Understanding the Social Finance Playing Field

As impact investment surges, social finance practitioners learn that money, conventional metrics, and good intentions go only so far
Understanding the Social Finance Playing Field

The essentials

What separates successful practitioners of social finance from their well-meaning yet ineffective colleagues? According to Gayle Peterson of Oxford’s Saïd Business School, it’s the willingness to challenge some finance truisms and accept a different definition of success. Social finance practitioners should be sensitive to cultural context and take the time to understand the reality on the ground, she says. That includes developing culturally appropriate performance measures, perhaps by working with the group being funded. And they have to admit failure and learn from their inevitable missteps. Peterson will be teaching at the 2016 Social Finance Academy run by the Centre for Social Impact of Smith School of Business and the MaRS Centre for Impact Investing.

By some measures, impact investing has truly arrived: assets managed using social investment strategies now top $1 trillion globally and $1 billion in Canada. But the impact these funds have on tough social challenges is another story.

What separates the successful practitioners of social finance from their well-meaning yet ineffective colleagues? According to Gayle Peterson, associate fellow at Oxford’s Saïd Business School, director of the Oxford Impact Investing Programme, and co-founder of a non-profit social impact consultancy, it’s the willingness to challenge some finance truisms and accept a different definition of success. 

Peterson is wrapping up the last of a thousand interviews with social investors worldwide for her upcoming book Good, Evil, Wicked: The Art, Science, and Business of Giving. She will be teaching at the 2016 Social Finance Academy run by the Centre for Social Impact of Smith School of Business and the MaRS Centre for Impact Investing

Peterson says there are a number of factors to consider when tackling any of the world’s “wicked” problems.

Consider the Cultural Context

Peterson’s first piece of advice is to remain open and honest. “Recognize when you walk in a different place,” she says. “Be aware of the differences and be open to learning and making mistakes.”

Swades Foundation, for example, set an ambitious goal of educating girls in rural India – only to have tribal leaders push back. “They said, ‘No, we’re not going to do that. Girls are the ones who get our water. You address our water issue first, then our agricultural issues, then our healthcare issues. Then you address education.”

As Peterson explains, Swades now takes a holistic approach to social investing. Listening to the needs of community, they focus on community organizing, water and sanitation, agriculture, job creation, education, health, and nutrition. They also work in partnership at a local and corporate level. Their mission remains ambitious — transforming the lives of one million people in rural India within five years — but they also recognize that a top-down, command-and-control approach is futile.

If you’re working with problems you’ve never faced, in an environment that is foreign to you, no amount of research and knowledge can substitute for direct conversations with community members. Don’t assume you know what needs to be done, says Peterson, even if the solution seems straightforward. Whether you’re working with vulnerable children in Toronto or looking at poverty in the Caribbean, “Leave your bias behind as much as possible and be guided by what you’re learning from the conversations you’re having. It sounds simplistic and easy, but it often isn’t.”

Choose Your Metrics Wisely

For conventional investors, there are a number of well-defined metrics that define success or failure. For investors looking for a social payoff, however, the performance indicators are not as well defined.

When investors fail to take full measure of the larger context, their efforts can backfire. “You can end up with an organization like the Gates Foundation saying, Our Sub-Saharan Seed Program isn’t working because we’re culturally incompetent,” says Peterson. “It’s not just about performance measures in a traditional way. It’s really about understanding the context of the communities in which you’re working and how you give them a voice and build relationships that will allow you to do good work.”

Peterson says the challenge is to come up with culturally appropriate and respectful performance measures. One way to do that is by working with the group being funded to collectively develop a set of performance measures and feedback loops.

Embrace Failure – And Learn From It

In her interviews across a wide range of countries and projects, Peterson found a common theme among effective social impact leaders. “Whether you’re in Mumbai or Moscow or Memphis,” she says, “you need a willingness to admit when you’re wrong – or when you’ve tried something and failed. When you deal with the world’s most ‘wickedly’ difficult problems, you will likely struggle than succeed. This is about constant testing, recalibrating, and innovating solutions.”

Brutally honest self-reflection is not always easy to come by social investors. Peterson says there may be cultural mores at play – public candour can be discouraged in places such as Russia and China – but often, organizations don’t want to admit failure to themselves or their investors. She points to Engineers Without Borders Canada as one group that has taken a different approach. They publish an annual “Failure Report” in an effort to spark conversation on what is or isn’t working among the broader non-profit community.

“You’re dealing with massively difficult issues and you will fail and make mistakes,” Peterson says. “If they weren’t difficult, they would have been resolved decades, millennia ago, but that’s not happening.”

Another example is ClimateWorks. It was created by the Hewlett and Packard foundations with support from The McKnight Foundation, with seed money of $1 billion to try to make a global impact on climate change over five years. Several years into the project, foundation leaders realized that they hadn’t spent enough time building operations and hiring people with the skills to manage a global initiative. Effective operations are just as important as programme strategy, Peterson says, but the “how” is often downplayed.

By sharing their story, the foundations hope to help others sidestep the problem.

“We get stuck and there’s a fear of sharing things that don’t work,” Peterson says “But sharing it’s just as important, if not more so, than getting the programme right. Social investors, particularly when coming from business, need to bring that culture with them. We’re going to innovate, we’re going to change, we’re going to modify based on what we learned.”

Kenza Moller


Sidebar: Peterson on Canada’s Social Finance Scene

Throughout her interviews, Gayle Peterson has noticed that a robust social finance ecosystem is developing in Canada. “Canadians are establishing their own way of doing work,” she says. “There’s a really innovative sector in social finance and impact investing that’s being led by really creative people.”

But she has also detected cautiousness in some areas. How can organizations involve women investors? What role can major banks play in social finance? “I think people are still trying to sort that out, but I see a real exchange of ideas around the world that’s also happening in Canada, rather than Canada remaining in a hub by itself. I look at Canadians with whom I work, and they have a global perspective, an eagerness to learn, an eagerness to be respectful, be smart, be strategic — and they put that in a global context. There was a generosity of spirits in the interviews that we did with Canadian funders, and I think at times that Canadians have a bigger global perspective than some of their Western colleagues.”

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