CSI’s Danielle Logue on how to best invest for social impact
Governments, businesses and not-for-profits need to work together on real solutions that address pressing social and environmental issues
Social impact can be defined as a positive change that addresses a pressing social issue. Government, business, and social purpose sectors play a crucial role in driving positive changes in people's lives and the well-being of society. Because climate change is deeply intertwined with global patterns of inequality, social impact initiatives also seek to address environmental issues.
One way to drive social impact is through social innovation and solutions that place people and the planet at their heart. To find out more about how more people can get involved in driving real and tangible social change, Danielle Logue, Director of the Centre for Social Impact UNSW (CSI UNSW) and Professor of Innovation & Impact at UNSW Business School, spoke about the importance of social impact investing and meaningful steps people can take to make a difference.
Professor Logue is a long-time researcher and educator in harnessing the power of finance to address social problems. Professor Logue's research portfolio draws on a broad base of organisation and management theory to examine how enterprises and markets engage in social innovation processes. Some of her recent projects investigate new forms of organising, governing, and financing to address social and environmental problems, including impact investing, civic crowdfunding platforms, social stock exchanges, social impact bonds, and social enterprises.
Why is social impact investing important?
Social impact investing is an outcomes-based approach that brings together governments, service providers, investors and communities to tackle social and environmental issues. As part of this, social impact investing is when an investor intentionally invests in making a social return alongside a financial return, said Professor Logue.
“So it's not just about investing in a company, which creates jobs. It's about having that intentionality and measurement and focusing on addressing a social problem as a priority alongside the financial and profitability concerns,” she explained.
According to Professor Logue, many investors still believe there is a trade-off between financial returns and investing for "good" or impact. This belief is often referred to as the "impact versus returns" debate, and it suggests that investors must choose between investing for financial returns or investing in companies or projects that have a positive impact on society or the environment. However, this view is changing as more investors recognise that companies prioritising sustainability and social responsibility can generate strong financial returns while having a positive impact.
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Professor Logue explained: “There has been a lot of talk about the role of government in building out impact investing markets and building the infrastructure for such markets. And the position on this sometimes depends on whether you think you need a trade-off in impact investing deals of social returns and financial returns.”
So, on the one hand, governments should use taxpayers' money for social good; on the other, they want to ensure significant returns for private markets. “It's a real balancing act for the government. At times there might be caused by investors for the government to move into a deal as a first loss investor, to take that risk, and to also crowd in private sector capital as well.
“You get more people interested if the government moves first. But the other side is that the government doesn't want to crowd in too much and use taxpayers' funds to subsidise private sector investors. So it's a real balancing act there,” she said.
A significant development in this space involves calls for the government to work with stakeholders, universities, community groups and philanthropists to build out the infrastructure necessary to effect real change for good, she explained: “so classification systems, thinking about taxation changes for impact investing and pieces of work like that that could help stimulate this activity.”
Is social impact investing effective?
A core part of impact investing is, in fact, about measuring social impact. And this is a really challenging area, explained Professor Logue. “You could imagine that those doing green investing and environmental finance have easier things to measure, really, in terms of emissions, emissions targets, trees a lot easier to count and measure than, say, a child's wellbeing. But we do have some measurements in place,” she said.
“There is a global effort by organisations such as the Global Impact Investing Network (GIIN) that put those metrics and indicators out there. So investors worldwide can actually have a common set of benchmarks to measure how their impact investments are tracking.”
Indeed, according to the GIIN, the global impact investing market is worth around US$1.1 trillion (A$2.5 trillion). While this is an eyewatering figure, more capital and an intentional focus on generating positive impact are still needed.
But there are also other barriers to entry that need to be overcome. Professor Logue explained: “Some of the barriers to entry for impact investing at the moment are the size of the deals being done. Often this requires institutional investors, maybe governments as co-investors or philanthropists, willing to take a huge risk. This is a nascent market in Australia.
“Currently, there is a restriction around who can participate in some of these larger deals. You can get involved in thinking about where your financial investments are going at a more micro-level, but also for your superannuation funds.”
Collaboration is key to social impact
With the release of the latest Intergovernmental Panel on Climate Change (IPCC) report, it is clear that societies must take some action towards effecting positive change. “One of the things I like about working in this space is that it brings such different groups to the table to try and make impact investing work: government, private sector, investors, community groups, philanthropists, not-for-profit organisations,” said Professor Logue.
“We need to sit around the table and co-design and co-invest in the infrastructure for these deals and build a shared understanding of the language and metrics we need to make this work. But also be aware of the differences in power around the table and how some of these deals may redistribute the responsibility for creating the public good. We all need to be around that table to unpack the hype around impact investing.”
And the only way to achieve such ambitious goals, according to Professor Logue, will be to have open and honest conversations about where and when social impact investing works and where it doesn’t.
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“If we're all around the table and having frank and fearless conversations, we can really see then when is aware as impact investing actually working? When does it suit certain social problems or social finance solutions? And where and when is it better for the government to consider this a social service? It's very important for us to unpack the hype and look at where and when impact investing is working,” she said.
For example, she said there were two specific things where you, as an individual, can get involved in effective social impact change today. “Are your superannuation funds being directed into ethical, sustainable impact-based funds? Some platforms allow you to invest in crowdsource equity platforms – invest directly in social enterprises and see how your money can have an impact,” she concluded.
Disclaimer: This content is for informational purposes only and is not intended as investment or financial advice.