Designing the future – complex social problems, social innovation and the role of impact investment

Recently Malmö hosted SOCAP: Designing The Future, a conference for the small, growing, and potentially transformative impact investment industry. Impact investment is where people invest to achieve a positive outcome for society and a financial return on their money. The arrival of SOCAP in Malmö, after its first European conference last year in Amsterdam, is another indication that impact investment is becoming a global movement.

But why is this interesting or helpful? What’s it got to do with the needs of ordinary people in Sweden or in my country, the UK?

Well, I believe that the growing interest in impact investment is part of some very significant changes that are happening in our patterns of consumption and investment. These are changes driven by strong desire from citizens to see their money doing good for society.

The old world

Across the developed world we are used to a situation where private enterprise sells us goods and services, some of which we need and some, frankly, we don’t. We are also used to the state providing a range of services that we couldn’t buy as individuals, but which we need collectively as a society like flood defences, schools or railways. And we’re also familiar with civil society playing a dual role – both providing services where the market and state has failed to do so, and campaigning for change to address this failure.

But this familiar three sector model is not well equipped to deal with some of the most complex, long term problems our countries face – like an increasingly ageing population in need of activities, care and pensions, or climate change and declining carbon fuel supplies. Around Europe, with public sector finances in turmoil, it is increasingly clear that these big problems will be drains on public finances in the long term. In the UK, citizens are feeling a loss of trust in the big institutions of the old world – political, financial, and media.  There is a loss of trust in the old three sectors to supply us with what we need as individuals and collectively as a society.

Social innovation

This is the stimulus for a period of innovation to create products and services that meet the needs of people and society more effectively, and at a price we will be able to afford and sustain in the long term.

So where is this innovation coming from? Of course there is innovation in public sector, social sector, private sector. But many of the radical innovations that address the most complex social problems that I see at Nesta arise at the intersection of the state, private and civil society sectors and they engage citizens not only in consumption but in the design and production of the service, and as investors too.

For example, the Household Energy Service in Shropshire, UK enables citizens to support each other to reduce their energy usage; The Amazings enables older people to tackle isolation by selling their experience to people who want to learn something new; and we are all familiar with car clubs where citizens share a car to reduce wasted resources and energy.

Very often, new technology is important in these innovations. It enables new solutions to be implemented, enables people to be connected to each other to share and co-produce and often reduces the costs of production.

Joe Ludlow speaking at SOCAP: Designing the FutureWhat has this got to do with impact investment?

Whilst social innovation is necessary it is also high risk and costly, and it needs investment to fund both the costs of innovation and the costs of failure. In the past, social innovations have found it very difficult to attract investment capital from the mainstream investment market which prioritises financial returns over all else. Impact investment is exciting because it is bringing a flow of investment capital to social innovations at all stages of the innovation cycle, from investors in ideas like Social Innovation Camp, to investors helping to expand a business across Europe, like Social Venture Fund Deutschland.

And there’s increasing evidence that a significant proportion of people find impact investments an attractive prospect. Research by groups like Fairbanking Foundation, or Abundance, is showing that people want to see their money used in ways that (1) they understand; (2) they feel ethically and morally comfortable with; (3) and which contributes to society in hard economic times.

Government has an important role as a champion of social innovation and impact investment

The role of the state needs to change to support social innovation and impact investment. Region Skåne and the City of Malmö are becoming known internationally as a leading regional cluster for social innovation – with initiatives like SOCAP, and also the Forum for Social Innovation Sweden, Malmö Living Lab for New Media and Uppstart Malmö. In the UK, we see Government supporting social innovation in several ways including: increasing procurement from social enterprise, introducing favourable regulation for social enterprise and co-operatives, and stimulating impact investment through Big Society Capital – a £600m wholesale investment fund.

Recent weeks marked another point of change across Europe, from France to Greece. But at SOCAP in Malmö the exciting impact investment movement might just be showing that there’s reason to be optimistic about a different way of meeting our needs as individuals and society.

Written by Joe Ludlow, Impact Investment Director at NESTA


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