 

were it to be scaled up and 

transferred across regions. We use 

the economics of our case study in 

each sector to ensure that the 

products sold are affordable to our 

target population (the BoP) and to 

ensure that the business is 

operationally profitable. 

Table 1: Potential invested capital to fund selected BoP businesses over the next 10 years 

$ bn 

Sector 

Potential invested capital 

required, USD bn 

Potential profit 

opportunity, USD bn 

Housing: Affordable urban housing $214–$786 $177–$648 

Water: Clean water for rural communities $5.4–$13 $2.9–$7 

Health: Maternal health $0.4–$2 $0.1–$1 

Education: Primary education $4.8–$10 $2.6–$11 

Financial Services: Microfinance $176 Not measured 

Source: J.P. Morgan. 

Why the BoP opportunity exists 

Markets at the base of the economic pyramid are typically under-served by 

traditional business, which may exclude this population from being considered part 

of its potential customer base. BoP populations are also often unable to access 

services provided by the government. Academic research has shown that the BoP 

population will often manage its finances to buy affordable products or services 

improving their productivity and reliability of income 4 . It is a market introducing 

operational challenges to otherwise proven business models requiring innovative 

approaches to accommodate what can be unreliable income streams or to deliver 

services to remote rural areas. While government or philanthropic solutions will 

sometimes provide these products or services (such as healthcare or education), 

impact investment can complement government and philanthropic capital to reach 

more people. 

Managing impact investments 

The risks for impact investments are similar to those for venture capital or high yield 

debt investments, with heightened reputational and legal risks, particularly in 

emerging markets where regulatory infrastructure can be onerous and the rule of law 

is less well defined. Further, critics may argue that impact investments exploit poor 

people for the sake of profits. Indeed, exploitation and mission drift are risks that are 

amplified when poor populations are concerned, but we believe the potential of 

impact investing to create a pathway out of poverty, combined with the emergence of 

systems to track and manage social performance, outweigh these risks. Investors 

need to be vigilant to ensure that the social impact and outcomes are delivered by 

monitoring social performance. 

In practice, measuring social performance is complicated, expensive and can be 

subjective, so impact investors have supported the development of standard reporting 

and social measurement frameworks. The Impact Reporting and Investment 

Standards (“IRIS”) provides a taxonomy to standardize social impact reporting and 

facilitate the creation of industry benchmarks. The Global Impact Investing Rating 

System (“GIIRS”) will utilize IRIS definitions and additional data to assign relative 

value to investments’ social performance, helping to inform investment decisions and 

potentially lower diligence costs by collating standardized information on 

investments. 

4 Portfolios of the Poor, D Collins et al, Princeton University Press, 2009. 

12





1. The current market landscape 

For several years, momentum has been building among select private investors to 

focus on a new type of asset: impact investments – investments intended to create 

positive impact beyond financial return. These “impact investors” have been 

motivated by the view that their invested capital can be utilized to generate positive 

social and/or environmental change, and until recently have mostly been operating 

independently from mainstream financial markets in doing so. In recent years, 

participants in the impact investing market have recognized the common threads 

across their respective activities and a larger movement has begun to emerge. As this 

movement gathers steam, we recognize the potential for impact investments to attract 

a larger portion of mainstream private capital and anticipate that more investors will 

seek to generate positive social and/or environmental impact when making 

investment decisions. In fact, we believe that impact investing will reveal itself to be 

one of the most powerful changes within the asset management industry in the years 

to come. 

Part of the reason that impact investing is such an innovative concept is that it defies 

the traditionally binary nature of capital allocation. By convention, capital has 

traditionally been allocated either to investments designed to optimize risk-adjusted 

financial return (with no deliberate consideration of social outcomes), or to donations 

designed to optimize social impact (with no expectation of financial return). 

Recognizing that charitable donations will never reach the scale needed to address 

the world's problems, and that business principles and practices can unleash 

creativity and scale in delivering basic services and addressing environmental 

challenges, impact investment introduces a new type of capital merging the 

motivations of traditional investments and donations. 

In this section, we provide a definition of impact investments and characterize the 

market participants, industry associations, and the nature of the investments 

themselves, including the sectors and geographies in which they are made. 

13





Identifying impact investments 


financial return. Figure 5 illustrates the components of this definition in summary, 

and we describe each aspect in more detail below. 

Figure 5: Defining impact investing 


Provide capital 

• Transactions currently tend to be private debt or 

equity investments 

• We expect more publicly traded investment 

opportunities will emerge as the market matures 

Business designed with intent… 

• The business (fund manager or company) into which 

the investment is made should be designed with intent 

to make a positive impact 

• This differentiates impact investments from 

investments that have unintentional positive social or 

environmental consequences 

Expect financial returns 

• The investment should be expected to return at 

least nominal principal 

• Donations are excluded 

• Market-rate or market-beating returns are 

within scope 

… to generate positive social and/or 

environmental impact 

• Positive social and/or environmental impact 

should be part of the stated business strategy and 

should be measured as part of the success of the 

investment 


Impact investments provide capital to… 

In the current market, many impact investments will take the form of private equity 

or debt investments, while other instruments can include guarantees or deposits. 

Publicly listed impact investments also exist, though they are a much smaller 

proportion of the transactions being made today. Most of the activity in public 

equities that includes a social or environmental motivation takes the form of socially 

responsible investment, in which investors seek to minimize negative impact rather 

than proactively create positive impact. Indeed, only one out of 1,105 investments 

reported in our survey was listed as a public transaction (see Section 3. Financial 

return expectations for more details). We do expect greater numbers of publicly 

listed impact investments to emerge as the market matures. 

…a business designed with intent to generate positive social and/or 

environmental impact… 

The model of the business (which could be a fund management firm or a company) 

into which the investment is made should be designed with the intent to make a 

positive social or environmental impact, and this should be explicitly specified in 

company documents. For many impact investments, the intended impact is likely to 

be focused on underserved populations, though environmental initiatives may be 

intended to impact a broader population. The impact is likely to be delivered through 

the business operations and processes employed, the products or services produced 

and/or the target population served. The business should also have a system in place 

to measure its impact. 

14





…and expect financial returns 

Key to the success of impact investments is the fact that they are investments 

expected to generate a financial return. This aim should co-exist with the intent 

toward positive impact, though one or the other may be the primary focus for a given 

investor. In fact, the pairing of these two motivations by investors will hopefully 

encourage businesses to develop in financially sustainable ways, thus facilitating the 

growth of the impact delivered by those businesses. 

Investors: Market participants and infrastructure 

Impact investing may be new terminology, but it is not a new concept 

The term “impact investing” may be new, but the practice of investing in businesses 

that provide solutions to social challenges has been around for quite some time. The 

Commonwealth Development Corporation in the UK, established in 1948 5 , invests in 

a commercially sustainable manner in the poorer countries of the developing world 

and to attract other investors by demonstrating success. Similarly, the International 

Finance Corporation was created in 1956 to foster private sector investment in 

emerging nations. 

Private capital has also been deployed, with a focus on generating non-financial 

impact, for decades. The parent organization of Sarona Asset Management, for 

example, has been making socially- and environmentally-driven investments since 

1953. Prudential 6 also has a long tradition of making investments that support and 

improve communities, having established a formal Social Investments program in 

1976 and invested more than $1bn since then. While they may not have been 

identified historically as “impact investors”, their intent was consistent with the 

definition. 

A variety of investor types participate 

Impact investors vary widely in character – from individuals to institutions across 

sectors. Some of the investors currently making impact investments include: 

• Development finance institutions (“DFIs”) were initially capitalized by 

governments to complement donor aid, and many now sustain their operations 

from earned income. These include the multi-lateral International Finance 

Corporation (“IFC”), regional banks such as the European Bank for 

Reconstruction and Development (“EBRD”) and investment organizations such 

as the US Overseas Private Investment Corporation (“OPIC”) and the 

Commonwealth Development Corporation (“CDC”) in the UK. 

• Private foundations such as Omidyar Network in the US and the Esmée 

Fairbairn Foundation in the UK consider impact investing as a means to deploy 

their endowment assets toward their social mission. A larger number of 

foundations makes program-related investments (PRIs) from the grantmaking 

(rather than endowment) side of operations. 

• Large-scale financial institutions such as J.P. Morgan, Citigroup, Prudential 

and Africa’s Standard Bank are positioning themselves to grow impact investing 

businesses beyond their minimal regulatory obligations. 

5 Established as the Colonial Development Corporation 

6 We reference The Prudential Insurance Company of America, not Prudential PLC. 

15





• Private wealth managers such as Capricorn Investment Group and New Island 

Capital in the US are integrating impact investments into their traditional asset 

management portfolios. 

• Commercial banks such as Triodos Bank in Europe and Charity Bank in the UK 

tap into retail customer interest in impact investment and lend to charities. 

• Retirement fund managers such as PGGM in Holland and TIAA-CREF in the 

US are responding to demand for impact investments rather than simply sociallyresponsible 

investments that “do no harm.” 

• Boutique investment funds such as responsAbility in Switzerland and Root 

Capital in the US are raising capital from a growing class of high-net worth 

individuals, family offices and private foundations seeking fund managers who 

can offer high-impact, low-risk investment options. 

• Companies such as General Mills and the Starbucks are diversifying their supply 

chains and expanding their fair trade operations through impact investment. 

French food company Danone is teaming with Grameen to address malnutrition. 

Others are using impact investments to identify the potential for serving new 

markets. 

• Community development finance institutions (“CDFIs”) in the U.S. such as 

the rural-focused Southern Bancorp and New York-based Carver Federal Savings 

Bank. In Appendix III:CDFIs, we present a short history of this segment of the 

investor base. 

While some of these investors are more recent entrants to the market, others have 

been making impact investments for some time, including DFIs, which have been 

operating for over sixty years. Historically, many of these investors operated 

independently or partnered within one geographical region. More recently, disparate 

sectoral or regional initiatives are coming together to build a cross-sector, global 

impact investing marketplace. 

In January 2009, the Monitor 

Institute published Investing for 

Social and Environmental 

Impact: A Design for Catalyzing 

an Emerging Industry, a report 

that documented the activities and 

challenges faced by these early 

impact investors. This report made 

recommendations for the 

development of critical industry 

infrastructure, without which impact 

investing would at best remain a 

small niche subset of private 

investing with disparate 

participants, and at worst taper out 

entirely in the face of the global 

economic downturn. 

Recognizing the need for a global, cross-sector impact investment infrastructure 

As different investors develop their impact investment portfolios, similarities emerge 

between their investment activities. Ten years ago the Social Investment Task Force 

was set up in the UK to define "how entrepreneurial practices could be applied to 

obtain higher social and financial returns from social investment" 7 . In October 2007, 

The Rockefeller Foundation hosted an international meeting of approximately 15 

impact investors to discuss the similar investment approaches and challenges shared 

by the group. A broader meeting in June 2008 brought 40 impact investors together 

to discuss how they could work together to accelerate the development of the impact 

investment industry. The investors at this meeting found that their common 

challenges included: deal sourcing, impact measurement, and the lack of a common 

language to describe their investment activities and performance targets. They also 

highlighted the need for an organized network to advance their shared interest in 

using for-profit investments to fund social solutions. 

In essence, these investors envisioned a well-developed impact investing marketplace 

that functioned like the traditional capital markets. They sought a marketplace in 

which investment opportunities are transparent; performance data is accessible, 

7 “Social Investment Ten Years On - Final Report of the Social Investment Task Force,” April 

2010. 

16





credible, and comparable; investors can access ratings agencies, syndicators, 

clearinghouses, auditors and other necessary market intermediaries; and co-investors 

are easily identified. Having acknowledged these needs, the group set out to seed the 

organizations that would accelerate the development of this newly-dubbed impact 

investing industry. In addition to serving their own needs, these investors also hoped 

that helping to build an effective impact investment infrastructure would attract new 

investors by reducing deal sourcing and transaction costs and providing examples of 

efficient impact investments. 

The Global Impact Investing Network is established to build market infrastructure 

In September 2009, J.P. Morgan, Rockefeller Foundation, and the United States 

Agency for International Development (“USAID”) launched the Global Impact 

Investing Network (“the GIIN”) to accelerate the development of an effective impact 

investing industry. The GIIN was tasked to develop the critical infrastructure, 

activities, education, and research that would increase the scale and effectiveness of 

impact investing. The GIIN’s work is rooted in the needs identified by early impact 

investors and currently consists of four main efforts that mobilize hundreds of 

investors and other industry participants. 

• Investors’ Council: The GIIN Investors’ Council is a membership group 

comprised of leading impact investors representing a diverse range of institutions 

from around the world. The Investors’ Council provides leadership in the 

industry, facilitates shared learning and collaboration, serves as a platform for 

disseminating the latest research and best practice, and supports the creation and 

adoption of industry infrastructure, including impact metrics. 

• IRIS: Impact Reporting and Investment Standards (“IRIS”) 8 is a language and 

framework for measuring the social performance of impact investments. IRIS 

addresses a major barrier to the growth of the impact investing industry—the lack 

of comparability and credibility regarding how funds define, track, and report on 

the social performance of their investments. IRIS provides a standardized 

approach with the aim to lower transaction costs and improve investors’ ability to 

understand the impact of the investments they make. 

• Outreach: The GIIN Outreach initiative elevates the profile of impact investing 

by highlighting exemplary impact investments, industry progress, and best 

practices. Working with partners, the GIIN also supports and disseminates 

research, informs conference and event programming, and promotes mainstream 

media coverage of impact investing. 

• ImpactBase: ImpactBase 9 is a global database of impact investment funds, 

searchable via an online platform. ImpactBase is an online search tool, created to 

bring order to a fragmented and inefficient marketplace of impact investing 

funds. On ImpactBase, fund managers can create profiles for their funds visible to 

a global set of mission-aligned investors. Investors and advisors can search these 

fund profiles to find investments that may fit with their impact investment 

objectives. ImpactBase is currently in beta and should be fully functional by 

December 2010. 

8 http://iris.thegiin.org 

9 www.impactbase.org 

17





Ratings system, social stock exchanges, trading platforms and advisory firms 

Around the same time that the GIIN was launched, the development of a rating 

system for impact investments called the Global Impact Investing Rating System 

(“GIIRS”) was initiated. Related industry services such as impact investment stock 

exchanges, online trading platforms, and advisory firms are also in early 

development stages. Most of this growth is possible because increased interest in the 

market and the developments in the broader economy have led more professionals to 

pursue careers in impact investing, including experienced investors and entrepreneurs 

starting businesses that play an important role in the impact investment ecosystem. 

Investment opportunities are growing 

One of the challenges in making impact investments is sourcing transactions. Many 

impact investment recipients are small companies and the majority of deal sizes we 

analyzed from our investor survey are less than $1m 10 . Particularly for investors 

based in different regions, the costs of due diligence on these investments can often 

challenge the economics of making such small investments. While demand has been 

growing from investors, there has been growth in the supply of social businesses able 

to receive the capital currently waiting to be allocated into impact investments. 

Investments: Business sectors, impact objectives, 

investment structures and geography 

An investor who begins to analyze impact investments will immediately notice that 

the opportunities for investment span a wide range of sectors, impact objectives and 

geographical regions. In order to manage the investment portfolio, some investors 

will limit their scope to certain sectors, objectives, structures or regions. In this 

section, we lay out a framework that describes how some impact investors think 

about constructing a portfolio of impact investments. 

A two-dimensional sector framework 

The set of impact investments is unique in that there are two dimensions that can 

characterize each underlying investment: each investment will operate in a certain 

business sector (e.g. healthcare, education, housing – see Figure 6), and it will be 

designed with the intent to address one or more impact objectives (e.g. mitigate 

climate change, improve basic welfare for people in need). In some cases, an 

investor’s impact objective (i.e. improving health outcomes) may be tightly 

correlated with the business sector (i.e. health services) where it operates. In other 

cases, the relationship between sector and impact objective might be more 

complicated. For example, an investor whose impact objective is to help BoP 

populations build income and assets may invest in a financial services company that 

allows entrepreneurs to start a business, or in a health services company that 

generates jobs and income in the community where it operates. 

This two-dimensional characterization is meant to describe the landscape of business 

sectors and potential impact objectives, but it is neither exhaustive nor exclusive. Nor 

will an investment necessarily fall into only one category within the business sectors 

or impact objectives. The impact objectives of an investment in Selco Solar in India, 

which sells solar home systems to provide energy access for people without access to 

electrical grids, would incorporate climate change mitigation with improving basic 

welfare for people in need, for example. 

10 See Section 3. Financial return expectations for more details. 

18





Figure 6: Business sectors for impact investments 



Basic needs 


• Water 

• Housing 

Basic services 

• Education 

• Health 

• Energy 

• Financial services 

Source: IRIS, J.P. Morgan. 

Investors often choose a business sector or an impact objective as primary focus 

An impact investor might approach investment decisions by first choosing a business 

sector or by first identifying an impact objective. Yara, a global fertilizer company 

based in Norway, invests along the agricultural value chain to leverage its existing 

core competency, generating impact through agricultural productivity, food security 

and reduced emissions from the production of fertilizers. A foundation dedicated to 

mitigating climate change might use this impact objective as its primary investment 

criterion, making cross-business sector investments in renewable energy, green real 

estate or sustainable agriculture. We list the full categorization of social and 

environmental impact objectives in Table 2, as outlined by the IRIS 11 . 

Table 2: Breaking out impact objectives in more detail 

Increase incomes and assets for the poor 

(from IRIS’s social impact objectives) 

Improve basic welfare for people in need 

(from IRIS’s social impact objectives) 

Mitigate climate change 

(from IRIS’s environmental impact objectives) 

Employment generation Conflict resolution Biodiversity conservation 

Access to energy Disease-specific prevention and mitigation Energy and fuel efficiency 

Access to financial services Access to clean water Natural resources conservation 

Access to education Affordable housing Pollution prevention and waste management 

Income/productivity growth Food security Sustainable energy 

Agricultural productivity Generate funds for charitable giving Sustainable land use 

Capacity-building Health improvement Water resources management 

Community development 

Equality and empowerment 

Source: IRIS. As defined at iris.thegiin.org. 

Impact can be delivered through processes or products 

Businesses can pursue the objectives above by many means, and investors can 

reference these means of impact in designing an investment thesis. In Figure 7, we 

outline some examples of ways in which companies deliver social impact, which we 

categorize into processes or products. Within processes, for example, a company 

might make part of its mission hiring employees from a traditionally 

underrepresented group, or employing people that had previously been unemployed. 

Alternatively, a coffee processor might source its cocoa beans specifically from BoP 

suppliers, with the intent that engaging them in a production supply chain will 

improve their incomes (or stability of income). Within products, a company 

producing solar lamps, for example, might deliver its social impact by providing 

affordable access to light for people who currently lack access to electricity grids. 

Targeting BoP consumers can be considered an implicit part of the products method 

of impact. 

11 These impact objectives reference over 400 indicators of impact. 

19





Figure 7: Ways in which businesses can deliver impact 

These means of impact might be part of the impact investment thesis motivating an investor 



Process 

Products for BoP+ 

• Job creation 

• Energy efficiency 

• Facilitating asset accumulation 

• Utilizing BoP+ suppliers 


• Water 

• Housing 

• Education 

• Health 

• Energy 

• Financial Services 


As with the impact objectives above, the means by which a company delivers social 

impact can often fall into more than one category (and the categories listed are not 

necessarily exhaustive). There may also be categories that emerge as the industry 

develops. We present this framework as a classification to help investors structure 

their investment theses, rather than as a rigid framework that exhausts all 

possibilities 12 . 

Some sectors are more developed 

than others 

The financial services and the clean 

tech and energy sectors are two of 

the more developed impact investing 

sectors, with businesses across 

regions focusing on microfinance and 

renewable energy delivery. The 

housing sector has seen significant 

investment in developed markets, 

and the fair trade categorization has 

led to increased investment in 

agricultural BoP supply chains. 

Education and water are two sectors 

where government provision can be 

more extensive, leaving less of a 

need for impact investments. We 

provide a full discussion of sectors 

on page 18. 

More recent entrants often start investing in the more developed sectors 

While there are investors that have been making impact investments for some time, a 

new set of market participants has recently entered the sector, spurring growth 

momentum for the sector as a whole. For those investors that are just beginning to 

make impact investments, certain sectors of impact investing – such as microfinance 

– have provided a launching pad to then explore other impact investment sectors. For 

example, after successfully closing two microfinance funds totaling more than 

$300m, SNS Asset Management, a Dutch asset manager, is now raising funds to 

invest in agriculture in Africa. Similarly, Gray Ghost Ventures, an investment firm, 

began by investing in microfinance in 2003. The firm now has funds dedicated to 

education and technology that serve people with limited access to both. 

Investment structures 

Impact investments take many forms, including structures that are common in 

traditional financial markets. Equity and debt, guarantees and deposits are all 

examples of commonly used investment structures. Some more innovative 

investment structures have also been devised, including bonds that employ equitylike 

features that allow the investor to benefit from financial profits or even, in the 

case of the UK’s Social Impact Bonds 13 , from successful social impact. The Social 

Impact Bonds, structured by the UK-based investment organization Social Finance, 

employ government commitments to use a portion of the savings that result from 

improved social outcomes to reward non-government investors that fund the 

intervention activities. The existence of such innovative structures allows investors 

with different (social and/or financial) return and risk appetites to invest via the 

vehicles that best align with their goals. 

12 For further reading on designing a social investment thesis, see Solutions for Impact 

Investors: From Strategy to Implementation, Rockefeller Philanthropy Advisors, February 

2010. 

13 See Social Finance website for more details: www.socialfinance.org.uk 

20





Geographical distribution of impact investments 

Many impact investors choose to focus on either the emerging markets or the 

developed markets. Part of the reason for this specialization is that there are 

significant regional differences that require local expertise. Another driver of 

investors’ geographical specialization is their value set: some prefer to help the 

world’s poorest in emerging market economies; others prioritize their local 

neighbours in need. Below, we give some examples of the variety of geographies in 

which market participants operate. 

Developing world: Asia, Africa, and Latin America 

Within the developing world, impact investors will often focus particular efforts on 

particular regions and sectors. Gatsby Charitable Trust and the Bill & Melinda Gates 

Foundation use some of their investment capital to positively impact the lives of 

smallholder farmers in sub-Saharan Africa. Gray Ghost Ventures, Acumen Fund, and 

Omidyar Network all have programs that actively invest in alleviating poverty by 

financing innovations directed at India’s low-income populations. 

Developed markets: North America and Europe 

Within the developed markets, we see similar regional specialization. For example, 

W.K. Kellogg and Annie E. Casey Foundations support community development 

finance institutions in specific regions of the US that are important to them: W.K. 

Kellogg focuses on areas including Detroit, MI and Oakland, CA while the Annie E. 

Casey Foundation invests in Baltimore, MD and San Antonio, TX, among other 

communities. Among the European investors, Social Finance and Bridges Ventures 

target UK markets, while Triodos Bank makes investments in mission-driven 

businesses in several European countries. 

Approaches to impact investing: 

Financial vs. social investment thesis 

Impact investors enter the market with a variety of priorities 

Because impact investing is still a relatively nascent industry and most impact 

investments are made in private markets, there is yet to be significant comprehensive 

data analysis on investment performance. As a result, investors enter this market with 

a wide variety of expectations. In this section, we highlight the range of expectations 

with which investors approach impact investments, for financial returns, social 

impact and risk. 

Financial expectations 

For some investors, financial returns should compete with traditional investment 

Some impact investors, such as pension fund managers, are constrained by a 

fiduciary duty to the clients whose money they manage. These investors will have to 

prioritize the pursuit of a competitive financial return. TIAA-CREF, a retirement 

fund manager, must seek to attain competitive returns and therefore make 

investments – such as sustainable real estate and cash deposits in CDFIs – in which 

they can both achieve social goals and earn risk-adjusted returns competitive with 

traditional investments. Foundations making impact investments from their 

endowments, such as the Kellogg Foundation and the Annie E. Casey Foundation, 

also seek competitive risk-adjusted rates of returns. 

21





Foundations’ social duty demands high social impact 

By contrast, many foundations, including the Esmée Fairbairn Foundation, the 

Rockefeller Foundation and the Bill & Melinda Gates Foundation, making programrelated 

investments (PRIs) primarily to advance a social goal. As a result of 

prioritizing the social impact over the financial return, these investments can 

acceptably deliver less competitive rates of financial return. Many private 

foundations in the US qualify their impact investments under the Program Related 

Investments section of the US tax code, which requires an investment to prioritize 

social impact rather than financial return. 

Social impact expectations 

Investors’ expectations are largely anecdotal 

By definition, impact investors finance businesses that generate positive social 

impact alongside financial returns; therefore, investments that simply avoid negative 

social consequences will not deliver sufficient impact to meet investors’ 

expectations. Generally speaking, however, expectations of social impact are largely 

anecdotal. Without standards and benchmarks for non-financial performance, 

investors must rely on their own judgement and proprietary systems to assess 

whether an impact investment is making progress toward social goals. Indeed, only 

2% of surveyed impact investors reported using a third party impact measurement 

system – the rest use either their own proprietary system or the one used by the 

company in which they invest 14 . Similarly, without average performance 

benchmarks, investors are limited in their ability to understand how the social 

performance of their investments compares to those made by other investors. 

Comparable data will be available only once standard impact metrics are employed 

Because most impact investors use proprietary impact measurement systems, there is 

little consistent quantitative data about the social impact actually achieved by impact 

investments made to date. Many investors have recognized the limitations of so 

many bespoke approaches and are actively working to build and contribute data to 

standardized frameworks. Rigorously assessing progress toward social impact 

expectations will only be possible once standard social metrics are adopted. 

Risk appetite 

Given the variety of financial return and social impact expectations, it is unsurprising 

that risk appetite can also vary. Most impact investing is done in private markets, 

typically through private equity or debt instruments, and guarantees. The businesses 

themselves are often small-scale and may operate in emerging countries where 

political and country risks add to the risks of the company's standalone success. 

While investors must approach these investments with a commensurate risk appetite, 

there are opportunities to make impact investments with lower risk profiles as well. 

Since its inception in 2002, the UK’s Charity Bank has earned steady returns of 

about 6% from lending to charities and social enterprises with realized losses of only 

0.3% of their loan portfolio 15 . Notwithstanding recent turmoil in India’s microfinance 

market, empirical evidence suggests that microfinance institutions in some regions 

have been more resilient than other financial institutions in recessionary 

environments 16 . Clearly, the risk of an impact investment will be particular to the 

14 See Section 3. Financial return expectations for more details. 

15 Charity Bank 2009 Annual Report and interviews. 

16 Microfinance: Shedding Light on Microfinance Equity Valuation Past and Present, J.P. 

Morgan and CGAP, February 3, 2009. 

22





investment, including its stage, sector and geography, and any investor will need to 

assess these risks accordingly. We discuss the risk management of impact 

investments in more detail in Appendix I: Managing impact investments. 

Across investors and instruments, a vast range of opportunity 

Having characterized the current landscape of impact investments, we see that the set 

of impact investments spans a broad range of sectors and regions. In a later section, 

we focus on those investments that deliver products or services to BoP consumers to 

estimate the size of specific segments of the market. 

23





2. Impact investments: An emerging asset 

class 

Impact investments have begun to carve out a niche within the investment portfolios 

of a wide range of investor types, but does that make them an asset class? We believe 

it does based on an understanding of how the term “asset class” has come to be used. 

We also argue that defining impact investments as an asset class within the 

alternative investments space is most likely to lead to the growth of assets, as 

observed in the cases of hedge funds, private equity and commodities. Recognizing 

impact investment as an asset class will enable asset managers and investors to 

develop unique skills to make and manage impact investments, organize around the 

opportunity and develop standards and benchmarks to improve performance. 

What makes an asset class? 

CFA definition of an asset class and its limitations 

Before we can address whether impact investments comprise an asset class, we must 

define an asset class in general. The CFA Institute uses a definition that references 

financial characteristics for a given set of assets 17 . An asset class will typically: 

• Include a relatively homogeneous set of assets 

• Be mutually exclusive 

• Be diversifying 

• As a group, make up a preponderance of worldwide investable wealth 

• Have the capacity to absorb a significant fraction of an investor’s portfolio 

without seriously affecting the portfolio’s liquidity 

The CFA definition provides a good starting point for identifying why stocks and 

bonds can be considered separate asset classes. However, there are several groups of 

assets that are commonly referred to as asset classes that fail to meet the basic criteria 

of this definition. Hedge funds, for example, are commonly referenced as an asset 

class, but they constitute a group of investments that can range in character, from 

fixed-income arbitrage to event-driven (single-stock) strategies. As such, hedge 

funds are not homogeneous, nor would they be likely to exhibit low correlations to 

the other asset classes (given they invest in them). Even though one would hesitate to 

call hedge funds an asset class by the CFA definition, hedge funds are widely 

considered to be an asset class. The same could be said for emerging markets or 

commodities, both groups of assets for which the CFA definition would be difficult 

to apply, particularly the homogeneity criterion. In fact, in our view, the perception 

of being an asset class is as powerful as complying with the definition above, since 

this perception is sufficient to drive capital flows into the sector. 

Our indicators of an asset class 

The indicators of an asset class become particularly useful for investments that have 

yet to establish a significant history of financial data, such as impact investments. In 

our view, an asset class requires the following: 

17 Capital Market Expectations, Market Valuation, and Asset Allocation. CFA Program 

Curriculum Volume 3, Level III. W Sharpe et al., 2011. 

24





• Unique set of investment/risk management skills 

- A growing number of professionals will define themselves by their expertise in 

the sector 

• Organizational structures to accommodate this skillset 

- Sell-side experts in the sector will build space for themselves within 

organizational structures of their businesses 

- Buy-side organizations will begin to allocate capital and hire investment 

specialists in the sector 

• Industry organizations, associations and education 

- Networks, conferences, education and resources will be built to address the 

new group of experts in the field 

• Development of standardized metrics, benchmarks, and/or ratings 

- Risk and return reporting will begin to standardize 

- Indices will be created to monitor and benchmark the performance of the sector 

- Ratings may be developed to help investors find relative value between 

investment prospects 

These indicators emerged for hedge funds, emerging markets, commodities and even 

structured credit, all of which are groups of alternative assets that channel significant 

amounts of capital. Impact investments are also showing each of these signs of being 

a burgeoning asset class, as we evidence below. 

What makes impact investments an asset class 

Impact investments have begun to carve out a niche within the investment portfolios 

of a wide range of investor types, but does that make them an asset class? We believe 

it does, based on our definition above. We also argue that defining impact investing 

as an asset class within the alternative investments space is most likely to lead to the 

growth of assets, as observed in the cases of hedge funds, private equity and 

commodities. Below, we illustrate how each of the indicators of an asset class is 

visible in today’s impact investment market. 

Indicator #1: Require a different set of investment/risk management skills 

Just as impact investments combine financial and social aims, the impact investor 

must be skilled in both investment management and the management of 

socially/environmentally-driven endeavors. Initial participants in the market often 

came from either a financial background or a non-profit/grant-making background, 

and would often possess only one of the two requisite skillsets as a result. Today, 

however, impact investing is emerging as a unique discipline as market participants 

build the complementary skillsets to their existing experience. Impact investors are 

beginning to self-identify (including through the Global Impact Investing Network’s 

Investors’ Council), and a clear understanding is emerging about the unique expertise 

and professional practice that impact investment involves. 

Beyond the financial, social and environmental skills, further skills required for 

making impact investments will include: 

Structuring complexity 

Impact investments access a diverse range of capital sources, each of which will be 

accompanied by relatively complex (and often obscure) portfolio targets balancing 

25





return expectations, risk appetite and impact goals. These sources can include local, 

regional and multilateral government-sponsored development finance institutions, 

institutional-scale private foundation investment programs, angel investment capital 18 

and impact investment funds. Successful impact investors will know how to navigate 

these capital sources, partnering with investors whose different risk/return appetites 

allow structured transactions that can incorporate mezzanine finance, concessionary 

capital 19 or subordination for their own investments. 

Political insight 

The best impact investors will have a deep understanding of the social and political 

dynamics that will influence investment outcomes, especially for investments into 

companies that provide basic goods and services to underserved market segments. 

They must manage the emotionally and politically charged dynamics of applying forprofit 

business models to communities in need, as some opponents will brand it: 

“profiting from the poor”. Mishandling these dynamics can have dire consequences, 

such as inhibiting exit from investments, eroding the social impact if consumers 

boycott the products/services sold, inducing restrictive government action, or 

tarnishing the reputation of the investor in the region. 

Collaboration 

Impact investors draw on strong personal relationships and institutional affinity with 

each other in the full range of investment activity (from deal sourcing, due diligence, 

investment structuring, syndication and post-investment management), for several 

reasons that are both structural and transitional: 

• Impact investing is new and poised to grow substantially. For many investors, 

this growth is expected to more than offset any loss of market share and therefore 

facilitates collaboration. 

• Transaction costs will be high until the infrastructure that supports investors – 

e.g., deal clearing mechanisms, benchmarking data, and investment banking 

services – is built. Until then, impact investors mitigate these operating costs 

through formal or informal collaboration. 

Indicator #2: Demand organizational structures to accommodate this skillset 

Impact investing emerged from the entrepreneurial initiatives of professionals 

integrating the investment discipline traditionally housed in financial services firms 

with the social-welfare focus traditionally housed in foundations and development 

agencies. While these individuals began impact investing part-time within a broader 

and more traditional professional practice, they are increasingly organizing into 

distinct structures that enable the dedicated attention to and cultivation of impact 

investing. 

New business units: Initiatives within organizations 

Some impact investors have created organizational structures within established 

institutions. Some examples of such commercial business units include J.P. Morgan 

Social Finance (2007) 20 , TIAA-CREF Social and Community Investing (2006) 21 , and 

18 Angel capital refers to financing from individuals in exchange for equity or convertible debt. 

Angel investors operate like a venture capital partner in the company, but typically service 

financing requests of a smaller size than venture capital firms tend to consider. 

19 Below market-rate financing. 

20 http://www.jpmorgan.com/pages/jpmorgan/investbk/solutions/ssf 

26





Citi Microfinance (2005), which initially focused on microfinance before expanding 

their coverage to the broader impact investing universe. Prudential Social 

Investments began its formal program of community investing as far back as 1976 22 . 

Among private foundations, especially in the US, distinct units have been created to 

manage impact investments, typically with investment professionals reporting to a 

unique governance structure that combines program-focused and investment-focused 

management and trustees. Examples include the Annie E. Casey Foundation’s 

$125m allocation to impact investing out of its endowment (begun at smaller scale in 

2004) 23 , the Kellogg Foundation’s $100m Mission Driven Investment program 

(2007) 24 , and the Bill & Melinda Gates Foundation’s commitment of $400m to 

program-related investments and loan guarantees (2009) 25 . The Esmée Fairbairn 

Foundation has been a pioneer in the UK by dedicating a portion of its investment 

program to impact investments. 

New businesses: Stand-alone impact investing initiatives 

New enterprises focusing entirely on impact investments are increasingly common. 

This is noteworthy, as these organizations will be protected from the constraints that 

can come with operating within an organization that primarily focuses on either 

financial or social value creation, but not both. Early leaders have scaled their impact 

investing operations from a base of microfinance services, including BlueOrchard 26 , 

ResponsAbility Social Investments 27 , Calvert Foundation 28 and Developing World 

Markets 29 . Some such as Bridges Ventures in the UK have always focused on a 

broader range of investments. Additionally, new impact investment advisory 

boutiques are bringing dedicated expertise together, including Lion’s Head Global 

Partners and Social Finance in the UK, Intellecap and Yes Bank in India, Bamboo 

Finance in Switzerland 30 and Imprint Capital in the US. 

Indicator #3: Be serviced by industry organizations, associations and education 

In response to the increasing organization of the professional discipline of impact 

investing, networks and conferences are emerging that support impact investors. We 

detail some of the leading initiatives below. 

Networks: GIIN, IAMFI 

The Global Impact Investing Network was launched in 2009 as a non-profit 

organization to support the building of infrastructure that would facilitate the growth 

of the asset class. Its Investors’ Council provides a forum in which leading asset 

owners and fund managers can share learning and collaborate with 32 members, 

including boutique impact investors, foundations with impact investment units, 

family offices with substantial allocations to impact investment, impact investing 

units of financial services companies, and targeted impact investments funds. 

21 http://www.tiaa-cref.org/public/about/press/about_us/releases/pressrelease177.html 

22 http://www.prudential.com/view/page/public/12848 

23 http://www.thegiin.org/cgi-bin/iowa/investing/spotlight/87.html 

24 http://www.thegiin.org/cgi-bin/iowa/investing/spotlight/112.html 

25 See the glossary for definitions of mission-driven and program-related investment. 

26 www.blueorchard.com 

27 www.responsability.com 

28 www.calvertfoundation.org 

29 www.dwmarkets.com 

30 www.bamboofinance.com 

27





The theme of impact investing is also gaining increasing prominence in other 

networks established either in narrower sub-sectors or in peripheral areas. The 

International Association of Microfinance Investors (“IAMFI”) is beginning to 

situate its members’ interests in a broader discussion of impact investing, as is the 

PRI Makers Network, originally organized around the narrower interest of private 

foundations making tax-privileged impact investments in the US. As the asset class 

of impact investments gains prominence and coherence, we anticipate consolidation 

among these networks that are currently broadening from a distinct niche into 

increasingly duplicative activity. 

Conferences: The Clinton Global Initiative, Skoll World Forum, Social Capital 

Markets 

Impact investing is becoming increasingly prominent at conferences that focus on 

development, sustainability, and social enterprise, amongst other topics. The Clinton 

Global Initiative has responded to increasing interest amongst its membership by 

creating an Action Network focused on impact investing. Other conferences that 

have featured impact investing include the Skoll World Forum in the UK, the Social 

Capital Markets Conference in the US, the Sankalp Social Enterprise and Awards 

Forum in India, the Take Action Conference in the US, and the European Venture 

Philanthropy Association conference, which is hosted in rotating European countries. 

Education: Impact investing now on business school syllabi 

The themes of impact investing initially appeared in business school curricula 

through a growing set of courses focused on green/sustainable investing and 

microfinance. In 2002, Duke University initiated a Social Entrepreneurship course 

with 421 students. The following year, Oxford University founded the Skoll Centre 

for Social Entrepreneurship. While these courses initially focused on the business 

management and entrepreneurial side rather than the buy-side considerations of 

impact investors, in 2010, dedicated impact investing courses were taught at the 

Northwestern University Kellogg School of Management, University of Michigan 

Ross School of Business, and Stern School of Business at New York University. A 

working group of professors teaching impact investing courses at business schools 

formed in late 2010. Students in these programs, and consequently the new hires in 

top firms, are beginning their careers with knowledge about both the attraction and 

feasibility of integrating social and financial value in their professional lives. This 

has impacted how many approach their career, driving them to seek ways to make 

money and have social impact from the start rather than working to earn money first 

before later “giving back”. The momentum for these types of courses at business 

school and discussions of impact investing themes in on-the-job training will grow, 

and we expect impact investing training will become increasingly important in 

recruiting and retaining top talent to the sector. 

Indicator #4: Encourage the development of standardized metrics, benchmarks, 

and even ratings 

Impact investment pioneers recognize the challenges of high transaction costs and 

inefficiency inherent in operating in an emerging asset class. As they collaborate to 

mitigate these costs, they are also working to build the basic infrastructure that will 

facilitate the flow of capital into the sector. 

28





Measuring social performance: IRIS 

Impact investments are not well served by portfolio management tools that lack 

social performance metrics. Some investment pioneers, such as Investing for Good 31 , 

have developed bespoke systems for measuring the social impact of the investments 

in their portfolios, but there often remains a lack of comparability across these 

systems. In response, investors in 2008 sponsored the development of the Impact 

Reporting and Investment Standards (“IRIS”). IRIS seeks to create a single, 

consistent reporting standard for measuring and reporting the social and 

environmental impact of investments. Just as the standardized terms within the 

GAAP standards (e.g., net income, gross margin) provide investors with comparable 

metrics to assess the financial prospects of a business, IRIS metrics aim to allow 

investors to compare social and environmental activities, outputs and outcomes 

across investments (e.g., student to classroom ratio, number of full-time female 

employees ). 

Benchmarking and indices: IRIS data repository 

Working in partnership with Hitachi, the IRIS team has built a data repository that 

will facilitate benchmarking and provide impact investors with data on the relative 

performance of impact investments in delivering positive social and environmental 

objectives. Researchers, both academic and applied, are working to build the databased 

analysis that will underpin the asset class. 

Ratings: GIIRS 

Beyond benchmarking data, efforts are also under way to launch third-party rating 

agencies that can vet and monitor impact investments for their social and 

environmental outputs, not just financial risk. Built off the definitions and data of 

IRIS, the Global Impact Investing Reporting Standards (GIIRS) is field-testing its 

ratings methodology with 25 “pioneer funds” in anticipation of a full launch in 2011. 

By providing simple and comparable ratings of the social impact of an investment, 

GIIRS – and the competitors that will likely arise in the future – has the potential to 

unlock substantial new sources of capital from investors who are interested in impact 

investments but lack the appetite and expertise to develop their own social impact 

assessment methodology. 

A new alternative 

Based on the above criteria, we conclude that impact investments are an emerging 

asset class. We anticipate that the organizational structures will most readily form 

within the alternative investments bucket that commonly houses such asset classes as 

hedge funds and commodities, as alternative investment professionals tend to include 

in their offerings a new asset class gaining prominence. Further, within buy-side 

organizations, the unique risk/return/social value characteristics of these investments 

will require an alternative investment strategy. While we recognize an alternative 

view that impact investments should be assigned to traditional asset classes, such as 

equity and debt, we believe this would lead to a fragmentation of impact investing 

skills and that positioning impact investments as an asset class within alternative 

investments is most likely to catalyze a significant inflow of capital. 

31 http://www.investingforgood.co.uk/rating-impact 

29





3. Financial return expectations 

Caveat 

We do not present the analysis in 

this chapter as representative of 

the entire marketplace. The data 

set is weighted toward North 

American investors and reflects the 

population of investors that 

participated in the survey. While 

the total number of transactions in 

the database is significant (and 

indeed much higher than we 

anticipated given the private nature 

of the market), the total number of 

participants remains limited. All 

conclusions presented below are 

made simply based on this data 

set, and any extrapolation to the 

broader market should be made 

with caution. 

Impact investments span instrument types, sectors, and regions: from equity to debt, 

microfinance to healthcare, Developed markets to Emerging markets. Given this 

diversity, it is natural that there should be a wide range of expectations for the 

financial performance of these assets. In some investors’ eyes, the coupling of the 

intent to create positive social impact with the pursuit of financial return is reason to 

expect lower returns from impact investments than from traditional investments. 

Others believe that financial return need not be sacrificed when social impact is 

being delivered and, due to the large underpenetrated market at the BoP, many 

impact investments should outperform traditional investments. In this section, we 

present some evidence on what impact investors expect of the financial performance 

of their assets, what has actually been realized, and how these results compare to 

traditional benchmarks. 

Analyzing a sample of impact investments 

As impact investments are predominantly debt or equity investments into private 

companies, we collected the data presented below through a survey. The survey was 

executed by The Global Impact Investing Network (“GIIN”), which collected and 

ensured that all data was presented to J.P. Morgan with the names of respondents and 

investments removed. Separately, the Calvert Foundation provided a history of its 

mostly US-based debt investments, and the International Finance Corporation 

(“IFC”) revealed some performance history for its EM private equity investments 

which we analyze in Appendix V: Additional returns data 32 . Below we analyze the 

broad range of investments covered by the GIIN Survey. 

Characterizing the investments reported in the GIIN Survey: 24 respondents 

The Survey was sent primarily to the GIIN Investors’ Council, a group of principal 

investors and capitalized investment funds that manage impact investments and 

participate in industry-building activities. A few additional participants brought the 

total number of survey respondents to 24 33 . In Table 3 we show the distribution of 

reported deals across investment instrument type. Table 4 shows the sector 

distribution, and Table 5 shows the regional focus 34 . 

In each table, we show both the number of deals and the notional amount represented 

by each category. We find that most of the investments reported were made via 

private equity or debt instruments. Among the sectors, microfinance is the most 

frequently referenced, which is unsurprising as it is one of the most mature of the 

impact investment sectors and presents lower barriers to entry 35 to new investors. In 

terms of geographic distribution of investments, the US dominated our data set. 

32 Since that data set is from a single source and potentially skewed as a result, we do not mix 

the results of that analysis with the results of the GIIN Survey. 

33 For a full list of survey respondents, see page 82 in the appendix. 

34 While we received 984 individual data points, 7 of those data points represented regional 

aggregates. In our work, we have accounted for the total number of investments those 

aggregates represent as well. 

35 Over 90 dedicated microfinance investment vehicles exist and are catalogued on the MIX 

Market website (www.mixmarket.org). 

30





Table 3: Instrument distribution 

# of 

deals 

Notional 

($ mm) 

Private debt 629 921 

Private equity 301 836 

Deposits 91 73 

Bilateral loan agreement 32 102 

Real Assets 29 489 

Equity-like debt 15 8 

Guarantee 7 50 

Public debt 1 2 

Public equity 0 0 

Total 1,105 2,481 

Source: GIIN, J.P. Morgan. 

Table 4: Sector distribution 

# of 

deals 

Notional 

($ mm) 

Microfinance 307 661 

Agriculture 208 132 

Cross-sector 189 412 

Other* 136 246 

Housing 130 790 

Energy 53 94 

Healthcare 42 57 

Education 30 82 

Water 10 7 

Total 1,105 2,481 

Source: GIIN, J.P. Morgan. *”Other” includes community 

development finance. 

Table 5: Geographic distribution 

# of 

deals 

Notional 

($ mm) 

US and Canada 411 1,381 

Latin America 268 223 

South and Southeast Asia 107 130 

Sub-Saharan Africa 99 154 

E. Europe, Russia & Central Asia 92 184 

Global 63 239 

Western Europe 52 129 

Emerging markets 7 35 

Middle East and North Africa 6 5 

Australia & New Zealand 0 0 

South Pacific 0 0 

1,105 2,481 


Return expectations vary substantially, from competitive to concessionary 

The most informative (and statistically significant) data are the return expectations 

reported across investment types and regions. In Figure 8 we show the distribution of 

respondents’ return expectations by investment type and region alongside actual 

historical average returns for traditional investments in each instrument type and 

region. (Further information on our choice of benchmarks follows). Survey 

participants were given a predetermined choice of return ranges (0–4.9%; 5–7.9%; 

8–11.9%; 12–14.9%; 15–19.9%; 20–24.9%; 25%+) which is why the averages are 

presented in the form of ranges rather than single data points. 

The data reveal that expectations for financial return vary dramatically. Some 

investors expect returns that compete with, and even outperform, traditional 

investment benchmarks, while others concede that their impact investments may 

deliver a lower return than that of a comparable investment that does not target social 

impact. Impact investors in EM venture capital expect average returns of 12–14.9%, 

which compares to an average realized return of 10% for traditional EM venture 

capital investments. For EM debt, impact investment return expectations are 8– 

11.9%, versus an average realized return of 9% for the chosen benchmark. In the 

case of developed markets (DM), impact investors expect average returns of 0–4.9% 

for debt and 15–19.9% for venture capital, compared to the 11% and 28% average 

actuals for chosen benchmarks. 

Analysis of whether or not there exists a return trade-off in impact investing depends 

on instrument type, investor perceptions, and of course, chosen benchmarks. DM 

debt investors on average appear to expect some return sacrifice. This could be 

explained in part by regulatory features and, in some developed markets, tax 

incentives that encourage investment in lower-return social ventures. EM debt on the 

other hand appears to target returns that are competitive with long-term realized 

index returns. For equity, the results are mixed. If we benchmark against the realized 

DM and EM index returns, impact investors’ targets appear competitive for EM but 

concessionary for DM. If, on the other hand, we benchmark against the 20–25% 

gross returns that we believe new managers would target, then there does appear to 

be a trade-off for EM. 

31





Figure 8: Average return expectations by instrument and region 

Horizontal bars: Average realized returns for benchmark and average expected returns for impact 

investments, gross annual IRR or yield, in USD. Vertical lines: Range of expected returns reported, gross 

annual IRR or yield, in USD. 

Benchmark 

11% 


0-5% 

Benchmark 

9% 


8-12% 

Benchmark 

28% 


15-20% 

Benchmark 

10% 


12-15% 

30% 

24% 

18% 

12% 

6% 

0% 

Developed market high 

yield corporate debt 

Emerging markets 

corporate debt 

Developed market 


Emerging market 


Source: GIIN, J.P. Morgan. Survey participants were given a predetermined choice set of return ranges (0–4.9%; 5–7.9%; 8–11.9%; 

12–14.9%; 15–19.9%; 20–24.9%; 25%+) which is why the averages are presented in the form of ranges rather than single data points. 

Benchmark returns are average annual returns for: J.P. Morgan’s Developed Markets High Yield index and Corporate Emerging 

Market Bond (“CEMBI”) Index, over the period 2002 – 2010 (our full data history); and Cambridge Associates US Venture Capital Index 

and Emerging Markets Venture Capital and Private Equity Index, for vintage years over the period 1989 – 2006. Impact investment 

return expectations are calculated by taking an average of survey responses (each of which represents a range of expected returns for 

a given investment instrument in a specified region) across the population of reported investments. The number of investors who 

responded for each instrument, and the number of investments in the sample (respectively) are: Dev mkt HY debt = 9, 219; EM HY 

debt = 10, 411; Dev mkt venture capital = 6, 91; EM venture capital = 15, 119. Readers should note the low number of Dev mkt venture 

capital investors represented. Note that the range of expected returns for developed market debt excludes a single investment 

reported by one respondent with an expected range of returns of 20-24.9%; all other data points fall within the range shown. Both the 

developed market and emerging market venture capital ranges include investments with expectations of 25%+ return (the range was 

not specified above that level). 

Choice of benchmarks 

Benchmarking performance is challenging, and in this case even more so since we 

are benchmarking return expectations rather than realized returns. Figure 8 shows the 

return expectations (average and dispersion) reported for various investment types in 

our impact investor survey against benchmarks that we believe are appropriate given 

the risk of the asset class. For debt we believe the indices that best replicate the credit 

quality of an impact investing portfolio are our US High Yield and Corporate 

Emerging Market indices. For equity we recognize the early stage and relatively 

small investment sizes and have chosen Cambridge Associates US Venture Capital 

Index and Emerging Markets Venture Capital and Private Equity Index 36 for vintage 

years over the period 1989 – 2006. Vintage years post 2006 have been excluded as 

there are too few harvested investments for meaningful analysis. 

In order to make a meaningful comparison of backward looking (realized) and 

forward looking (expected) returns, we use a through-the-cycle approach in choosing 

our time period of benchmarks, which results in the data shown above. The choice of 

time frame results in moderate variations for the debt returns (if we focus on the past 

five, rather than eight-plus years, both benchmarks would drop by 200 basis points), 

but has a significant impact on the resultant venture capital returns. Narrowing our 

time frame to the years after the dot-com bubble (1999 – 2006 vintages) for example 

results in a return of only 0.2% in US VC/PE against a return of over 14% in 

36 Cambridge Associates LLC US Venture Capital Index and Benchmark Statistics, and 

Cambridge Associates LLC Emerging Markets Venture Capital & Private Equity Index and 

Benchmark Statistics, as of June 30, 2010. Reports were provided directly to J.P. Morgan by 

Cambridge Associates free of charge. 

32





emerging markets. Additional five- and ten-year VC returns data are shown in Table 

28 in Appendix V. 

We also note that the average realized returns of the investment management 

community almost always lag the expected, forecast or projected returns when the 

investment is being made. We have no reason to suppose that the impact investing 

community will be any different. Our own anecdotal experience and interviews with 

fund of fund and alternative investment managers suggest that VC managers in both 

the Developed and Emerging Markets target net returns in the range of 15–20% and 

gross returns of 20–25%. 

Impact investors’ return expectations show high variance 

Figure 9 shows the distribution of return expectations for developed market debt 

investments, while Figure 10 shows the same for emerging market debt investments. 

Figure 11 and Figure 12 illustrate the expectations for developed market and 

emerging market equity investments. We see a much broader distribution of 

expectations in equity investments than in debt investments, with some investors 

expecting returns of 25% or more. 

Figure 9: Expected returns – Developed markets debt investments 

Total # of investments = 219; Total size of investments = $524m 

Figure 10: Expected returns – Emerging markets debt investments 


25% + 

20-24.9% 

15-19.9% 

12-14.9% 

8-11.9% 

5-7.9% 

0-4.9% 

Notional, USD mm 

Number of deals 

- 50 100 150 200 250 300 

25% + Notional, USD mm 

20-24.9% 


15-19.9% 

12-14.9% 

8-11.9% 

5-7.9% 

0-4.9% 

- 50 100 150 200 250 300 350 400 

Source: GIIN, J.P. Morgan. Investments for which no expectation was reported are not included. 

Figure 11: Expected returns – Developed markets equity investments 


25% + 

20-24.9% 

15-19.9% 

12-14.9% 


Figure 12: Expected returns – Emerging markets equity investments 


25% + 

20-24.9% 

15-19.9% 

12-14.9% 

8-11.9% 

5-7.9% 



8-11.9% 

5-7.9% 



0-4.9% 

0-4.9% 

- 20 40 60 80 100 120 

- 20 40 60 80 100 120 



This dispersion partly reflects the rapidly evolving motivations of investors engaged 

in impact investing. Impact investing historically was largely capitalized by private 

33





foundations and mission driven investors willing to trade off financial return for 

social impact. Many newer entrants have a greater motivation, and in some cases, a 

fiduciary duty to balance strong financial returns with social impact. 

Deposits, guarantees and other investment instruments 

As shown in Table 3, beyond equity and debt, there are also deposits, guarantees, 

equity-like debt and real asset investments reported within our data sample. The 

$73m of reported deposits were all US-based, with return expectations (some of 

which were realized) in the 0–4.9% range. The $50m of guarantees were made with 

similar return expectations, though some were made outside the US and Canada. The 

survey also captured $489m of real asset investments, all of which were made in the 

housing sector in the US or Canada. No return expectations were reported for those 

investments. The equity-like debt investments totaling just $8m 37 are more globallybased 

and focused mostly in the microfinance sector. Return expectations for these 

investments range broadly, from less than 0% to as high as 15–20%. 

For more on developed market 

debt investments, see Appendix 

V: Additional returns data 

Realized debt returns broadly reflect the range of expectations: EM provides 

higher yields 

Zooming into the realized return data, we now show only the debt investments 

separated into the developed (Figure 13) and emerging markets (Figure 14). All of 

this data was provided by the same two respondents, so we caution against 

extrapolation, but present this data as one piece of evidence that the expectation of 

higher yields from emerging market debt investments is potentially justifiable. 

Interestingly, DM debt realizations outperform the average expectations. The amount 

of private equity realized return data is so small – only 20 deals amounting to $8m of 

notional – that it does not provide much insight. We have omitted that data for this 

reason. 

Figure 13: Realized returns – Developed market debt investments 


x-axis: Year of investment; y-axis: Return (gross annual yield, in USD) 

10.0% 

8.0% 

6.0% 

4.0% 

2.0% 

0.0% 

1998 2000 2002 2004 2006 2008 2010 2012 

Source: GIIN, J.P. Morgan. Investments for which no return was reported are not included. 

Figure 14: Realized returns – Emerging market debt investments 


x-axis: Year of investment; y-axis: Return (gross annual yield, in USD) 

20.0% 

16.0% 

12.0% 

8.0% 

4.0% 

0.0% 

1998 2000 2002 2004 2006 2008 2010 2012 

Source: GIIN, J.P. Morgan. Investments for which no return was reported are not included. 

Excludes five investments ($2mm notional value) with negative returns. 

Beyond returns: Characteristics of surveyed investments 

Investment sizes remain small, while costs are high… 

One of the characteristics of impact investments that many investors will struggle 

with is the small average deal size. Figure 15 illustrates the range of investment sizes 

37 Equity-like debt investments are defined for the purposes of our survey as: An instrument 

between debt and equity, typically a debt instrument with potential profit participation. E.g. 

Convertible debt, warrant, debt with equity kicker. 

34





in the data set we collected through our survey. Figure 16 further shows the breakout 

of the last bucket shown in Figure 15 — deals that are larger than $5m. We can see 

from these charts that the dominant portion of investments is $1m or less in notional 

value. Only 35 of the 1,105 deals reported were larger than $10m in notional value. 

Figure 15: Distribution of investment sizes across reported investments 

Number of deals per bucket; bucket sizes shown in USD mm. 

The last bucket of deals greater than $5m is broken out into more detail in Figure 16. 

600 

500 

400 

300 

200 

100 

Figure 16: Just the larger investments 

Number of deals per bucket; bucket sizes shown in USD 

mm, for deals of $5m + 

60 

50 

40 

30 

20 

10 

0 

0-.5 .5-1 1-1.5 1.5-2 2-2.5 2.5-3 3-3.5 3.5-4 4-4.5 4.5-5 >5 

0 

5-10 10-20 20-30 30-40 40-50 50-60 60-70 

Source: GIIN, J.P. Morgan. Investment sizes reported in USD as at time of investment. 

Source: GIIN, J.P. Morgan. Investment sizes reported in USD as at 

time of investment. 

The small average deal size for impact investment presents a challenge to investors 

whose due diligence costs remain more or less fixed relative to traditional 

investments. For investors capable of making larger investments, the cost of 

spending time and resources on a small impact investment deal is higher than for 

traditional investments. Small deal sizes are especially challenging for investors 

when fixed due diligence costs are high; it is particularly true for investments in 

remote areas of emerging countries. 

The relatively small average deal size could result from the over-sampling of earlystage 

impact investors, who have tended to target more socially-focused businesses 

and have been willing and able to absorb the relatively high transaction costs 

associated with small-scale investments. As impact investing matures and more 

institutional-scale investors with higher returns requirements enter the marketplace, 

we anticipate a proliferation of new investment funds being created, aggregating 

capital and increasing the size of investments that can be made. Average deal size 

will grow as the industry matures and fund vehicles facilitate larger deals. 

… but funds’ fees do not appear significantly higher than for traditional funds 

Similarly, impact investment fund managers will also endure the high fixed cost of 

investment relative to their deal sizes, and as such we anticipate that impact 

investment fund management fees may be slightly higher than those charged by 

traditional investment fund managers. Figure 17 shows the management fees 

reported by our survey respondents, and Figure 18 shows the carry fees charged. 

While the majority of management fees remain within 1–2%, we notice that there are 

some investments with management fees as high as 5–7%. Similarly, carry fees for 

most investments fall within the benchmark 20% range. This disparity may be a 

result of the fact that many impact investment funds include a grant-sponsored 

35





technical assistance facility, which may subsidize fund costs and allow fund 

managers to charge market-rate fees to investors. Maintaining fee levels in line with 

traditional investments will help remove one potential barrier to attracting impact 

investment capital in the short term. However, in the long term, some impact 

investment fund managers may be able to justify higher fees by providing valueadded 

services (such as rigorous impact investment measurement)for which investors 

could be willing to pay. 

Figure 17: Management fees 

Histogram of survey answers. 


Figure 18: Carry fees 

Histogram of survey answers. 


500 

400 



200 

150 



300 

100 

200 

50 

100 

- 

- 

0-4.9% 5-9.9% 10- 

15- 

20- 

25- 

30% + 

0-0.9% 1-1.9% 2-2.9% 3-3.9% 4-4.9% 5-6.9% 

14.9% 

19.9% 

24.9% 

29.9% 


Source: GIIN, J.P. Morgan. Carry defined as % of fund's return retained by general partners. 

Impact measurement systems are currently overwhelmingly proprietary 

Our survey also asked respondents to reveal what type of social impact measurement 

system they were using (if any). The choices were: a proprietary system, the system 

employed by the investee company or fund (the recipient of the investment funds), or 

a third party system. As Figure 19 illustrates, an overwhelming 85% of respondents 

are currently using a proprietary impact measurement system, and 13% use the 

investee’s system. Only 2% of impact investors currently employ a third-party 

system and very few reported using an investee’s system. We anticipate this profile 

to change as systems for measuring impact, such as IRIS, achieve broad adoption 

across impact investors 38 . 

38 For more on the IRIS metrics, see appendix. 

36





Figure 19: Respondents’ impact measurement system 

Total # of investments = 889; 

Total size of investments = $1,144m 

Inv estee's sy stem 

13% 

Third party sy stem 

2% 

Proprietary sy stem 

85% 

Source: GIIN, J.P. Morgan. Investments for which no system was reported are not included. 

Figure 20: Local currency exposure 


Total size of investments = $971m 

Local 

currency 

8% 

Figure 21: Company vs. fund investments 


Total size of investments = $971m 

Fund 

13% 

Hard 

currency 

92% 

Company 

87% 

Source: GIIN, J.P. Morgan. Hard currency denotes investments 

specified as having been made in USD, EUR, GBP or hard currency. 

Investments for which no currency was reported are not included. 

Represents investments in emerging markets only. 


Represents investments in emerging markets only. 

Even direct company investments are made predominantly in hard currency 

One of the biggest challenges arising in making debt impact investments in emerging 

markets is currency risk. Particularly when a country’s currency is not liquidly 

traded, hedging instruments may be expensive or outright unavailable 39 . 

Interestingly, we find that 92% of the investments made into EM were made in hard 

currency (USD, EUR and GBP – Figure 20), leaving the remaining 8% of 

investments to have been made in a local currency. We examine the nature of the 

recipients as well thinking that perhaps the hard currency results from investments 

made into funds (that are more likely to raise funds in hard currency). However, we 

find that only 13% of the investments were made into funds and the dominant 

portion were direct investments into companies (Figure 21). While this means that 

many investors are not taking exposure to the currency risk of their emerging market 

39 See page 71 for more detail on currency risk. 

37





investments, it also means that the currency risk is more likely being borne by the 

recipients of these investments. 

Microfinance trends indicate that currency risk is increasingly borne by investors 

While currency risk remains a concern – we address this in more detail in Appendix 

I: Managing impact investments– the trend toward investments in local currency that 

has appeared in microfinance highlights that investors are increasingly taking over 

the currency risk from the microfinance institutions. According to CGAP, the amount 

of investment into local currency debt by microfinance investment vehicles increased 

by 54% in 2009, and now accounts for 31% of all outstanding direct debt 

investments 40 . We anticipate that as the other impact investment sectors mature, a 

similar trend will emerge. 

40 Microfinance Investors Adjust Strategy in Tougher Market Conditions, Xavier Reille, 

CGAP 2010. 

38





4. The potential BoP market opportunity 

Impact investments can benefit different populations: the BoP in emerging countries, 

as defined by the World Resources Institute; the broader BoP+, including the lowincome 

populations in developed markets; or the broadest group, which can include 

those impacted by income-independent factors such as climate change. 

In this section, we present a new framework for measuring the potential scale of 

impact investments, in terms of both invested capital required and profitability. Our 

measures are by no means comprehensive. An attempt to size the entire impact 

investments market would have made the scope of this research note unmanageable. 

We have chosen instead to focus only on the BoP segment of the customer base for 

impact investments and further to analyze only selected businesses within five subsectors: 

urban housing, water for rural communities, maternal healthcare, primary 

education, and microfinance. While our measures may be incomplete, they yield 

impressive results: in housing alone, a total invested capital requirement ranging 

from $214–$786bn and a potential profit opportunity of $177–$648bn (see Table 6). 

Table 6: Potential invested capital to fund selected BoP businesses over the next 10 years 

Sector 

Potential invested capital 

required, USD bn 

Potential profit 

opportunity, USD bn 

Housing: Affordable urban housing $214–$786 $177–$648 

Water: Clean water for rural communities $5.4–$13 $2.9–$7 

Health: Maternal health $0.4–$2 $0.1–$1 

Education: Primary education $4.8–$10 $2.6–$11 

Financial Services: Microfinance $176 Not measured 


Our methodology uses a sector-specific case study approach. We start by analyzing a 

successful business model that we assume can be extended to satisfy the demand of a 

larger target customer base, determined based on pricing and affordability of the 

product and an assumed penetration rate that we deem realistic. To arrive at 

conclusions on potential profitability and invested capital requires us to make a host 

of other assumptions, including: the timeframe by which a target market can be 

reached (we assume 10 years), the operating margin for the business and the 

relationship between invested capital and revenues. A change in any of these 

assumptions could significantly affect the model outputs. We believe the publication 

of our prototype framework itself, more than the resulting measures, contributes to a 

better understanding of the opportunity this emerging asset class presents. 

Before delving into the details of our methodology and measurements, we discuss 

below the challenges and opportunities in providing business solutions to the BoP 

population. 

39





Why the opportunity exists in BoP markets 

The BoP population is concentrated in emerging (and often informal) markets. 

Serving BoP consumers in these markets requires innovative business models that 

deal with challenges unique to this population. For example, cash flow constraints 

among the BoP customer base can demand that soap be sold in single-serve packets 

rather than in bottles that cost a week’s wages. The lack of skilled workers to execute 

vision testing in remote areas demands a business model where the diagnostic 

procedure can be executed through simple steps that do not require medical training, 

thereby enabling local diagnostics and the consequent sale of eyeglasses 41 . These 

unique solutions are designed to address some of the business constraints particular 

to the BoP markets in emerging countries, so we refrain from extrapolating these 

business models into the developed world. 

BoP as consumers: “Underaccessed" market that can use real solutions 

If the BoP market opportunity exists, why does it remain outstanding? We believe 

there are several reasons why the BoP impact investment marketplace remains 

underdeveloped, which we present below before turning to the potential market size. 

BoP markets introduce operational challenges to otherwise proven business models 

The typical growth trajectory for a business begins with a small endeavor, which 

operates locally with local funding. As it grows, it will begin to extend its reach to 

regional markets, eventually stretching across its original nation and finally 

internationally. In the early stages, business success will depend on the support 

mechanisms in place for entrepreneurs, such as access to finance, which historically 

have been stronger in developed markets. In the later stages of growth, the business 

will rely on the transferability of its products and/or operational processes into new 

markets. This can depend on cultural components, but mostly will depend on 

whether the cost/revenue model can be successfully applied in the new region. BoP 

markets often are more expensive operationally, as external requirements to run the 

business can be more difficult to secure, including such things as refrigerated 

distribution to transport milk or a consistent stream of electricity to supply hospital 

refrigerators. Since these challenges can significantly increase the costs of the 

business, it becomes difficult to easily transfer a business model from developed into 

BoP markets without making significant changes to the operational design. 

Exogenous factors, such as regulatory constraints, import duties and the provision of 

government services in the relevant sector can challenge the successful transferability 

of a business model from one region to the next. As a result of these barriers to entry, 

businesses have yet to build out the geographical scale to address the opportunity that 

remains in BoP markets. 

Traditional businesses do not target BoP populations as potential customers 

One of the reasons that traditional business may not have explored the BoP 

marketplace is a perception that poor people are not potential customers. Research 

reveals, however, that especially given the low incomes that define BoP populations, 

budgeting and money management decisions are critical as households work toward 

building better lives. This money management will allocate significant funds toward 

the basic needs of households, such as food. However, the research also shows that 

BoP households successfully save money or utilize financing to buy products or 

services that will facilitate the growth of future household income. In Portfolios of 

41 See Emerging Markets, Emerging Models, Monitor Group, March 2009, for more examples. 

40





the Poor, Collins et al show that poor households successfully build lump sums and 

spend them on life events (weddings/funerals), emergencies and opportunities 

(including investments in land and buildings) 42 . 

Mobile phone technology is one example of this type of purchase. Originally 

discounted by skeptics as unnecessary for a population struggling to meet its basic 

needs, it has proven one of the fastest growing businesses in BoP markets, as farmers 

access pricing information to make the most out of their crops or parents access 

mobile banking services to save money for education. With the significant success of 

Celtel in Africa, many in the business world were forced to acknowledge BoP clients 

as consumers with choice managing their money to purchase products or services and 

consequently improving their lives. 

Government or philanthropic solutions can do only so much 

In areas where on-grid electricity and clean water are available from government-run 

utilities and quality education is available in a government-run public school, the 

demand for impact investment in these sectors may be limited. But many BoP 

communities lack access to government services and often pay a “BoP penalty” 43 to 

procure basic services from subscale and inefficient private sector providers. Impact 

investors can reduce this penalty by harnessing more efficient, competitive business 

models to deliver better, cheaper and more widely-available services to poor 

communities. 

Beyond the opportunity to intervene where government has been unable to deliver 

products or services, even well-functioning governments and well-resourced 

philanthropies will always be limited by resources and scope. Impact investment can 

complement government and philanthropy by providing services to poor 

communities, thereby allowing government and philanthropy to concentrate their 

limited resources on reaching the poorest of the poor who cannot participate in 

market-based solutions. 

Simple solutions can have large-scale and profitable impact 

While there are obstacles to scale traditional business models into the BoP sector, 

there are many examples of simple solutions that address the BoP-specific consumer 

behavior and infrastructure challenges. For one, Aravind Eye Care, which delivers 

free eye care (including surgery) to poor people by cross-subsidizing from paid 

services, has treated over 2.5 million patients and performed over 300,000 surgeries 

between April 2009 and March 2010. Through its fee income and despite the fact 

that a majority of patients does not pay for services, Aravind is financially selfsupporting 

44 while successfully providing access to high quality services that would 

otherwise be unaffordable for many of those patients. While Aravind is structured as 

a non-profit, impact investors could support its growth, as well as similar models, 

through debt investments. 

Reduce BoP penalties while delivering profits to investors 

With the right solution, businesses can deliver affordable solutions to BoP clients 

while delivering profits to investors. Not only is this the case where products or 

services are absent, but this can also occur where competing services are being 

42 Portfolios of the Poor, Chapter 4, D Collins et al, Princeton University Press, 2009. 

43 See glossary for more detail. 

44 The Fortune at the Bottom of the Pyramid, C.K. Prahalad, 2010. 

41





offered. Many BoP consumers suffer from a BoP penalty - paying a higher price for 

lower quality goods and services than consumers in wealthier markets – to procure 

basic services from subscale and inefficient private sector suppliers. The BoP penalty 

exists because of the cost of delivering services into regions where infrastructure is 

poor and access is expensive 45 , and sometimes because of the lack of competition to 

make service delivery more efficient and drive down prices. C.K. Prahalad evidences 

the BoP penalty by comparing prices paid in a shanty town outside Mumbai with 

prices paid for the same products or services in a higher income area of Mumbai. For 

credit, municipal grade water, diarrhea medication, rice or a phone call, the poverty 

premium ranges from 1.2x to as high as 53x for the residents of the shanty town 46 . 

Efficient business models can provide such products or services at a lower cost to the 

consumer while maintaining a profitable operation. 

A framework for sizing the market opportunity 

Below we present a more detailed explanation of our methodology for measuring the 

invested capital requirement and potential profit opportunity in selected businesses 

and sub-sectors within housing, water, health, education and financial services 

targeting BoP populations. 

In Table 6, we have summarized the results of our analysis. The remainder of this 

section is devoted to walking through the resources and assumptions used in each 

sector to determine the potential impact investment capital required. Our approach 

for the non-financial sectors varies from the approach taken for financial services, so 

we have divided the section accordingly. Within the non-financial sectors, we have 

applied a consistent methodology to each sector to determine potential invested 

capital required and potential profit opportunity. This methodology will be explained 

at length using housing as the example and then presented in summary form for the 

other sectors. 

One of the greatest challenges in characterizing the impact investments market is 

determining its potential size. The market spans many sectors, where business 

models and local management capacity may differ dramatically, but also several 

geographies where cost of supply (particularly distribution, infrastructure and 

logistics), governmental constraints, competitive landscape and hence the feasibility 

of a given business model, vary significantly. To overcome these difficulties, we 

make a number of general assumptions. 

General assumption #1: Business models transfer across regions 

In trying to estimate potential market size, we approach each sector independently, 

pairing an estimate of the potential size of the target customer base with the 

cost/revenue structure of a successful impact investment business model. One of the 

significant assumptions we make in this methodology is the transferability of 

business models across regions. Clearly, there are many reasons why a successful 

business in one region may fail to generate profit in another. As discussed above, 

many impact investments operate within constraints that vary across regions and 

countries such as poor infrastructure, inefficient distribution channels and supply 

chains, unstable access to energy sources, differences in consumer preferences, and 

external factors such as governmental interventions or tax regimes. The most 

45 The Next 4 Billion, World Resources Institute and International Finance Corporation, 2007. 


42





appropriate approach to addressing certain sub-sectors, such as healthcare, education 

and water, in particular, is an intensely political discussion in many countries. These 

variations and constraints impede the transferability of business models and/or the 

degree to which the private sector may be able to participate in these markets. 

Nonetheless, we recognize that in order to arrive at a global measure, we are forced 

to sacrifice some of these region-specific considerations. We have made conservative 

assumptions where possible to compensate for the crudeness of extrapolating from a 

business model that has been proven in only one country or region. In extrapolating 

from the case studies identified, we are also forced to assume that the necessary 

business management capacity can be identified or developed to meet the demand of 

the BoP consumer base identified. 

General assumption #2: All potential business can be impact investments 

In working through each sector, we extrapolate from the economics of case studies of 

impact investments that conform to our definition: a business that operates with the 

intent to create positive impact beyond financial return. In estimating the potential 

market opportunity, we assume that all of the potential businesses that would address 

that opportunity would be impact investments as well. In reality, not every business 

that attempts to address these needs will be designed with intent, but we assume, for 

simplicity’s sake that they are and include them all within our potential market size. 

Additionally, we undertake our sizing methodology with significant concerns around 

the management capacity of companies and funds to invest prudently in these 

potential transactions. This current constraint is a real barrier to mobilizing capital 

for impact investing. We believe this constraint is surmountable over time as 

investors gain expertise. We instead focus on the aggregate demand over a finite 

period, consistent with the methodology outlined in this chapter. 

General assumption #3: Investment for the next ten years 

We incorporate a finite time frame over which these investments are meant to 

support these businesses, arbitrarily considering the next 10 years. In calculating 

revenues we modeled 10 years of revenues and profits for each business. We 

assumed 10% of our target market would be captured in year one and this would 

grow at defined rate until the entire target market was satisfied in year 10. 

General assumption #4: Operating margins indicate profitability 

When considering profitability in our case studies, we choose to use the operating 

margin as a measure of profitability that takes into account the cost of providing the 

service or product and the administrative, sales and marketing costs that might be 

affiliated with distribution. We are, however, excluding finance costs as interest 

payments are not included in this measure of profit. Part of the reason for excluding 

these costs is that finance costs can change dramatically from region to region 

(particularly in local currency, sector by sector and over time). This measure also 

excludes taxes, which again vary widely among different jurisdictions. 

General assumption #5: The relationship between invested capital and annual 

revenues is a constant 

Our methodology estimates potential revenues based on the number of BoP 

consumers to whom these goods and services are affordable. Determining invested 

capital, defined as shareholders equity plus net debt, requires us to make some 

assumptions on the relationship between a company's capital base and its size as 

measured by revenues. We have assumed that there is a constant relationship 

43





between the level of invested capital and the revenues generated by that capital. In 

order to confirm that hypothesis and quantify the relationship we studied 6,000 

publicly listed non financial companies with market caps between $100m and $1bn 

(excluding companies with sales less than $10m). The results are presented in 

Appendix V and they suggest that there is on average a one to one relationship 

between invested capital and the most recent full year sales number. We have 

therefore applied this ratio to Year 10 sales in our model to estimate invested capital. 

We note also that this invested capital will include retained earnings over the life of 

the company. The amount of retained earnings in each case study can be estimated 

by subtracting finance costs and taxes from the accumulated profits, less an assumed 

payout ratio. 

Case study 

Indian affordable housing projects 

analyzed by Monitor Inclusive 

Markets, a consultancy working to 

develop market-based solutions for 

social challenges 

Sector by sector analysis: Non-financial services 

Starting with an example: Sizing affordable urban housing demand 

Using the housing sector as an example, we now present our market sizing 

methodology in some detail, walking step by step through the calculations in Table 7 

below. The consequent sectors will follow the same methodology and will be 

presented in summary form as a result. Further specific notes on the methodology 

can be found in Appendix VI on page 86. 

Potential size of investment: $214–$786bn; estimated profit opportunity: $177– 

$648bn 

In the following pages, we will elaborate on the resources used and assumptions 

made to estimate the potential size of the impact investment market in housing. First, 

however, we will note the results of the analysis, which are summarized in Table 7 

below. Based on the information available, we concluded the potential impact 

investment capital required for the housing sector to be $214–$786bn, which will 

result in a potential profit of $177–$648bn. 

Table 7: Sizing template, using housing as an example 

Data point Source Housing example 

Annual household income of target market Case study Brackets A–E, Urban 

Target market (# of households, mm) N4B 393 

Anticipated penetration rate Case study 50.0% 

Anticipated customer base (# of households, mm) 196 

Average price of unit Case study $6,000–$22,000 

Aggregate revenues over 10 years, bn $1,179–$4,323 

Estimated operating margin Case study 15.0% 

Estimated profit opportunity, bn $177–$648 

Total invested capital, bn $214–$786 

Source: J.P. Morgan. Case study indicates the particular case study used for each sector. "N4B” indicates The Next 4 Billion, 2007, 

WRI. 

Customer base: 

Focus on BoP, specifically 

targeting a population that can 

afford the price of the 

product/service delivered. 

Sizing the potential customer base: Not all the BoP will be served 

In each sector sizing exercise, we begin by determining the potential size of the 

customer base. In the case of housing we ask: how many people in the BoP 

population can afford to buy a house from our case-study business model? The 

World Resources Institute provides data on the BoP population size by income 

brackets of $500 (2002 and 2005 PPP international dollars ) 47 . The bracketing is 

47 International dollars calculated by World Resources Institute using 2002 purchasing power 

parity (PPP) exchange rates. See glossary for more on international dollars. 

44





shown in Table 8. 

Table 8: BoP per capita income brackets and population 

Income 

brackets 

2002 PPP 

Income 

brackets 

2005 PPP 

(upper bound) 

Africa 

mm 

Asia 

mm 

Eastern 

Europe 

mm 

Latin 

America 

mm 

Total 

Population 

mm 

A 2,500–3,000 3,260 7 80 41 39 167 

B 2,000–2,500 2,717 12 167 51 50 279 

C 1,500–2,000 2,173 23 358 52 68 501 

D 1,000–1,500 1,630 55 781 48 81 964 

E 500–1,000 1,087 162 1,220 45 87 1,513 

F 0–500 543 228 293 18 37 575 

Total 486 2,900 254 360 4,000 

Source: World Resources Institute. 

Focusing on the BoP population restricts us to the population earning an annual 

income of $3,000 per capita or less. For each sector we then identify the income 

brackets that can afford the product or service in question, following the steps below 

to identify the size of our target market. 

1. Remove the lowest income segment: Those earning less than $1 a day will be 

unlikely customers 

We must acknowledge that there is a portion of the population at the lowest 

income level that remain reliant largely on aid 48 . According to Monitor Inclusive 

Markets, it would be reasonable to exclude the population earning less than $1 a 

day from the potential customer base for an impact investment business model. 

Constraints such as severely irregular cash-flows and the cost of distribution to 

these typically more remote populations will limit the ability of a profit-making 

business to deliver solutions to this sub-population. Therefore, we exclude from 

all sectors the bottom segment of the population as bracketed by WRI – those 

earning less than $500 per annum per capita (2002 PPP), in income bracket F of 

Table 8. 

48 C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid, advocates that “our goal 

should be to build capacity for people to escape poverty and deprivation through selfsustaining 

market-based systems” even at the very base of the economic pyramid. While we 

would like to cover businesses that can serve the very lowest-income households, we focus for 

now on the business models that have been proven and hope to include the lowest income 

bracket in future work as this sector develops solutions for the lowest part of the pyramid. 

45





Table 9: Household income brackets – India 

Average number of people per household = 5.3 

India Economic Activity Rate = 69% 

Average number of earners per household = 3.7 

2005 PPP 

(upper bound) 

A 11,923 

B 9,936 

C 7,949 

D 5,962 

E 3,974 

F 1,987 

Source: World Resources Institute, UN Statistics Division. 

2. Select a case study and determine the income bracket of the target customer base 

In choosing a case study, we focus on finding a business model that makes 

products or services affordable to some segment of the BoP market. For the 

housing sector, we identified a feasibility-tested business model for affordable 

housing in India analyzed by Monitor Inclusive Markets. One of the projects they 

analyzed builds buildings with, for example, 5% commercial space and 95% 

residential space split into 1,883 flats in urban India. Including commercial space 

increases rental income, partially subsidizing the residential space. Since homes 

are purchased by households rather than individuals, in Table 9 we translate the 

WRI per capita income brackets into per household income brackets 49 , using the 

Economic Activity Rate 50 and the average number of people per household. Then 

in Table 10 we consider the affordability of the residential flats to the households 

in those income segments. Flats in this type of project have been priced as low as 

INR 280,000 51 ($6,000), which translates into a required annual household 

income of $3,211 52 (2005 PPP). As such, the flats in this price range are 

affordable by all but the bottom income segment of our population, so we include 

income brackets A through E in our estimation. 

Table 10: Affordability testing 

Case study: Building Houses, Financing Homes, Monitor Inclusive Markets, July 2010 

Line Data type Unit Min Max Calculations Notes 

1 Price Rs 280,000 1,000,000 

2 Pricing date 2010 2010 

3 Avg inflation rate 10% 10% From 2005 — pricing date 

4 Price 2005 Rs 171,236 611,558 Line 1/[(1+line 3)^(line 2 – 2005)] 

5 Annual interest @ 12% 2005 Rs 20,548 73,387 Line 4 × 12% 

6 Annual income required 2005 Rs 51,371 183,467 Line 5 / 40% Assume max payment/income ratio = 40% 

7 Annual income required 2005 PPP 3,211 11,467 Line 6 / 16 2005 conversion rate: 16 Rs per int'l dollar 

8 Price Current USD 6,000 22,000 Line 1 / 46.5 2010 conversion rate: 46.5 Rs per USD 

Source: J.P. Morgan. Minimum price from Monitor Group, referencing Foliage developers. 

3. Cut off the top: We are sizing only the BoP market 

Since we are focused on only the BoP segment of the population, we consider the 

case study pricing that will be affordable to our target population. As such, we 

limit our pricing estimates (Line 1 in Table 10) to the maximum amount 

affordable by the top of our population bracket. Working backward through our 

Affordability Test, we calculate the maximum price affordable by households in 

this population – INR 1,000,000. At current exchange rates, our price range is 

then $6,000 – $22,000. 

4. Limit to urban or rural population, if applicable 

As the housing case study is one that applies only to urban customers where 

apartment blocks are more suitable, we restrict our target customer base 

accordingly. Some sectors will better address rural populations while others will 

successfully cater to both rural and urban populations. The restriction to urban or 

rural will be applied only where needed. In India, the average percentage of our 

46 

49 We translate the per capita income brackets into per household income brackets by 

multiplying the income by the number of earners per household as implied by the UN 

Statistics Division’s Economic Activity Rate – 69% in the case of India. 

50 As defined by the UN Statistics Division, Economic Activity Rate refers to the percentage 

of the population aged 15 and over which is economically active. 

51 Building Houses, Financing Homes, Monitor Inclusive Markets, July 2010. 

52 In the table, we assume a maximum payment/income ratio of 40% as per Monitor’s 

guidance.





target BoP population that lives in urban areas is 37%. Across our measured 

countries, it is 58%. Since we have the percent of urban population by income 

bracket and by country, we incorporate this data on a granular basis. 

At this stage, we have determined the parameters of the population we will target 

with our housing product: the Annual Household Income (line 1 in Table 7: Income 

brackets A – E in Table 8 and Table 9), and only the urban population. Next, we 

broaden our focus globally and count the number of people or households that fall 

within those parameters. 

5. Using the WRI data, identify population or number of households in each income 

bracket 

The WRI data provides the number of people per income bracket. Since housing 

is a product sold to a household rather than an individual, we count the number of 

households that would fall within our target income bracket. For the 36 countries 

represented in the WRI data set, the populations given in each income bracket 

count the people earning the relative incomes but exclude non-earning members 

of the household. In order to determine the number of households, we first take 

the size of the earning population (the WRI number), and divide by the Economic 

Activity Rate to find the total population size (earning and non-earning). Then for 

each country we divide by the average number of people per household to obtain 

the total number of households 53 . 

6. Factor in population growth 

From the WRI database EarthTrends, we find the growth rates for urban 

populations in each country measured from 2005–2010. Since the population data 

we have is from 2005, we apply these growth rates – 1.06% on average – to each 

country’s number of households. Similarly, we apply the rural population growth 

rates when relevant. We do not consider urbanization rates, which could be 

expected to change over time. 

7. Extrapolate to the rest of the region 

Finally, we extrapolate from the 36 countries to the broader regions, just as WRI 

has done in The Next 4 Billion. We calculate the ratio of measured to extrapolated 

population and apply the same ratio to the number of households in our target 

income bracket. Table 11 shows the countries included in the measured work, and 

the regions to which we then extrapolate. 

Table 11: Countries included in WRI data 

Africa Asia Eastern Europe Latin America and Caribbean 

Burkina Faso Bangladesh Belarus Bolivia 

Burundi Cambodia Kazakhstan Brazil 

Cameroon India Macedonia, FYR Colombia 

Cote D'Ivoire Indonesia Russian Federation Guatemala 

Djibouti Nepal Ukraine Honduras 

Gabon Pakistan Uzbekistan Jamaica 

Malawi Tajikistan Mexico 

Nigeria Sri Lanka Paraguay 

Rwanda Thailand Peru 

Sierra Leone 

Uganda 

South Africa 

Source: World Resources Institute 

53 Also based on WRI data. 

47





This brings us to the Target Market (line 2 in Table 7) — the number of households 

that could afford the type of housing in our case study, which is 393 million. Next, 

we consider the number of households that we expect will choose this type of 

housing – i.e. the anticipated penetration rate – and the price they can afford. 

Sizing the revenue opportunity 

Once we have our target customer base, we turn to our selected case study to identify 

some of the microeconomics of the business. 

1. Identify an anticipated penetration rate and an anticipated customer base 

Above, we quantified a target market, but the total number of households in our 

target market may not be consumers of our product or service. In the case of 

housing, for instance, some households may decide the assumed pricing is too 

expensive, may already own their own home or may be unable to access the 

required financing, or they would prefer not to lock up cash in mortgage 

payments. Regardless of the reason, there will be a penetration rate of less than 

100% for any business. While Monitor believes that a penetration rate of 80% is 

feasible 54 , we apply a haircut to this rate given our assumption that this business 

model will successfully transfer to other geographical and regulatory regimes, 

and our assumption that these projects are to be delivered in the next ten years. 

We assume a more conservative 50% penetration rate (line 3 of Table 7). Then, 

multiplying our anticipated penetration rate by our target market gives our 

anticipated customer base of 196 million households (line 4 of Table 7). 

2. Identify the average price per unit 

Next, we use our case study to give us a feasible price estimate for the given 

product or service. In our affordability test in Table 10 above, we have already 

calculated the price range that will be affordable: $6,000–$22,000 (line 5 of Table 

7). 

3. Estimate the growth in customers 

We do not believe it is reasonable to assume that the estimated penetration rate 

can be achieved in the first year of our 10 year period. Instead, we assume that 

the number of customers starts at a low penetration in year 1 and then grows to 

reach the target market penetration, such that each subsequent year represents the 

same multiple of the first year (e.g. the number of customers in year 2 is two 

times the number of customers in year 1, and the number of customers in year 3 

is three times the number of customers in year 1). In the case of housing, the 

aggregate number of customers over the 10 year period equals the target market 

penetration, as we assume housing represents a one-time purchase for each 

customer. In the analysis for other sectors where purchases are recurring, the 

customer base in year 10 equals the target market penetration. 

4. Estimate the revenue opportunity: Anticipated customer base × price per unit 

Now that we have the number of customers we can reasonably expect to 

participate in our business in each year of our model, we can multiply the number 

of customers by the average price per unit to obtain the revenue opportunity over 

the 10 year period: $1,179–$4,323bn (line 6 of Table 7). 

54 Monitor Inclusive Markets, based on interviews with potential homeowners. 

48





Potential profit opportunity 

We also calculate the potential profit opportunity over the 10 year period, which is 

simply the revenue opportunity multiplied by the operating margin. In the case of 

housing, Monitor estimates a margin of 22% on the housing project they present; to 

be more conservative, we round this down to 15%. This results in a potential profit 

opportunity of $177–$648bn (line 8 of Table 7). Again, these profitability figures 

will not take into account the cost of capital or expenditure toward assets, such as the 

building in which a hospital might be located, and an investor would need to consider 

these further financial constraints when analyzing a potential investment. 

Sizing the capital required to generate that revenue 

Finally, we use the revenues generated by the case study business model to identify 

the amount of capital that would be required to realize that revenue potential. In each 

case, we assume that the year 10 revenues generated in the sector represent an 

adequate proxy for the total invested capital that would be required for the 10 year 

period we are evaluating. In the case of housing, this results in required invested 

capital of $214–$786bn over the 10-year period (line 9 of Table 7). 

Nature of invested capital required 

One further question will be to determine what kind of capital will be needed for 

each sector: Will the business be funded mostly by equity or debt? While this is a 

relevant question in helping investors identify where they should focus their capital 

from a risk/return standpoint, we believe that both the debt and equity portions of 

business financing will be impact investment. 

Further considerations on our methodology 

We have already mentioned the difficulty in our ambitious method of extrapolating 

around the globe based on the success of one case study. In addition, a few other 

methodological considerations arise that we wish to highlight. 

The growth of financial access alongside the market will be crucial 

Housing in particular is an industry that cannot grow alone. Without access to 

finance, many of the households we have counted amongst our customers will not be 

able to take advantage of even the lowest-price house. When CEMEX, a cement 

company in Mexico, decided to stabilize its cyclicality by increasing its focus on the 

more stable revenue streams that came from the low-income population, it realized 

that financing was the most difficult hurdle for these customers to overcome 55 . 

Our methodology has assumed that external support mechanisms such as financing 

will grow alongside the business within some reasonable timeframe. In India, for 

example, as a result of the National Urban Housing and Habitat Policy of 2007, the 

National Housing Bank has established financing toward slum redevelopment 

projects and upgrades/additions to existing dwellings 56 . With respect to our specific 

housing case study – based on the work by Monitor – there is reference to tie-ups 

with Bank of Baroda, DHFL, MAS, HDFC and MHFC (a selection of housing 

finance corporations in India) 57 for the provision of financing. For BoP populations 

without this access, incremental building models, such as Patrimonio Hoy 

(CEMEX’s project) may be a more feasible starting point. In that Mexican business 


56 http://www.nhb.org.in/Financial/Refinance_of_construction.PHP 

57 Building Houses, Financing Homes, Monitor Inclusive Markets, July 2010. 

49





case, end users contribute monthly in a pay-over-time scheme toward the purchase of 

building materials to build one room at a time. This model might be more accessible 

where access to finance is a challenge. 

While finance is clearly necessary to provide access to housing – one of the most 

expensive things for most households around the world – the BoP household might 

also need to use finance to buy other things that require a large cash outlay. Broadly 

speaking, if impact investments are to succeed at delivering products and services to 

BoP populations, the customers’ access to finance will be a critical component of 

growing the market across all sectors. 

Having walked through the housing sector study in detail, we will review the same 

approach in less detail taken in the other sectors. The first sector we examine is the 

water sector. 

Case studies: 

Byrraju Foundation 

Water Health International 

Water: Clean Water units for rural areas 

Case study: Community filtration units 

There are a few different business models aimed at providing water to BoP 

populations, from point-of-consumption filtration systems to community filtration 

plants. In choosing our case study, we again reference the work of Monitor Inclusive 

Markets. Monitor studied the market in India in particular, and found that point-ofconsumption 

carbon water filtration units can often be too expensive for BoP 

populations in India. There are also concerns that point-of-consumption filtration 

units are less effective over time, since the user may not change filters as frequently 

as required, for example. 

The business model on which Monitor focused its analysis is the community water 

system, where a centralized filtration unit provides water for the community and is 

operated by trained staff. This business model is illustrated by India’s Byrraju 

Foundation and by Water Health International (“Water Health”), which operates in 

India, Ghana and the Philippines 58 . According to Monitor, the community filtration 

business model provides access to purified water at about half the price of individual 

activated carbon water filters and about a third of the cost of boiled water. It has 

disadvantages as well, such as leaving the buyer to transport the water back to the 

home for use 59 . Nonetheless, this has been a successful business model employed by 

the two case studies, and the affordability leads us to choose the community filtration 

model over the point-of-consumption model for our analysis. 

Potential size of investment: $5–$13bn; estimated profit opportunity: $2.9–$7bn 

Using the economics of these community filtration units, we conclude that the 

potential size of investment in this market over the next 10 years could be $5–$13bn, 

with an estimated profit opportunity of $2.9–$7bn. Table 12 highlights the key 

assumptions going into this conclusion, and we explain them in more detail below. 

58 See Emerging Markets, Emerging Models, Monitor Group, March 2009 for more examples. 

59 Both Byrraju and Water Health International have offered delivery services, though many 

Byrraju customers have stopped using this service citing price. 

50





Table 12: Water market sizing 

Data point Source Water example 

Annual household income of target market Case study Brackets A–E, Rural 

Target market (# of households, mm) N4B 683 


Anticipated customer base (# of households, mm) 273 

Average price of unit Case study $20–$47 

Aggregate revenues over 10 years, bn $29–$71 

Estimated operating margin Case study 10.0% 

Estimated profit opportunity, bn $2.9–$7 



WRI. 

Table 13: Household income brackets – India 




2005 PPP 

(upper bound) 

A 11,923 

B 9,936 

C 7,949 

D 5,962 

E 3,974 

F 1,987 

Source: World Resources Institute, UN Statistics Division 

Affordability: Income brackets A–E, rural 

In testing the affordability of the water produced by these business models, we 

reference the price of a 20 liter bottle of water, which should meet the daily needs of 

a household 60 . According to surveys conducted by Monitor, over fifty percent of the 

Byrraju customers have household incomes less than INR 2,000 a month ($1,000 in 

2005PPP, annualized), putting them in the lowest income bracket F. The price that 

Water Health charges in Ghana is lower than in India (about $0.07 in Ghana vs. 

about $0.11 in India 61 ), so we consider the water to be affordable to the same 

population brackets there as well. 

To check that this pricing is not far from the current expenditures by BoP households 

on water, we contrast this pricing with the expenditures measured by the WRI in The 

Next 4 Billion. There, we find that the population in the measured countries spends 

an average of 1% of their household income on water 62 . In Table 14 we show how 

we calculate which income brackets will fall within our target market based on our 

affordability test. 

Table 14: Affordability test 

Min Max Units/Notes 

Daily cost 2.5 6.0 2010 Rs 

Annual cost 913 2,190 2010 Rs 

Inflation (2005 – 2010) 10% 10% 

Annual cost, 2005 558 1,339 2005 Rs 

Annual cost, 2005 35 84 2005 PPP 

If annual salary = 1,000 1,000 Equiv to INR 2,000 a month in 2010 

Then percentage of annual salary = 3.5% 8.4% 

If annual salary = 1,987 1,987 Bottom of income bracket E 


If annual salary = 3,974 3,974 Bottom of income bracket D 


Source: Monitor Inclusive Markets, J.P. Morgan. All annual salary figures in bottom half of table are in 2005 PPP. 

For the poorest households, those in the middle of bracket F, the pricing range 

provided by our case studies of INR 2.5-6 per 20 liters ($0.05–$0.13) would amount 

60 While the United Nations considers 20-30 litres per capita per day to be enough to meet 

basic human needs (http://www.un.org/waterforlifedecade/factsheet.html), Monitor Inclusive 

Markets has interviewed kiosk attendants and 75 customers to determine how much water they 

would buy for the household per day. 

61 We can draw the same conclusion if we measure in PPP terms as well as USD. 

62 If weighted by population, this expenditure drops to 0.3%. 

51





to 3–8% of household expenditure. This expenditure drops below 1% for households 

in income bracket D. In an attempt to balance the findings from Monitor with the 

findings from the The Next 4 Billion, we include bracket E and will leave bracket F 

out, to be more conservative 63 . 

Table 15: Target population 

Brackets A–E, Rural, mm 

Population 

Africa 49 

Asia 579 

Eastern Europe 32 

Latin America 23 

Total 683 

Source: WRI 

Focus on rural populations, and haircut the penetration rate to target larger villages 

Having identified income brackets A – E as our target market, we focus on rural 

populations where access to clean water is less readily available (and the business is 

more likely to attract customers as a result): This brings us to a target market of 683 

million households globally, which is broken down by region in Table 15. As with 

many businesses operating in these markets, though, the profitability of these 

filtration units will depend on high volume, which can require that they be located in 

larger villages 64 . Figure 22 shows Monitor’s analysis of Byrraju's penetration rates by 

village size. They note that while smaller villages sustain higher penetration rates 

(perhaps due to necessity), a higher proportion of the larger villages are profitable. 

As such, we haircut our anticipated penetration rate to accommodate the fact that our 

rural population will include smaller villages that may not sustain a profitable 

filtration unit. Byrraju has obtained penetration rates of 40–50% in average-size 

villages and Water Health is targeting 60%, so we will employ an anticipated 

penetration rate of 40% (the lower end of the range) to be conservative. As a result, 

our anticipated customer base is 273 million households. 

Revenues, margins, capital and profit 

As noted in Table 12, reaching 273 million households over the next ten years results 

in potential revenues of $29–$71bn. Applying an operating margin of 10% suggests 

profit potential of $2.9–$7bn and applying our one-to-one assumption of invested 

capital to year 10 revenues suggests required capital of $5–$13bn. 

Figure 22: Penetration rates by village size 

x-axis: Number of people in the village; y-axis: Penetration rate 

120 

Small hamlets Av erage v illage Large v illage 

100 

80 

60 

40 

20 

0 

0 2000 4000 6000 8000 10000 12000 14000 

Source: Monitor Inclusive Markets 

63 Monitor confirmed that a significant portion of Byrraju customers earn less than INR 2,000 

per month (equivalent to $1,000 in 2005 PPP), putting them in bracket F. If we include bracket 

F, we add 150 million households to the target population, and about $20–30bn to the capital 

required. 

64 With populations between 5,000 and 10,000 according to Water Health 

52





Complementing government service provision 

Access to water has recently been deemed a basic human right by the United 

Nations 65 , and in many countries, access to water is provided by governments. The 

same is true in the BoP markets we analyze, though in many cases the businesses are 

successful because of the lack of government provision (particularly in rural areas). 

For example, according to Water Health, consumption at their water purification 

plants in Ghana is about 3–4x that of a typical site in India, mainly because of the 

lack of alternative sources for water in Ghana. In India, by contrast, many 

communities still have access to water through the Rural Water Supply Programme 66 , 

even though this water is not what Water Health would consider safe for drinking. 

Not only will this variation in government provision across regions affect the success 

of businesses as they start up in different geographies, but it can also be a factor that 

changes over time, affecting the competitive landscape and long-term prospects of a 

business operating in this sector. 

Case studies 

LifeSpring Maternity Hospital 

(India) 

R-Jolad (Nigeria) 

Health: Maternal care in urban areas 

Case studies: Maternal care in India and Nigeria 

Within the health sector, there are many potential businesses we could use for a case 

study, from pharmaceutical providers to specialist surgical hospitals. We have chosen 

a maternity hospital chain in India – LifeSpring Maternity Hospital. We complement 

the analysis of LifeSpring’s business with an analysis of R-Jolad, a hospital based in 

Lagos, Nigeria that also delivers antenatal care (although its services are broader). 

These two hospitals are both designed to operate as high volume, low cost businesses 

and target high occupancy, utilization and turnover rates in order to ensure 

profitability. LifeSpring, founded in 2005 and currently operating as a for-profit 

chain of six 20-bed hospitals, broke even after only 18 months operating as a private 

company 67 . R-Jolad delivers high single figure net margins 68 , having grown from a 

single-physician clinic in 1982 to a 150 bed, 250 out-patients per day hospital. 

Sizing summary: $0.4–$2.5bn of potential invested capital; $0.1–$1.4bn potential 

profit opportunity 

Given the case studies we reference, there is potential for $0.4–$2.5bn of invested 

capital to fund hospitals that, like LifeSpring, specialize in maternal health services. 

Sizing the entire market for healthcare provision is too broad a task for this research 

piece. Instead, we have identified the capital that could fund maternal health 

provision, particularly the attendance of births by a skilled professional when 

otherwise a professional would not have been present. This of course is only one 

segment of healthcare services that could be provided by impact investment, and 

given that maternal health has been estimated to account for only 2% of total 

healthcare expenditures on average in the developing world 69 we can estimate that 

the total health market for impact investment could be as large as $18–$123bn. 

65 General Assembly declares access to clean water and sanitation is a human right, UN News 

Centre, July 28, 2010. 

66 http://www.india.gov.in/sectors/rural/rural_water.php 

67 LifeSpring Hospitals, Gita Johar, Columbia CaseWorks, April 26, 2010. 

68 The Business of Health in Africa, Annex I, IFC, Dec 2007. 

69 Estimate provided by Marty Makinen, Results for Development Institute 

53





Table 16: Health market sizing 

Data point Source Healthcare example 

Annual household income of target market Case study Brackets A–E, Urban, Unattended births 

Target market (# of unattended births, mm) N4B 113 


Anticipated customer base (# of unattended births, mm) 45 



Estimated operating margin Case study 5.0%–10.0% 


Total invested capital, bn $0.4–$2 


WRI. 

Table 17: Income brackets 

INDIA, calculated as in Table 9 

NIGERIA 




India 

Household 

income 

2005 PPP 

(upper bound) 

Nigeria 

Household 

income 

2005 PPP 

(upper bound) 

A 11,923 8,835 

B 9,936 7,363 

C 7,949 5,890 

D 5,962 4,418 

E 3,974 2,945 

F 1,987 1,473 


Affordability: Income brackets A – E 

In measuring affordability in this sector, we are able to reference the customer base 

that both LifeSpring and R-Jolad are targeting, summarized in Table 18 and 

referencing the income brackets in Table 17. LifeSpring is targeting customers with 

daily household incomes of $2–$5, which translates into an annual household income 

of $720–$1,800. This means that its business aims to serve those in income bracket 

F, in particular. However, R-Jolad has customers from a wider income base, as 

illustrated in Figure 23. From this data, we see that over 50% of R-Jolad’s customers 

earn less than $1000 per annum. Especially since the R-Jolad data does not 

specifically reference that these are household incomes, we will again apply the 

conservative assumption that the bottom income bracket may not be able to afford 

these health services. As such, we retain brackets A–E in our target market. In 

practice, the roll-out or expansion of demand-side financing reforms (i.e. health 

insurance) is likely to have a large influence on which customers will be able to 

access maternal as well as overall healthcare services delivered through the private 

market. Additionally, the design of demand-side financing reforms is likely to have a 

major impact on private sector providers – if national/state health insurance programs 

only reimburse for public services, or reimburse differentially, this will have a major 

impact on the size of the market. 

Table 18: Affordability test 

India 

Daily household income 

of target customers $2–$5* 

Annual household 

income of target 

$720– 

customers 

So, comparing to Table 

17 we target: 

$1,800 

Brackets 

A – F 

Nigeria 

< $930 for more than 

50% of patients** 

Brackets 

A – E 

Source: J.P. Morgan. * LifeSpring corporate brochure available on website. 

** The Business of Health in Africa, Annex I, IFC, Dec 2007. 

Figure 23: R-Jolad patients by income 

level 

pa = per annum 

> $930 pa 

39% 

< $930 pa 

61% 

Source: The Business of Health in Africa, Annex I, 

IFC, Dec 2007. 

54





Urban locations are more likely to be profitable 

As in some of our other case studies, the success of these hospitals will depend on 

their ability to maintain high bed occupancy and turnover rates, as well as high 

outpatient visits to optimally utilize doctors’ time. Figure 24 and Figure 25 highlight 

the high resource utilization rates that LifeSpring delivers relative to comparable 

private clinics. In order to achieve these utilization rates, the hospitals must be 

located within reach of enough potential patients – the majority of their patients 

come from within a 5km radius 70 . LifeSpring’s hospitals are located in peri-urban 

areas, and R-Jolad is located in Lagos, the capital of Nigeria, so in choosing the 

target market we will consider the urban population. 

Figure 24: Average # of deliveries per month 

Figure 25: Cost of doctor per patient (USD) 

120 Lifespring Priv ate clinic 

100 

100 - 110 

1.4 

1.2 

Lifespring 

1.2 - 1.8 

Priv ate clinic 

80 

1 

60 

40 

20 

15 - 20 

0.8 

0.6 

0.4 

0.2 

0.3 - 0.5 

0 

0 

Source: Monitor Group. Private clinic refers to small 20–30 bed 

nursing house, usually run by a family. 

Source: Monitor Group. Private clinic refers to small 20–30 bed 

nursing house, usually run by a family. 

Target market: Unattended births expected in the next 10 years 

Similar to water, the health sector is one where governments typically provide some 

degree of service. In considering the potential customers of a private hospital, we 

target those that are not currently accessing those government services. Some 

mothers will avoid government hospitals because of cost (subsidies do not 

necessarily cover the full cost of treatment 71 ), while others may not utilize them 

because of quality of service or lack of access to or knowledge about them. While 

LifeSpring costs more than the government service, customers who do not utilize the 

government services might choose LifeSpring for some of the other reasons. The 

hospital aims to deliver-high quality service by retaining talented doctors with nonmonetary 

incentives, such as fewer administrative duties 72 . LifeSpring also dedicates 

time and money to marketing its services through outreach, education and 

advertising. Where costs are concerned, the hospital does compete with other private 

clinics by cross-subsidizing lower-cost delivery rooms with higher-cost private 

delivery rooms. 

70 Low cost service delivery in health & education, Monitor Inclusive Markets, 2008. 

71 LifeSpring Hospitals, Gita Johar, Columbia CaseWorks, April 26, 2010. 

72 Other private clinics often pay doctors based on consultations, forcing them to spend time 

soliciting new patients into the clinic. 

55






Brackets A–E, Urban, Unattended 

births in next 10 years, mm 

Population 

Africa 18 

Asia 68 



Total 113 

Source: WRI 

Considering the landscape of healthcare provision, we focus on the population that is 

not currently utilizing healthcare services (whether provided by government or 

private sector). According to the World Health Organization, which publishes data 

tracking countries’ progress on the Millennium Development Goals, only 43% of 

births in low-income households are attended by skilled health personnel 73 . Given 

this data, we have chosen to calculate the size of our target market by considering the 

births that will occur within the next 10 years 74 and be unattended by a skilled 

professional. Across regions, this gives us 113 million births over the next 10 years, 

broken down by region as shown in Table 19. Applying the penetration rate – 

LifeSpring has obtained a 43% market share, which we haircut to 40% for the 

transferability assumption described above – the target market is then 45 million 

births. Our haircut is less dramatic in this sector since we’ve already limited our 

target population to those who will not be expected to employ government services. 

In practice, the private sector hospitals may attract some customers that could 

otherwise have used government services. 

Revenues, margins, capital and profit 

Now that we have identified our target market, we can estimate revenues by applying 

the costs of each of those deliveries. The price ranges from INR 2,000 (about $40) 

for a normal delivery in a general ward to INR 14,000 (about $300) for a Caesarian 

delivery in a private room. Multiplying these prices by the number of deliveries over 

the 10 year period gives us an estimated revenue opportunity of $2–$14bn. Factoring 

in a profit margin between 5% and 10% 75 we calculate a potential profit opportunity 

of $0.1–$1.4bn. Based on revenues in year 10, we conclude that potentially $0.4– 

$2.5bn of impact investment capital could be allocated to fund hospitals that deliver 

maternal health care over the next 10 years. 

Case studies 

Gyan Shala (India) 

Analysis of Private Budget Schools 

in Hyderabad City, India 

by S Joshi, Gray Matters Capital 

Ancillary model: 

Indian School Finance Company, 

(established by Gray Ghost 

Ventures) 

Education 

As young children grow to school-age, they ideally are able to access quality schools 

close to home, an opportunity we explore in this section. While the UN Millennium 

Development Goal of universal primary education has spurred government activity in 

extending primary education to all income levels, there remain areas in which 

affordable private schools are supplying services that meet with high demand from 

parents who are willing to pay. In the Dominican Republic, research concludes that 

parents’ demand for private education is driven by lack of access to public 

(government) schools and by a preference for private schooling when the public 

education is perceived to be low quality 76 . In India, one study finds that 73% of 

families in slum areas send their children to private school, and that many parents 

believe the quality of these affordable private schools is higher than that provided by 

the government (if any local alternative is provided) 77 . Similarly, urban schools in 

73 Where low income is as defined by the World Bank: 2009 GNI per capita of $995 or less. 

The percentage of births attended by skilled health personnel is calculated as a fraction of the 

total number of live births in the defined population. 

74 Using current crude birth rates from the CIA World FactBook (country by country). 

75 We do not have explicit profit margin data from LifeSpring, though we know it is profitable 

(i.e. more than breaking even). R-Jolad, which operates a similar high volume hospital model, 

delivers high single-figure net margins, according to the IFC report. 

76 The Private and Public School, G Murray cited in Affordable Private School Initiative 

Research in Latin America, I Faulhaber, Gray Matters Capital Foundation, 2008. 

77 Private Schools for the Poor: Development, Provision, and Choice in India, R Baird, May 

2009. 

56





Kenyan slums cater to over 500,000 students a year, offering lower student/teacher 

ratios and better facilities when compared to public schools 78 . 

Case study: Gyan Shala (India), Indian School Finance Company (India) 

There are two types of business models that stand out in the education sector, and we 

analyze both in our market sizing work. The first business, Gyan Shala, runs over 

350 one-room schools in the urban slums of Ahmedabad, India. They have 

successfully delivered education at scale by creating highly standardized materials 

that teachers with less specialized training can implement without sacrificing the 

quality of the education provided. Part of that quality derives from the materials, and 

part is derived from teachers’ local ties and their “appropriate attitude” toward 

teaching (which are part of the criteria for employment). Essentially, Gyan Shala has 

employed the “no frills” model in the education sector and done so successfully. 

Gyan Shala currently operates as a not-for profit organization, but parents in Income 

Bracket F (the bottom bracket) confirmed a strong willingness to pay school fees at a 

level that would sustain the business model commercially 79 . In order to complement 

this case study with profitable schools, we reference a study from Gray Matters 

Capital of private budget schools in Hyderabad City. The study surveyed private, 

unaided (by governmental or donated funds), budget schools located in and around 

old Hyderabad City in India. Tying together the economics of these surveyed 

affordable private schools with those of the Gyan Shala project allows us to estimate 

the cost/revenue structure of a feasible business model. 

Potential size of investment: $5–$10bn; estimated profit opportunity: $2.6–$11bn 

Based on the above case studies, we conclude that the potential required impact 

investment capital in this market over the next 10 years could be about $5–$10bn. 

The sector could also provide an estimated profit opportunity of $2.6–$11bn. Table 

21 and the following text detail the key assumptions going into this conclusion. 

Table 20: Household income brackets 

INDIA, calculated as in Table 9 

India 

2005 PPP 

(upper bound) 

A 11,923 

B 9,936 

C 7,949 

D 5,962 

E 3,974 

F 1,987 


Table 21: Education market sizing 

Data point Source Education example 

Annual household income of target market Case study Brackets A–E, Urban, primary school age 

children 

Target market (# of children, mm) N4B 238 


Anticipated customer base (# of children ,mm) 95 



Estimated operating margin Case study 10.0%–20.0% 




WRI. 

Affordability: Brackets A–E, urban 

Both Gyan Shala and the affordable private schools in Gray Matters Capital’s study 

cite that their students come from households in Brackets C–F. Again, we exclude 

Bracket F from the potential customer base, and we also include the higher income 

78 Understanding the Kenya Independent Schools Sector, Y Musani, Gray Matters Capital, 

June 2008. 

79 Emerging Markets, Emerging Models, Monitor Group, March 2009. 

57





brackets within the BoP since these schools will be affordable to them 80 . This leaves 

us with Brackets A – E. We then narrow our focus to urban areas as the starting point 

for our target population, since the success of the school is dependent on its 

proximity to a significant student population. Gyan Shala, for example, had opened 

two rural clusters with donor support. Although they delivered similar education 

results to the urban program, they were shut down due to resource constraints 81 . 

UNESCO also cites that urban for-profit education provision cannot be extrapolated 

to rural areas with more dispersed and often much poorer populations 82 . So we 

restrict our target market to the urban population. 


Brackets A–E, Urban,mm 

Population 

Africa 31 

Asia 148 



Total 238 

Source: WRI 

Target market: Primary school age children, ages 5–14 yrs 

Within the urban income brackets A – E, we then concentrate on the primary school 

age population– the percentage of the population aged 5–14 in 2010, as estimated by 

the United Nations Population Division 83 . Applying these percentages to the 

population in our urban income brackets brings us to the target market of 238 million 

primary school age children, broken out in regions in Table 22. 

Penetration rates are high in some regions, but lower elsewhere: We assume 40% 

In India, studies have found that up to 80% of urban children aged 5 – 14 attend 

private school, including children from low-income families 84 . More broadly, 

surveys across cities in the developing world conclude that as many as 75% of 

students attend private schools paying fees of less than $10 a month 85 . By contrast, in 

the urban areas around Lima, Peru only 38.2% of children attend private schools, 

although the numbers have been increasing 86 . Given this range of penetration rates, 

and our assumption that we will include income brackets A and B, we assume a 

penetration rate at the low end of the range: 40%. This brings our Anticipated 

Customer Base to 95 million children. 

Revenues, margins, capital and profits 

Using the pricing from our case studies, we obtain a price range of $50–$103 for one 

year of primary school. We then multiply this price range by the 10-year time frame 

we consider and the size of our anticipated customer base over that period, which 

gives us a revenue opportunity of $26–$54bn. 

In order to estimate the types of profit margins that could be realized from these 

kinds of schools, we compare the pricing used by the schools studied by Gray 

Matters Capital with the costs analyzed by Monitor in their work on Gyan Shala. The 

Hyderabad schools charge between $50 and $103 per student per annum, while the 

80 We include them in the Target Market, though we will haircut the penetration rate to 

account for the fact that they may not choose to use these kinds of schools. 

81 http://www.gyanshala.org/Introduction.html. 

82 Education for All, Global Monitoring Report, UNESCO, 2009. 

83 http://esa.un.org/UNPP/ 

84 India: Development and Participation, J Dreze, A Sen, (2nd ed.) New Delhi/Oxford: Oxford 

University Press as cited in The Relative quality and cost-effectiveness of private and public 

schools for low-income families: a case study in a developing country, , J Tooley, P Dixon, Y 

Shamsan, I Schagen, School Effectiveness and School Improvement, September 2009. 

85 Private Education for Low-Income Families, J Tooley, P Dixon as cited in Private Schools 

for the Poor: Development, Provision and Choice in India, R Baird, Gray Matters Capital, 

May 2009. 

86 Affordable Private School Initiative Research in Latin America, A Faulhaber, Gray Matters 

Capital, 2008. 

58





annual cost of providing that education is about $30–$65 per student per annum 

(based on Gyan Shala’s ultra-low-cost model and the cost structures of alternative 

affordable private schools analyzed by Monitor 87 ). These figures imply operating 

profit margins of about 35%. Making a more conservative assumption (particularly 

given we are comparing fees charged by schools that are different from the ones for 

whom we consider the operating cost), we will assume profit margins between 10% 

and 20%, which gives us an estimate of the potential profit opportunity of $2.6– 

$11bn. In our analysis, year 10 revenues provide the estimate for required funding of 

$5–$10bn. 

Challenges for affordable private schools: Late fee payment and high competition 

One of the challenges with providing services for BoP populations is managing the 

volatility of income cashflows that the customers experience. Within the education 

sector, this has been recorded by Gray Matters Capital’s research to the degree that 

71% of surveyed schools had 25–50% of fees pending. The research also cites such 

high competition in Hyderabad City that 93% of schools give concessions of some 

kind – such as free uniforms or textbooks – to attract students. Schools may be able 

to cope with the competitive landscape by operating in less penetrated cities and 

delivering high quality education (as quality is one of the main reasons parents 

choose to pay). The late fee payment question may be more difficult to manage but 

some schools mitigate this risk by retaining one month of recurring expenses as a 

reserve or by collecting portions of the fees throughout the month rather than in one 

lump sum 88 . 

Complementing government service provision 

As with water, education is a service often provided by the government. Several 

studies cite that the success of the affordable private schools relies on the quality of 

service (that they are deemed to be higher quality than government schools). One 

study has actually identified several relationships to give evidence to this otherwise 

anecdotal conclusion. In Private Schools for the Poor 89 , R Baird finds an inverse 

relationship between government education spending and private school enrollment, 

such that higher government spending corresponds to lower private school 

enrollment. Further findings include that high teacher absence in government schools 

also has a major statistical link with private school enrollment. 

Clearly, the absence of high quality government-provided alternatives can encourage 

parents to pay for their children’s education. However, should government spending 

(and consequently the quality of government schools) increase, private schools may 

naturally lose student enrollment. 

Further opportunities within the Education sector: Gray Ghost Ventures and 

education finance 

An ancillary model that has been successful within the education sector is one that 

provides financing for education. The Indian School Finance Company, for 

example, extends medium-term loans at market rates to affordable private schools 

in India. While the schools are mostly operationally profitable, many struggle to 

87 Introduction to the Gyan Shala Model, Monitor Inclusive Markets, September 2009. 

88 Private Budget Schools in Hyderabad City, India, S Joshi, Gray Matters Capital, 2008. 

89 Private Schools for the Poor: Development, Provision, and Choice in India, R Baird, May 

2009. 

59





invest in furniture, infrastructure or construction to grow their product offering. 

Also, many of the schools’ financing needs fall outside the reach of both 

microfinance providers (for which school financing requirements are too large) 

and typical SME finance providers (for which the financing requirements are too 

small). Gray Ghost Ventures specified that they pursued the finance avenue rather 

than actually building and running schools because their market research found 

local entrepreneurs were successfully delivering affordable education (across 

regions, including in Kenya, Ghana, Dominican Republic, Peru, China and India). 

Rather than competing with these local entrepreneurs, they sought to encourage 

their success, applied their experience in the microfinance sector and entered the 

education sector with a financial services model. 

Based on conversations with Gray Ghost Ventures, the economics of the business 

model sound attractive. While the interest rates are similar to microfinance (20– 

24% on a declining balance), the operational costs per loan are lower given the 

loan sizes are larger (minimum loan size is INR 500,000, or about $10,000). The 

Indian School Finance Company is targeting a return on equity of 20% once the 

business has reached scale (it is currently in its second year of operation). 

Sector by sector analysis: Financial services 

Given that the microfinance sector serving BoP customers is a more mature industry 

with more widely available data, we take a different approach, extrapolating from the 

available data on current market size. Modern microfinance emerged as a tool 

intended to create a vehicle for improving the access of poor people to affordable 

finance that could grow without reliance exclusively on donor capital. As such it was 

a quintessential impact investment intended to create social benefit along with 

financial return. While the microfinance industry continues to be a hallmark of 

impact investing, the recent flurry of commercial activity in microfinance does call 

into question whether all microfinance institutions will continue to constitute impact 

investments. For the purposes of this analysis, we consider the potential market size 

for microfinance that could be served by impact investors, but, as we have with the 

other sub-sectors, recognize that not all the businesses that seize this market 

opportunity will in fact have social purpose as an intent. 

60





MFIs vs. MIVs 

Investment flows into microfinance 

primarily through: 

- Microfinance institutions (MFIs) 

that provide microfinance loans to 

end clients 

- Microfinance investment vehicles 

(MIVs) that collect funding from 

investors and invest into MFIs 

While some of the data we use in 

this exercise references MIVs 

rather than MFIs (which we use as 

proxies), we focus in this section 

on sizing the potential capital that 

could be deployed to finance the 

MFI market. 

Focus on microfinance 

The microfinance sector is one of the most developed of the impact investment 

sectors notwithstanding recent problems related to excessive growth. The modern 

microfinance industry launched in the early 1970’s with separate initiatives in 

Bangladesh and India 90 , and has benefited from the development of infrastructure 

and data histories that have yet to be as well established in many of the other impact 

investment sectors. The Consultative Group to Assist the Poor (“CGAP”) has 

produced extensive market research, and the Microfinance Information eXchange 

(“MIX”) has collected a significant data set that they believe captures 80% of 

microfinance institutions globally. 

Microfinance sizing methodology 

In order to make use of the extensive data collected on the sector, we built a 

methodology that extrapolates from the current market size. We start with a list of 

country-by-country data from MIX, including total assets, total deposits, and 

penetration rates 91 . Using this data, we follow the calculation shown in Equation 1. 

Equation 1: Calculating potential invested capital 

⎛ Current invested capital 

⎞ 

Potential invested capital = ⎜ 

× Target penetration rate⎟ 

- Current invested capital 

⎝ Current penetration rate 

⎠ 

where 

Current invested capital = Total assets - Total deposits 


Our starting point is the current invested capital, which we define as total assets 

minus total deposits, since we assume the deposits are sourced locally rather than 

from impact investment. Then, in the bracketed part of the equation, we scale up the 

current invested capital to the amount it would be in case penetration rates hit 100%. 

However, given we think a 100% penetration rate is neither attainable nor healthy, 

we set a target penetration rate of less than 100% and scale down by this amount. We 

have also assumed a simplified set of two funding sources: invested capital and 

deposits. As the market matures, the MFIs will grow to access more diversified 

funding sources. In the future (and for some, currently) there may be access to 

interbank lending, repurchase or “repo” transactions, or even central bank funding. 

For the time being, we assume that these funding sources are not being accessed. 

90 In Bangladesh, BRAC was founded in 1972 and Grameen a year later while SEWA also 

began microfinance programs in India at the same time. 

91 See Appendix VI: Notes on market sizing for full data set. 

61





Table 23: Microfinance penetration 

rates currently above 20% 

Penetration rate = # of borrowers/# of 

poor adults 

Country 

Penetration 

rate 

Bosnia and 

Herzegovina 60% 

Mongolia 42% 

Montenegro 29% 

Vietnam 28% 

Bangladesh 28% 

Paraguay 24% 

Mexico 24% 

Sri Lanka 22% 

Morocco 21% 

Cambodia 21% 

Source: MIX Market, J.P. Morgan. 

Choosing Target penetration rates: 20% over 10 years 

In choosing the target penetration rate we aim to capture a healthy potential rate of 

growth over the next 10 years. Anecdotally, some of the markets with penetration 

rates higher than 20% (Table 23) are exhibiting symptoms of multiple lending and 

significant over-indebtedness. Since high growth can result from lending more to the 

same population rather than increasing the penetration into new markets, we prefer to 

target a more conservative growth estimate. Targeting a lower penetration rate than 

might be achievable over the coming years can allow the companies to tackle the 

costs of accessing new customers in new regions, increasing their market penetration 

in a more gradual way. 

Sizing the market: $176bn could capitalize the market over 10 years 

Once we have identified the target penetration rate, we can apply the calculations in 

Table 24. We start with the calculation from Equation 1 for each country’s 

microfinance sector (using the MIX data set, which represents about 80% of the 

market) and determine the potential investment capital for each country (excluding 

any countries for which the penetration rate is already higher than 20%). Adding 

these up gives the $150bn of potential invested capital for the MIX data set (line 1) 92 . 

Table 24: Microfinance market sizing 

USD bn Calculations Assumptions 

1 Potential invested capital for MIX data set 150 Sum of country data using Equation 1 as at 2008, using 20% target penetration rate 

2 Potential invested capital for global MFIs 187 Line 1 / 80% as at 2008, MIX data represents 80% of global MFIs 

3 Potential invested capital for global MFIs 269 Line 2 ( (1+20%)^2 as at 2010, applying global growth rate of 20% 

4 Percentage currently funded by the private sector 66% From the CGAP 2010 MIV Market survey 

5 Private sector investment opportunity 176 Line 3 ( Line 4) 

Source: J.P. Morgan. We omit any countries where current penetration rates are higher than 20%. Private sector market opportunity is the sum of the sum of investments from private individuals, 

private institutions and fund-of-fund MIVs. The investments surveyed by CGAP reference in Line 4 are MIV investments, which we take as a proxy for MFI funding sources. 

Then, we scale line 1 by 80% to capture the part of the market not represented by the 

MIX data (line 2), and we grow that amount by 20% annually 93 to bring the potential 

invested capital for global MFIs to a 2010 number: $269bn (line 3). Finally, we 

apply the percentage of investment that comes from private sector investors (66% as 

determined by CGAP 94 , line 4) to find that the potential private sector investment 

opportunity in microfinance is $176bn. As with the other sectors, we take this to be a 

number representative of the currently unfunded market opportunity over the next 10 

years. 

We note at this point that we have aimed to size the potential opportunity for 

microfinance such that the market does not fall down the path of indebtedness and 

multiple borrowing that we have recently seen in markets that have undergone very 

rapid growth. The potential market could clearly be bigger than our estimate, but we 

hope that growth in this sector will remain driven by the social mission and avoid 

putting borrowers into challenging debt situations. Indeed, the recent problems in 

India highlight the critical need for strengthened credit risk management and 

regulatory frameworks. 

92 How many borrowers and MFIs exist, A Gonzalez, MIX, December 2008. 

93 According to CGAP, growth in microfinance investment vehicles (MIVs) slowed in 2009 to 

25% from 34% in 2008. Since we are analyzing microfinance institutions (MFIs) and not the 

vehicles that invest in them, we will be slightly more conservative and use the lower 2009 

growth rate as our proxy for the MFIs. 

94 CGAP 2010 MIV Survey. 

62





Putting the size in context: Potential market is almost 5x the current market 

The current invested capital (total assets minus total deposits) in the microfinance 

market is about $37bn 95 . This means that our estimate will allow for the market to 

grow by just over five times in the next 10 years. We recognize that some of this 

capital may come from increased deposits rather than impact investment as MFIs 

encourage their customers to save as well as borrow with them. Our analysis does not 

take this potential increase in deposits into account. While there has been significant 

growth already, and growth rates are slowing down from 34% in 2008 to 25% in 

2009, our analysis reveals that there remains room for impact investment capital in 

this market. 

Segments we haven’t measured 

As stated earlier the above framework has been applied only to some sub-segments 

of the impact investment market and leaves significant scope for further research and 

refinement. We expect a full and complete sizing effort would produce invested 

capital and profit numbers many multiples of those we’ve presented above. In 

addition to the fact that we only tackled sub-segments of the five sectors we 

analyzed, the following significant segments of the market were left out due to 

limitation in data availability, methodological challenges, and/or simply to keep 

manageable the scope of analytical work for this particular report. 

Agriculture 

Impact investments in agriculture can span businesses providing food to BoP 

customers, BoP suppliers of food or other agricultural inputs, businesses providing 

logistical support such as storage and distribution, and businesses that organize or 

aggregate smallholder farmers’ products to capture higher value in domestic or 

export markets. Due to the challenges in finding a representative case study, we 

leave an analysis of this sector for future research. 

Energy 

We did not attempt to size the market for clean energy products, given the wide array 

of product and business types, and often the significant regulatory hurdles for 

scalable business solutions. Clean energy services and products include solar home 

systems, solar lanterns, energy efficient cook stoves, and hydro- or waste-biomass 

generated electricity. The potential for clean energy solutions for the BoP market is 

huge – a recent study 96 conducted by IFMR Research-Centre for Development 

Finance and the World Resource Institute estimated that the consumer market in 

India alone is $2.1bn per year. 

Small and Medium Enterprise (“SME”) finance 

We have not attempted to separately size the SME finance market due to both the 

significant overlap between the SME market and the various sectors (education, 

housing, etc.) that we have measured, where many impact investments would be 

defined as SME, and the difficulty in determining what subset of the SME market 

serving or employing the BoP+ populations can be considered to represent an impact 

investment (i.e. operating with social intent). 

95 About $30bn is measured by taking the total assets minus total deposits across the MIX data 

set. We then scale by the 80% representative factor to arrive at $37bn. 

96 Power to the People: Investing in Clean Energy for the Base of the Pyramid in India, IFMR 

Research-Centre for Development Finance and the World Resource Institute, October 2010 

63





Technology 

Many experts focus on the potential to spur development through the adoption of 

technology, especially technology that promotes information and communication 

(“ICT”). This interest has accelerated recently with the explosive spread of mobile 

phones across the developing world. Entrepreneurs are developing business models 

that use this new mobile phone infrastructure to deliver basic services such as 

healthcare, education, agricultural information and, most successfully, the basic 

banking service of money transfer. For the purposes of our analysis, we do not 

consider technology as a basic service that constitutes a discrete sub-sector of impact 

investing. Instead, technology will play an increasingly important role as an input to 

business models that seek to reduce costs in serving dispersed populations of poor 

customers (and will therefore be incorporated in comprehensive analyses of these 

sub-sectors). Future research could determine what components of technology 

investment are most socially beneficial and suitable for impact investment capital. 

Investments in infrastructure 

According to the World Bank, emerging countries need 7 to 9 percent of their GDP 

per annum, or approximately US$400bn, to address their core needs in building 

infrastructure. Historically, though, less than half of this amount has been invested in 

infrastructure development and maintenance, leaving a financing gap of 3.5 to 4.5 

percent. 97 Further, according to the World Economic Forum, this underestimates the 

true need as it excludes electricity transmission, waste-water treatment, urban 

transport, ports, airports, and oil and gas. Including these sectors would bring the 

annual investment need to more than US$900bn or close to 20 percent of the GDP of 

emerging countries. In total then, the investment need could be as high as US$3 

trillion per annum globally (or close to 5 percent of current global GDP), of which 

approximately US$1 trillion per annum needs to be spent in emerging countries. 98 . 

We presented the opportunity for investment into water service for the BoP above, 

but broader opportunities exist within infrastructure. Ports, roads, on-grid power 

generation, and large-scale water delivery are all examples of products or services 

that could greatly improve the lives of BoP+ populations. Poor roads for example 

contribute to post-harvest food losses that can range from 15% to as high as 50% of 

what is produced. 

Demographic changes over time 

are also ignored in our analysis. 

Economic growth in emerging 

markets can propel some of the 

BoP populations into higher income 

categories, outside of our target 

markets. On the other hand, fiscal 

crises and financial shocks can 

have the reverse effect. Rather 

than take a view on how these 

demographic changes will 

materialize, we assume current 

dynamics will remain as they are. 

“Plus populations” (those that make up the BoP+ category but are not BoP) 

As we have explained earlier, impact investments do include businesses that serve or 

employ poor people that earn more than the strict WRI definition of $3,000 per 

annum. However, we have not endeavored in this report to define which segment of 

the more developed countries’ populations would be considered in the BoP+ 

classification and leave that for future research. 

Investments that generate impact through their business processes 

Our market sizing work has focused on business models that deliver affordable 

products or services to BoP populations, which is one segment of the “means of 

impact” characterization we presented in Figure 7. The other segment includes 

businesses that employ BoP (or BoP+) people. Root Capital, for example, engages 

97 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World 

Economic Forum, August 2010. 

98 Paving the Way: Maximizing the Value of Private Finance in Infrastructure, World 

Economic Forum, August 2010. 

64





BoP suppliers of food products for export. The typical impact thesis for investments 

such as these is that connecting BoP suppliers more effectively with the markets will 

increase the reliability and amount of income those suppliers can generate from their 

produce. We fully acknowledge the financial and social value of investing in BoP 

supply chains, but refrained from sizing this portion of the market. 

65





Appendix I: Managing impact investments 

One of the most challenging aspects of participating in impact investments is 

managing the risk. It is an asset class where we find peculiar financial behavior – as 

evidenced by the flat yield curve from the Calvert Foundation database as analysed 

in Appendix V: Additional Returns data – and many investments will be made in 

countries where even hedging currency moves can be a challenge. Still, the risk 

management is not unlike that required for venture capital or high yield debt 

investments, particularly in emerging markets. 

The risks for impact investments are similar to those for venture capital or high 

yield debt investments, with heightened reputational risk 

A venture capital or high yield debt investment can be characterized by the earlystage 

nature of the business in which the investment is made. Many impact 

investments are similarly early-stage private companies that often operate on small 

scales. These kinds of investments involve several different types of risk typical in 

traditional investments, including: company risk, country risk, and currency risk. 

Further, and particular to impact investments, are certain legal and reputational risks 

that arise especially when operating in emerging markets and with vulnerable 

populations. We start by discussing these impact investment-specific risks, and then 

return to the more general financial risks that investors will need to understand. 

Legal and reputational risks 

When setting up a new business, there are always legal and regulatory hurdles that 

will take some resources and time to accommodate. This can be amplified for impact 

investments, particularly when operating in emerging markets. We will focus on 

those cases in this section, and acknowledge that some of the same will be true in 

developed markets, but (hopefully) to a lesser extent. 

Legal and regulatory infrastructure in local markets can be onerous 

In his book The Mystery of Capital, Hernando de Soto puts forward the theory of 

“dead capital”: That in too many countries the barriers to legal ownership result in 

informal ownership that then inhibits the owner from later being able to realize the 

value of assets. De Soto points out that many transactions in emerging markets are 

not legally enforceable transactions. The "obstacles to legality" include the sheer wall 

of bureaucracy that can face business or asset owners, and the cost of legal 

registration. For example, in Peru, he cites that it took his team 289 days of working 

six days a week to fully register a garment workshop, which then cost them $1,231 – 

31x the minimum wage. According to de Soto, 4.7 million people in Egypt chose to 

build their dwellings illegally rather than face the 77 bureaucratic procedures that 

could take anywhere from five to 14 years 99 . Particularly if the scale of the business 

is small, the time and resources required to obtain approvals and secure legitimacy 

for the business can be very onerous. Water Health International, a business that sells 

purified water to BoP customers cites the ability to get all the necessary paperwork 

completed as one of the main hurdles to successfully building scale in their business. 

In addition to legal and regulatory challenges upon inception of the business, there 

may also be changes to legal and regulatory regimes over time, or challenges to 

99 The Mystery of Capital, Hernando de Soto, 2000 

66





transitioning the business as it grows or changes ownership. For many impact 

investors, the path to exiting a private equity investment in an emerging market can 

be less clear than say for a venture capitalist operating in developed markets. While 

these risks will introduce challenges to the growth of impact investments, they will 

hopefully be manageable with local management teams who can more easily 

maneuver within the local regimes. This again points out the value of having a local 

team that is fluent in the legal framework (and the politics that might change that 

framework) within which the business will be operating. 

Reputational risks: Profiting from the poor? 

While the impact investment marketplace is growing mostly out of a combined value 

set of financial gain and positive social impact, there will be those that identify 

impact investors as profiteering from the poor. The recent global financial crisis will 

no doubt provide further evidence to support the claims of skeptics that capitalism 

left unchecked can be more destructive than constructive toward economic growth. 

An impact investment must constantly balance the dual imperative of generating 

positive social impact and profit. Some impact investment business models, 

especially those employing high-volume, low-cost approaches are able to drive 

financial return and social impact together with impact and profit correlated as the 

business expands. But it would be naïve to believe that these two imperatives are 

never in tension. In pursuit of more profit, a business may be inclined to target 

relatively better-off customers, raise prices to take advantage of the lack of 

competition often encountered in underserved markets, or take cash out of the 

business rather than reinvest in innovation to enable even broader customer reach. 

Indeed, within the microfinance sector, some concerns about mission drift are 

already beginning to appear. As purely commercial investors (that may not be 

committed to “double bottom line” business) take stakes in impact investments, 

observers fear that the companies may succumb to pressure to prioritize financial 

returns over social impact. When Banco Compartamos SA, Mexico’s largest 

microfinance institution, went public in 2007, many market participants expected the 

social mission to become a secondary priority for the new set of shareholders, and 

consequently for the management. Similar questions arose when Sequoia Capital, a 

traditional private equity investor, took a stake in India’s SKS Microfinance Ltd., and 

when the company went public in July 2010. 

The proliferation of microfinance has also resulted in increased rates of 

overindebtedness in some countries. Referencing this and the high interest rates that 

some microfinance institutions charge, some observers will claim that these finance 

institutions pursue growth at the expense of the financial health of their customer 

base. 

Beyond microfinance, many impact investments that seek to deliver basic services 

such as clean water, healthcare or electricity to poor populations will encounter 

opposition from those who believe that access to these services are human rights that 

government, and not private markets, are obliged to provide. These rights-based 

principals have been enshrined in numerous international covenants; most recently 

the UN Declaration in July 2010 that access to water and sanitation is a human 

67





right 100 . In practice, many poor people are still unable to freely access these “human 

rights” and acquire these services from private markets (often incurring the “bottom 

of the pyramid penalty” with higher prices than their middle-class compatriots). 

Despite this reality, skeptics will maintain that private sector solutions for these kinds 

of services are exploiting their consumers by charging for what should be free of 

cost. Impact investors will need to recognize that when their business seeks to 

provide basic services they are operating in a complex social and political context. In 

some cases they will also be competing directly with government agencies tasked 

with providing the same service to the same population but failing to do so in a way 

that satisfies demand from poor customers. This creates an especially complicated 

operating context that can easily flare up as evidenced in the 2010 controversy over 

microfinance in the Indian state of Andhra Pradesh that resulted in strong 

government action to curtail for-profit microfinance institutions. 

Mission drift and exploitation are risks that are amplified when BoP are affected 

We believe that mission drift (or even false claims of an impact mission) and 

exploitation are legitimate concerns and impact investors should ensure the right 

metrics are in place to monitor their portfolio companies. These are concerns that one 

should apply when making any investment, where due diligence processes assess 

management values and growth targets. In the case of impact investments, however, 

the consequences of a business exploiting its customers can be particularly 

devastating, given how little they have.. It is crucial, for these reasons, that impact 

investors demand transparency and measure for themselves whether their 

investments uphold their initial claims of producing positive social impact. 

The philosophy: Economic engagement of BoP+ can build a path out of poverty 

The question of whether it is right to make money from the poor is philosophical. In 

our experience, impact investors have resolved this question in several ways: 

1. Impact investments can reduce the BoP Penalty 

Poor people already pay for goods and services, often with unreliable quality and 

at higher prices than their middle class compatriots (the BoP penalty). 

Introducing more efficient and lower cost means of supplying products and 

services can improve quality and reduce the cost to the end user, while still 

generating enough profit to make the service provider financially sustainable. 

This results in a better situation for the clients, freeing them from relying on other 

providers that would charge more or from the reliance on philanthropic or 

government aid money, which can be redirected to other purposes in the future. 

2. Philanthropic or government money will be limited 

Across sectors, for-profit business channels can deliver services to more people 

sooner than would be reached by government and donors alone and can leave a 

smaller burden for government and philanthropy to address. For example, the UN 

states that almost 900 million people worldwide do not have access to clean 

water 101 , despite annual global expenditures estimated at $485bn 102 in 2005. 

While philanthropic initiatives and government subsidy will always be needed to 

100 General Assembly declares access to clean water and sanitation is a human right, UN 

News Centre, 28 July 2010. 

101 General Assembly declares access to clean water and sanitation is a human right, UN 

News Centre, July 28, 2010. 

102 Charting our Water Future, The Water Resources Group (available on the website of 

McKinsey & Company), citing Global Water Markets 2008, Global Water Intelligence. 

68





provide water to those below a given income level (our income bracket F from 

Section 4. The potential BoP market opportunity), affordable business solutions 

can be designed to reach some portion of that 900 million. Similar analysis shows 

the opportunity for business to reduce the basic service gaps in education, 

healthcare provision, and the other impact investment sectors. 

3. Impact investments can spur economic growth, promoting a path out of poverty 

The real goal for many in targeting impact investments toward the BoP+ 

population (BoP plus the underserved populations in developed markets), is to 

promote a path out of poverty. While the literature remains inconclusive about 

the poverty-alleviating power of economic growth alone, sustained economic 

growth that ensures a reasonable distribution of surplus between poor customers, 

suppliers and employees is a powerful anti-poverty engine. The development of 

financially-sustainable businesses that provide affordable services and 

employment is a critical component. 

Rounding out our thoughts on this question is a concept inherent in our original 

definition: The intent with which the business is designed. After all, if the business is 

intended to help people while maintaining financial sustainability, we should hope 

that the best efforts will be made to introduce cost-lowering solutions, increase 

efficiency and charge reasonable (and not exorbitant) prices, sufficient to ensure the 

financial sustainability of the business. 

Despite these best efforts, impact investors will need to manage carefully the 

political and social risks inherent in selling life-sustaining services to poor and 

vulnerable communities. Having seen the risks that are more specific to impact 

investments, we now return to the financial risks that are common to both impact and 

traditional investments. 

69





Financial risk: Company, country and currency 

Company risk 

Company risk is the risk affiliated with the particular entity in which the investment 

is made. As impact investments are often private companies, due diligence is key in 

ensuring that the company applies sufficient rigor in its accounts and operations. In 

this respect, impact investment is not unlike traditional venture capital where a 

premium must be placed on understanding and vetting the character and capabilities 

of the management team. For impact investors buying directly into a company, 

visiting the premises of the company and getting to know the management can 

provide some insight as to the policies and procedures by which the company abides. 

For fund investors, visiting the fund headquarters as well as some of the portfolio 

companies will similarly provide comfort in the management practices. Many of 

these companies and funds will also be first-time operators, so investors should 

expect some degree of learning from mistakes as processes are refined. 

However, there will be several risks that can arise even for a diligent management 

team. Fraud can be just as common in these investments as it is in other companies. 

Political challenges can also crop up if the company is disrespectful of community 

culture or it is seen to be competing with initiatives already attempting to deliver the 

same product or service. For example, in 2008, local politicians in Pakistan were 

encouraging borrowers to withhold repayments on their microfinance loans, feeding 

into a more general “borrowers’ revolt” in that region 103 . A similar problem arose in 

Nicaragua when a group of politically influential borrowers in one northern region 

decided to forgo their payment obligations 104 . Given the sensitive nature of the 

services provided, in many impact investments, businesses must recognize that they 

are dealing not just with customers but with citizens who can mobilize political 

opposition to collateral collection or debt payments. If the company fails to manage 

these kinds of risks, the financial performance of the company and the investment 

will suffer. 

Hedging company risk is most commonly done with credit default swaps for larger 

companies. For impact investments, it is unlikely that there will be liquidly traded 

credit default swaps, and shorting bonds or equity is unlikely to be possible. The best 

protection against credit risk is likely to be a thorough due diligence process both at 

the time of investment and throughout the investment holding period. 

Country risk 

The political risks that we mentioned on a community basis can challenge an impact 

investment when they occur on a national scale. Country risk is common to 

investments made in emerging markets, whether impact investments or traditional. 

The recent financial crisis has shown, though, that country risk can significantly 

affect investments made in the developed world as well. Sovereign stress can come 

in the form of heightened financial risk pushing funding costs higher, and in extreme 

cases can even result in a sovereign default. If a sovereign reveals financial data that 

brings investors to question its solvency, it will be faced with higher funding costs. 

Its limited access to financial markets could lead to a liquidity crisis forcing 

emergency fiscal consolidation that would impact the companies operating in that 

country. 

103 Unraveling the delinquency problem (2008/2009) in Punjab – Pakistan, H Burki, October 

2009. 

104 Growth and Vulnerabilities in Microfinance, G Chen, S Rasmussen, X Raille, CGAP, 

February 2010 

70





Furthermore, if the fiscal consolidation (emergency or not) is unsuccessful, the 

sovereign may be left with no choice but to restructure its debt. This could impact the 

companies within that country in a few possible ways. 

1. If the companies hold government debt, losses from the debt restructuring can 

significantly affect their financial health. Financial institutions in particular tend 

to hold government debt, so the financial services sectors – microfinance and 

SME finance – of the impact investment universe could be especially at risk 

should the sovereign restructure its debt. Even if the particular impact investment 

does not own government debt, it will likely be affected indirectly by the increase 

in bond yields of the sector in which they operate. 

2. If the government debt is not held by the local companies, then there may be less 

of a direct impact on their financial health. However, the indirect impact of higher 

funding costs is likely to remain in place as many of these companies will be 

borrowing from financial institutions that may be holders of the government debt. 

With losses on the books, lending standards would be likely to tighten and 

borrowing costs could increase to compensate for those losses as well. 

Furthermore, foreign investors will also be likely to price in sovereign risk to the 

company itself, particularly as there will likely be further uncertainty as to 

sovereign policies going forward. 

Hedging country risk is also possible through sovereign credit default swaps, though 

liquidity will be challenging in many of the BoP markets we analyze and the required 

trade size may also be too large to make sense for most impact investments. Should 

the size and relevant country be accessible, the cost of hedging may be too high for 

debt investments, but may make sense for equity investments where higher returns 

are expected. 

Currency risk 

Currency risk will likely coincide with sovereign stress and uncertainty. As such, it 

will be driven by investor perception of the solvency of the country, but can also be 

impacted by technicals in the market. For example, Hungarian Forint, Mexican Peso 

and Turkish Lira are popular currencies from which to earn carry for many investors. 

The concentration of positions held by foreign investors and fears of contagion 

across the emerging markets can exacerbate volatility in times of general market 

stress, even if there is no particular country-specific news. 

Hedging currency risk depends on whether there is liquidity available in the 

currency. The most common hedging instrument is the non-deliverable forward, 

which allows investors to lock in a forward exchange rate at a given time in the 

future. In A Primer on Currency Risk Management for Microfinance Institutions 105 , 

we present currency hedging considerations in more detail. The document is written 

with microfinance institutions in mind, but is generally applicable for hedging impact 

investments more broadly. 

Having seen the legal, reputational and financial risks with which an impact investor 

will be faced, we can now turn to the question of measuring the social impact of 

investments. After all, alongside the financial return and the financial risk, the social 

impact is equally critical to the success of the impact investment. The next section 

105 Published by J.P. Morgan Social Finance, 2010. 

71





explores how social impact is currently measured and what initiatives are in place to 

standardize this measurement across sectors and investors. 

Throughout, we use the term 

“social” to include social and 

environmental. 

Social impact risk: Metrics, standards and ratings 

We have defined impact investments as investments intended to create positive 

impact beyond financial return, which allows us to identify impact investments at the 

time of investment. But we cannot assess whether one of these investments has been 

successful without measuring the financial returns and the social impact. The 

financial performance measurement is arguably simpler (we’ve done this in Section 

3. Financial return expectations), as metrics are more readily transferred from the 

traditional investment world to impact investments 106 . Measuring social impact, 

however, remains a work-in-progress for many market participants, and in this 

section we explore the tools that are currently under development. 

Defining our terminology: Outcomes vs. output 

Before we can speak of impact measurement, we should define just what we are looking to measure. This section discusses the 

measurement of ‘impact’ because that is the term used by most market participants. However, in social science, ‘impact’ has a specific 

definition: it describes outcome(s) that can be attributed to a particular intervention, as depicted in Figure 26. An academic impact 

evaluation of a bednet manufacturer, for example, might entail a multi-year study on the incidence of malaria among target customers, 

with a control group to understand what would have happened to those customers if the company had not sold them bednets. This type 

of evaluation would provide the greatest possible certainty that the bednet company had delivered the social impact intended by its 

management. 

Figure 26: Impact Value Chain 

INPUTS ACTIVITIES OUTPUTS OUTCOMES 

GOAL 

ALIGNMENT 

What is put into 

the venture 

Venture’s 

primary 

actions 

Results that can 

be measured 

Changes to social 

systems 

Activity and goal 

adjustment 

WHAT WOULD 

HAVE HAPPENED 

ANYWAY 

LEADING INDICATORS 

= IMPACT 


Rigorous impact evaluation, including Randomized Control Trial (“RCT”), is powerful, but onerous and expensive in practice. 

Many impact investors therefore settle for measuring ‘activities’ or ‘outputs’ (such as number of bednets sold) rather than running 

control groups to measure the ‘impact’ 107 . Investors balance the need for rigorous impact evaluation against the need for simple, 

cost effective ways of measuring this impact. We believe the tools being developed to balance these needs should build on 

knowledge generated by the existing body of academic literature, while acknowledging the need for systems that add value and are 

pragmatic for investment activity. 

72 

106 While there is room for debate around the financial metrics of impact investments (such as 

‘risk-adjusted’ return), we leave the more detailed exploration of that topic for future research. 

107 There could also be ethical questions about running control groups if it meant denying the 

product or service to a part of the population that should have equal access.





Investors measure impact for many reasons, and in many ways 

Participants in the impact investing industry are motivated, at least in part, by the 

desire to create positive impact. Entrepreneurs, fund managers, Limited Partner 

investors, service providers and other stakeholders may vary in the theories of social 

change with which they approach their investments, in the relative importance they 

place on impact or profitability, or in their requirements for impact measurement 

systems. Nonetheless, each will need some degree of information about the social 

performance of their investments. Even some traditional investors have begun to 

track the social performance of their portfolios in order to understand the impact they 

are having and the relationship between these metrics and financial return. 

Social impact can inform investment covenants, performance targets or certifications 

Beyond their own understanding of their impact, entrepreneurs and fund managers 

are also asked to provide social performance data to their investors. In some cases, 

the data is requested for initial due diligence or on an ongoing basis as a condition of 

investment. In other cases, they influence the way an investment is structured, 

informing covenants or performance targets the company is expected to meet over 

time. In addition, metrics may also be used for certification (e.g. fair trade labeling), 

compliance with regulatory requirements (e.g. Community Reinvestment Act 

investments in the US) or to access public loan guarantees or preferential tax 

treatment (as is the case with the GroenFunds scheme in the Netherlands). At an 

industry-wide level, social impact measurement will also ensure that the industry can 

demonstrate its ability to deliver multiple bottom line performance. 

Social impact performance data allows for comparisons across investments 

In addition to having different reasons for measuring impact, participants in the 

impact investing industry will use the measured data in different ways. Companies 

want to understand, track and report their social performance, and compare their 

performance with that of their peers. Fund managers also need a system for 

managing the variety of social performance information they receive from their 

portfolio companies. Limited partner investors often invest across different 

geographies, sectors and asset classes, with investments directly into companies as 

well as funds. They require an overarching framework to facilitate comparisons 

across these varied investments. 

Measuring impact is complicated, expensive and subjective 

Some investors seek a credible agency to whom they can effectively outsource their 

social due diligence; others want to perform this function in-house, but need a set of 

analytical tools to use. Almost all industry participants seek a set of industry 

benchmarks that can provide a standard framework for understanding the social 

performance of a company or fund, but there are significant challenges to designing 

the right system: 

1. Data collection can be resource intensive, expensive and difficult to execute 

In order to measure social impact, one needs data about a company’s practices, 

suppliers and clients. This data typically must be collected and reported by the 

company itself. Since many impact investments are small companies located in 

countries with limited infrastructure, the data can be difficult and costly to 

collect. As a result, company management may consider data collection as a 

distraction from business priorities, particularly in cases where investors’ impact 

goals are more expansive than those the company sets for itself. 

73





2. The tension between feasibility, credibility and cost 

In order to be certain of the relationship between a company’s activities and the 

desired social impact, an investor must know what would have happened absent 

that company’s activities. Furthermore, he must know what would have happened 

to the company were it not for his investment. As we described above, 

measurement against a control group is often considered the best way to answer 

these questions, but is often prohibitively expensive (or impossible) in practice. 

Investors can also be more confident in social performance data when it has been 

audited, ideally with third-party verification. Self-reported social performance 

data, much like financial data, are susceptible to error and deliberate 

misrepresentation. An assurance process, however, introduces significant costs, 

and it remains unclear how much investors will pay to enhance the credibility of 

social performance data. 

3. Impact investments exist within a complex system of impacts 

Social impact is difficult to parse out and attribute to a specific intervention. The 

extent of social impact of a water delivery business for example will result from a 

complex interplay of forces in a community including education levels, public 

health campaigns, or potential new job opportunities. Assessing social impact 

requires an understanding of the system in which a business operates that cannot 

be developed from company-level data alone. 

4. Diversified investors need to balance custom metrics and universal frameworks 

Investors that concentrate their impact investments in a single sector, such as 

microfinance or green real estate, may find that a single set of metrics is sufficient 

for assessing the social performance of their entire portfolio. For investors that 

invest across sectors and geographies, however, relying on a customized set of 

metrics for each business model or sector may make it difficult to understand the 

impact they are having across their portfolio or to compare potential investments. 

Diversified investors will seek out a common framework for understanding 

impact, which requires a less specific set (and weighting of metrics) that are 

comparable across investment types. 

5. Different people have different opinions about what matters 

There is no single metric for assessing the impact of an investment because 

people value things differently. Some investors, for example, place a high 

premium on environmental performance; others may consider poverty alleviation 

a much more important goal. Investors in a bednet manufacturer in India may 

differ in their views on whether the company creates more value by creating local 

jobs or by maximizing bednet production. Others will debate the importance of 

the bednet itself compared to clean water or education. 

6. Even if we agree on what matters, different metrics will give different conclusions 

In Does Microfinance Really Help Poor People (R Rosenberg, CGAP 2010), 

CGAP argues against two studies that found no evidence that microcredit loans 

improve household income or consumption over a 12- to 18-month period. CGAP 

proposes that those studies are measuring the wrong thing: that the impact of 

microfinance is best reflected by the increase in reliable access to financial 

instruments rather than in a change in household financial status, since many 

borrowers will already have had access to financial instruments via informal (but 

unreliable) providers. Further, they argue that while it seems unlikely that a year 

of microlending helps poor people as much as a year of primary education, the 

fact that the same level of government subsidy can support many more people to 

74





access financial services than to access education should be considered when 

weighing these alternative uses of capital. 

The values attached to social impact are by nature subjective and often driven by 

emotion (just as people tend to donate to charities with which they feel some 

connection). As a result, it is difficult to be objective when constructing an impact 

measurement system and when comparing investments on the basis of their impact. 

Investors often implicitly assign value to certain types of impact over others when 

deciding where and on what terms to allocate their capital. By instituting standard 

approaches to impact measurement, the industry can become more objective and 

transparent around the drivers of investment decisions. 

Reporting standards need to grow from the right definitions 

To date, most impact investors have created their own systems for tracking and 

measuring impact, which is inefficient for the market as a whole and limits 

comparability across investments. Indeed, among our survey respondents only 2% 

currently employ a third-party impact measurement system. As the market has 

grown, participants have identified that standardized, well-defined social 

performance metrics will ensure that impact investments can be assessed against a set 

of rigorous social impact criteria and compared more broadly. 

In defining measures of social impact, these standards must find the line between a 

level of detail that is too onerous to collect and one that is too superficial to be useful. 

For example, when asking businesses to collect data on the jobs they create, it may 

be reasonable to expect them to report the wages they paid, any benefits they offer 

and the skill level of the worker prior to employment. These are data that good 

management will know about their employees. But to rigorously assess the social 

impact of these jobs would also require additional data such as their prior income 

level and job history, and the alternative job opportunities in the community. It is 

unlikely that all businesses in an impact investing portfolio would be able to record 

all these data in a cost-effective and comparable manner (particularly without 

consistent definitions and data measurement standards). 

A common language for social performance metrics will encourage transparency, 

credibility and comparability, just as the International Financial Reporting Standards 

(IFRS) provide transparency and comparability across financial performance reports. 

A common taxonomy prevents the (false) side-by-side comparison of companies and 

funds on the basis of social metrics that may share the same name but have different 

underlying meanings, such as ‘jobs created’ and ‘number of poor consumers served’. 

Common reporting standards will also streamline and simplify the reporting 

requirements of entrepreneurs and fund managers, who sometimes face inconsistent 

requests for information from investors. 

IRIS is building the taxonomy to standardize social impact reporting 

If it is to be successful, this common language should function as a non-proprietary 

public good 108 . The Impact Reporting and Investment Standards (IRIS) initiative was 

launched in 2009 as a project of the Global Impact Investing Network to develop this 

taxonomy and provide a reporting framework that is applicable across a range of 

108 It would not serve the interests of the industry, for example, to have multiple competing 

definitions of basic social metrics. Common reporting standards will also enable a variety of 

industry infrastructure to emerge, many of which may be private or proprietary in nature. 

75





sectors and geographies. The standards include metrics related to the social aspects 

of a business’ operational practices as well as of its products and services. 

The standards are overseen by an independent governance body that provides 

guidance toward the ongoing advancement of the framework and ensures its 

alignment with existing best practices. Furthermore, the standards are updated 

through an iterative review process that involves broad participation and objective 

consideration of comments provided by various industry stakeholders. 

With standard metrics in place, benchmarks can be developed 

Among other things, a set of standard definitions enables the production of industry 

benchmarks, and the IRIS initiative maintains a repository of IRIS-compatible 

performance data generated from across the impact investing field. These data are 

kept anonymously and, once sufficient data is collected, will be used to produce 

industry benchmarks and other aggregate analyses. 

Investors need to adopt this taxonomy to provide industry-wide comparability 

Common reporting standards will only improve investment efficiency and market 

intelligence with widespread adoption. The success of the IRIS reporting standards 

relies on broad participation by organizations that are committed both to assessing 

their social impact and to understanding the industry’s impact more broadly. 

Impact rating systems will help inform investment decisions (and lower costs) 

With the IRIS reporting standards in place, a wider set of specialized information 

services, such as impact ratings, can reference that framework. Just as in financial 

risk measurement, a third-party rating system can reduce investors’ due diligence 

costs and enable performance benchmarking over the life of an investment 109 . 

Ratings can also improve the social impact of an investment by creating clear 

guidelines about what generates impact and enforcing accountability for impact 

across the sector as it grows. Specialized ratings have been developed in 

microfinance and US community development finance, which are among the most 

mature sectors of impact investing. The recent proliferation of investment 

opportunities across a variety of sectors, as well as countries, requires impact rating 

systems with equally broad reach. 

GIIRS will assign relative value to investments’ social impact 

The Global Impact Investing Rating System (GIIRS) was launched in 2010 in 

response to this need for a broader impact rating system. GIIRS, which is being 

incubated by the independent non-profit organization B Lab, will assess the social 

impact of companies and funds using a ratings approach analogous to S&P credit risk 

ratings. The GIIRS methodology utilizes IRIS reporting standards wherever 

applicable, and provides an overall company rating that is based on sub-ratings 

across five stakeholder categories and multiple sub-categories. 

GIIRS will provide company and fund ratings in both developed and emerging 

markets, and supplement individual ratings with tailored key performance indicators 

as well as benchmark and trend analysis. It is well suited for a number of impact 

109 We caution investors against relying solely on third-party ratings as nothing should 

substitute due diligence; rather they should be taken in conjunction with due diligence and can 

provide a standardized source for much of the information that currently is predominantly 

obtained through interviews that can be time consuming for both the investor and the investee. 

76





investors because it provides comparable ratings across diverse portfolios of 

investments, and investors have access to an aggregate rating, sub-ratings and 

individual underlying data points. A robust assurance process, which is being 

developed in coordination with the sustainability team at Deloitte, is intended to 

provide a high degree of confidence in the accuracy of data reported for investors. 

The current plan is to develop new versions of the rating methodology every two 

years under the oversight of an independent standards board. This dynamism is 

designed to enable the rating methodology to keep pace with developments in 

academic impact evaluation, evolution in business models and the experience of 

company and fund managers in collecting and reporting data related to social 

performance. 

77





Appendix II: Glossary and acronyms 

• Angel investor: An affluent individual who provides capital for a start-up 

enterprise, usually in exchange for some stake in ownership equity. 

• BoP: The “Base of the pyramid” describes groups of people in emerging markets 

who earn less than $3,000 a year (2002 PPP) (World Resource institute.). 

• BoP+: Population with incomes exceeding BoP definition, but who can still 

benefit from impact investments that expand their access to services and 

opportunities. 

• BoP Penalty: The BoP often pay higher prices for basic goods and services than 

do wealthier consumers, either in financial or transaction cost, and often receive 

lower quality (World Resource Institute.). 

• Development finance institution (“DFI”): DFIs are government-controlled 

institutions that invest in private sector projects with a double bottom line 

objective of spurring development in emerging countries while remaining 

financially viable institutions. 

• Community development finance institution (“CDFI”): CDFIs are financial 

institutions created to reduce poverty in economically depressed areas, typically 

through providing credit, financial and other services to underserved markets or 

populations, mainly in the U.S. and U.K. 

• Double (or triple) bottom line: The simultaneous pursuit of a social enterprise 

or business to achieve financial, social and/or environmental returns on 

investment. 

• Invested capital: For non financial companies the sum of total shareholders 

equity and net debt. For microfinance total assets minus total deposits. 

• Mission-related investment (“MRI”): An investment capitalized with assets 

from the endowment of a foundation that seeks to create social impact as well as 

typically market-rate, risk-adjusted financial returns. 

• Plus Population: The population of people that are included in the BoP+ 

classification but not in the BoP. 

• Program-related investment (“PRI”): An investment made by a US-based 

foundation that qualifies as a charitable expense under the tax code, allowing the 

foundation to include the investment as part of the 5% of assets it must distribute 

philanthropically each year. 

• Small and Medium Enterprises (“SME”): Many institutions and countries 

define SME differently, but often the size of an enterprise is determined by the 

number of employees or the annual sales generated by the business. The World 

Bank defines enterprises meeting two out of the following three criteria -: 

minimum 50 employees, under $3m in each assets and sales – as SMEs. 

• Social Entrepreneur/Enterprise: An entrepreneur or organization that pursues a 

double or triple bottom line business model, either alone (as a social sector 

business) or as part of a mixed revenue stream that includes charitable 

contributions and public sector subsidies. 

78





• Social performance vs. Social impact: Social performance refers to 

organizations’ direct inputs, outputs, and business activities that are designed to 

have a positive social or environmental effect. For example, a business providing 

affordable healthy school lunches to inner-city students may measure its social 

performance, in part, by recording and tracking the quantity of ingredients 

sourced from local organic farms (inputs), the number of lunches served 

(outputs), and the percentage of student customers whose families live below the 

poverty line (business activity). Social impact refers to a broader set of outcomes, 

such as increased income and assets for the poor, improved basic welfare for 

people in need, and mitigation of climate change. The desired social impact in the 

example of a business providing healthy school lunches might range from a 

reduction in childhood obesity to long-term poverty alleviation achieved through 

improved academic performance. Because social outcomes are more likely to be 

influenced by external factors, it is often difficult to attribute specific impact to a 

particular organization’s activities. 

• Social Return on Investment (“SROI”): SROI is an approach to understanding 

and managing the social impacts of a project, organization or policy. SROI seeks 

to provide a fuller picture of how value is created or destroyed through 

incorporating social, environmental and economic costs and benefits into the 

decision making process. 

• Socially Responsible Investing (“SRI”) vs. Impact Investing: SRI historically 

described investing in companies, typically through publicly-traded securities, 

that favor strong environmental and social governance (“ESG”) policies and 

avoid investment in businesses involved in industries such as alcohol, tobacco, 

gambling, weapons and others. While socially responsible investors continue to 

rely primarily on public equities “screening” some also take active positions in 

voting proxies and engaged management to promote social causes. Alternatively, 

impact investing describes making investments that proactively intend to create 

positive impact beyond financial return, in addition to upholding strict ESG 

policies. 

• Underserved: Substantial markets of potential consumers, particularly within the 

BoP, remain underserved by commercial suppliers, thereby limiting or preventing 

these consumers from gaining access to quality, affordable basic goods and 

services. 

• Venture philanthropy: This style of philanthropy applies concepts and 

techniques from venture capital finance to achieve philanthropic goals and create 

social return. 

79





Appendix III: CDFIs 

In depth: Community Development Finance Institutions in the US 

In the US, community development finance institutions (“CDFIs”) were some of the 

earliest impact investors. As non-profit companies created to reduce poverty in 

economically depressed areas, CDFIs evolved from depository institutions that 

emerged in the early 1900s to serve economically disadvantaged communities by 

lending capital from collected savings. Credit unions and banks dominated the 

industry until the 1960s and 1970s, when community development corporations and 

community development loan funds emerged to finance small business and 

affordable housing developers. 

As part of President Bill Clinton’s urban development agenda, a 1994 law formalized 

the legal concept of a CDFI and established a government-funded CDFI Fund to 

provide risk capital to spur investment in CDFIs. Since its inception, the CDFI Fund 

has awarded more than $1bn in funding and has granted allocations of New Market 

Tax Credits 110 that have attracted more than $26bn in private investment 111 . 

There are over 1,295 CDFIs currently functioning in the US, including more than 

400 community development loan funds, 80 venture capital funds, 290 credit unions 

and 350 community development banks. In the 2008 CDFI Data Project, a 

collaborative of the leading CDFI trade associations, 495 CDFIs were surveyed and 

sampled in industry landscaping research. The sample managed over $29bn in assets, 

with the average total asset size for each CDFI, being $59,408,271. They invested 

over $5.5bn in 2008. 40% of their investments were in housing, 37% in business, 8% 

in consumer finance, 4% in community services, 1% in micro-enterprise and 11% in 

other. Those investments created 35,524 jobs, financed 60,205 affordable housing 

units and provided 116,405 responsible mortgages for new home buyers 112 . 

During the last five years, the total assets for CDFIs in the Data Project grew by 10% 

per year. At this growth rate, the assets in this sample would grow to over $76bn in 

10 years. However, when compared to the $13.8 trillion under management by US 

banking institutions, CDFIs are a small subset of mainstream finance, and will need 

government support to reach scale. We expect that this support will mainly be given 

by the CDFI Fund. The CDFI Fund is the government’s most effective tool for 

increasing the asset size of CDFIs. The CDFI Fund estimates that for every dollar 

that they give in financial assistance, they leverage $20 in private and non-CDFI 

public capital 113 . This is a highly promising statistic for the CDFI industry, given that 

the Obama administration has increased the CDFI financial assistance appropriations 

to a record $245m in FY 2010 and $250m in FY2011, up substantially from the 

$54m in appropriations in 2007 and $107m in FY 2009. The new appropriations 

budget is projected to leverage an additional $2.7bn in private financing. 

110 The New Markets Tax Credits program is a program administered by the U.S. Department 

of Treasury and the CDFI Fund to encourage economic development in low income 

communities. 

111 The CDFI Fund, http://www.cdfifund.gov/who_we_are/about_us.asp 

112 FY 2008 CDFI Data Project Report, CDP Publication Committee. 8th ed. Philadelphia: 

Opportunity Finance Network, 2010. 

113 http://www.community-wealth.org/_pdfs/featured/bang-for-buck.pdf 

80





Impact investors have found various avenues to invest in CDFIs. They can invest 

into community development venture and loan funds or direct capital into a CDFI 

bank. To invest in a public CDFI bank, investors can buy stock, negotiate a PIPE 

transaction (Private Investment in Public Equity) or enter into a preferred stock 

transaction with a warrant. In both private and public CDFI banks, investors can 

purchase trust-preferred securities 114 or make linked deposits, which reduce the 

interest rate to a particular borrower or act as a guarantee for borrowers who would 

not be able to access capital independently. Lastly, impact investors who wish to 

support community development credit unions (that cannot take on equity due to 

their non-profit status), can support them through a deposit or through “secondary 

capital” subordinated debt that strengthens the existing capital of the credit union. 

114 Trust preferred securities are long-term debt instruments with qualities of preferred equity. 

81





Appendix IV: GIIN Survey participants 

• Acumen Fund 

• Anne E. Casey Foundation 

• Bill & Melinda Gates Foundation 

• Bridges Ventures 

• Calvert Foundation 

• DOEN Foundation 

• E+Co 

• EcoEnterprises Fund 

• Equilibrium Capital Group 

• Gatsby Charitable Foundation 

• Gray Ghost Ventures 

• IGNIA 

• J.P. Morgan 

• LeapFrog Investments 

• Lundin for Africa 

• Omidyar Network 

• Prudential 

• The Rockefeller Foundation 

• Root Capital 

• Sarona Asset Management 

• SNS Asset Management 

• TIAA-CREF 

• W.K. Kellogg Foundation 

• Wolfensohn Fund Management L.P. 

82





Appendix V: Additional returns data 

Figure 27: Sector distribution of notional 

MF 

11% 

EI 

12% 

SE 

5% 

FT 

1% 

AH 

28% 

CDFI 

43% 

Source: Calvert Foundation, J.P. Morgan. 

CDFI = Community development finance institution; 

AH = Affordable housing; MF = Microfinance; 

EI = Environmental initiative; SE = Social enterprise; 

FT = Fair trade 

In depth: US-based fixed income reveal a flat (but disperse) range of yields 

Characteristics of the data set: Instruments, sectors, geographies 

While the GIIN survey represents a broad spectrum of impact investments across 

sector and instrument type, we have also been granted access to a set of data on fixed 

income investments that spans a longer history. The data set, provided by Calvert 

Foundation 115 , covers 1,587 predominantly fixed-rate debt investments going back as 

far as 1990 and totaling $1.385bn in notional. There are three instrument types with 

enough data to explore, and the distribution of deals and notionals across instrument 

type is shown in Table 25. The investments themselves span sectors including 

community development finance initiatives (“CDFIs”), affordable housing, 

environmental initiatives, fair trade, microfinance, and social enterprise. Figure 27 

shows the distribution of sectors across the data set, and Table 26 shows the data in 

terms of number of deals as well as notional. 

The geographic distribution of this data set is heavily focused on investments in the 

US, representing 91% of the deals and 94% of the notional in the database. The 

investments in the US tend to target companies in poor communities that either 

provide basic services such as housing to low-income families or hire underemployed 

people in these communities. Table 27 shows the number of deals and 

notional invested in the most commonly referenced countries in the database. After 

the US, Nicaragua, Ecuador, Azerbaijan and Bolivia are most frequently represented, 

albeit only by 1% of the total notional each. The remaining deals were done in 26 

other countries. 

Table 25: Instrument distribution 

# of 

deals 

Notional 

(USD mm) 

Debt — Fixed Rate 1,492 1,228 

Debt — Variable Rate 63 86 

Debt — LOC 32 55 

Total 1,587 1,369 


Table 26: Sector distribution 

# of 

deals 

Notional 

(USD mm) 

CDFI 870 588 

Affordable Housing 225 386 

Microfinance 195 146 

Environment 165 161 

Social Enterprise 80 72 

Fair Trade 52 15 

Total 1,587 1,369 


Table 27: Geographic distribution 

# of 

deals 

Notional 

(USD mm) 

United States 1,437 1,294 

Nicaragua 29 11 

Ecuador 27 19 

Azerbaijan 20 9 

Bolivia 11 10 

Other 63 28 

Total 1,587 1,369 


Illustrating the yield curves 

Based on our characterization above, we can see that this data set is a subset of the 

impact investment space focused on US-based fixed income investments. Given this 

context, we can now look at the financial information revealed by the data set. The 

most interesting characteristics are the interest rates charged across tenors for the 

various instruments. Essentially, by plotting the interest rates against tenor for the 

data sets by instruments in Figure 28, Figure 29, and Figure 30, we look to see 

whether an impact investment yield curve emerges. Interestingly, there is not much 

of a yield curve at all, but rather a fairly disperse range of interest rates. This 

115 This is a set of transactions that borrowers from the Calvert Foundation have engaged in. 

83





dispersion indicates that there can be room for investors with a range of return 

requirements, particularly those with a higher cost of capital 116 . 

Figure 28: Fixed rate debt 

x-axis: Tenor (years); y-axis: Interest rate 

Figure 29: Variable rate debt 

x-axis: Tenor (years); y-axis: Spread above 

benchmark (basis points) 

Figure 30: Line of Credit 

x-axis: Tenor (years); y-axis: Interest rate 

20% 

15% 

10% 

5% 

0% 

0 10 20 30 

500 

400 

300 

200 

100 

0 

-100 

-200 

-300 

0 10 20 30 

10% 

8% 

6% 

4% 

2% 

0% 

0 10 20 30 

Source: Calvert Foundation, J.P. Morgan 


Note: These spreads reference different benchmarks, including 

US Prime, LIBOR and Euribor. 

Source: Calvert Foundation, J.P. Morgan 

Focusing in on the fixed-rate transactions where we have the most data, we illustrate 

the average rates just for the sake of further information. Figure 31 shows the 

average rate per tenor (blue line) and the number of transactions that inform that 

average. Clearly, there is more data in the shorter tenors, and also at the 10-year 

point. Nonetheless, we caution much interpretation of this chart since, as we saw 

above, there is a wide dispersion around these averages. So rather than focusing too 

much on the slightly downward sloping nature of the curve shown in Figure 31, we 

conclude from the scatter plots above that there is a fairly flat range of yields across 

tenors. We do note that the data is more heavily weighted toward recent deals. 

Figure 31: Fixed-rate yield curve 

Blue line shows the average yield for a given tenor (left-hand axis); Grey columns show the number of deals 

contributing to each tenor’s data set (right-hand axis). 

6% 

5% 

4% 

3% 

2% 

1% 

0% 

1 2 3 4 5 6 7 8 9 10 

300 

250 

200 

150 

100 

50 

0 


116 Anecdotally we believe that historical data oversamples investors that are more 

concessionary on returns (as is considered to be the case with Calvert Foundation). 

84





There are a few marketplace dynamics we can consider to potentially explain the 

lack of a traditional upward slope to the yield curve, as well as the high level of 

dispersion across realized rates: 

1. Debt impact investments can be compared to high yield credit investing, where 

yield curves can often be downward sloping to reflect the near term risk of 

smaller companies in growth phases 117 . 

2. Foundations and/or government programs may be more comfortable lending at 

subsidized rates. This could keep longer-term yields artificially low. 

In any case, we find it intriguing that there have been transactions made at such a 

range of interest rates, since this reveals that there can be a place in the market for 

investors that might demand a range of return expectations. We also would have 

liked to analyze risk data on this portfolio, but the database was compiled at the time 

of investment without tracking defaults or payments in arrears over time. We 

anticipate that future data sets will begin to incorporate more of these kinds of risk 

metrics, and future analysis will then be possible on the risk profiles as well. 

IFC’s sample of private equity returns 

While our survey did not produce enough realized return data on private equity 

impact investments to analyze in a significant way, we did receive the 

performance history of one long-term private equity investor in the international 

development arena. The IFC has been investing to encourage private sector 

development in EM for over twenty years. While some part of IFC’s investment 

portfolio may not meet our definition of impact investments, we believe it is a 

representative sample of how a portfolio of EM equity investments can perform. 

The data is shown in Figure 32, where we can see that the IFC portfolio has 

outperformed the Cambridge Associates Emerging Market Venture Capital and 

Private Equity Index over much of the past twenty years. 

Figure 32: Private equity portfolio returns for IFC against benchmark 

IRR by vintage year 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Net IRR IFC ALAC (simulated) 

Pooled Mean – EM Benchmark 

intrapolation 

1989 1991 1993 1995 1997 1999 2001 2003 2005 

Source: IFC, Cambridge Associates. To simulate performance for comparison, each vintage year represents start of a notional fund 

with 5-year investment period that includes every IFC equity investment in that time period. Investments held until exit or June 30, 

2010. Performance simulated on 5-year rolling-basis, i.e. each investment considered in several vintage years. Cambridge Associates 

Emerging Markets Venture Capital and Private Equity Index (March 2010). 

117 The concept is that the highest risk lies in the near term, as the company establishes itself. 

If it overcomes the initial hurdles to financial sustainability, the risk is expected to subside. 

Yields for longer tenors can be lower to reflect this expectation. 

85





Table 28: Venture Capital annualized returns in developed and emerging markets 

(% to June 30, 2010) 

US Venture Capital Emerging Markets Private Equity and Venture Capital 

Last 5 years 4.27 13.7 

Last 10 years -4.15 7.7 

Source: Cambridge Associates 

86





Appendix VI: Notes on market sizing 

Population data from the World Resources Institute 

The work done by the WRI in The Next 4 Billion has proven invaluable to us in 

identifying target markets for our business case studies. By having divided the BoP 

population into income brackets of $500, the WRI study allows us to count how 

many people or households fall within the population that can afford our case study’s 

product or service. 

Per capita income brackets and affordability 

The starting points are the per capita income brackets defined by the WRI in $500 

increments of 2002 international dollars (PPP). The 2002 numbers are used for ease 

of reference as they are nicely rounded figures; in our work, we use the 2005 figures 

also provided to avoid having to deflate our financials by too many years (since the 

more we do that, the more we assume a constant state of nature outside inflation). 

The affordability test is then also applied in 2005 PPP terms, for comparability. 

However, when it comes to calculating the actual business financials – e.g. potential 

revenues and profits – the current USD equivalent is presented, since this is an actual 

figure that can exist in the marketplace as opposed to the more theoretical PPP 

numbers. 

The per capita income data is referenced by the WRI to be calculated using the 

methodology presented in Worlds Apart: Measuring Global and International 

Inequality, by Branko Milanovic 118 , Lead Economist in the World Bank research 

group. The methodology constructs an income distribution for each country, which 

then gives the income distribution for the BoP segment of the population. This gives 

the number of people in each income bracket, which we use in some of our sector 

analysis. Other sector analyses, though, require the per household income brackets, 

for which we explain the calculation next. 

Translating from per capita to household income brackets 

One of the sectors where we consider the household income is the housing sector, 

since a home is a purchase made by the earning members of the household together. 

In the case of housing, we had used a case study based in India, so we illustrate the 

calculation made using India as an example in Table 29 and Table 30. First, in Table 

29, we calculate an average number of people per household – 5.3, from the WRI 

data – and multiply that number by the economic activity rate for India, which is 

69% according to the UN Statistics Division, giving an average number of earners 

per household of 3.7 people. Then, in Table 30 we translate the per capita income 

brackets by multiplying the incomes by the number of earners per household. 

118 Worlds Apart: Measuring Global and International Inequality, B Milanovic, Princeton 

University Press, 2005. 

87





Table 29: India population data 

Divide the total population by the number of households to obtain an average 

household size. Then multiply by the economic activity rate to obtain average 

number of earners per household. 

India 

Total Population 973 

Households 183.3 

People per household 5.3 

Economic activity rate 69% 

Earners per household 3.7 

Source: WRI, UN Statistics Division. Note that the average number of people per household is 

calculated based on population and household numbers for the entire population, not just the 

BoP. 

Table 30: Indian household income bracket conversion 

Multiplying the per capita income by the number of earners gives a household 

income bracket. 

Per capita income bracket India household 

income brackets 

2002 PPP 2005 PPP 2005 PPP 

A 3,000 3,260 11,923 

B 2,500 2,717 9,936 

C 2,000 2,173 7,949 

D 1,500 1,630 5,962 

E 1,000 1,087 3,974 

F 500 543 1,987 

Source: WRI. 

Calculating the number of households 

Having translated the per capita income brackets into per household income brackets, 

we can then reference the population data provided by WRI again to see how many 

people fall within the brackets that will afford our products or services. But again, in 

the case of housing, it is most relevant to have the number of households (rather than 

number of people), so we need to translate the population data. Table 31 shows the 

steps to the calculation. We start with the number of people in each income bracket, 

and then focus in on the urban population (since our housing case study was for 

urban populations). Once we have the number of urban people in 2005, we can grow 

that number using the WRI’s urban Indian population growth rate, which is 0.9% 

over the period from 2005 – 2010. Finally, we scale the number of urban people in 

each bracket by the economic activity rate from Table 29 to get the total number of 

people (earners and non-earners), and then divide by the average number of people 

per household. 

Table 31: The number of households in India's BoP income brackets 

To grow the population from 2005 to 2010, apply India’s 0.9% urban population growth rate for 5 yrs. 

India 

Household 

Income 

brackets 

Number of 

people 

% Urban Number of 

urban people 

Number of 

urban people 

Number of 

households 

2005 PPP 2005 2005 2005 2010 2010 

A 11,923 31.5 68% 21.3 22.3 6.1 

B 9,936 68.3 53% 36.5 38.1 10.4 

C 7,949 147 37% 55.0 57.5 15.7 

D 5,962 309 20% 61.2 64.0 17.5 

E 3,974 349 8% 28.6 29.9 8.2 

F 1,987 19.3 6% 1.1 1.1 0.3 

Source: WRI. 0.9% growth rate is the urban population growth rate for India over the period from 2005 – 2010 according to the WRI 

database. 

Relationship between revenues and invested capital 

Shifting from the income statement to the balance sheet: Assume a ratio of 

expenses to total invested capital = 1 to 1 

Our analysis estimates the potential market for selected goods and services to BoP 

consumers. We present the revenue opportunities, assume an operating margin and 

hence arrive at estimates of expenses and profit. 

In order to move from the income statement to the balance sheet and calculate 

required capital it is necessary to make an assumption regarding the relationship 

between Invested Capital and the revenue base of the company. This relationship is 

88





not something that financial analysts are called upon to estimate and there is no 

established methodology or rules for doing so. In order to make a reasonable estimate 

we took a sample of global small cap equities. Our sample consisted of almost 6,000 

non financial companies with Market Caps between $100m and $1bn. We also 

excluded any companies with sales of less than $10m. The results are shown by 

region in Table 32. While there is obviously dispersion and the ratio is driven by, 

among other factors, the capital intensity of the business we found the average Sales 

to Invested Capital ratio to be 99.7% and hence have used a 1 to 1 ratio in all our 

sizing studies. 

Table 32: Small caps by region (market cap $100m–1bn) 

Region 

Sales/Invested Capital 

Europe 95.7% 

US 114.8% 

Asia (ex Japan) 86.9% 

Japan 157.6% 

LatAm 77.9% 

Global 99.7% 

Source: J.P. Morgan 

89





Microfinance 

The underlying data used in our microfinance market sizing is presented in Table 33. 

Table 33: Country data on microfinance institutions 

Total assets, deposits and market opportunity shown in USD mm; Penetration rates are calculated as # of borrowers divided by # of adults. 

Total 

Assets Deposits Penetration 

Market 

Opportunity 

Total 

Assets Deposits Penetration 

Market 

Opportunity 

Country USD mm USD mm USD mm Country USD mm USD mm USD mm 

Afghanistan 255 67 2% 652Madagascar 58 19 0% 656 

Albania 500 290 11% 285Malawi 53 26 2% 74 

Angola 10 2 0% 837Malaysia 232 38 7% 1,879 

Argentina 30 0 0% 2,214Mali 175 75 3% 175 

Armenia 676 150 17% -Mexico 3,098 1,333 24% 988 

Azerbaijan 1,036 284 8% 535Moldova 124 14 1% 1,247 

Bangladesh 3,020 1,443 28% -Mongolia 832 599 42% - 

Benin 176 89 5% 196Montenegro 230 126 29% 6 

Bolivia 2,011 1,204 13% -Morocco 845 - 21% 565 

Bosnia and Herzegovina 1,159 238 60% -Mozambique 64 50 1% 225 

Brazil 680 173 2% 7,548Nepal 154 39 7% 212 

Bulgaria 798 505 7% 1,827Nicaragua 677 119 18% - 

Burkina Faso 156 107 2% 215Niger 21 5 1% 97 

Burundi 3 1 0% 59Nigeria 104 38 1% 1,494 

Cambodia 1,023 493 21% -Pakistan 338 53 2% 2,137 

Cameroon 360 287 3% 321Palestine 157 72 2% 548 

Central African Republic 9 8 0% 67Panama 20 4 1% 282 

Chad 10 5 0% 133Papua New Guinea 31 23 0% 339 

Chile 911 315 7% 2,972Paraguay 449 315 24% 34 

China 33 2 0% 64,018Peru 4,948 2,748 18% - 

Colombia 4,166 2,636 7% 721Philippines 766 388 11% 515 

Congo, DR 9 8 0% 54Poland 58 - 0% 9,746 

Congo 123 51 0% 3,412Romania 520 210 1% 7,840 

Costa Rica 69 0 2% 903Russian Federation 2,750 1,357 1% 62,874 

Cote D'Ivoire 177 164 1% 309Rwanda 25 8 1% 148 

Dominican R. 239 85 4% 364Samoa 1 0 7% 1 

East Timor 4 1 3% 10Senegal 378 200 5% 357 

Ecuador 1,511 671 11% 176Serbia 1,211 534 9% 1,415 

Egypt 275 1 7% 1,346Sierra Leone 14 4 1% 100 

El Salvador 469 211 8% 215South Africa 515 155 5% 1,211 

Ethiopia 535 173 5% 457Sri Lanka 381 259 22% 50 

Gambia, The 7 5 2% 6Sudan 11 0 0% 1,151 

Georgia 524 192 6% 403Swaziland 34 - 1% 358 

Ghana 210 127 5% 226Syria 18 0 0% 1,289 

Guatemala 187 2 4% 329Tajikistan 429 179 3% 488 

Guinea 22 8 2% 71Tanzania 1,166 963 2% 1,464 

Haiti 71 13 2% 225Thailand 1 - 0% 1,096 

Honduras 285 46 5% 291Togo 123 95 3% 84 

India 2,684 92 5% 8,707Trinidad and Tobago 5 - 0% 358 

Indonesia 110 47 13% 140Tunisia 37 - 12% 245 

Jordan 136 0 17% 231Turkey 5 0 0% 1,465 

Kazakhstan 179 - 3% 2,948Uganda 325 207 3% 443 

Kenya 1,512 880 6% 574Ukraine 418 175 1% 14,736 

Kosovo 1,020 796 19% -Uruguay 3 - 0% 923 

Kyrgyzstan 383 112 11% 95Uzbekistan 194 56 1% 3,655 

Laos 15 2 0% 939Venezuela 174 102 0% 2,364 

Lebanon 25 - 3% 274Vietnam 3,187 1,015 28% - 

Liberia 1 0 1% 15Yemen 4 0 0% 182 

Macedonia, FYR 324 193 11% 243Zambia 8 1 0% 206 

Source: MIX Market, J.P. Morgan. Penetration rates are calculated by MIX who cite that the number of poor people is determined using national poverty rates. 

90





Appendix VII: Further reading 

The Mystery of Capital, Hernando de Soto 

Presents the concept of “dead capital” in many emerging markets: Due to extensive 

bureaucracy and high registration costs, assets are owned informally (outside the 

legal infrastructure), which then limits the owner’s ability to realize the value of 

those assets in future transactions. 

The Fortune at the Bottom of the Pyramid, C.K. Prahalad 

The original thesis that profitable business models can serve to improve the lives of 

poor people. The latest edition (2010 at time of publishing) includes case studies of 

some of the most prominent examples of impact investments. 

The Next 4 Billion, World Resources Institute 

A survey of the population that comprises the base of the economic pyramid, 

globally. The work includes analysis of income and expenditure data for poor 

households across sectors including Healthcare, Food, Water, Housing, Energy, 

Transportation, Information and Communication Technology. 

New Frontiers of Philanthropy: A Guide to the New Actors and New Tools that 

Are Reshaping Global Philanthropy and Social Investing, edited by Lester M. 

Salamon 

Provides an overview and roadmap of the significant proliferation of new actors and 

tools that have emerged in the philanthropic and social investing arena. (Forthcoming 

Spring 2011.) 

Investing for Social and Environmental Impact: A Design for Catalyzing an 

Emerging Industry, The Monitor Institute 

An outline of the developments that would facilitate the growth of the impact 

investing industry. 

Investing for Impact: Case Studies Across Asset Classes, Bridges Ventures and 

The Parthenon Group 

An introduction to impacting investing and a showcase of current examples of impact 

investments across the impact- and financial-first spectrum. 

Emerging Markets, Emerging Models, Monitor Group 

Analyses the behaviors, economics and social outcomes of different types of social 

enterprise business models in India. 

Impact Investing: A Framework for Policy Design and Analysis, Ben Thornley, 

David Wood, Katie Grace, and Sarah Sullivan 

Describes the role of government in impact investing markets and is a resource for 

designing policy with the objective of catalyzing private capital. Includes sixteen 

detailed case studies of policies from around the world. (Forthcoming December 

2010.) 

Financing Change: Impact Investing for Blended Value, Antony Bugg-Levine 

and Jed Emerson – 

An overview of the emergence of the global impact investing industry and 

description of the opportunities and challenges it creates for how we invest, address 

social challenges, regulate investment and philanthropy, and develop leadership. 

(Forthcoming 2011.) 

91





Table of Figures 

Figure 1: Defining impact investing ............................................................................7 

Figure 2: Business sectors for impact investments ......................................................7 

Figure 3: Ways in which businesses can deliver impact..............................................8 

Figure 4: Average return expectations by instrument and region ..............................10 

Figure 5: Defining impact investing ..........................................................................14 

Figure 6: Business sectors for impact investments ....................................................19 

Figure 7: Ways in which businesses can deliver impact............................................20 

Figure 8: Average return expectations by instrument and region ..............................32 

Figure 9: Expected returns – Developed markets debt investments...........................33 

Figure 10: Expected returns – Emerging markets debt investments ..........................33 

Figure 11: Expected returns – Developed markets equity investments .....................33 

Figure 12: Expected returns – Emerging markets equity investments.......................33 

Figure 13: Realized returns – Developed market debt investments...........................34 

Figure 14: Realized returns – Emerging market debt investments.............................34 

Figure 15: Distribution of investment sizes across reported investments ..................35 

Figure 16: Just the larger investments........................................................................35 

Figure 17: Management fees......................................................................................36 

Figure 18: Carry fees .................................................................................................36 

Figure 19: Respondents’ impact measurement system ..............................................37 

Figure 20: Local currency exposure...........................................................................37 

Figure 21: Company vs. fund investments.................................................................37 

Figure 22: Penetration rates by village size ...............................................................52 

Figure 23: R-Jolad patients by income level..............................................................54 

Figure 24: Average # of deliveries per month............................................................55 

Figure 25: Cost of doctor per patient (USD)..............................................................55 

Figure 26: Impact Value Chain..................................................................................72 

Figure 27: Sector distribution of notional ..................................................................83 

Figure 28: Fixed rate debt..........................................................................................84 

Figure 29: Variable rate debt .....................................................................................84 

Figure 30: Line of Credit ...........................................................................................84 

Figure 31: Fixed-rate yield curve...............................................................................84 

Figure 32: Private equity portfolio returns for IFC against benchmark .....................85 

92





Table of Tables 

Table 1: Potential invested capital to fund selected BoP businesses over the next 10 

years .................................................................................................................12 

Table 2: Breaking out impact objectives in more detail.............................................19 

Table 3: Instrument distribution.................................................................................31 

Table 4: Sector distribution........................................................................................31 

Table 5: Geographic distribution ...............................................................................31 

Table 6: Potential invested capital to fund selected BoP businesses over the next 10 

years .................................................................................................................39 

Table 7: Sizing template, using housing as an example.............................................44 

Table 8: BoP per capita income brackets and population ..........................................45 

Table 9: Household income brackets – India.............................................................46 

Table 10: Affordability testing...................................................................................46 

Table 11: Countries included in WRI data.................................................................47 

Table 12: Water market sizing...................................................................................51 

Table 13: Household income brackets – India...........................................................51 

Table 14: Affordability test........................................................................................51 

Table 15: Target population.......................................................................................52 

Table 16: Health market sizing ..................................................................................54 

Table 17: Income brackets.........................................................................................54 

Table 18: Affordability test........................................................................................54 


Table 20: Household income brackets .......................................................................57 

Table 21: Education market sizing.............................................................................57 


Table 23: Microfinance penetration rates currently above 20% ................................62 

Table 24: Microfinance market sizing .......................................................................62 

Table 25: Instrument distribution...............................................................................83 

Table 26: Sector distribution......................................................................................83 

Table 27: Geographic distribution .............................................................................83 

Table 28: Venture Capital annualized returns in developed and emerging markets ..86 

Table 29: India population data .................................................................................88 

Table 30: Indian household income bracket conversion............................................88 

Table 31: The number of households in India's BoP income brackets.......................88 

Table 32: Small caps by region (market cap $100m–1bn).........................................89 

Table 33: Country data on microfinance institutions.................................................90 

93





94





Disclosures 

J.P. Morgan (“JPM”) is the global brand name for J.P. Morgan Securities LLC (“JPMS”) and its affiliates worldwide. J.P. Morgan Cazenove is a 

marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. 

and its subsidiaries. 

The Rockefeller Foundation’s Harnessing the Power of Impact Investing initiative aims to support the development of leadership platforms, 

infrastructure, and intermediation capabilities that can efficiently place for-profit impact investments to improve a wide range of social and/or 

environmental conditions. The Initiative also seeks to contribute to fundamental research about impact investing so that its promise and challenges 

are widely understood. The Rockefeller Foundation has partnered with JPMorgan and the Global Impact Investing Network to produce this 

research report as a publicly-available resource for all stakeholders interested in supporting the development of a vibrant impact investing 

industry. Readers should be aware that the Rockefeller Foundation has had and will continue to have relationships with many of the organizations 

identified in this report, including through the provision of grant funding and Program Related Investments. 

Readers should be aware that the GIIN has had and will continue to have relationships with many of the organizations identified in this report, 

through some of which the GIIN has received and will continue to receive financial and other support. 

J.P. Morgan is an inaugural sponsor of the GIIN and a founding member of its Investors’ Council. 

Legal Entities Disclosures 

U.S.: JPMS is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a 

member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a 

member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No. 

2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg 

Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated 

by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, 

Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS 

Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a 

Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock 

Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of 

the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of 

India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of 

Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock 

Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock 

Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores 

Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a 

member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. 

Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P) 

020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the 

Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the 

MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a 

Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in 

Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and 

Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the Capital Market Authority of the Kingdom 

of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number 

35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi 

Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered 

address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE. 

Country and Region Specific Disclosures 

U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by 

JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL’s policies for managing conflicts of interest arising 

as a result of publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain 

such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services 

and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as “relevant persons”). This document must not be 

acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only 

available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons 

regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in 

Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not 

distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms 

“wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is 

distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are 

regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end 

95





satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities 

and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from 

two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured 

Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website: 

http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of 

share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan 

Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the 

commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments 

Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers 

Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by 

affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the 

securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures 

section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This 

material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the 

course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of “the 

public” as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third 

party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no 

circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of 

an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in 

Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only 

by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement 

in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to 

be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the 

information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory 

of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory 

authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the 

securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as 

professional clients as defined under the DFSA rules. 

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan 

Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any 

disclosures relative to JPMS and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as 

of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this 

material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or 

solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual 

client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to 

particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments 

mentioned herein. JPMS distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic 

updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other 

publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home 

jurisdiction unless governing law permits otherwise. 

Copyright 2010 JPMorgan Chase & Co., The Rockefeller Foundation and Global Impact Investing Network, Inc. 

96

Page 120 of 140


Page 121 of 140


The e-Advocate Quarterly 

Page 122 of 140

Issue Title Quarterly 

Vol. I 2015 The Fundamentals 

I 

The ComeUnity ReEngineering 

Project Initiative 

Q-1 2015 

II The Adolescent Law Group Q-2 2015 

III 

Landmark Cases in US 

Juvenile Justice (PA) 

Q-3 2015 

IV The First Amendment Project Q-4 2015 

Vol. II 2016 Strategic Development 

V The Fourth Amendment Project Q-1 2016 

VI 


Juvenile Justice (NJ) 

Q-2 2016 

VII Youth Court Q-3 2016 

VIII 

The Economic Consequences of Legal 

Decision-Making 

Q-4 2016 

Vol. III 2017 Sustainability 

IX The Sixth Amendment Project Q-1 2017 

X 

The Theological Foundations of 

US Law & Government 

Q-2 2017 

XI The Eighth Amendment Project Q-3 2017 

XII 

The EB-5 Investor 

Immigration Project* 

Q-4 2017 

Vol. IV 2018 Collaboration 

XIII Strategic Planning Q-1 2018 

XIV 

The Juvenile Justice 

Legislative Reform Initiative 

Q-2 2018 

XV The Advocacy Foundation Coalition Q-3 2018 

Page 123 of 140

XVI 

for Drug-Free Communities 


Juvenile Justice (GA) 

Q-4 2018 

Page 124 of 140


Vol. V 2019 Organizational Development 

XVII The Board of Directors Q-1 2019 

XVIII The Inner Circle Q-2 2019 

XIX Staff & Management Q-3 2019 

XX Succession Planning Q-4 2019 

XXI The Budget* Bonus #1 

XXII Data-Driven Resource Allocation* Bonus #2 

Vol. VI 2020 Missions 

XXIII Critical Thinking Q-1 2020 

XXIV 

The Advocacy Foundation 

Endowments Initiative Project 

Q-2 2020 

XXV International Labor Relations Q-3 2020 

XXVI Immigration Q-4 2020 

Vol. VII 2021 Community Engagement 

XXVII 

The 21 st Century Charter Schools 

Initiative 

Q-1 2021 

XXVIII The All-Sports Ministry @ ... Q-2 2021 

XXIX Lobbying for Nonprofits Q-3 2021 

XXX 

XXXI 

Advocacy Foundation Missions - 

Domestic 

Advocacy Foundation Missions - 

International 

Q-4 2021 

Bonus 

Page 125 of 140

Vol. VIII 

2022 ComeUnity ReEngineering 

XXXII 

The Creative & Fine Arts Ministry 

@ The Foundation 

Q-1 2022 

XXXIII The Advisory Council & Committees Q-2 2022 

XXXIV 

The Theological Origins 

of Contemporary Judicial Process 

Q-3 2022 

XXXV The Second Chance Ministry @ ... Q-4 2022 

Vol. IX 2023 Legal Reformation 

XXXVI The Fifth Amendment Project Q-1 2023 

XXXVII The Judicial Re-Engineering Initiative Q-2 2023 

XXXVIII 

The Inner-Cities Strategic 

Revitalization Initiative 

Q-3 2023 

XXXVIX Habeas Corpus Q-4 2023 

Vol. X 2024 ComeUnity Development 

XXXVX 

The Inner-City Strategic 

Revitalization Plan 

Q-1 2024 

XXXVXI The Mentoring Initiative Q-2 2024 

XXXVXII The Violence Prevention Framework Q-3 2024 

XXXVXIII The Fatherhood Initiative Q-4 2024 

Vol. XI 2025 Public Interest 

XXXVXIV Public Interest Law Q-1 2025 

L (50) Spiritual Resource Development Q-2 2025 

Page 126 of 140

LI 

Nonprofit Confidentiality 

In The Age of Big Data 

Q-3 2025 

LII Interpreting The Facts Q-4 2025 

Vol. XII 2026 Poverty In America 

LIII 

American Poverty 

In The New Millennium 

Q-1 2026 

LIV Outcome-Based Thinking Q-2 2026 

LV Transformational Social Leadership Q-3 2026 

LVI The Cycle of Poverty Q-4 2026 

Vol. XIII 2027 Raising Awareness 

LVII ReEngineering Juvenile Justice Q-1 2027 

LVIII Corporations Q-2 2027 

LVIX The Prison Industrial Complex Q-3 2027 

LX Restoration of Rights Q-4 2027 

Vol. XIV 2028 Culturally Relevant Programming 

LXI Community Culture Q-1 2028 

LXII Corporate Culture Q-2 2028 

LXIII Strategic Cultural Planning Q-3 2028 

LXIV 

The Cross-Sector/ Coordinated 

Service Approach to Delinquency 

Prevention 

Q-4 2028 

Page 127 of 140

Vol. XV 2029 Inner-Cities Revitalization 

LXIV 

LXV 

LXVI 

Part I – Strategic Housing 

Revitalization 

(The Twenty Percent Profit Margin) 

Part II – Jobs Training, Educational 

Redevelopment 

and Economic Empowerment 

Part III - Financial Literacy 

and Sustainability 

Q-1 2029 

Q-2 2029 

Q-3 2029 

LXVII Part IV – Solutions for Homelessness Q-4 2029 

LXVIII 

The Strategic Home Mortgage 

Initiative 

Bonus 

Vol. XVI 2030 Sustainability 

LXVIII Social Program Sustainability Q-1 2030 

LXIX 

The Advocacy Foundation 

Endowments Initiative 

Q-2 2030 

LXX Capital Gains Q-3 2030 

LXXI Sustainability Investments Q-4 2030 

Vol. XVII 2031 The Justice Series 

LXXII Distributive Justice Q-1 2031 

LXXIII Retributive Justice Q-2 2031 

LXXIV Procedural Justice Q-3 2031 

LXXV (75) Restorative Justice Q-4 2031 

LXXVI Unjust Legal Reasoning Bonus 

Page 128 of 140

Vol. XVIII 2032 Public Policy 

LXXVII Public Interest Law Q-1 2032 

LXXVIII Reforming Public Policy Q-2 2032 

LXXVIX ... Q-3 2032 

LXXVX ... Q-4 2032 

Page 129 of 140

The e-Advocate Journal 

of Theological Jurisprudence 

Vol. I - 2017 

The Theological Origins of Contemporary Judicial Process 

Scriptural Application to The Model Criminal Code 

Scriptural Application for Tort Reform 

Scriptural Application to Juvenile Justice Reformation 

Vol. II - 2018 

Scriptural Application for The Canons of Ethics 

Scriptural Application to Contracts Reform 

& The Uniform Commercial Code 

Scriptural Application to The Law of Property 

Scriptural Application to The Law of Evidence 

Page 130 of 140

Legal Missions International 

Page 131 of 140


Vol. I 2015 

I 

II 

God’s Will and The 21 st Century 

Democratic Process 

The Community 

Engagement Strategy 

Q-1 2015 

Q-2 2015 

III Foreign Policy Q-3 2015 

IV 

Public Interest Law 

in The New Millennium 

Q-4 2015 

Vol. II 2016 

V Ethiopia Q-1 2016 

VI Zimbabwe Q-2 2016 

VII Jamaica Q-3 2016 

VIII Brazil Q-4 2016 

Vol. III 2017 

IX India Q-1 2017 

X Suriname Q-2 2017 

XI The Caribbean Q-3 2017 

XII United States/ Estados Unidos Q-4 2017 

Vol. IV 2018 

XIII Cuba Q-1 2018 

XIV Guinea Q-2 2018 

XV Indonesia Q-3 2018 

XVI Sri Lanka Q-4 2018 

Vol. V 2019 

Page 132 of 140

XVII Russia Q-1 2019 

XVIII Australia Q-2 2019 

XIV South Korea Q-3 2019 

XV Puerto Rico Q-4 2019 


Vol. VI 2020 

XVI Trinidad & Tobago Q-1 2020 

XVII Egypt Q-2 2020 

XVIII Sierra Leone Q-3 2020 

XIX South Africa Q-4 2020 

XX Israel Bonus 

Vol. VII 2021 

XXI Haiti Q-1 2021 

XXII Peru Q-2 2021 

XXIII Costa Rica Q-3 2021 

XXIV China Q-4 2021 

XXV Japan Bonus 

Vol VIII 2022 

XXVI Chile Q-1 2022 

Page 133 of 140

The e-Advocate Juvenile Justice Report 

______ 

Vol. I – Juvenile Delinquency in The US 

Vol. II. – The Prison Industrial Complex 

Vol. III – Restorative/ Transformative Justice 

Vol. IV – The Sixth Amendment Right to The Effective Assistance of Counsel 

Vol. V – The Theological Foundations of Juvenile Justice 

Vol. VI – Collaborating to Eradicate Juvenile Delinquency 

Page 134 of 140

The e-Advocate Newsletter 

Genesis of The Problem 

Family Structure 

Societal Influences 

Evidence-Based Programming 

Strengthening Assets v. Eliminating Deficits 

2012 - Juvenile Delinquency in The US 

Introduction/Ideology/Key Values 

Philosophy/Application & Practice 

Expungement & Pardons 

Pardons & Clemency 

Examples/Best Practices 

2013 - Restorative Justice in The US 

2014 - The Prison Industrial Complex 

25% of the World's Inmates Are In the US 

The Economics of Prison Enterprise 

The Federal Bureau of Prisons 

The After-Effects of Incarceration/Individual/Societal 

The Fourth Amendment Project 

The Sixth Amendment Project 

The Eighth Amendment Project 

The Adolescent Law Group 

2015 - US Constitutional Issues In The New Millennium 

Page 135 of 140

2018 - The Theological Law Firm Academy 

The Theological Foundations of US Law & Government 

The Economic Consequences of Legal Decision-Making 

The Juvenile Justice Legislative Reform Initiative 

The EB-5 International Investors Initiative 

2017 - Organizational Development 

The Board of Directors 

The Inner Circle 

Staff & Management 

Succession Planning 

Bonus #1 The Budget 

Bonus #2 Data-Driven Resource Allocation 

2018 - Sustainability 

The Data-Driven Resource Allocation Process 

The Quality Assurance Initiative 

The Advocacy Foundation Endowments Initiative 

The Community Engagement Strategy 

2019 - Collaboration 

Critical Thinking for Transformative Justice 

International Labor Relations 

Immigration 

God's Will & The 21st Century Democratic Process 

The Community Engagement Strategy 

The 21st Century Charter Schools Initiative 

2020 - Community Engagement 

Page 136 of 140

Extras 

The Nonprofit Advisors Group Newsletters 

The 501(c)(3) Acquisition Process 

The Board of Directors 

The Gladiator Mentality 

Strategic Planning 

Fundraising 

501(c)(3) Reinstatements 

The Collaborative US/ International Newsletters 

How You Think Is Everything 

The Reciprocal Nature of Business Relationships 

Accelerate Your Professional Development 

The Competitive Nature of Grant Writing 

Assessing The Risks 

Page 137 of 140

About The Author 

John C (Jack) Johnson III 

Founder & CEO 

Jack was educated at Temple University, in Philadelphia, Pennsylvania and Rutgers 

Law School, in Camden, New Jersey. In 1999, he moved to Atlanta, Georgia to pursue 

greater opportunities to provide Advocacy and Preventive Programmatic services for atrisk/ 

at-promise young persons, their families, and Justice Professionals embedded in the 

Juvenile Justice process in order to help facilitate its transcendence into the 21 st Century. 

There, along with a small group of community and faith-based professionals, “The Advocacy Foundation, Inc." was conceived 

and developed over roughly a thirteen year period, originally chartered as a Juvenile Delinquency Prevention and Educational 

Support Services organization consisting of Mentoring, Tutoring, Counseling, Character Development, Community Change 

Management, Practitioner Re-Education & Training, and a host of related components. 

The Foundation’s Overarching Mission is “To help Individuals, Organizations, & Communities Achieve Their Full Potential”, by 

implementing a wide array of evidence-based proactive multi-disciplinary "Restorative & Transformative Justice" programs & 

projects currently throughout the northeast, southeast, and western international-waters regions, providing prevention and support 

services to at-risk/ at-promise youth, to young adults, to their families, and to Social Service, Justice and Mental 

Health professionals” everywhere. The Foundation has since relocated its headquarters to Philadelphia, Pennsylvania, and been 

expanded to include a three-tier mission. 

In addition to his work with the Foundation, Jack also served as an Adjunct Professor of Law & Business at National-Louis 

University of Atlanta (where he taught Political Science, Business & Legal Ethics, Labor & Employment Relations, and Critical 

Thinking courses to undergraduate and graduate level students). Jack has also served as Board President for a host of wellestablished 

and up & coming nonprofit organizations throughout the region, including “Visions Unlimited Community 

Development Systems, Inc.”, a multi-million dollar, award-winning, Violence Prevention and Gang Intervention Social Service 

organization in Atlanta, as well as Vice-Chair of the Georgia/ Metropolitan Atlanta Violence Prevention Partnership, a state-wide 

300 organizational member, violence prevention group led by the Morehouse School of Medicine, Emory University and The 

Original, Atlanta-Based, Martin Luther King Center. 

Attorney Johnson’s prior accomplishments include a wide-array of Professional Legal practice areas, including Private Firm, 

Corporate and Government postings, just about all of which yielded significant professional awards & accolades, the history and 

chronology of which are available for review online. Throughout his career, Jack has served a wide variety of for-profit 

corporations, law firms, and nonprofit organizations as Board Chairman, Secretary, Associate, and General Counsel since 1990. 


Clayton County Youth Services Partnership, Inc. – Chair; Georgia Violence Prevention Partnership, Inc – Vice Chair; Fayette 

County NAACP - Legal Redress Committee Chairman; Clayton County Fatherhood Initiative Partnership – Principal 

Investigator; Morehouse School of Medicine School of Community Health Feasibility Study - Steering Committee; Atlanta 

Violence Prevention Capacity Building Project – Project Partner; Clayton County Minister’s Conference, President 2006-2007; 

Liberty In Life Ministries, Inc. – Board Secretary; Young Adults Talk, Inc. – Board of Directors; ROYAL, Inc - Board of 

Directors; Temple University Alumni Association; Rutgers Law School Alumni Association; Sertoma International; Our 

Common Welfare Board of Directors – President)2003-2005; River’s Edge Elementary School PTA (Co-President); Summerhill 

Community Ministries; Outstanding Young Men of America; Employee of the Year; Academic All-American - Basketball; 

Church Trustee. 

Page 138 of 140


Page 139 of 140

Page 140 of 140

Social Impact Investing

Create successful ePaper yourself

Delete template?

Save as template?