The Italian Embassy hosted the Impact Exchanges panel discussion on Monday 23 January 2017, at 6pm, focused on the current state and future challenges of social impact policy in the post-Brexit referendum U.K.
The panelists who participated to the discussion were the following:
1. Cliff Prior, CEO at Big Society Capital
2. Jason Eis, Executive Director at Vivid Economics
3. Karl Richter, co-founder and Executive Director at EngagedX, appointed advisor on social impact investing to UNDP and OECD
The discussion started with the opening remarks of H.E Pasquale Q. Terracciano, Ambassador of Italy in London, who underlined the important role played by Social Impact Investing, as a self-standing activity, in filling the gap between the private and the public sector to implement social services. He also mentioned the leadership of the U.K. in the Social Impact industry in Europe, which has mainly been possible thanks to its easy access to funding and its liberal economy.
The floor was then taken by Filippo Addarii, who, after thanking all the presents, opened the debate on which will be the possible outcomes of Social Investing after Brexit by making a series of questions to the three panelists.
The questions to the panelists were accompanied by a live poll experiment to take onboard participant feedback. This experiment is part of PlusValue’s role in the European Commission Horizon 2020 Programme for the project Distributed Global Financial Systems for Society (http://www.dolfinsproject.eu/). The EU-funded research project addresses the global challenge of making the financial system better serve society, putting scientific evidence and citizens’ participation at the centre of the policy process concerning finance.
The objective of the experiment is to understand from the participants what are the key “hot topics” of impact investing and how best to move forward, strengthening the sector. Participants’ answers will feed into the event conclusion and the main results will be sent to the event attendees.
What’s the true mission of impact investing: transforming welfare services, improving philanthropy, funding charities, redeeming finance or something else?
· The mission of SII is to deliver effectively social impact
· Finance can do more for the society and the development sector
· The main objective of SII is to increase the quality or quantity of the social or environmental outcomes beyond what would otherwise have occurred, where the counterfactual is that ordinary, socially neutral investors would have provided the same capital in any event
What is the priority for the Impact Investing agenda in the U.K.?
· Have a significant achievement with demonstrable benefit to increase the confidence of investors
· Improving how impact is delivered
· Taking impact investing into the mainstream
· Helping social organizations reduce the gap with commercial investors
· Demonstrate to the skeptics how social impact investments can provide financial returns
What’s the impact of impact investing? Politicians and investors are uber-excited about impact investing, but has it made any difference? Rising inequality, anti-establishment sentiments seem proving that it hasn’t made any difference to the lives of ordinary people.
· SII is still a quite small and young sector by today's standard, accounting for less than $100 billion – strategic capital is needed, organisations need cash
· There is little evidence on the efficiency of SII compared to other forms of investments
· Today, almost 60% of the SII funds go to developed countries where the social impact needs are different
· Cliff: we have metrics but nobody invented the rules!
o Impact management – does it tell me that I’m doing better? This is the most important aspect, which is often forgotten
o Principles need to be developed – who owns the impact? Usually people think gov owns the impact
o What does good look like to you?
· Karl: how to connect mainstream finance and SDG (Social Development Goals)
o How to achieve the interface between the two?
o How can commercial finance and philanthropy work together?
What’s a fair profit in impact economy? We heard - but it’s not confirmed – of investors earning double-digit returns on SIBs after government having made billing in cuts to public services
· Profit isn't of secondary importance, it shouldn’t be frowned upon – “there is nothing wrong with profit” (Jason Eis)
· Much social investments go into very risky and quite early staged initiatives, that rely on unstable government funds
· Social investment is cheaper than commercial investment but it is less available to the organizations that would benefit from it
· Funding gap
o Incentive needed for social impact – for example SIBs have incentives
o The aim is to know how to calculate a marginal financial incentive
· When companies sacrifice profit there must be a strong social reason
· Real companies always have an impact in society
The past government pushed the label of mission-led business as impact embedded in corporate strategy (not just CSR). is there evidence of any change in the market
· It is a way to make commercial companies achieve social impact
· Profit-making companies are willing to commit to social missions
· Many companies operating in the development sector generate impact but struggle to be financially sustainable
· It’s key for SII to be sustainable otherwise it becomes simple grant-making
· Need for social impact incentives
· Thanks to financial subsides, mission-led businesses are incentivized to fill the gap of insecure investments
· Financial return is necessary and has been working well: this is why companies should be encouraged to pursue it
· When companies sacrifice financial return for something else they need to justify this investment for social reason and, nowadays, few companies are willing to do that
· Some companies, on the other hand, are socially oriented and create social impact such as Facebook and Google
Do impact investors really offer a better deal to organizations measuring their impact or what to change in a relationship that seems unsatisfactory for both parties?
· Impact measurement has a high cost and sometimes the impact isn't relevant enough to be measured
· Is impact measurement really useful in order to deliver the service in a better way? Does it help me to manage the investments portfolio?
· The majority of businesses creating social impact don't have enough funding to think beyond the immediate and pressing issues
· It is important to create tools in order to measure this kind of impact and to improve the impact management
· There is too much burden placed on the social investment sector. Governments struggle for years to provide evidence of the positive impact they were delivering and today they are not completely able to do that
· Probably there will never be a precise measurement of social return
Is Hard Brexit, which the PM announced this week, the requiem for London’s world leadership in impact investing? If it is so then what’s the alternative?
· UK was able to bring in the policy on social investment in Europe (Filippo)
· The U.K. is a SII leader but, despite that, it is widely dependent on EU funds. Brexit will affect U.K. SII in restricting its market and its access to funding
· The main issue doesn’t concern social investments but social needs that, after Brexit, will change as a consequence of the high inflation rate, the depreciation of the currency etc… that will strongly impact low income families and small businesses (Cliff Prior)
o Inclusive finance is needed more than ever
o London’s position in Europe so far has been important but there are other countries that have also started the process
o 1.5B in UK – but more in France with pension funds
o Brexit won’t stop the exchange of idea but people will be affected
· Seen the international frame where SII was born and how is now developed also outside the EU (especially in USA, Australia and Japan), is difficult that an event such as Brexit will stop the flow of idea from one country to another and the exchange of best practices
· A protectionist and introspective attitude is rarely positive on a globalized marketplace, this is why an active participation of citizens is fundamental
· Pay attention on how the worldwide political frame is changing alongside Brexit
· The future impact of Brexit is still unknown so it is hard to foresee the consequences for the SII industry
· Karl: around Brexit
o Policy changes happen so not a big deal but here we have an opportunity for social impact investment
In the strategy of Big Society Capital there is a new concept: mass participation in social investment. What is it? How do you make it happen?
· It is an attempt to democratize SII
· It can be done in numerous ways: developing charity bonds, social bank and crowdfunding across U.K. etc.
· The U.K. has proven to succeed in creating mass participation on social issues
· 30-50% of the U.K. population is involved in volunteering activities
· Crowdfunding – new kids on the block- (Cliff). BSC is funding it.
· Social impinv is an escalator
o Allocation of capital with a concept in mind
· Where is the impact side in the debate with corporations and financial institutions?
What’s impact for Millennials and future generations? In the Economist’s report on the Millennials impact comes out as a priority well more important than salary
· We are witnessing nowadays a massive wealth transfer from the baby boomers to the millennials
· It is essential to reimagine how we can deliver a new offer to this young audience
· SII is a useful way to build new models, to invest in new companies that try to do something different despite the difficulties
· The idea of SII to substitute the public sector in deciding the social goal of the society is potentially dangerous