London: Global governments need to do more to ease the way for private-sector investments that link financial returns to social benefits, with $1 trillion (Dh3.67 trillion) in capital waiting to be set free on the world’s problems, according to a report published on Monday.
The study by the international Social Impact Investment Taskforce, set up by the UK government and led by Sir Ronald Cohen, the venture capitalist, calls on governments to view “impact investment” as a vital stream of financing for domestic social programmes, as well as international development projects.
Unlike normal private sector contracts to provide government services, impact investments only pay out if measurable benefits have been achieved, such as improving children’s reading or reducing criminal reoffending rates.
Sir Ronald said there was a growing pool of “impact entrepreneurs” worldwide and that big international groups such as the Rockefeller Foundation were turning to socially beneficial investments as an alternative to grants.
“This is clearly a new tool in international development,” Sir Ronald, whose Big Society Capital is a leading social investment fund, told the Financial Times.
Some $10 billion had already been invested globally, he said, but the opportunities were far greater, particularly as the UN is drafting a set of objectives to succeed the Millennium Development Goals, which have shaped aid policy since 2000 and expire in 2015.
More than 1,200 asset managers controlling $45 trillion in capital have signed up to UN principles for responsible investment, while $13.6 trillion was sitting in funds that include environmental, social and corporate governance returns in their investment decisions.
But those pools of money were often prevented from going into impact investments by tax and other regulatory barriers, which Sir Ronald said must be taken down in order to deploy what the report calls the first $1 trillion, or roughly 2 per cent, of the world’s available capital.
Among those obstacles was the concept of fiduciary duty, which prevents pension fund managers from accounting for social benefits in their investments.
Sir Ronald said it was now up to governments to take advantage of the surge in interest in impact investing. “Investors want it. Entrepreneurs want it. So the role of government is very important. Governments need to play an enabling role,” he said.
David Cameron, the UK prime minister, established the task force during his G8 presidency last year as part of government efforts to bring more private-sector rigour and innovation to services traditionally delivered by the public sector.
The task force’s report, to be unveiled by George Osborne, the UK chancellor, on Monday, cites the Real Lettings Property Fund, which has bought more than 80 properties in London for homeless people to rent, and OOMPH (Our Organisation Makes People Happy), which offers exercise classes in care homes and aims to be a £25 million (Dh149.30 million) social investment fund, as examples of successful projects.
The study by the international Social Impact Investment Taskforce, established by David Cameron, the UK prime minister, as part of his G8 presidency last year, is to be unveiled by George Osborne, the country’s chancellor, on Monday.
It calls on governments to view “impact investment” as a vital stream of financing for domestic social programmes, as well as international development projects. Unlike normal private sector contracts to provide government services, impact investments only pay out if measurable benefits have been achieved, such as improving childrens’ reading or reducing criminal reoffending rates.
The UK government has backed the idea as part of its efforts to bring more private-sector rigor and innovation into services traditionally delivered by the public sector.
The taskforce cites the Real Lettings Property Fund, which has bought more than 80 properties in London for homeless people to rent, and OOMPH (Our Organisation Makes People Happy), which offers exercise classes in care homes and aims to be a £25 million social investment fund, as examples of successful projects.
Sir Ronald Cohen, the venture capitalist and taskforce leader, said there was a growing pool of “impact entrepreneurs” worldwide and that big international groups such as the Rockefeller Foundation were turning to impact investments as an alternative to grants.
Some $10 billion had already been invested globally, he said, but the opportunities were far greater, particularly as the UN is drafting a set of objectives to succeed the Millennium Development Goals, which have shaped aid policy since 2000 and expire in 2015.
“This is clearly a new tool in international development,” Sir Ronald, whose Big Society Capital is a leading social investment fund, told the Financial Times.
More than 1,200 asset managers controlling $45 trillion in capital have already signed up to UN principles for responsible investment, while $13.6 trillion was already sitting in funds that included environmental, social and corporate governance returns into their investment decisions.
But those large pools of capital were now often prevented from going into impact investments by tax and other regulatory barriers that needed to change in order to facilitate the deployment of what the report called the first $1tn, or roughly 2 per cent of the capital out there.
Among those was the current concept of fiduciary duty which prevents pension fund managers from accounting for social benefits in their investments.
Sir Ronald said it was now up to governments to take advantage of the surge in interest in impact investing. “Investors want it. Entrepreneurs want it. So the role of government is very important. Governments need to play an enabling role,” he said.
— Financial Times
