Financing social impact

Stream #05

Chairs: Mario Calderini (Politecnico di Milano), Veronica Chiodo (Politecnico di Milano), Leonardo Boni (Politecnico di Milano)

The existing literature has a significant gap in both theorizing and empirical evidence regarding the extent to which capital structures of hybrid organizations with a social mission differ from those of commercial enterprises (Arena et al., 2016; Siqueira et al., 2018) and which are their financial needs and expectations (Lyon and Owen, 2019). This issue becomes even more urgent in light of some recent trends which are leading some of these organization to transform their managerial and governance structure. For instance, the commoditization of technologies might allow social enterprises to act on a global scale and this broader scale of the intervention determines a larger demand of capital to support it (Scilitoe et al., 2018). Another trend is the increasing hybridization of missions and objective and emergence of organizations such as Benefit Corporations. The plausible drift towards capital-intensive models of organizations with a social mission motivates an emergent appetite for capital. On the other end, the need to engage several financial sources (private and public, impact first and finance first, stakeholders coming from the financial sector and the social sector) is likely to perturb the equilibrium between social and economic objectives and introduces new potential sources of mission drift (Achleitner, Spiess-Knafl and Volk, 2014). 

The effort of complementing public funding to support the generation of novel solutions to societal challenges is witnessed by the exponential growth of specialized investors operating in the so-called social impact finance segment. Indeed, more and more financiers are shifting from just filtering out harmful investing to intentionally select and proactively manage organizations able to generate a measurable and additional social impact. However, social impact finance has not yet a proper theorization of its nature and purpose. The social impact investing industry has to be supported in shaping its approaches and instruments so that the support it offers has not to be traded-off against social value in a way that distorts the constitutive value of social entrepreneurship (Chen and Harrison, 2020; Mayer and Scheck, 2018). Indeed, scholars (Findlay and Moran, 2019) introduced the risk of “impact washing”, namely the risk that a financial institution makes impact-oriented statements without having any demonstrable substantive social or environmental effects but just for marketing purpose. 

Against these open issues, the existing academic research on SII has, thus far, focused on disentangling the uncertainties of this novel concept, setting it apart from traditional finance but failing to grasp the distinctive features of SII implementation strategies (Agrawal & Hockerts, 2019). For example, one overarching unsolved question hindering the legitimacy and attractiveness of this industry is whether investors knowingly accept lower expected financial returns in exchange for nonpecuniary benefits from investing in assets with both social and financial objectives (Barber, Morse and Yasuda, 2020; Caseau and Gilles Grolleau, 2020). 

This stream aims to gather together different perspectives and evidence on how the different financial approaches, and in particular the social impact investing industry, has to be shaped to effectively unleash the potential of blended-value, patient capital towards realizing sustainable development. 

Thus, we invite empirical and theoretical contributions dealing with, but not limited to: 

1) Relationship between (social) financiers and social enterprises 

  • Investment readiness of potential capital recipients 
  • Challenges of social ventures in approaching and dealing with different capital providers 
  • Investors eligibility and assessment criteria for social enterprises 
  • Negotiation of terms and objectives between social financiers and social enterprises 
  • Effects of non-financial services provided by investors on investees 

2) Sustainable Finance and Social Impact Investing 

  • Structure and performance of socially responsible investing and ethical funds 
  • Reflections on the utility function of impact investors and the trade-off among impact generation and financial return 
  • Measurements and evaluation of social impact generated by social impact investors 
  • Assessment of social risk and return and integration in the portfolio building methods 
  • Outcome based/Pay for success financial mechanisms and assessment of their diffusion, effectiveness, efficiency and added value 
  • Example of new approaches and mechanisms of different funds providers (e.g. public agencies, private capital, public-private partnerships arrangements, philanthropy) in performing social impact investing 
  • Empirical studies collecting data on existing practices 

3) Alternative finance 

  • Approaches and instruments of the Islamic finance 
  • The role of social impact in crowdfunding