An Impact Investing Milestone: The London Principles

The Impact Investing Policy Collaborative (IIPC) London Principles -- a critical piece of market infrastructure -- have just been launched at an international conference in the UK.

The Principles are a statement of intent and integrity. Impact investing has emerged as one the most important new instruments for creating social value at the disposal of governments, through and in partnership with private markets. The Principles will be utilized by public officials to make smart regulatory, procurement, tax and other policy interventions in response.

After two days of deliberation at the Skoll Centre for Social Entrepreneurship in Oxford, this is what 30 public officials and researchers from more than 15 countries have agreed are the essential elements of a strategy for government participation in impact investing:

  1. Clarity of purpose -- which speaks to the importance of vision, leadership and perspective on what impact investing can realistically accomplish.

  • Stakeholder engagement -- designed to surface ideas, engender public support, and ensure policy is well targeted to expressed needs.
  • Market stewardship -- recognizing that policies that increase the supply of impact investing capital must be balanced by those that strengthen social enterprises and other capital recipients, together with intermediary infrastructure.
  • Institutional capacity -- providing for the appropriate expertise, resources, and durability within government to ensure successful policy implementation.
  • Universal transparency -- locking in accountability and supporting a culture of continuous, open learning and improvement among all actors in impact investing.
  • The London Principles arrive at a time of unprecedented energy and experimentation. In Oxford, for example, the IIPC explored investment funds created by government to support social innovation in Ghana and the UK, and three under development in India, Peru, and Hong Kong. We also considered a community investment tax credit in Canada, the surge of interest in new financial tools like social impact bonds, not least in Australia, and the underlying conditions for public policy in countries including South Africa, Brazil, Morocco, Turkey, and Germany that will either enable or impair impact investing.

    The London Principles are a living tool, informed by the early experience of pioneering governments, and now released for further consideration and refinement over coming years.

    The UK was the ideal host for the launch of The London Principles as an exemplar of public leadership:

    1. Clarity of purpose was on display at the recent G8 meeting on social impact investing, where Prime Minister David Cameron spoke at length about his country's intentions.

  • Stakeholder engagement is imbedded in the process of policy development, including in current deliberations concerning tax incentives.
  • Market stewardship has become an urgent priority with Big Society Capital on the scene, elevating the importance of policies like the Investment and Contract Readiness Fund.
  • Institutional capacity is typified by the UK Cabinet Office Social Investment and Finance unit, at the heart of the policy apparatus.
  • Universal transparency is well illustrated by a healthy appetite for publication.
  • However, like all governments, the UK has work to do.

    Speaking at the launch of The London Principles last Thursday, at the City of London Guildhall, CEO of Big Society Capital Nick O'Donohoe discussed three ongoing challenges: continuing to drive policy innovation beyond Big Society Capital, the need for additional definitional clarity in social impact investing and cultivating the broad recognition that subsidy is not a dirty word and there are real costs associated with creating public goods.

    O'Donohoe's last point is at the crux of impact investing. As Bob Annibale, Global Director of Citi Community Development and Microfinance, argued at the same event, subsidy must be understood as essential to sustainability, particularly for the investment intermediaries linking capital supply and demand.

    Annibale explained that the success of community finance in the United States -- one form of impact investing -- had been anchored in the $1.7 billion granted to special purpose Community Development Financial Institutions (CDFI) since the creation in 1994 of the CDFI Fund within the US Department of Treasury.

    This is precisely the power of The London Principles; providing a touchstone for UK policymakers as they develop intermediary infrastructure (taking a page from the US), for US officials as they consider additional support for impact investing beyond the more established community finance sector (taking a page from the UK), and for hundreds of other countries, cities, and regional governments as they seek to learn from each other and embrace the opportunities that impact investing presents.

    In so doing, the launch of The London Principles represents a milestone in the maturation of impact investing.

    Note: InSight at Pacific Community Ventures is a co-convener of the IIPC, together with the Initiative for Responsible Investment at Harvard University.