A recent study conducted by the Global Impact Investing Network (GIIN) describes the rapid growth of this market. The assets classified as impact investments managed by the investment services organisations that responded to the annual survey doubled in 2017, amounting to approximately 228 billion US dollars (Annual Impact Investor Survey 2018).
Impact investing – what is it about?
Impact investing means investments made by companies, organisations or funds to generate a measurable social or environmental impact along with a financial return. A loan agreement with impact objectives in its terms and conditions serves is an example of such a measure. At the other end are Social Impact Bonds (SIB), which bind the public sector, investors and service providers in terms of impact objective as well as of risk and profit.
A minor market in Finland
In Finland, impact investing attracts a lot of interest, but the market is still small and rather unorganised. This is revealed by a study (“The opportunities of venture capital investment in impact investing”) by the Finnish Venture Capital Association (FVCA), Sitra and Deloitte.
The institutional investors interviewed for the study, however, were of the opinion that venture capital investments already include a lot of hidden effectiveness that is not necessarily recognised or acknowledged, and that should be made visible.
-It is clear that impact investing will become a permanent part of financing markets. As part of responsible investment policies, for example, institutional investors will require increasing amounts of impact reporting from their targets of investments, says Henri Grundstén, Development Director of Finnish Industry Investment Ltd.
For companies and organisations, the impact perspective opens up new opportunities for obtaining capital and financing, as well as assignments. To turn it into a competitive advantage, though, they are required to verify the impacts of their own operations and to be capable of communicating them to various stakeholders.
SIB in focus
The Finnish Innovation Fund Sitra has been building an operating environment for impact investing in Finland for about four years. The focus of the work is on Social Impact Bonds.
-For the public sector, SIB agreements enable making financially risk-free focused investments in welfare, which is particularly valuable with a view to promotional and preventive activities. With the help of SIBs, we can increase welfare in the long run, enhance the use of tax revenues and narrow the sustainability gap, says Mika Pyykkö Project Director, Impact Investing within Sitra.
Numerous projects under way in Europe
SIB-model comes from the UK. The first SIB contract was launched there in 2010 in connection with Peterborough Prison. The effectiveness target was set to reduce repeat offenses. Specialized support was provided to liberated prisoners, which were collected from 17 investors. The experiment did not run completely without commutation, but the final results were impressive: the rejection judgments declined by 9%, with the target set at 7.5%. The public sector saved costs and investors returned their capital with a return of about 3%. The model was so effective that the British government introduced it to other prisons.
The British Social Finance maintains a global Impact Bond Database, which provides information on performance-based financing agreements and their objectives.
Next we will dig into Social Investment Bonds (SIB). Stay tuned!
Source: The Finnish Innovation Fund Sitra
Compiled by Mia Heiskanen