SOCIAL IMPACT INVESTMENT: NEW INVESTMENT APPROACHES FOR

ADDRESSING SOCIAL AND ECONOMIC

CHALLENGES

OECD, Paris, France

November 7, 2014

Karen Wilson

Science, Technology & Industry Directorate

What is Social impact Investment?

• Social impact investment is the provision of finance with the explicit

expectation of a social, as well as financial, return.

– This could be provided through a range of financial products, from debt

to equity.

– Social impact investment instrument and markets are developing in

parallel to the mainstream financial markets.

• Critical areas in which social enterprises and investors engage

include

– Health, “at risk” populations, education, housing and other areas of

public private sector partnerships.

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3

The Investment Spectrum

4

Sample of global funds investment by

sector during 2011

Source: Saltuk et al, 2011.

Why does it matter?

• New models of public and private partnership are needed to fund, deliver and scale innovative solutions to social and economic challenges.

• Social investment is increasingly relevant as social challenges have mounted and public funds have been under pressure in many countries

• Innovative new ways to address social issues more efficiently are needed

• Capital providers are increasingly interested in social investment as a way to pursue social as well as financial goals.

5

The Social Impact Investment Market is

Evolving Rapidly

The increased need for social services:

trends in social outcomes

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The juxtaposition of the figures in Panel A, read alongside the evidence in Panel B, gives the strongest message for the need for innovative social enterprise in these countries. First, although LTC provision varies widely, the demand for these provisions is likely to be very similar across countries – and so there is unmet demand. Second, as the scale of dependency increases, demand for care will increase substantially relative to the working-age population in the coming decades.

Panel A: Population aged 65 years and over receiving long-term care, 2011 (or nearest year) and prevalence of dementia among

the population aged 60 years and over, 2009

Panel B: Over 65 population as a ratio of working age population (15-64)

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Prisons in a number of countries are

over-capacity

Note: Prison occupancy rates United Kingdom data is for England and Wales only, data for Australia, England & Wales, France, Germany, and Italy are from 2013; 2012 in Japan and the United States, and 2009 in Canada. Source: Author’s calculations of national informant data (available on request).

Evolution of total public social

expenditure

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Evolution of total public social expenditure As a percentage of GDP 1980-2013

Source: OECD (2012), Social Expenditure (SOCX) via www.oecd.org/els/social/expenditure

10

15

20

25

30

35

1980 1985 1990 1995 2000 2005 2009 2010 2011 2012 2013

Canada France Germany Italy United Kingdom United States Australia

Social protection, health, housing and

education cover 60%+ of total spending

Structure of general government expenditures by function (2011)

Source: OECD Government at a Glance, 2013.

– Taskforce established at G8 Social Impact Investment Summit in London in June 2013

• Chaired by Sir Ronald Cohen, 2 representatives per country (public + private)

• Initial mandate for one year, meeting every two months: – US: October 2013, UK: December 2013, Germany: February 2014,

France: April 2014, UK: June 2014, Italy: October 2014

• Four taskforce working groups

• G7 (+ Australia) National Advisory Boards

• Set of Taskforce reports published on September 15, 2014

– OECD Phase I report (to be published in December 2014) • Social Impact Investment expert meetings (March and June

2014)

• Overview paper published in July 2014 “New Investment Approaches to Addressing Social and Economic Challenges”

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Social Impact Investment Taskforce and

the OECD Report

1. Executive Summary

2. Overview on Social Impact Investment

3. Social Impact Investment Framework

4. Characteristics and Attributes of Social Impact Investment

5. Context Setting: Differences in social needs and service delivery across selected countries

6. Social Impact Investment Market Data: Initial Findings

7. Policy Actions and Implications

8. Conclusions and Next Steps 11

OECD Phase I Report

• Work across various OECD Directorates

– Innovation, entrepreneurship, financing, inclusive innovation and health (Science, Technology and Innovation Directorate)

– Social entrepreneurship (Centre for Entrepreneurship)

– Health, employment, labour and social policy (Directorate for Employment, Labour and Social Affairs)

– Entrepreneurship indicators and better life initiative (Statistics Directorate)

– Financing for development (Development Cooperation Directorate) and the role of foundations in development (Development Centre)

– Long term investment, finance (Directorate for Financial and Enterprise Affairs)

• Major cross-OECD initiatives (led by SG’s Office)

– New approaches to economic challenges (NAEC)

– Inclusive growth 12

Internal Meetings Linking to Related

Work Across the OECD

Framing the Social Impact Investment

Market

Characteristics & Attributes of Social

Impact Investment

• Public and private aggregated data (top-down) – Identify key aggregates (e.g. National Accounts; investors’ assets)

Key caveat: Strong assumptions required due to aggregation level

• Legal form and register data (bottom-up) – Identify legal types associated with SII (e.g. Community Interest Company)

Key caveat: Far from perfect match between legal form and SII

• Surveys – Sampling frames and appropriate reporting incentives are needed to ensure

representativeness and data quality.

Key caveat: Extremely resource intensive, difficult to identify appropriate samples

• Other strategies such as polls, community feedback mechanisms and open source data

Key caveat: Challenging to control data quality

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Approaches to SII data collection

Data requirements vary depending on who is seeking the data (market players, academics, policy makers).

• Should policy makers intervene in the market?

– Existence of market failures

• Information asymmetries (moral hazard), imperfect market competition, externalities, absence of public goods

– Is SII a better or additional solution?

• Is it more efficient and/or effective in meeting social needs?

• What is the appropriate role of policy?

– Indirect (addressing legal and regulatory issues)

– Direct (providing support through tax incentives, guarantees or subsidies)

• The critical next step is to build the evidence base:

– Developing common definitions

– Building the necessary data infrastructure and coordinated data collection processes

– Furthering efforts on the measurement of primary social outcomes

– Evaluation of polices and broader social outcomes

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Policy Issues and Questions

Karen.Wilson@oecd.org

For further information see July 2014 publication:

http://www.oecd-ilibrary.org/science-and-technology/new-investment-approaches-for-addressing-social-and-

economic-challenges_5jz2bz8g00jj-en

New publication forthcoming in December

2014 or January 2015

For further questions contact: