(Taking impact investing to scale means) Figuring out how to work with government

“My frustration with the social investment scene in Europe is that there is quite a lot of talk, … and we have a reasonable level of entities doing lower risk efforts. What there is not is high risk, pipeline development or early stage investment.” That statement was not made by someone sitting on the sidelines tossing in a criticism. It’s the analysis of Geoff Mulgan, formerly of the thought leading Young Foundation, one of the creators of social impact bonds, now taking on an even bigger task leading NESTA and working at the highest levels with the European Union and entities like the European Investment Bank and other groups. A doer and a thinker, Mulgan has an idea of where he wants things to move.
“Our hope is to get the business world involved in bridging that gap,” Mulgan said. That means working with government to figure out how to structure rules around different levels of risk and return that make money flow from the private sector to the accelerating social need that government can no longer fund as it has in the past. “European investment banks and development agencies are under pressure to think creatively, to not just invest in infrastructure: hospitals, schools.”
“The situation in Greece is one where they are looking to impact investing to leapfrog themselves out of a difficult situation,” Mulgan said, while acknowledging the Skåne region of Sweden as a place that sees a clear economic development opportunity in becoming a hub for social capital market innovation.
He feels the accelerating momentum in the market at the intersection of money and meaning, but Mulgan adds “it’s a messy and muddled landscape at the moment. The big question around high-risk investment (with a social purpose) across Europe is how to draw that higher-risk capital, or how to pull it with incentives.” That kind of work of opening the gates around capital so that impact investing can grow to fill the gap left by declining government funding of social needs is what brings Mulgan regularly to Brussels to work with the European Union.
Alongside SOCAP’s new board president Penelope Douglas, Mulgan will engage in a discussion at SOCAP/Europe of practical ways forward through the landscape of opportunities and obstacles to the growth of investment capital for good across Europe. Douglas, like Mulgan a doer and thinker, led one of the top community development venture capital firms in the U.S., Pacific Community Ventures (PCV).
PCV’s research practice, InSight, has recently published a Rockefeller Foundation funded global study of “specific efforts to catalyze investment opportunities that yield deliberate and substantial social or environmental benefit.”
Douglas’s team did case studies in 13 countries including examining the creation of €6.8 billion ($9.6 billion) in 5,000 environmental projects in the Netherlands through “Green Funds” created by tax credits and exemptions, tariffs that support renewable energy use in Germany, laws that allow social purpose businesses in the UK, mandated quotas for banks to reach under-served poor populations in India and flexible mechanisms that make it easier for pension funds to invest in small and medium (missing middle) businesses in Peru, among others. For more on that study see Ben Thornley’s story related story.
Besides rule changes, there is an information gap that may be just as critical. Banks, venture funds, pension funds, and other investors will “only take bigger risks if they have knowledge of what will work and what will not, what the risks and rewards are. Many of our financial institutions don’t have the knowledge to make intelligent judgments. At this point, the knowledge is not where the money is,” Mulgan said.
Some new information tools are arising that should make the job of analysis easier. The launch of Global 50 in a few weeks will create a dataset of 50 impact investment funds whose results on both financial return and impact will be tracked over time. In addition, GIIN, the Global Impact Investor Network, has launched ImpactBase, a searchable database of even more impact investment funds.
If these and other perhaps yet-to-be-started efforts grow and mature to meet what is clearly surging demand, investors will have the data on performance to plug into their risk assessment/due diligence models. And people like Mulgan and Douglas – who influence policy makers – will have more of the tools to help impact investing to scale. To see where the conversation has moved, and what new voices have been added to the mix, join us in Amsterdam May 30- June 1 at SOCAP/Europe.