Social finance is an approach to managing investments that generate financial returns while including measurable positive social and environmental impact. It is an approach to managing money that delivers a social dividend and an economic return. It is a field that helps dispel the idea that capitalist aims and social progress are incompatible. It is an approach to mobilizing private capital that delivers a social dividend and an economic return to achieve social and environmental goals.
Social finance includes a full range of investment strategies and solutions across asset classes that can provide an array of risk-adjusted returns tailored to investor intent. It is often used to describe the lending and investment into companies who consider themselves social enterprises, charities, co-operatives, non-profits, and other impact-focused organizations. The social economy is a reality in many people’s lives because it promotes values and principles that focus on people’s needs and on their communities. Social finance is the wave of the economic future and will require experts with both acumen and a determination to maximize the human and ecological benefit of each investment.
Social finance and impact investing are relatively new terms in the banking sector that are still a niche but growing rapidly. The term can include community investing, microfinance, investing in socially-responsible and sustainable businesses, social impact bonds, and social enterprise lending. Outcome-based philanthropic grantmaking and program-related investments sometimes referred to as venture philanthropy, also fall under the umbrella of social finance. Because of their social and economic purposes, social economy organizations are often vulnerable at the financial level; they have difficulty building financial reserves or covering their operating costs. A social investment loan is not a grant or donation; it’s repayable, often with interest.
These approaches to investment and funding share the twin focus of stimulating positive social and environmental returns for investors and the larger world. Successful strategies clearly articulate the investor’s goals and priorities, account for realities of the impact enterprise landscape and anticipate future growth and evolution within the ecosystem. Some social investors try to effect environmental return, which is referred to as regard for a triple bottom line. Similarly, it can be seen as 3D investing, which accounts for risk, return, and impact for consideration by investors. For individuals interested in pursuing an education in the financial sector that also benefits human communities or the environment, this unique application of economic knowledge and investment acumen is ideal.
