‘Money makes the world go round,’ sang Liza Minnelli in the famous movie and musical ‘Cabaret’, and this is no less true for social innovation initiatives and projects which, without funding, of whatever type, are bound to fail (despite a few exceptions). Apart from receiving subsidies, grants or contributions from donors, social innovation initiatives and projects, among them in particular social enterprises, can benefit from (private) investment. In recent years, investors have become more socially and environmentally aware and investment funds have been set up which not only make their decisions based upon the expected financial return, but they also take into account the social impact of the initiative, project or enterprise.

Social impact investing is a term that embeds different features combining the traditional business and finance-related aspect of investment with the more ‘soft’ or social aspects, which together produce a focus on the impact a business or activity has on its environment or community.

As such, the decision of whether or not to invest in a specific business or initiative is taken based not only on the financial or economic impact, or the return to investors, but also on the impact that the business or initiative has. Social impact assessment, a term already explained in the Social Innovation Academy glossary, is key here, as it provides the process to analyse, monitor and manage the social consequences of the planned programmes or projects and the related social change processes.

It is thus all about (socially) responsible investment, defined by the Financial Times in its Lexicon as: An investment strategy which seeks to generate both financial and sustainable value. It consists of a set of investment approaches that integrate environmental, social and governance (ESG) and ethical issues into financial analysis and decision-making.


Defining social (impact) investment

Although the European Commission, in its definition of social investment, does not explicitly highlight the financial return, it is nevertheless a key aspect. For example, the definition by the OECD is much more explicit in this matter:

European Commission – investing in people, highlighting that it concerns policies or actions designed to strengthen people’s skills and capacities and support them to participate fully in employment and social life. Key policy areas include education, quality childcare, healthcare, training, job-search assistance and rehabilitation.

OECD[i]the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial, return — has become increasingly relevant in today’s economic setting as social challenges have mounted with public funds in many countries 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.

The difference in definitions also reflects the context in which each definition has been developed, with the European Commission’s version stemming from the DG for Employment, Social Affairs and Inclusion, and thus placing greater emphasis on the social aspect.


Forms of social impact investment

There are different forms of investment, based on debt or equity. Debts are loans, in which one pays back the amount obtained. A specific type within this group and relevant in social innovation is ‘micro-financing’, a type of banking service that is provided to unemployed or low-income individuals, groups or communities who otherwise would have no access to financial services, to initiate a business or project.

With equity the investor(s) put(s) money into the organisation in exchange for a share in the results or even part-ownership (of the legal form that the organisation allows). A good example is the social impact bond, where one or more investors provide ‘upfront’ capital for the realisation of (public) projects that generate verifiable social and/or environmental outcomes. The return is based on achieving the agreed social outcomes. A specific form of this model is public-private partnerships, where a government contracts an intermediary (or project sponsor) to implement a social/environmental project in exchange for a promise of a payment contingent on the social outcomes delivered by the project.


Return on social investments

As with any investment, the investor wants to see a return on their investment. While in traditional and purely financial investing this is determined solely on the basis of the financial results of the company, in social investing the social value created is also taken into account.

A good method for calculating the impact is Social Return on Investment, which not only calculates the impact but also provides a framework for thinking about the social value created. The process for deriving the indicators combines information, discussions and data, involving all stakeholders and reflecting the complexity of evaluating the social return. The method measures the environmental and social value not reflected in conventional financial accounting.


Social impact and accounting

The inclusion of social and environmental value led to the development of the ‘Triple Bottom Line’[ii], an accounting framework that incorporates three dimensions of performance: social, environmental and financial. This approach differs from traditional reporting frameworks as it also includes ecological (or environmental) and social measures for which it can be difficult to assign appropriate means of measurement.

Some investors go a step further than merely investing financially and commit and highly engage themselves in the project or business with the aim of generating societal impact through three core practices: i) tailored financing, ii) organisational support in the form of added-value support services to strengthen their organisational resilience and financial sustainability, and iii) impact measurement and management. This type of investment or engagement is known as ‘venture philanthropy’[iii].


Beyond social innovation projects and social enterprises

Socially responsible investing or social impact investment is not only the preserve of NGOs, social enterprises or other types of non-profit entities. Traditional businesses have already integrated corporate social responsibility (CSR) strategies, but many are now moving towards ‘shared value’, a management strategy in which companies find business opportunities in social problems.

While philanthropy and CSR efforts focus on ‘giving back’ or minimising the harm business has on society, shared value focuses company leaders on maximising the competitive value of solving social problems in the context of new customers and markets, cost savings, talent retention and more[iv].

Tendencies like this blur the traditional boundaries between business and economics and social value, resulting in a greater permeation of social innovation features into the world of business.

It is therefore not only the potential social innovators or entrepreneurs that need to develop the competencies to initiate, set up and scale social innovation projects and initiatives; indeed, managers and innovators from the more traditional business world must also become knowledgeable about the topic.


Learn more at Social Innovation Academy

For this reason, EOLAS and Limitless, together with 3 other partners, have joined forces to develop the first online Social Innovation Academy in Europe. The Social Innovation Academy will be the first fully online management training programme focusing exclusively on social innovation.

Why Social Innovation Academy? Social innovation is increasingly being perceived as the answer to the rising number of European societal challenges. While the European authorities, leading academics, policy experts, business people and activists agree that social innovation is the key to a better future for Europe and the world, it is extremely difficult for professionals to obtain high-quality training on what social innovation actually offers and, more importantly, how it can be done in practice.

The Social Innovation Academy aims to change this situation in Europe and beyond. If you are interested in keeping up with this project, you can subscribe to our newsletter, become one of our friends or follow us on social media (LinkedInTwitter and Facebook). We welcome all requests for collaboration here.


[i] http://www.oecd.org/sti/ind/social-impact-investment.htm

[ii] Slaper & Hall (2011). The Triple Bottom Line: What Is It and How Does It Work.

[iii] European Venture Philanthropy Association (2016). A practical guide to venture philanthropy and social impact investment.

[iv] Porter & Kramer (2011). Creating Shared Value, Harvard Business Review.


The European Commission support for the production of this publication does not constitute an endorsement of the contents which reflects the views only of the authors, and the Commission cannot be held responsi­ble for any use which may be made of the information contained therein.

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