Social Impact Investing: An Introduction

July 15, 2021

The classical welfare state as it evolved in many parts of Europe after the Second World War has faced challenges from neoliberal assertions of the importance of market competition. At the same time, it has sometimes been slow to respond to new risks and has lacked flexibility in the face of profound changes in terms of the nature of work, challenges of long-term care, the transnational nature of many social problems and, indeed, the problem of climate change. Whilst providing decommodified benefits and services, combining insurance-based models with a focus on adequate safety nets for the most vulnerable, still remains the basis of a progressive system of social protection, the need for social innovation has never been greater than it is today.
One of many responses to the need to create new responses to social and environmental challenges has been the rise of social impact investing. At its simplest, this can be defined as investment entered into with the explicit intention to generate a definable and measurable positive social and/or environmental impact alongside traditional financial return. Following some three decades of a focus on corporate social responsibility, addressing what has become known as the 'triple bottom line' of people, planet and profit, social impact investing, in a variety of different forms and modalities, is increasingly relevant across societies at different stages of development.
Just as one sub-set of consumers exercise choice in favour of products that are associated with a clear social and/or environmental purpose, so too a sub-group of investors have shown increasing interest in generating social value and in supporting initiatives that, if not directly addressing climate change, do at least reduce companies' ecological footprints. For some time, such investors have been able to invest in portfolios of ethical investment funds, such as FTSE 4 Good (, that exclude companies that lack a clear positive social and/or environmental goal. More recently, tailored funds have been created that, instead of gathering together existing companies, actually provide finance for start-ups or relatively new ventures that have social and environmental concerns at the centre of their business model.
The precise way in which different companies combine social/environmental benefits and financial returns can vary, along a continuum between a main focus on profitability on one side and a focus on impact on the other. Of course, just as a sole focus on profit is unsustainable in the long-run, and involves huge reputational risk, a sole focus on social purpose is more likely to appeal to philanthropists than to investors keen to, at least, recover their investment. In an increasing number of hybrid schemes, there are strong links between philanthropic and impact investing, with investments combining with grants that provide seed money incentives and do not need to be repaid.
Just as occurred in the field of corporate social responsibility, integrating social and environmental goals into one's business model, and ensuring that these form the basis for all business relationships, up and down the supply chain, appears to be crucial to the success of ventures with a commitment to social and environmental impact. Such ventures prove able to scale up successful initiatives, and combine traditional business practices with advocacy that, itself, generates new social value and allows for the replication and multiplication of environmental innovations. Although operating within the confines of capitalist social relations, many such ventures prioritise collaboration over pure competition, and reject narrow market-based frameworks such as intellectual property rights, patents and so on. At the same time, just as in corporate social responsibility, some companies pay lip service to social and environmental goals, practising what has been termed 'greenwashing' in the environmental field, integrating environmental responsibility more in terms of marketing and PR than in terms of actual practices on the ground.
It is for this reason that the development of evolving standards, definitions and, above all, measurement of social and environmental impacts is becoming a major priority. Although the rush to establish indicators and to measure everything is an impulse associated with neoliberal new public management, as in the ranking of articles in academic journals as a benchmark of the performance of those working in higher education, it is important to ensure real and not merely rhetorical commitment to social impact. Developing indicators can also help companies to target their commitments across impacts on communities; impacts for consumers and service users; impacts across the supply chain; labour standards; and environmental impacts including energy consumptions, water use, and waste management.
Although far from perfect, the United Nations Sustainable Development Goals (SDGs) (, meant to be global targets for all countries to reach by 2030, also provide a useful framework for measuring social and environmental impact. Among the 17 goals are ones relating to eradicating poverty, hunger, improving health and well-being, reducing inequality, promoting gender equality, ensuring decent work, access to clean water and sanitation, climate action, the provision of affordable and clean energy, and stimulating responsible consumption and production. Integrating the SDGs into companies' missions provides a clear link between firm-specific targets and broader social and environmental impacts.
In recent years, social impact investing has become increasingly important within the European Union as a key part of the EU's focus on social inclusion, social cohesion, and social innovation. Social enterprises play a much bigger role in some countries than others and in many countries the eco-system including the legal and regulatory framework is underdeveloped. Channelling the right financial support to social enterprises at the right time is seen to be crucial to stimulating the social economy. In early stage social impact investment, the EU has recognised that the risks to institutional and individual investors may be a barrier to entry such that funds have been created to partly offset this risk, including a new European Social Innovation and Impact Fund (ESIIF, which includes a guarantee against losses by the European Investment Fund (EIF
In Croatia, the EIF contributed €21 million to a €30 million social impact fund controlled by Feelsgood Venture Capital Fund (, the first of its type in Croatia and only the second such fund in Eastern Europe. The fund has just begun the first phase of due diligence and aims to support early-stage start-ups and growth-stage companies operating in a wide range of areas including: agriculture and farming; healthcare; financial inclusion; digital marketing; gender equality; pedagogical aids; the circular economy; and other fields. The author of this text is one of four academics forming an impact panel, working with companies at the pre-investment stage to clarify, define and set measurable social and environmental indicators. The initiative is, also, focused on promoting social impact investing in many different forms, across the wider region.
From a critical perspective, social impact investing, not unlike Corporate Social Responsibility before it, may seem like “too little, too late” in the face of urgent social challenges and a rapidly unsustainable planet. The philosopher Mark Fisher once stated, “it is easier to imagine the end of the world than the end of capitalism” (Fisher, M., 2009, Capitalist Realism, Zero books). At the same time, capitalism as we know it has to adapt if we are to survive and social impact investing may be one part of this adaptation, encouraging values of co-operation and co-production, alongside a caring economy, co-operatives, non-monetary forms of gifts and exchange, and common goods and services.
Dr. Paul Stubbs