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Social Innovation Moves from Niche to Mainstream

In this new age of austerity, as governments search for guidance and inspiration on how to scale cost-effective solutions to social problems, social entrepreneurship has taken centre stage. Social enterprises balance a social mission with financial viability and sustainability, existing between the public sector and private markets in both the developed and developing world.

Members of the Global Agenda Council on Social Innovation, drawn not only from the Schwab Foundation’s community of leading social entrepreneurs but also including leading academics, impact investors, foundations and intermediaries who are all at the forefront of scaling social innovation, are increasingly being called on by governments and multilateral agencies to provide expertise in shaping policy at local, national and regional levels.

Topping Government Agendas

Indeed, social innovation is becoming a priority for decision-makers at the most senior levels. In 2011, the European Union launched the Social Business Initiative at a Brussels conference keynoted by President José Manuel Barroso. At that event, and at subsequent hearings held by the European Parliament, both Mirjam Schöning, head of the Schwab Foundation for Social Entrepreneurship, and Council Member Nick O’Donohoe, Chief Executive Officer of Big Society Capital in the UK, provided expert testimony on the creation of social entrepreneurship funds with direct input from all Global Agenda Council members.

In March 2012, Colombia launched a social innovation fund, the head of which reports directly to President Juan Manuel Santos. Council Chair Johanna Mair and Council Member Jacqueline Novogratz both provided expertise to the Colombian Government on how to structure the fund. And in April 2012, US Secretary of State Hillary Clinton made the “global impact economy” a pillar of US foreign policy, recognizing the “convergence on the part of government, the private sector and civil society that we can be much more effective working together than working at cross-purposes.”1

On the eve of the State Department event, the Schwab Foundation for Social Entrepreneurship and the Global Agenda Council on Social Innovation hosted a private roundtable discussion with Elizabeth Littlefield, the President of the Overseas Private Investment Corporation (OPIC); Jonathan Greenblatt, the Director of Social Innovation at the White House; Maura O’Neill, Chief Innovation Officer of USAID; and Kris Balderston, Director of Global Partnerships at the US State Department. The discussion focused on US policy initiatives to foster social innovation and opened the door for a collaboration between the Global Agenda Council and the Office of Social Innovation.

Enter the Investors

Impact investors are enticed by social enterprises’ application of business-like operating models to solve social problems as well as the opportunity to generate a modest financial return on their investment. Indeed, there are signs of a small but coalescing financial services industry specialized in this domain, referred to as social capital, social finance, or impact investing. Investors’ networks have blossomed and by some accounts more than 200 impact investment funds have been registered in the past few years, while mainstream financial institutions and large NGOs are also becoming more active in this realm.

The Schwab Foundation for Social Entrepreneurship capitalized on its social investment manual (“by social entrepreneurs for social entrepreneurs”) as well as the publications of the Global Agenda Council to host a private workshop in Davos-Klosters with the investor community of the World Economic Forum. This closed-door conversation between social entrepreneurs and investors significantly helped to bridge the two worlds, test assumptions, and identify potential opportunities. This successful event has led to a new initiative on impact investing spearheaded by the World Economic Forum’s investors’ community.

Donor agencies, foundations, and philanthropists, too, are experimenting with impact investing and exploring structures such as Program-Related Investments in the US. Impact investing was the hottest topic at the spring 2012 convening of the Giving Pledge, the group of American billionaires including Bill Gates and Ted Turner, who have committed to giving away the majority of their wealth. And forward-thinking foundations such as the Shell Foundation, the Gates Foundation, and the Omidyar Network are all evolving beyond the role of traditional grant-maker to angel investor, taking big risks and investing in start-up social ventures that, regardless of whether they are for-profit or non-profit, embrace a business approach to social change.

Council publications

The Council’s publications have made an impact within the industry and are increasingly cited by trade journals and support organizations. We view this as an important aspect of the Council’s work to conduct broad outreach and advance the current debate.

Taking a Realistic Approach to Impact Investing, innovations, MIT press, September 2011.

Roundtable on Impact Investing, Stanford Social Innovation Review, Winter 2012.

Blog series as part of the “November Spotlight” on the Forum Blog:

Social innovators create a new model for inclusive growth by Council Manager Katherine Milligan

Attracting Capital for Social Impact: The Promise and Perils of Impact Investing by GAC Chair Johanna Mair

Difficult Economic Times? Yes. The Right Moment to Unleash a New Model of Social and Economic Progress? Absolutely. By Council Member Nick O’Donohoe.

New EU initiative aims to boost social entrepreneurship by Mirjam Schöning, Council lead.

 The Way Forward

The Members of the Global Agenda Council believe that these accelerating and converging trends could herald the tipping point for an industry with truly transformative potential. In a best-case scenario, we are well on our way to figuring out how to harness market forces and attract commercial capital to solve social problems. We are not there yet, but we believe we can be.

At the same time, we are starting to see worrying trends that warrant serious debate and meaningful corrective action. Are we too focused on the capital (and the financial returns to capital) rather than concentrating on why the capital is being used in the first place – as a tool to solve big social problems? Are investors and investees really speaking the same language when they talk about the “risk” involved in social innovation? Are we creating yet more hype, based on good intentions and hope?

Investors, foundations, governments, universities and, most importantly, social entrepreneurs need to work together to demonstrate how social capital can most effectively encourage innovation and scale it for maximum impact

Providing Expertise

The Global Agenda Council is embarking on a strategy to engage governments serious about stimulating social innovation by helping them develop a policy agenda that supports it. Most government officials – even those who are committed to the sector – want first to understand what policies have been tried and applied elsewhere, with what degree of success, before they commit themselves to a domestic reform agenda. Such technical expertise is often lacking in their respective jurisdictions, especially because the sector is evolving so rapidly.

Providing the requisite expertise to formulate sound policy is precisely where the Global Agenda Council on Social Innovation has a special and important role to play. At the Annual Meeting 2012, the Global Agenda Council helped to inform a robust public and private programme spearheaded by the Schwab Foundation for Social Entrepreneurship, including a public and private session on Shared Value, a GAC IdeasLab on New Models to Address Regional Challenges, a public session on Social Innovation Models, and a private workshop on impact investing with the investors community of the World Economic Forum.

Developing Tools for Policy-Makers

While the Council’s publications and events are useful milestones in measuring the influence of our thought leadership, they are difficult to scale in an efficient way to meet demand, and thus of limited use in catalysing meaningful policy change. This led us to the realization that there does not yet exist a comprehensive assessment of best practices and policy approaches currently being embraced by progressive governments around the world.

For that reason, the Global Agenda Council on Social Innovation is developing a compendium of global best practices that foster social innovation. The compendium will:

  • Examine the role of tax policy and fiscal incentives.
  • Explore legal forms that embrace social and financial values.
  • Consider the critical role of financial intermediaries that provide loans and equity financing to social enterprises.
  • Provide guidance on changes to regulations governing charitable giving so that foundations are able to act as catalysts for the emergence of the sector.

The Council has already performed preliminary scoping of social innovation policies in the US and EU countries, as well as the UK. We are currently working with research partners to help us complement existing data with examples from emerging markets. Through the Schwab Foundation and the World Economic Forum, we are also launching a collaborative effort with the Young Global Leader and Global Shaper communities of the World Economic Forum who are leaders in the field of social innovation to help us identify the “unusual suspects” – those little-known but highly successful examples that deserve to be showcased to the global community.

Using such a compendium and other resources as tools to spark discussion and peer-to-peer exchange, the Members of the Council on Social Innovation believe that the time is ripe to develop a sustained engagement strategy with governments and serve as a trusted partner in their efforts to stimulate entrepreneurial solutions that create more inclusive societies.

Disclaimer

The opinions expressed here are those of the individual members of the Council and not of the World Economic Forum or any institutions to which they are affiliated.