By Brenna McCallick, Research Associate, Pacific Community Ventures
Unless you’ve completely ignored impact investing news over the past three months, you’re probably aware that public policy is a hot topic in the field these days. The landmark reports produced by the Social Impact Investment Taskforce and National Advisory Boards, and more recently, the IIPC’s global policy snapshot report – not to mention discussions at field convenings like SOCAP, Social Finance Forum, and Net Impact – have highlighted the crucial role of government action in supporting impact investing.
This post is a particularly long one for two reasons: First, policy is close to our hearts at the IIPC. Indeed, the goal of advancing sound impact investing policy is the very reason for our existence. Since our inception five years ago, we have developed critical frameworks for understanding and mapping policy and government action, monitored global trends, created new case studies, and produced tools, research and recommendations for public and private sector actors alike. We are very proud of the work we have contributed to the field, and thus many of the resources listed below are our own.
Second, there is simply a great deal of valuable information to be shared. It has been extremely rewarding for us to reflect on the ways the field has advanced over the past five years, and to witness policy come to the forefront of international conversations on impact investing. At the close of 2014 – a particularly prolific year for research on impact investing policy – we would like to offer readers a jumping-off point of sorts, a way to begin to make sense of it all.
Below are several key resources that will acquaint newcomers to some fundamental concepts regarding the role of policy in impact investing. Of course, we encourage you to keep exploring on your own – there’s plenty more useful information not captured here– but we hope that this list offers a helpful starting point.
A few caveats: what we mean by “policy” – and why we’re talking about it
Governments play a role in scaling impact investing in their regions by providing support – regulatory, financial or sometimes just symbolic – for investments made by individuals and institutions into socially and/or environmentally impactful funds and enterprises.
Now, it is certainly true that with shrinking fiscal budgets, many governments around the world are eager to harness the power of the private sector to address increasingly daunting social and environmental challenges – like the need for more affordable housing, access to healthcare, sustainable food systems and clean energy production, to name but a few.
In order to target these issues within vulnerable communities, the public sector is crucial. We must be conscious that impact investing is not, as it is so often framed, simply a market solution to limited public resources for addressing global crises. Government can be instrumental in achieving the kinds of social and environmental impact that private sector activity alone has been unable to produce. Therefore, government should not be viewed in impact investing simply as a commissioner of social outcomes, but rather as an active stakeholder – a valuable partner that can bring powerful tools to bear on the market.
Also, we want to be clear that when we talk about public policy, we don’t just mean legislation; we are talking about any government action that supports impact investing market growth. And as the IIPC and many other thought leaders have recognized, supportive policy is an essential ingredient in creating an environment where impact investors and social enterprises can operate, scale and create the positive change they’re seeking.
This support can take many forms. For example, governments can establish new institutions that harness private capital for public good (like Big Society Capital in the U.K.). They can create public agencies dedicated to supporting the growth of impact investing markets through active leadership, national goal-setting and commissioning of research (like the Office of Social Innovation in the U.S.). Or they can support market development by setting regulations that affect the way certain investments are made (like Regulation 28 in South Africa, which applies to pension funds). And of course, a single government can be active in the market in multiple ways.
Because we couldn’t possibly cover every aspect of impact investing policy here, we’ve highlighted a few areas of interest, and organized the publications within these:
I. Frameworks and overviews for understanding the role(s) of government
We begin with a list of publications featuring frameworks and/or “big picture” overviews for making sense of impact investing policy. In addition to the overviews, which provide readers a general understanding of impact investing policy in theory, conceptual frameworks or maps provide a way to organize the sometimes complex interrelationships between policy and impact investment.
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1. Impact Investing: A Framework For Policy Design And Analysis (Pacific Community Ventures and Initiative for Responsible Investment, 2011)
This report provides an introduction to governments’ role in the market and features several illustrative case studies from around the world. It introduces the IIPC Policy Framework (which we commonly refer to as “the (American) football” for its shape) – the first of its kind allowing the reader to categorize and more clearly understand– the different ways government actions help shape the market.
2. (Video) Alex Nicholls on Impact Investing: “Government Always Matters” (Alex Nicholls, Said Business School)
In a panel discussion hosted by the authors of Impact Investing 2.0 at 2013 the Skoll World Forum, Alex Nicholls of Oxford’s Said Business School provides a straightforward overview of both the need for and potential role(s) of government in impact investing markets.
3. Journal of Sustainable Finance and Investment Volume 3, Issue 2 (2013)
IIPC advisory council member Tessa Hebb served as guest editor of this issue, and policy emerges as a key theme across the articles. The issue features commentary from international, field-leading researchers on many of the challenges stunting the growth of impact investing where policy could play a role, such as the need for more effective impact measurement, exchange platforms connecting investors with investment opportunities, new legal structures for social enterprises, and others.
4. Breaking the Binary: Policy Guide to Scaling Social Innovation (World Economic Forum, the Schwab Foundation for Social Entrepreneurship and IIPC, 2013)
With an emphasis on social enterprise, this report highlights 12 examples of public policy action fostering social innovation –a category of market activity that the authors describe as blurring the traditional boundaries between philanthropy and business. The report opens with a “Framework for Government Action,” designed to enable policymakers to identify appropriate entry points for supporting the market. The real value for newcomers is in the report’s utilization of case studies to illustrate each aspect of the framework, making the publication as a whole very accessible.
5. The London Principles (IIPC, 2013)
Drafted and launched at the third annual IIPC Conference in the UK, The London Principles are a set of guidelines for policymakers to follow as they work to foster impact investing in their regions. The five principles were drawn from years of research into effective impact investing policy, and were written collectively by an international group of leading researchers and policymakers active in the market. They offer perhaps the broadest look at how governments across the globe can enable and scale impact investment through sound public policy.
6. Impact Investment: The Invisible Heart Of Markets (Social Impact Investment Taskforce, 2014)
The final report produced by the Taskforce, this document lays out critical recommendations for advancing impact investing around the globe, and calls on governments and the financial sector to work together to unleash new private capital for impact investing. The Taskforce also released several supplementary papers honing in on key issues, including one on policy – Policy Levers And Objectives: Explanatory Note for Governments. This paper provides recommendations to policymakers based on findings from the National Advisory Boards of each Taskforce member country. The ecosystem framework presented in the paper offers a means of categorizing the various stakeholders that operate in a given region’s impact investing market; while not necessarily a one-size-fits-all tool, the framework can be useful for understanding the role of government in a particular market. [/accordion_item]
II. Case studies: variations across geographies and political systems
While it might seem obvious, it’s important to remember that the role of the public sector differs across geographies. For example, a country like Germany, with a social market economy and public welfare spending that amounts to more than a quarter of its GDP, faces very different challenges in fostering impact investing when compared to a country like the U.S., where government does not – and is not expected to – serve as the primary proprietor of social services. It is therefore crucial, when developing an understanding of impact investing policy, to explore the particular manifestations of policy within different regions around the world.
The resources below offer windows into the economic, social and political contexts for impact investing across different regions, enabling readers to learn more about the unique challenges and opportunities for policy in shaping impact investing.
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1. IIPC fellows’ reports (Impact Investing Policy Collaborative, 2011-2014)
The IIPC has commissioned researchers from around the world to report on specific country impact investing markets – including the role of government within those markets:
- “Morocco: Conditions and Potential for Impact Investing” (Lena Lütjens-Schilling, University of Hamburg, 2013)While her full report has not yet been released, this blog post from Lena Lütjens-Schilling offers readers a fascinating look into a few key social, political and economic conditions shaping the emergence of an impact investing market in Morocco.
- Enhancing the Market Space for Impact Investing in Canada (Douglas Pawson, Carleton Centre for Community Innovation, MaRS Centre for Impact Investing, 2014) Pawson here examines the existing implementation of equity- tax credits in Nova Scotia and their potential for expansion into other geographies.
- Mapping the Social Impact Investing Market in Germany (Anna Katharina Hoechstadter and Barbara Scheck, University of Hamburg, 2014) This report focuses on the problem of unequal access to education in Germany, examining the potential of the nascent German social impact investing market – in partnership with government – to combat the issue.
- Adopting the London Principles: Policy Considerations to Grow Impact Investing in Hong Kong (P. Ming Wong and Philo Alto, Asia Community Ventures, 2014) Wong and Alto here analyze five social funds in Hong Kong, in addition to the recently launched Social Innovation and Entrepreneurship Development Fund, and apply the London Principles as a framework for assessing the role of the Hong Kong government.
- National Voluntary Guidelines: Creating a Conducive Policy Environment for Responsible Business and Responsible Investment in India (cKinetics, 2014) This report highlights the National Voluntary Guidelines for Social, Environmental and Economic Responsibilities of Business established by the Indian Government in 2011, and examines how the country can leverage the policy to encourage impact investing among businesses and investors.
- Developing Social Impact Markets in Turkey: Framework for Government Engagement and Reviews of Policy Options (Anja-Nadine Koenig, Istanbul Policy Center, 2014) Written as a resource for Turkish policymakers, this report offers an overview of the issues stunting the growth of impact investing in Turkey, and proposes new ways for government to support the market.
2. Assessment of impact investing policy in Senegal (Dalberg, 2012)
This paper describes the economic and social challenges facing that nation of Senegal, and lays out many of the major issues stunting impact investing there. It places particular emphasis on the lack of supportive policies for social (or “impact”) enterprises, and offers proposals for enacting necessary policy reforms.
3. Policy Levers for Impact Investing in the U.S.: An Orientation (Accelerating Impact Investing Initiative, 2014)
For readers looking to develop an understanding of impact investing policy in the United States, this is an excellent resource. It represents the first attempt to map three different “levels” of government involvement, and the policies and key actors involved at each level. It’s particularly useful for orienting stakeholders within the broader “ecosystem” and thinking about how each level of government action functions in the market.
4. National Advisory Board reports (Social Impact Investment Taskforce, 2014)
As a crucial part of the Social Impact Investing Taskforce work, eight countries –the G7 nations and Australia – formed National Advisory Boards (NABs) that analyzed and mapped the impact investing ecosystem in their respective nations, and reported their findings to the larger Taskforce, ultimately informing the final Taskforce report. The NABs published their findings, as well as recommendations for utilizing policy to scale impact investing, in individual country reports:
- Australia – Delivering on Impact: the Australian Advisory Board Breakthrough Strategy to Catalyse Impact Investment
- Canada – Mobilizing Private Capital for Public Good: Priorities for Canada
- France – Comment et Pourquoi Favoriser des Investissements á Impact Social?
- Germany – Wirkungsorientiertes Investieren: Neue Finanzierungsquellen zur Lösung gesellschaftlicher Herausforderungen
- Italy – La Finanza Che Include: Gli Investimenti ad Impatto Sociale per una Nuova Economia
- Japan – The Social Impact Investment Landscape in Japan
- United Kingdom – Building a Social Impact Investment Market: the UK Experience
- United States – Private Capital, Public Good: How Smart Federal Policy Can Galvanize Impact Investing – and Why It’s Urgent
5. Positioning Social Enterprises in the Policy Agenda: Road to Travel (NESsT, 2014)
Presented as a manual for policymakers and key stakeholders, this book is great resource not only for learning about challenges to social enterprise growth in Latin America, but also for understanding how the public and private sectors can partner most effectively to overcome these challenges.
6. Impact Investing Policy in 2014: A Snapshot of Global Activity (Impact Investing Policy Collaborative, 2014)
For this report, the IIPC commissioned impact investing leaders across seven countries to author articles on their work or on some key aspect of their native market. It offers – as the title implies –a “snapshot” of policy innovations happening at the global level, as well as a look into policy action in Brazil, Canada, France, Germany, India, South Africa and the U.S. Also worth checking out within the report:
- “IIPC Conceptual Framework: An Introduction To Impact Investing Policy Development,” by Katie Grace of the Initiative for Responsible Investment, in which she succinctly brings together five years of IIPC policy research and frameworks; and
- “Policy Symbiosis Toolkit: Helping Investors Engage With Governments,” by Cathy Clark, Jed Emerson and Ben Thornley, authors of The Impact Investor, which describes four ways investors and fund managers can begin to utilize policy advantageously.
7. Investing for Impact: A Strategy of Choice for Africa Policymakers (Bridges Ventures, 2014)
Offering an illuminating view into impact investing in the African context, this report presents the findings from a study supported by the Rockefeller Foundation examining the challenges and opportunities for growing impact investing in the region. In addition to showcasing several case studies, the report proposes 10 recommendations for developing more effective policy, and provides three frameworks (including the IIPC Policy Framework!) for understanding the actors, motivations and methods that shape – or have the potential to shape – impact investing in Africa.
III. Policy in particular areas of market activity:
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1. Institutional Investment
- Impact At Scale: Policy Innovation For Institutional Investment With Social And Environmental Benefit (Pacific Community Ventures and Initiative for Responsible Investment, 2012) Focusing on the U.S., this report looks exclusively at the capacity of institutional investors (think pension funds, insurance companies, private foundations and university endowments) to invest for impact. The report offers useful examples of how policy presents both opportunities and constraints for institutional impact investment.
2. Fund Management
- “Policy Symbiosis,” Impact Investing 2.0 (CASE at Duke University, ImpactAssets and Pacific Community Ventures, 2013) An essential read for those looking to understand policy from an investor perspective. This section of the report lays out the ways top performing impact investment firms from around the world have utilized public policy in their investing activities.
3. Development Finance
- Impact Investing in Development Finance Institutions (IIPC, Initiative for Responsible Investment, 2014) Development finance institutions (DFIs) are entities set up to deploy public funding from one or more countries to support international development projects in other countries, and they play an important – though not always explicit – part in impact investing markets. In this report, the authors present results from a survey of DFIs around the world, in which responders were asked to describe the nature of their work in relation to impact investing. It offers a unique look into these government-supported institutions and poses interesting questions about their role within impact investing.
For more information, we recommend perusing the following resource libraries:
Still have questions? Stay tuned.
In future “101” posts, we will point you toward more prime information about impact investing. We look forward to sharing the best resources available on different topics in the field, reflecting a variety of perspectives.
If there’s a topic you’d like to learn more about, or a report, article, blog post, video, infographic or other informational resource you think belongs on one of our lists, let us know: firstname.lastname@example.org.
 For a more thorough explanation, see “What do we mean by policy?” in “IIPC Conceptual Framework: An Introduction To Impact Investing Policy Development”
Brenna McCallick serves as Research Associate for InSight, supporting PCV’s domestic and international impact investing policy initiatives. She conducts research on public policy as it relates to impact investing, produces content for InSight publications and monitors global trends in the field. Prior to joining PCV, Brenna worked as a Development Assistant at Room to Read, an international nonprofit that promotes literacy and gender equality throughout impoverished regions of Asia and Africa. She holds a BA in History from the University of San Francisco. She can be reached at email@example.com.