Building the evidence base for the Social Impact Investment market

Somatish Banerji | February 24th, 2015, 1:23 pm

Emerging markets today, face the unenviable task of balancing the dual objectives of attaining and sustaining economic growth momentum and addressing rising social challenges at the same time. Efforts towards both must be simultaneous rather than linear. Progress on one of the fronts serves as a harbinger of progress on the other. In case of the latter of the two objectives however, governments are finding it increasingly difficult to walk the path alone. The realization that it is practically impossible to overcome the daunting social challenges through public spending alone is now pretty much absolute. As a corollary to this, governments are increasingly looking towards private sector participation and innovative models and approaches to augment their efforts.

Given this context, social impact Investment (SII) has been gaining in relevance over the past decade, as a viable alternative and complementing force to tackle the multifaceted social challenges the world, particularly the developing world, faces. Social impact investment is defined as “the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial, return.”

Growing individual and institutional investor interest in addressing social challenges has been a major driver for rising popularity of SII. Although still in the early stages of development, the rising investor interest, coupled with the emergence of social businesses and market intermediaries and the increasing government willingness to directly and/or indirectly facilitate innovative interventions, has laid the foundation for an enabling SII market ecosystem. Yet, much greater participation from all the ecosystem stakeholders is necessary for the SII market to further develop and achieve its true potential. For this to happen however, a strong evidence base needs to be created.

A recent report by the Organisation of Economic Co-operation and Development (OCED) titled Social Impact Investment – Building the Evidence Base, provides a framework for assessing the social impact investment market. Acknowledging the limited availability of data as the biggest immediate bottleneck restricting the development of the SSI market, the report focuses on the need for building a strong data driven evidence base. It highlights the importance of heightened international collaboration in developing global standards relating to definitions, data collection approaches, impact measurement, policy evaluation and experience sharing amongst SII market stakeholders.