Sitra's Impact Accelerator has provided more than a dozen companies and organisations with tools for demonstrating the benefits of their activities to...
Impact investing generates a beneficial, social or environmental impact, as well as a financial return
is a way of increasing collaboration between the public and private sectors to solve common challenges. Problem solving can be seen as an investment for which private equity can also be deployed.
only pays for achieved, measurable outcomes.
impact investments fall somewhere between a traditional investment and a donation.
Impact investing is a funding and operating model for developing novel solutions based on which various social challenges are addressed. It is a way of stepping up collaboration between the public and private sectors and social enterprises, by steering private equity towards projects aimed at promoting well-being. On a global scale, impact investing has been harnessed in order to address issues such as unemployment, to support the resettlement of released prisoners and to promote the educational opportunities of young single mothers.
Sitra aims to introduce the impact investing model in Finland: this will involve building a suitable ecosystem, bringing together various stakeholders – the public sector, service providers and investors – and testing the model’s suitability for Finnish society. This task is the responsibility of the team involved with Sitra’s Impact Investing focus area, launched in May 2014.
Working together to enhance well-being
In Finland, the public and private sectors are too distant from one another in many respects. There is a growing need for collaboration: the financial and social costs of social issues are mainly being borne by the public economy, despite the state’s and municipalities’ clearly diminished ability to cope with such costs. Simultaneously, a growing number of investors aim to invest in a way that generates more than a financial return; many enterprises, foundations and private investors have the desire to “do social good”. There are also different types of enterprises and other operators that have a genuine desire and ability to offer innovative solutions that promote well-being. Impact investing could bring these players together for the common good.
For example, managing long-term unemployment could be seen as more than a public sector cost; it could also be viewed as a challenge and investment target within the private sector, or among social enterprises. If a new type of support offered to the unemployed improved the employment situation within a certain target group, this would bring financial benefits to the individual, the investor and society as a whole: the unemployed person would find a source of income, the municipality’s tax income would increase while social expenditure fell, and the investor would receive a moderate return on investment.
Performance is the key to achieving a financial return
Investors are being offered a wide range of financial instruments from which to choose, but the following principle applies to all of them: the primary investment objective is performance. In other words, a return on investment is only paid after certain predefined investment objectives have been met. And vice versa: the “subscriber” to the service – for example, a municipality or the state – will only pay for achieved, measurable outcomes. In a financing and operating model of this kind, setting investment objectives and performance metrics is essential.
Impact investing provides the public sector with the tools it needs to rein in growing costs and save money. It also enables funds to be channelled towards preventive measures, which often involve investment behaviour that is highly forward looking in relation to the anticipated social and financial benefits. The wider impact of practical trials will take years to emerge; first, the lessons learnt and best practices will need to be disseminated so that others can benefit from them.