Social Impact Investment Driving a Wellbeing Economy
Oct 14, 2020
by Rutger de Roo van Alderwerelt
In exploring topics for my MSc thesis in international financial markets and Foreign Direct Investment’s (FDI) effect on local economies, I came across the concept of a Wellbeing Economy. I found that there exist many academic articles on the impact of FDI, but few that relate this academic field to conceptualising a Wellbeing Economy. This became the focus of my thesis research.
In my opinion, this model exemplifies how we should think about shaping a new economic system that is based on human and ecological wellbeing.
The SDGs and the International Financial Market
Foreign Direct Investment (FDI) is highlighted by the Organisation of Economic Cooperation and Development (OECD) as a significant driver of the achievability of the SDGs.
One particular market that has been on the rise since 2007 is the Social Impact Investment market. Investors in this market invest their capital, primarily in developing countries and emerging markets, with the aim of generating positive social and environmental impact, along with financial returns.
The global Social Impact Investment market value in 2019 was estimated at $502 billion. Doesn’t that sound promising?
While this is impressive, the OECD estimates that a global market value of $4 – 5 trillion is needed to completely achieve the SDGs.
To increase the size of the social impact investment market in international financial markets, it is vital that we share data on existing funds that deliver both financial returns along with delivering on goals of a wellbeing economy: social justice on a healthy planet.
Case Study: The Dutch Good Growth Fund (DGGF)
My thesis research dove into the case study of the Dutch Good Growth Fund (DGGF), an investment portfolio provided by impact investor Triple Jump. The DGGF invests primarily in small to medium enterprises (SMEs) to improve total, female, and youth employment.
My quantitative analysis found that:
Over time, the DGGF has become increasingly effective in positively affecting all three employment objectives in local economies, directly contributing to SDG 8, Decent Work and Economic Growth.
Not only that, but the DGGF also indirectly contributes to the achievement of other SDGs: creating jobs in the formal sector ensures a decent income for the local population, SDG 1, which supports reduction in hunger, SDG 2 and access to better healthcare and clean water/sanitation, SDG 3 and SDG 6. Furthermore, creating jobs for younger generations and the female population contribute to reduced inequalities, SDG 5 and SDG 10.
The interconnectedness of the SDGs is ever more apparent.
While more research is needed, it is promising that we can help achieve multiple SDGs by injecting capital, either through loans or equity, into SMEs.
My research has made me a firm believer that the social impact investment market will set an example for the whole international financial market. Financial return can be efficiently and effectively combined with social and environmental returns.
Well on our way…
The Global Impact Investment Network (GIIN) produced research that shows 73% of investors in the Social Impact Investment market recognize the SDGs as a tool to determine target impact objectives and evaluate their performance.
In Table 1, I present the distribution of target impact objectives among respondents (n = 294). Note here that these impact categories reflect the SDGs (which was not the case just a year before!); evidence that investors are becoming more determined to contribute to achieving the SDGs.
As long as this trend continues, international financial markets can increasingly support the transition to a wellbeing economy.
More about Rutger: Due to my experience as a part-time intern at the Dutch Development Bank (FMO), I had the privilege to learn first-hand what role different investors can play in achieving the SDGs. As a result, I learned about their role in shifting international financial markets to human and ecological wellbeing-centred systems. I kept close contact with Triple Jump throughout writing my thesis, who provided me with the data. I had valuable conversations with social impact performance analysts at Oikocredit and FMO. I found many other organisations and initiatives in the Netherlands and beyond, making it their life’s work to transform our economic system.
I am glad to be given the opportunity to write this blog to give you, perhaps new, perspectives on sectors and markets committed to transforming the global economic system based on principles of human and ecological wellbeing.
If you are interested to learn more about my research and findings or for a full list of sources on the topic of UN SDG integration into the social impact investment market, please contact me via LinkedIn or E-mail.