The London Principles for social investment are set in motion

Isabelle de Grave

Against a backdrop of progressive policy activities in the UK from Britain’s focus on social investment during its G8 presidency to the creation of Big Society Capital, the London Principles have been launched as a policy keystone for developing the social impact investment market.

Lamenting the absence of red tape and balloons, Ben Thornley of Pacific Community Ventures announced the launch of the principles and eased the audience into the language of social investment for the IIPC event, hosted by City of London Corporation.
 
“Social objectives are the goal, social investment is the tool”, said Thornley, offering a useful take-away phrase, to clarify the jargon around innovative ways of using private capital to support social goals.
 
The launch of the principles marks a key juncture for social investment, and as the City of London Corporation sets a £20m fund in motion, “it has to work” said Mark Boleat, chairman of the Policy and Resources Committee of the City of London. “If it doesn't", he continued, "we won’t be able to make anymore”.
 
Key to the emergence of a dynamic social investment market is a policy framework, which strikes the right balance between government intervention and market activity.“We need to tread very carefully, government has a bad habit for smothering the things it loves the most,” said Nick Hurd MP. 
 
Karen Wilson of the Structural Policy Division, Directorate for Science, Technology and Industry, OECD said: “Governments have to be willing to go in and know when to get out. They can play a catalytic role, but they don’t create markets, a top-down approach is not going to work."
 
The Five London Principles developed to support the formation of policy around social investment include:
 
Clarity of Purpose
 
Clarity of purpose, on the part of government, reinforces strategy and policies that are integrated into existing policy and market structures, that target specific social objectives, and that clearly define the role for impact investing in achieving those objectives. Clarity of purpose allows governments to avoid inefficient use or misallocation of resources, insufficient policy support that impedes achievement of outcomes, and disjointed policy regimes.
 
Governments should:
  • Clearly identify the social objective(s) that the impact investing strategy or policy is meant to target.
  • Clearly identify why the impact investing strategy or policy might be an appropriate tool to meet those objectives, and how impact investing complements broader policy systems.
  • Define realistic expectations for the results the impact investing strategy or policy might achieve and the time it might take to achieve them.
Stakeholder Engagement
 
Stakeholder engagement brings discipline and legitimacy to policy design. By institutionalizing dialogue and feedback, with relevant stakeholders, governments can bring important additional resources to support impact investing strategies and policies. Effective stakeholder engagement ensures that all actors are included, manages expectations, and avoids the development of policies that are unfit for purpose.
 
Governments should:
  • Identify, engage, and collaborate with key stakeholders, from concept to implementation to revision of strategies and policies.
  • Support shared ownership of policy and a dynamic process of policy development and review.
  • Guard against misaligned incentives or unequal power structures that work against effect impact investing strategy and policies.
Market Stewardship
 
Market stewardship ensures a holistic vision for impact investing strategies and policies. It focuses on a balanced development of investor interest, investment opportunities, and mechanisms to deliver intended social outcomes. Effective market stewardship sets appropriate levels of regulation and unnecessary management of market activity.
 
Governments should:
  • Identify the appropriate use of market interventions, including at which point they should be made, for how long, and by which agencies and institutions.
  • Develop markets holistically, balancing capital supply, investment readiness, and support for enabling intermediary infrastructure.
  • Support reliable and responsive policy, mindful of stakeholder priorities, incentives and limitations.
 
Institutional Capacity
 
Institutional capacity allows for the effective use of resources, adds value to existing policies, and creates the potential for developing innovative strategies and tools that address key social problems. Institutional capacity establishes reliable and resilient markets, and avoids sending mixed signals to investors and civil society on the potential for intended policies to deliver on their promises.
 
Governments should:
  • Determine cross-sector resources within government currently available, or necessary to be developed, for successful strategy development and policy implementation.
  • Develop public sector leadership to implement policies where needed and provide stability over time.
  • Measure and evaluate the impact of policies against stated objectives, and act efficiently to refine or scale accordingly.
Universal Transparency
 
Universal transparency mandates that stated objectives are clear, and progress toward their achievement is openly measured and reported to relevant stakeholders and the public at large. Effective universal transparency enables leadership in public innovation, protects against the risk of real or perceived bias, realistically manages expectations, and empowers citizen participation.
 
Governments should:
  • Report rigorously on performance and develop a culture of transparency that includes all impact investing actors.
  • Commit to a continuous process of shared learning, including through an open dialogue on successes and failures.
  • Foster engagement and fidelity to stated social objectives.
 
 

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