Socrates’ recipe for systems change: know thyself

 

Systems change calls for more collaboration among public, private and civil society actors. But how can you collaborate if you’re not transparent about your impact, financial returns expectations and how much of a risk you are willing to take? How can we drive transparency in the venture philanthropy, social investment and impact investing sectors? We asked 30 practitioners and 15 experts, and this is what we learned.

We all know: in Europe social issues are becoming more acute and the resources needed to tackle them are shrinking. The good news, though, is that funders are becoming smarter in using their resources and new forms of capital are eager to engage in the social impact ecosystem.

The larger the number of capital providers in the space, the higher the chance to solve social issues and achieve system change. Right? Maybe. Systems change is all about collaboration among actors in a social impact ecosystem. As highlighted in a recent piece from Rob Abercrombie, the cornerstone principle of system change is working with others (see point four. in his blogpost). As a funder, you need to ask yourself what is the root cause of a problem, and whether you can engineer a collective solution working with private, public and civil society actors, all providing different types of funding, non-financial support and expertise.

At EVPA we discussed this issue with practitioners and experts during last year’s research. This is what we have learned.

1. Collaboration needs to be based on mutual understanding, which is in turn based on clarity on intentions and transparency. To help drive transparency, together with our members, we developed a list of characteristics to help practitioners assess what is their role in the social impact ecosystem. We identified two impact strategies: invest for impact and invest with impact

Figure 1: ‘Different types of business models for the two impact strategies’ (source: EVPA Knowledge Centre)

 

Organisations that invest[1] for impact:

  • Take social purpose organisations’ (SPOs) needs as the starting point, and back-engineer which financial instrument(s) and non-financial support are most appropriate to support them, and
  • assume risks that no other actor in the market can take or is willing to take,

Organisations that invest with impact:

  • have access to larger pools of resources, but need to guarantee a certain financial return on their investment alongside the intended positive impact they aim to generate, and
  • make sure social impact considerations become part of all their investment decisions.

The discussion on impact strategies is not a discussion on values or on right and wrong, as both investing for impact and investing with impact are needed in the social impact ecosystem. However, recognising the differences is important. Doing so makes both spaces more transparent regarding intentions and ‘means and ends’. It also helps better align shareholders, manage expectations towards investees, and create the right setting to collaborate with different types of capital providers.

2. Without investors for and investors with impact, there is no pipeline and no scaling. Investing for impact and investing with impact are important, valid and complementary strategies. Hence both are needed in the ecosystem. As an example, investors for impact test – and bring to the market – new and additional solutions to pressing social issues that have the potential to become financially sustainable. Then, once the business model of the SPOs is proven, investors with impact can play a role in scaling it through market mechanisms.

3. Don’t under estimate the importance of the public sector – In Europe, the public sector has the mandate to address (and solve) social challenges. For example, investors for impact supporting social service innovations that aspire to change public policy at scale, or increase civic engagement, need to collaborate with the public sector which has the resources and the mandate for this purpose.

4. Philanthropy is still needed, to invest in early stage social innovations, to build social infrastructure and to provide capacity building. Alongside their traditional grant-making activities, philanthropic funders play an important role in the social impact ecosystem. For example, they take the first risk to test new models that build the pipeline for follow on investors. Philanthropy is also necessary to fund all those activities that don’t generate a financial return, such as setting up social infrastructure and providing capacity building.

In 2019, we have launched our Impact Strategies Journey, which includes a public consultation process, to hear more about how different actors in the social impact ecosystem develop and implement their impact strategy. We are eager to hear your voice, so share your thoughts.

Priscilla Boiardi is Knowledge Centre and Policy Director at EVPA

Alessia Gianoncelli is Research Manager at EVPA


Footnotes

  1. ^ With the term ‘investing’ we aim to cover the whole spectrum of capital, from grants to debt and equity, including hybrid financial instruments as well. We use the word ‘investing’ because it is not only about the capital provided, but also about the non-financial capacity building support activities provided by venture philanthropy and social investment (VP/SI) organisations.

Comments (0)

Leave a Reply

Your email address will not be published.