What is Social Impact Investment?
Social Impact Investments (“SIIs”), including Social Impact Bonds, are increasingly being used as part of an emerging global model for funding programmes aimed at tackling social issues. Social impact investing is the provision of finance to organisations with the expectation of measurable, positive social consequences, as well as a financial return. The model was piloted in the United Kingdom and also, subsequently, implemented in the US by way of the Pay for Success bond issuance programme. The initiative is also being introduced in Australia, Germany, the Netherlands, Portugal and other countries. In Ireland, Clann Credo, Dublin City Council and Focus Ireland have established a social impact fund to tackle homelessness.
SIIs are innovative, multi-stakeholder collaboration projects which seek to address persistent social issues through the implementation of high impact, cost effective, strategic programmes. Projects commonly involve socially-minded private investors providing upfront finance for projects which yield both social and financial returns. Generally, investors then receive repayment with interest, generated when cost savings or income is secured. The risk associated with funding the programmes and the achievement of the social outcomes is carried by private investors. It is the case that returns are typically more modest than those achievable in the wider market.
Social impact investment has become increasingly relevant in the current economic climate as social challenges have mounted while public funds in many countries have been cut. New approaches, including new models of public and private partnership which can fund, deliver and scale innovative solutions from the ground up are becoming increasingly important as a way of addressing these social and economic challenges.
Vita considers that the Investment Programme exhibits the following social impact attributes:
- tackling a critical social problem;
- provision of up-front finance by third-party private Investors;
- seeking to generate social, environmental and financial returns;
- seeking to generate returns for Investors through the delivery of specific, measurable targets; and
- provision and delivery of innovative solutions from the ground-up.
The Investment Programme also exhibits the following features which seek to provide additional benefits to Investors:
- By mitigating climate change while addressing persistent social issues (poverty and injustice), the Investment Programme, in addition to providing financial and social benefits, provides a third critical benefit for the Investors and for the planet at large.
- The Investment Programme is intended to create a sustainable financing mechanism. Instead of depending on government grants to repay Investors, the Investment Programme seeks to generate income streams from international carbon markets in order to fund the repayment of Loans.
- The Investment Programme also promotes inclusion and sustainability. Income can only be generated from the carbon markets each year by providing independent third party evidence from Gold Standard or similar organisation that the carbon savings and therefore the social benefits continue to accrue (as detailed in the section of this Memorandum entitled “Carbon Finance”).