🛟Global Poverty Entrepreneurship Unit 5 – Social Entrepreneurship & Impact Investing

Key Concepts and Definitions

• Social entrepreneurship combines entrepreneurial skills with a mission to address social or environmental issues
• Social enterprises are organizations that apply commercial strategies to maximize social impact rather than profits
• Impact investing directs capital to companies, organizations, and funds with the intention to generate positive social and environmental impact alongside a financial return
• Blended value proposition asserts that all organizations create value that consists of economic, social, and environmental components
• Triple bottom line (TBL) is a framework that measures a company's performance in three areas: social, environmental, and financial
• Social Return on Investment (SROI) is a method for measuring the value of the social impact of an investment or organization
• Theory of change is a methodology that defines long-term goals and maps backward to identify necessary preconditions for achieving those goals
  • Includes identifying interventions that will create desired change and indicators to measure outcomes

Historical Context and Evolution

• Social entrepreneurship has roots in the cooperative movement of the 19th century (Rochdale Society of Equitable Pioneers)
• Modern social entrepreneurship emerged in the 1980s and 1990s with the rise of microfinance and the work of pioneers like Muhammad Yunus (Grameen Bank)
• Impact investing gained traction in the 2000s with the establishment of the Global Impact Investing Network (GIIN) and the Rockefeller Foundation's coining of the term
• The 2010s saw the growth of social impact bonds, pay-for-success models, and the rise of B Corporations
• Recent years have witnessed increased interest from mainstream investors, corporations, and governments in social entrepreneurship and impact investing
  • Driven by growing awareness of social and environmental challenges and the potential for market-based solutions
• The COVID-19 pandemic has highlighted the importance of social entrepreneurship in addressing urgent social needs and building resilience

Social Entrepreneurship Models

• Non-profit organizations that generate earned income through the sale of goods or services to fund their social mission
• For-profit companies that prioritize social impact alongside financial returns (benefit corporations, B Corps)
• Hybrid models that combine elements of non-profit and for-profit structures (low-profit limited liability companies, L3Cs)
• Cooperative enterprises owned and operated by their members for their mutual benefit (worker cooperatives, consumer cooperatives)
• Social businesses that reinvest profits to scale their social impact rather than distributing them to shareholders
• Public-private partnerships that leverage the strengths of government, business, and civil society to address social challenges
• Microfinance institutions that provide financial services to underserved communities, enabling entrepreneurship and economic empowerment

Impact Investing Fundamentals

• Impact investments are made across asset classes, including private equity, venture capital, debt, and real assets
• Key characteristics of impact investments: intentionality, measurable impact, financial returns, and range of return expectations
• Impact investing ecosystem includes asset owners, asset managers, demand-side actors (enterprises and projects), and service providers (rating agencies, research firms)
• Catalytic capital is patient, risk-tolerant, concessionary, and flexible funding that enables high-impact enterprises to scale
• Gender lens investing incorporates gender analysis into investment decisions to advance gender equality and better business outcomes
• Green bonds are fixed-income instruments that raise capital for projects with environmental benefits (renewable energy, sustainable land use)
• Impact investment funds pool capital from multiple investors to make investments in social enterprises or projects aligned with specific impact themes (education, healthcare, sustainable agriculture)

Measuring Social Impact

• Impact measurement is the process of quantifying the social and environmental outcomes of an organization or investment
• Theory of change serves as a foundation for impact measurement by articulating the causal links between activities, outputs, and outcomes
• IRIS+ is a standardized taxonomy for measuring, managing, and optimizing impact, developed by the GIIN
• Social Value International (SVI) provides guidance and assurance on applying the principles of social value and SROI
• Impact Management Project (IMP) offers a framework for building global consensus on how to measure and manage impact
• Randomized controlled trials (RCTs) are considered the gold standard for evaluating the impact of social interventions
  • Involve randomly assigning participants to treatment and control groups to isolate the effect of the intervention
• Lean Data is an approach to impact measurement that emphasizes speed, cost-effectiveness, and actionable insights, often using mobile technology

Challenges and Opportunities

• Balancing financial returns with social impact and managing potential trade-offs between the two
• Lack of standardized metrics and frameworks for measuring and comparing social impact across investments and organizations
• Limited deal flow and investment-ready social enterprises, particularly in emerging markets
• Regulatory and policy barriers that may hinder the growth and scale of social entrepreneurship and impact investing
• Need for greater collaboration and knowledge-sharing among stakeholders in the impact investing ecosystem
• Opportunity to mobilize significant capital towards achieving the Sustainable Development Goals (SDGs) and addressing global challenges
• Potential for social entrepreneurship and impact investing to drive innovation and systemic change in sectors like education, healthcare, and clean energy
• Growing interest from millennials and women in aligning their investments with their values and making a positive impact

Case Studies and Success Stories

• Aravind Eye Care System: A social enterprise in India that has provided affordable, high-quality eye care to millions of people through a sustainable business model
• d.light: A global social enterprise that has improved access to clean, affordable solar energy for over 100 million people in developing countries
• Acumen: A non-profit impact investment fund that has invested in social enterprises across Africa, Latin America, and South Asia, focusing on sectors like agriculture, education, and energy
• Bridges Fund Management: A specialist fund manager dedicated to sustainable and impact investment, with over £1 billion in assets under management across three fund types
• Root Capital: A non-profit social investment fund that provides loans and training to agricultural businesses in developing countries, improving livelihoods for smallholder farmers
• Revolution Foods: A certified B Corporation that provides healthy, affordable meals to schools and communities, serving over 2 million meals per week across the United States
• Warby Parker: A socially conscious eyewear company that partners with non-profits to distribute glasses to people in need, with over 8 million pairs distributed to date

Future Trends and Innovations

• Increasing mainstreaming of impact investing, with more traditional investors incorporating ESG (environmental, social, and governance) factors into their decision-making
• Growing use of blockchain technology and tokenization to democratize access to impact investments and enable fractional ownership of assets
• Emergence of impact-focused fintech platforms and robo-advisors that make it easier for individuals to invest in social enterprises and impact funds
• Expansion of social impact bonds and outcomes-based financing models that align incentives and share risk between investors, service providers, and governments
• Integration of artificial intelligence and big data analytics to improve impact measurement, risk assessment, and investment decision-making
• Rise of place-based investing and community wealth-building strategies that prioritize local ownership and control of assets
• Increased focus on climate finance and investing in nature-based solutions to address the urgent challenges of climate change and biodiversity loss
• Shift towards more inclusive and equitable forms of social entrepreneurship that prioritize diversity, equity, and inclusion in ownership, governance, and beneficiaries