Sir Ronald Cohen makes clarion call for social impact investing
“Social entrepreneurs are stultified by traditional forms of financing,” Sir Ronald Cohen and William A. Sahlman write in a Harvard Business Review blog last month: “The biggest obstacle to scale for the social sector is this lack of effective funding models.”
Cohen and Sahlman break down the figures behind the social sector in the US to show that a lack of money is not the problem. They note there are $700bn of foundation assets and 10m people working in for non-profit organisations.
The picture in Europe isn’t dissimilar. In the UK, the assets of the largest 900 foundation are over £48bn and more than 750,000 people work in the voluntary sector. German foundations have more than €100bn in assets and research by Johns Hopkins University from 2004 found that almost 250,000 people worked for German non-profit organisations (a comparable figure to the UK at the time).
The authors lament the “massive inefficiencies” in capital allocation where donors are too reluctant to fund overheads. They contrast the woeful situation for “perennially underfunded” social entrepreneurs with the world of venture capital:
“If a business entrepreneur came to us with a plan for growing a new business without spending a penny on overhead, we would show him or her the door.”
Impact investment has the power to deliver social impact and acceptable financial returns across industries and countries.
Exploring innovations with the sector, government involvement, and parallels with venture capital Cohen and Sahlman say, “We believe we are on the threshold of a major change.”
Arguing that we need success stories to prove the concept and showing the potential of instruments such as social impact bonds, this is a clarion call for investors, entrepreneurs, and society at large.
The full article is available on the Harvard Business Review website.