Social investment

An alternative to grants and sponsorship is social investment. This is a cross between traditional investment (where investors expect a financial return on their investment) and grant-making (where the social impact is targeted, with no expected financial return). Social investment can include a wide range of models, including loans, grants, and social impact bonds. Within a social impact bond, there are typically three parties: investors, service providers, and commissioners. The investors pay a service provider to deliver a programme. If the programme achieves its social aims, then the commissioner repays the investor their initial investment plus a return for the financial risks they took. If the social aims are not achieved, then the investor loses their initial investment. Social impact bonds can be valuable funding options as they open up more options for corporations to sponsor projects, reward effective interventions, and remove the risk from commissioners, as they only have to pay if the project is actually successful. They also inherently depend on rigorous evaluation, which means that the programme is carefully monitored from the outset. However, this dependency on social outcomes means that commissioners may only be interested in specific types of impact. Consequently, this funding option is most likely to be successful if it is led by the priorities of commissioners, with bespoke arts programmes designed to address their priority areas rather than an existing project that does not address one of their priority areas being suggested. It should be noted that social investment is not always available as an option to all organizations. In some countries, legal structures can affect whether an organization is allowed to access social investment, with social enterprises and companies limited by shares, commercial community interest companies, and cooperatives with investment from their members being the most common service providers involved.

For more information on social finance models including social investment and social impact bonds, Social Finance edited by Alex Nicholls, Rob Paton, and Jed Emerson (2015) provides a clear guide including insightful case studies.(1)

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