July 13, 2015

What is Social Finance?

John Buckley

Sustainable development is increasingly on the front page – from growing demand for green bonds to the need for reliable power in sub-Saharan Africa – and a confluence of environmental, social and governance (ESG) trends are rapidly reshaping the global economy.

We’re at an inflection point right now. Interconnected and complex global environmental, social and governance issues have reached a size and scale that traditional public sector and philanthropy sources alone are not enough to meet the funding need. So where will the funding come from?

Mainstream investors may be the key to intentionally directing capital to positive social outcomes.

Of course, as a global investments company that works with investors from pension funds to high net worth individuals, we understand that investors’ portfolios need to meet their investment goals. Having a positive social and environmental impact alone isn’t sufficient.

Like us, many of our peers have been early adopters of socially-motivated investments – such as socially responsible investing (SRI), impact investing, and environmental bonds – because we saw a growing demand for alignment between values and impact through investment and identified opportunities to grow our portfolios in hybrid markets and services.

But these investment strategies have remained fragmented and limited in size. If the goal is to provide investors with financial performance that meets their expectations and to direct significantly more capital to solving some of the world’s most pressing issues, the current model isn’t sufficient.

The myriad of investment activities that generate financial returns and include social and environmental impact should share a common framework. Investors would have greater insight and access to investment opportunities with different levels and types of social impact. Providers, especially broad financial services firms, can encourage expertise to grow social finance from the origination of securities to investment to custody.

We call that framework social finance. Over the next few weeks, we’ll provide a closer look at social finance opportunities and what we believe it will take for social finance to grow.