Session 3: Can new financial instruments build a bridge of trust between private funding, civil society and the public sector?


Karen E Wilson, Senior Fellow Bruegel and OECD

Thomas Dermine, Consultant on Social Impact Bonds at Actiris
Giovanni Garcea – Directorate General for Financial Stability, Financial Services and Capital Markets, European Commission
Caroline Mason CBE, Chief Executive, Esmée Fairbairn Foundation
Leo van Loon MsC, Founder & CEO Buzinezzclub and Managing Partner, PopVox

In a context of growing societal challenges and shrinking public resources, impact investing has blossomed in the last ten years – in many countries and across many sectors, said Karen Wilson as she set the scene for this exploration of impact investing. This form of investment is about financial and social impact, and one example is the social impact bond – which actually may have been getting more attention than it deserves. These instruments, which are another way of financing public services with governments paying on good outcomes, can give a chance to a project that might otherwise have been too risky for governments to try out using taxpayer money. While social impact bonds have received most of the focus in this field, they are by no means the only instrument out there.

Investing with a desire for social as well as financial return is not new in the UK, said Caroline Mason. In 1542 a cooperative was set up to help builders buy tools, and over the centuries similar examples can be found. “These all put value in people and trust in social capital,” said Ms Mason.
The Esmée Fairbairn Trust employs a range of impact investment tools to multiply the impact of its endowment. But of the 33 social impact bonds available in the UK, the Trust invests in only 7. While they can undoubtedly make a difference, “social impact bonds are not a silver bullet, they are part of a collective endeavour,” said Ms Mason. She also stressed that governments outsourcing the execution of initiatives is one thing, but outsourcing the responsibility for solving societal problems is something to be seriously debated. There are some issues that simply should not be exploitable for private gain.

Ms. Mason sees the growth in impact investing as “a democratisation of finance” and predicts much more of this in the future.

“Innovation shouldn’t be about innovation, but about realising success for the people you are trying to help,” said Leo van Loon. Having grown tired of what he saw as traditional charity “moving bags of money around” without looking at results, Mr van Loon set up a social impact bond with the government of Rotterdam to tackle youth unemployment. The Buzinezzclub initiative takes an “empowerment approach”, pairing each programme participant with a coach who is a professional in the same field. The training period ends with the participants receiving a “mini-MBA” to help them start up their own businesses. Buzinezzclub participants leave the unemployment rolls an average of seven months earlier than those in government programmes.

In closing, Mr van Loon stressed that there is an “obligation for foundations to take some risk and support social entrepreneurs”.

Thomas Dermine is working with the Belgian government on a social impact bond, which he says is actually much more of an insurance instrument. The bond revolves around the problem of migrant youth unemployment in Brussels. Getting governments to agree to this kind of scheme is a matter of “convincing them that this is an investment, not an expense,” he said.

Mr Dermine pointed out that a major advantage of these types of social impact instruments is that they bring people to the table whose paths would otherwise rarely have crossed – with the finance, philanthropy, government and social sectors all working together. “Deconstructing stereotypes is a fundamental added value of an SIB,” he said.

He said it was critical that the state retains responsibility and control of these types of instruments – what they are used for and how – to keep the process democratic.

Where does the European Commission stand on these types of instruments? Giovanni Garcea explained that the Commission is holding consultations now on how to change regulations and increase investment for social enterprises. It is looking at how to bring more non-bank financing to Europe to boost the economy, SMEs in particular, and is also exploring alternative forms of supporting social impact, such as green banking, social impact bonds and the like. But he stressed that it was too soon to make a decision on these issues. “We are in the early days of the social impact market,” he said.

Ms Wilson wrapped up the discussion, pointing out that there was a real sense of momentum in this area. In her work she sees a “sea-change in the attitudes within foundations and mainstream investors”, and sees a time in the not-too-distant future when there will be a unified market bringing together the concepts of social and financial return.