Impact GlossaryMain Definitions - Key Terms
VP is a high-engagement and long-term approach whereby an investor for impact supports social purpose organisations to maximise social impact, through three core practices:
Social Purpose Organisation (SPO)
An organisation that operates with the primary aim of achieving measurable social and environmental impact, and often need resources (e.g. funding, human resources, capacity building). Social purpose organisations can be revenue generating or not, and include charities, non-profit organisations and social enterprises.
An impact strategy represents the way in which an investor codifies its own social impact investing activity along three axes: social impact, financial return and risk associated with the achievement of both the social impact and the (eventual) financial return. EVPA identifies two main impact strategies: investing for impact and investing with impact.
Investing for impact
Impact strategy followed by investors that adopt the venture philanthropy approach to support social purpose organisations maximising their social impact. Investors for impact support innovative solutions to pressing societal issues, providing in-depth non-financial support and taking on risks that most of other actors in the market cannot – or are not willing to – take. Within the social impact ecosystem, investors for impact (i) test – and scale – new solutions, (ii) support different types of social purpose organisations, also those that have no market outlet and (iii) build social infrastructures. The DNA of investors for impact is reflected in the ten principles of the EVPA “Charter of investors for impact”.
Investing with impact
Impact strategy used by investors that have access to large pools of resources and need to guarantee a certain financial return alongside the social impact they aim at generating. Investors with impact invest in proven solutions and/or organisations with viable business models, often helping them scale while making sure that impact considerations are part of all investment decisions.
The attribution of an organisation’s activities to broader and longer-term outcomes, which are in turn defined as the changes, benefits, learnings, or other effects (positive or negative, both long and short term) that result from an organisation’s activities. In academic terms, to accurately calculate social impact outcomes should be adjusted for: (i) what would have happened anyway (deadweight); (ii) the action of others (attribution); (iii) how far the outcome of the initial intervention is likely to be reduced over time (drop off); (iv) the extent to which the original situation was displaced elsewhere or outcomes displaced other potential positive outcomes (displacement); and for unintended consequences, which could be negative or positive.
Accelerators are intensive programmes that have a selective recruitment process and typically work with social purpose organisations which have track record and are approaching a growth stage. Accelerators usually run between 6 and 12 weeks and work on a cohort basis ranging between 8 to 12 SPOs per cohort. These programmes can have a specialist approach (focused on a specific thematic area, such as education) or a generalist approach. Through financial and non-financial support, acceleration programmes help social purpose organisations focus on growth and scaling their solutions.
The obligation of an organisation to account for or to take responsibility for the effect of its activities.
The concrete actions, tasks and work carried out by the organisation to create its outputs and outcomes and achieve its objectives.
Additionality means that an intervention will lead, or has led, to effects which would not have occurred without it (Source: Winckler Andersen et al., 2021). In the impact context, it refers to achieving positive outcomes that are better than what would have happened without the investment. Additionality may result from:
- Growth of new or undersupplied capital markets
- Provision of flexible capital, accepting disproportionate risk-adjusted returns
- Active engagement providing a wide range of non-financial services
Asset Management Company
Asset Management Companies are organisations specialised in helping their clients to invest their capital through stocks, bonds, real estate, and other forms of investment. (Source: thebalance.com)
Attribution takes account of how much of the change that has been observed is the result of the organisation’s activities, and how much is the result of actions taken simultaneously by others (e.g. other social purpose organisations, government).
The baseline is the initial collection of data that describes the state of development of the social purpose organisation when the investor for impact starts investing in it. The baseline serves as a basis for comparison with the subsequently acquired data on the development of the social purpose organisation.
The people, communities, broader society and environment that a social purpose organisation seeks to reach through its activities. Beneficiaries can be affected positively or negatively by the activities of the social purpose organisation. Beneficiaries can be divided into direct and indirect or primary and secondary, depending on their relation with the benefits.
The OECD defines blended finance as “the strategic use of development finance and philanthropic funds to mobilize private capital flows to emerging and frontier markets”. (Source: OECD)
A business model describes the rationale of how an organisation creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of constructing a business model is part of the business strategy. The term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, business process, target customers, offerings, strategies, infrastructure, organisational structures, sourcing, trading practices, and operational processes and policies including culture.
Document describing the goals and the operating model of an organisation, and the financial resources that will be used in order to reach the goals.
Capacity building (also known as organisational support)
Approach aimed at strengthening organisations supported to increase their overall performance by developing skills or improving structures and processes.
Organisation or individual that supplies capital through the use of one or more financial instruments in order to achieve either financial returns, social impact returns, or both of them.
“Catalytic capital is defined as debt, equity, guarantees, and other investments that accept disproportionate risk and/or concessionary returns relative to a conventional investment in order to generate positive impact and enable third-party investment that otherwise would not be possible”. (Source: Catalytic Capital Consortium – MacArthur Foundation, 2019)
Co-investment (also known as Co-funding)
In private equity, co-investment is the syndication of a financing round or investment by other funders alongside a private equity fund. In venture philanthropy, it involves the syndication of an investment into a social purpose organisation, by other funders (e.g. grant-makers or individuals) alongside an investor for impact.
Concessionary finance refers to investment strategies willing to accept some financial sacrifice – either taking greater risks or accepting lower returns – in exchange of generating higher societal impact. It can be considered as a subgroup of investing for impact, as it includes the element expressed by principle 4 of the EVPA Charter of investors for impact, about taking risks that most others are not prepared to take.
Convertible loans (or convertible debt)
Convertible loans (or convertible debt) are loans that may be converted into equity. Convertible loans are most often used to support social purpose organisations with a low credit rating and high growth potential. Convertible loans are also a frequent vehicle for seed investing in start-up social purpose organisations, as a form of debt that converts into equity in a future investing round. It is a hybrid financial instrument that carries the (limited) protection of debt at the start, but shares in the upside as equity if the start-up is successful, while avoiding the necessity of valuing the company at a too early stage.
Corporate Social Investor (CSI)
Corporate social investors (e.g. corporate foundations, impact funds, accelerators, or social businesses) support innovative solutions to pressing societal issues. They do so by providing social purpose organisations (e.g. NGOs, social enterprises) with capital in the form of grants, debt and equity, alongside expertise and non-financial support. Corporate social investors are legal or organisational structures related to a company (e.g. by name, funding, structure and/or governance) with the objective to create impact intentionality, additionality and measurability.
A corporate foundation is a social purpose-driven non-profit organisation that has been set up by a company. Corporate foundations have an on-going relationship with the company, which allows them –albeit to various degrees- to access financial and non-financial corporate resources which they leverage to create social impact.
A corporate social accelerator is a structure through which an organisation supports investment-ready social enterprises by providing them with business development support, mentoring, infrastructure, and access to relevant networks in order to help them grow.
A corporate social business is a structure created and designed by a company with a clear social purpose. The products and services provided remain close to the core business and activities of the company, but are developed to generate social impact rather than commercial benefits. Corporate social businesses seek to be financially self-sustainable while generating social impact.
A corporate social impact fund is a specific legal entity which was set up by a company to pool resources from one or more investor for investing activities in companies with outstanding social innovations.
Corporate Social Investments
Corporate social investments are long-term, high-engagement capital investments to social purpose organisations (e.g. NGOs, social enterprises) with the primary intention of creating societal impact. Corporate social investments may also generate business benefits alongside societal impact.
Deadweight is the amount of each change that would have happened anyway i.e. the outcomes the beneficiaries would be expected to experience if the organisation were not active. This is sometimes called the “baseline” or “counterfactual”. Deadweight includes the progress or regress beneficiaries typically make without the organisation’s intervention.
Deal flow refers to the number and/or rate of new proposals presented to the investor. This term is used with respect to venture capital/private equity funds, social impact funds, and has also been borrowed and used by philanthropists in reference to ‘deals’ or potential projects to be awarded grants.
Debt instruments are loans investors for impact can provide to social purpose organisations, charging interest at a certain rate. The interest charged can vary depending on the risk profile of the investee (i.e. the social purpose organisation); on its potential social impact; and on the securitisation and repayment priority of the loan (e.g. senior vs subordinated loan).
Displacement occurs when the positive outcomes experienced by beneficiaries accessing the organisation’s services also create negative outcomes experienced by another group elsewhere (also as a result of the organisation’s activities).
Drop-off occurs when, over time, the effects of the output and the observed outcomes decreases (e.g. beneficiaries’ relapse, lose the job attained, revert to previous behaviours).
Due diligence is the process where an organisation or company’s strengths and weaknesses are assessed in detail by a potential investor with a view to investment.
Any formally organised support or encouragement from companies, albeit in close collaboration with Corporate Social Investors, to leverage employee resources (time, knowledge, skills or other resources such as money or network) to support social purpose organisations to have social impact. It can vary from corporate volunteering (hands-on or skill-based, virtual or on-site volunteering) and/or corporate giving (payroll giving, employee matching) to co-investment programmes.
Corporate volunteering refers to any formally organised support or encouragement that a company provides to employees wishing to volunteer their time, skills and/or network to serve charities and other non-profit organisations without any compensation or remuneration.
Employee giving is defined as any formally organised support or encouragement that a company provides to employees to make regular donations from their pay to charities and other non-profit organisations.
Co-investmentprogrammes enable employees to be the partner in investing in social purpose organisations, with the aim to revolve the funding or have a (modest) financial return.
A donation of money or property to a non-profit organisation, which uses the resulting investment income for a specific purpose. "Endowment" can also refer to the total of a non-profit institution's investable assets, also known as “principal” or “corpus”, which is meant to be used for operations or programmes that are consistent with the wishes of the donor.
Organisation deploying grants by adopting the venture philanthropy approach: (i) providing a wide range of non-financial services to increase the capabilities of the grantee, (ii) measuring and managing societal impact to make better informed decisions and (iii) making sure grant is the right financial instrument to support the grantee based on its needs. Engaged grant-makers fund their grantees for a longer period of time and in a more engaged way, with respect to traditional grant-makers. They are considered investors for impact, together with social investors.
Equity instruments are contracts through which investors for impact provide funding to social purpose organisations and in return acquire ownership rights on part of the social purpose organisations’ businesses. This form of capital can be appropriate when the prospect of a loan repayment is low or non-existent. If the social purpose organisation is successful, the equity share holds the possibility of a financial return in the form of dividend payments and/or the capital gain at the exit. In addition, it allows for the possibility of a transfer of ownership to other funders in the future.
The end of the relationship between the investor for impact and the social purpose organisation. The nature of the exit will normally be agreed before the investment is completed. In the case of a charity, the investor for impact will ideally be replaced by a mix of other funders (see financial sustainability). The time scale for the exit can be agreed upon at the outset. In the case of a social enterprise, exit may require the repayment of a loan, for example, and the timing will depend on the commercial success of the enterprise. An exit strategy is the action plan to determine when the investor for impact can no longer add value to the investee, and to end the relationship in such a way that the social impact is either maintained or amplified, or that the potential loss of social impact is minimised.
Family offices are family-owned organisations that manage private wealth and other family affairs. (Source: Ernst & Young(2016) "EY Family Office Guide: Pathway to successful family and wealth management" Credit Suisse and University of St. Gallen)
Financial instruments are contracts involving monetary transfers through which, in the social impact ecosystem, investors for impact financially support social purpose organisations.
Financial sustainability for a social enterprise is the degree to which it collects sufficient revenues from the sale of its services to cover the full costs of its activities. For charities, it involves achieving adequate and reliable financial resources, normally through a mix of income types.
Forgivable loans are the opposite of convertible grants. They are loans which are converted into grants in case of success. If the SPO reaches the goals agreed on beforehand by the investor and the investee, the loan does not have to be repaid. The SPO bears the full risk of project success and, on top of that, has a strong incentivation for making it happen as planned. (Source: Oldenburg and Struewer, 2016.)
Public-benefit foundations are asset based and purpose-driven. They have no members or shareholders and are separately constituted non-profit bodies. Foundations focus on areas ranging from the environment, social services, health and education, to science, research, arts and culture. They each have an established and reliable income source, which allows them to plan and carry out work over a longer term than many other institutions such as governments and companies. In the context of venture philanthropy, foundations are non-profit organisations that support charitable activities either through grant making or by operating programmes. (Source: European Foundation Centre)
A fund is a vehicle created to enable pooled investment by a number of investors. It is usually managed by a dedicated organisation.
Grant-makers include institutions, public charities, private foundations, and giving circles, which award monetary aid or subsidies to organisations or individuals. Generally known as foundations in Continental Europe, grant-makers also include certain types of trusts in the United Kingdom.
Grants are a type of funding in the form of a cash allocation that investors for impact can offer to social purpose organisations. From social purpose organisations’ perspective, grants do not foresee any type of repayment or any financial returns to be given back to the investor. From the investors’ perspective, grants do not establish any ownership rights.
A guarantee is a promise by one party (the guarantor) to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt. In the social impact ecosystem, guarantees are one of the financial instruments available for investors forimpact to support social purpose organisations. Investors for impact, in this case, do not need to supply cash up-front, but they open up access to bank funding by taking on some or all of the risk that the lender would otherwise incur. (Source: Wikipedia)
Creating hands-on relationships between the supported organisation’s management and the investor for impact. This practice foresees investors taking board seats in the organisations they invest in or give a grant to, and/or to frequently meet with investees’ management.
Allocation of financial resources to impact-oriented investments combining different types of financial instruments and different types of risk/return/impact profiles of capital providers.
Hybrid Financial Instruments
Hybrid financial instruments are monetary contracts that represent a variation or combine features of the traditional financial instruments (grants, debt instruments and equity instruments) in order to achieve the best possible alignment of risk and impact/financial return for particular investments.
Hybrid Financing Mechanisms (see also Outcome-based mechanisms)
Financing schemes developed to increase the resources brought to impact-oriented investments by de-risking other capital providers (i.e. retail, commercial or public). Hybrid Financing Mechanisms are contracts financed by a risk-taking social investor to de-risk the investment for other types of actors, such as public entities, philanthropic donors and commercial investors. Hybrid Financing Mechanisms can take a number of forms and names, such as Social Impact Bonds (SIBs), Development Impact Bonds (DIBs), Payment-by-Results schemes (PbR) or Social Success Notes (SSN).
Hybrid Financing Vehicles
Funds developed to provide finance to social purpose organisations in a more efficient way, while satisfying different risk/return/impact profiles of investors.
The hybrid structure of the social purpose organisation is a combination of a for-profit entity and a not-for-profit entity. The hybrid structure is an innovative way to address the issue of access to finance. By setting up a hybrid structure, the social purpose organisation can attract grants through the non-profit entity and social investment through the for-profit entity, hence increasing the pool of resources available while channelling them in the most effective way.
Impact assurance refers to external, independent evaluations of the IMM processes followed and the results obtained. Impact assurance ensures accountability to the investor towards its stakeholders, and also represents a learning opportunity for both investor and investee to mitigate impact risks and identify gaps on their performance.
Impact crowdfunding platforms
Impact crowdfunding platforms are investors for impact pooling and managing resources from the crowd to enable social purpose organisations to maximise their societal impact. They take a highly engaged approach to support their investees, tailoring their financial support, offering non-financial support and aiming at measuring and managing societal impact. Impact crowdfunding platforms can be either donation-based crowdfunding platforms or social investment crowdfunding platforms. Donation-based crowdfunding platforms support SPOs through grant related instruments, and therefore rely on investors who do not expect any financial return for their support. On the other hand, social investment crowdfunding platforms aim to generate societal impact, but with the expectation of some financial returns or preservation of capital, by deploying primarily equity or loan related instruments.
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.
Impact Investment Vehicle
An impact investment vehicle is a product used by an organisation to seek positive returns, with the intention to generate positive, measurable social and environmental impact.
Impact monitoring refers to the regular measurement of indicators (i.e. weekly, monthly, quarterly, annualy, etc.). The frequency of measurement should be tailored to the needs of the SPO and the nature of the indicator.
Once the data has been collected and analysed, an organisation needs to consider how to present and share this information. Depending on the stakeholders to whom an investor for impact is reporting, different formats will be required. Investors for impact report to funders on ad-hoc basis and usually make an extensive review yearly, which may be included in an impact report to be shared widely.
Impact valuation refers to weighting the benefits versus the costs/sacrifices for the stakeholder. Valuation can be monetary or non-monetary.
Impact Value Chain
Represents how an organisation achieves its impact by linking the organisation to its activities and the activities to outputs, outcomes and impacts.
A key process to verify the importance and the magnitude of the intended and unintended outcomes generated is listening to the voices of the relevant stakeholders. Impact verification aims at optimising positive impact and also at managing risks and understanding whether the risk mitigation strategies are being effective.
Programme mostly focused on providing office space for social purpose organisations and access to a community of like-minded entities. Around the provision of office space there are typically ancillary services that include training modules, shared services (e.g. accounting) and events (e.g. expert talks). Incubators rarely provide financial support to the organisations that they incubate. The support provided by incubators is often open-ended and funded by the rents paid by social purpose organisations incubated in the space.
Indicators are specific and measurable actions or conditions that assess progress towards or away from outputs or outcomes. Indicators may relate to direct quantities (e.g. number of hours of training provided) or to qualitative aspects (e.g. levels of beneficiary confidence).
All resources, whether capital or human, invested in the activities of the organisation.
Entities such as pension funds, insurance companies and sovereign wealth funds who manage large pools of long-term capital with the objective of meeting the long term needs of their clients. (Source: Wilton, D., (2019) “Pricing Impact: Extending Impact Investing to Price Externalities and Lower the cost of Capital to Impactful Investments”, Zheng Partners LLC)
The social purpose organisation that is the target of the investor’s activity and the recipient of financial and non-financial support.
An investment is the use of money with the expectation of making favourable future returns. Returns could be financial, social, and/or environmental. In the social impact ecosystem, grants are considered as a form of investment.
The investment proposal is the document prepared by an investor to present a potential investment (including nature, goals and funding) to the investment committee.
Investment readiness programmes
Programmes similar to accelerators, but with an exclusive focus on helping social purpose organisations raise external repayable finance during and at the end of the programmes. These programmes are usually intensive, last between 6 and 12 weeks and work on a cohort basis.
Key performance indicators (KPIs)
Key Performance Indicators are business metrics used to evaluate the extent to which the organisation has achieved a goal and factors that are crucial to the success of an organisation. KPIs differ per organisation: business KPIs may be net revenue or a customer loyalty metric, while governments might consider unemployment rates.
Intensive skills-oriented training programmes that are typically short term, lasting a few days or weeks. Leadership programmes are more oriented towards individuals (e.g. social entrepreneurs) rather than towards social purpose organisations. The support provided is exclusively non-financial and aimed at developing the soft skills of entrepreneurs, namely leadership, organisations development, negotiation, communication, among others.
A long-term investment is made over a period of five years or more.
Materiality refers to an assessment made to determine the factors that are relevant, significant and material to include in a true account of the organisation’s impact.
Mezzanine finance is a hybrid of debt and equity financing, usually used to fund the scaling of an organisation. Although it is similar to debt capital, it is normally treated like equity on the organisation’s balance sheet. Mezzanine finance involves the provision of a high-risk loan, repayment of which depends on the financial success of the social purpose organisation. This hybrid financial instrument bridges the gap between debt and equity/grant through some form of revenue participation.
Mission-related investing (MRI)
The dedication of the full portfolio of assets and investments of a foundation to its social mission. Mission Related Investment Funds are increasingly seen as suitable vehicles to invest endowment assets in financially viable social and environmental impact initiatives, since low market interest rates as well as an increasingly mature social impact ecosystem offer the opportunity for foundations to align their mission with their fiduciary duties.
Monetisation is the process of transforming the value of outcomes and/or impacts into a unit of currency. SROI is a framework that guides how to monetise the value of social impact in financial terms.
The assessment of the degree of maturity of a social purpose organisation, in terms of the degree of development of the management team and organisation (governance, fund raising capacity etc.).
Outcome-based mechanisms (see also Hybrid Financing Mechanisms)
Financing schemes developed to increase the resources brought to impact-oriented investments by de-risking other capital providers (i.e. retail, commercial or public). Outcome-based mechanisms are contracts financed by a risk-taking social investor to de-risk the investment for other types of actors, such as public entities, philanthropic donors and commercial investors. Outcome-based mechanisms can take a number of forms and names, such as Social Impact Bonds (SIBs), Development Impact Bonds (DIBs), Payment-by-Results schemes (PbR) or Social Success Notes (SSN).
Outcomes Funds are financing vehicles set up by a public actor pooling public or/and donor’s funding (philanthropy or corporate-giving) to finance multiple outcome-based mechanisms in parallel.
The changes, benefits (or dis-benefits), learnings, or other effects (both long and short term) that result from the organisation’s activities. Outcomes can be short or long term, negative or positive.
The quantified summary of activities (e.g. tangible products and services) that result from the organisation’s activities.
Participatory loans are a type of subordinated debt. The interest charged is usually linked to the progress of the social purpose organisation’s business. Their often-long repayment periods and possibly grace periods make participatory loans a useful financial instrument for social purpose organisations that are still in their early stages.
Philanthropy and Social Investment Infrastructure organisation
Philanthropy and Social Investment Infrastructure organisations provide a support system for amplifying philanthropy’s and social investment’s effectiveness. (Source: Bikmen, F., Albertg-Seberich, M., Buck, L., (2019) "More than the Sum of its Parts: Insights on the Future of European Philanthropy and Social Investment Infrastructure", Beyond Philanthropy)
A portfolio is a collection of projects and/or organisations that have received sponsorship from the investor. A distinction is often made between ‘active’ and ‘past’ portfolio, distinguish the organisations with which the investor is actively involved. Usually, however, all portfolio organisations are included in the greater network of the investor.
Portfolio manager (also known as Investment manager)
A portfolio manager is given the responsibility of tracking the performance of and maintaining communications with the various organisations and/or projects within the investor’s portfolio.
Pre-accelerator are programmes that support social purpose organisations that are typically in incubation stage and still in the process of developing their solution / product. Most of the times, these social purpose organisations have no commercial or impact traction, yet. The support provided is mostly non-financial and entails training modules, mentoring and coaching as well as access to industry experts. Pre-accelerators programmes typically run between 2 and 8 weeks and work on a cohort basis, usually supporting between 8 and 12 social purpose organisations per cohort. Pre-accelerators have a selective recruitment process and rarely provide social purpose organisations with financial support.
The pre-investment stage is the process during which the investor examines the operations and leadership of the project or organisation with a view towards making an investment. This might include a detailed review of the financials, operations, or reference checks for organisational leaders. The term due diligence is also used, which has a legal definition as a measure of prudence. In other words, the investor is assessing if it is likely to get what it thinks it is paying for.
Ownership in a firm which is not publicly traded and which usually involves a hands-on approach and a long-term commitment for the investors.
Professional work undertaken voluntarily and without payment. Unlike traditional/unskilled volunteerism, it is service that uses the specific skills of professionals to provide services to those who are unable to afford them.
A professional who provides specific skilled support to an organisation without the payment of a fee.
The public sector encompasses supranational authorities, central government departments and local authorities, as well as any type of public entity. In the European context, national, regional and local governments have a mandate to deliver services for all segments of the population, with a specific focus on the poorest.
Recoverable grants (or convertible grants)
Recoverable grants (or convertible grants) are grants investors for impact use to fulfil a role similar to equity. Recoverable grants may include an agreement to treat the investment as a grant if the social purpose organisation is not successful, but to repay the investor for impact if the social purpose organisation meets pre-agreed KPIs with success. Recoverable grants are designed to focus the social purpose organisation on sustainability and to reduce its risk of grant dependence.
Return on Investment (ROI) (see also Social Return on Investment (SROI)
The Return on Investment is the profit or loss resulting from an investment. This is usually expressed as an annual percentage return.
Revenue sharing agreements (or Royalty-based financing)
Revenue sharing agreements (or royalty-based financing) are hybrid financial instruments in which the investor for impact lends money to the SPO against its future revenue streams. The initial capital plus an additional interest has to be repaid by the company until the pre-established amount is paid back (so called royalty cap), with repayments only starting when the company generates positive cash flow. Investors obtain returns as soon as the investees reach an agreed level of revenue. (Source: European Commission, 2017.)
Processes of developing and growing the activities of a social purpose organisation to expand its social reach and increase its social impact.
Seed financing is money used for the initial investment in a start-up company, project, proof-of-concept, or initial product development.
A short-term investment is made over a one-year period less, or an investment that matures in one year or less.
A social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involves employees, consumers and stakeholders affected by its commercial activities.
The European Commission uses the term 'social enterprise' to cover the following types of business:
- Those for who the social or societal objective of the common good is the reason for the commercial activity, often in the form of a high level of social innovation.
- Those where profits are mainly reinvested with a view to achieving this social objective.
- Those where the method of organisation or ownership system reflects the enterprise's mission, using democratic or participatory principles or focusing on social justice.
There is no single legal form for social enterprises.
Many operate in the form of social cooperatives, some are registered as private companies limited by guarantee, some are mutual, and a lot of them are no-profit-distributing organisations like provident societies, associations, voluntary organisations, charities or foundations. (Source: European Commission)
Social entrepreneur is defined as a leader or pragmatic visionary who:
- Achieves large scale, systemic and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these.
- Focuses first and foremost on the social and/or ecological value creation and tries to optimise the financial value creation.
- Innovates by finding a new product, a new service, or a new approach to a social problem.
- Continuously refines and adapts approach in response to feedback.
(Source: Swab Foundation for Social Entrepreneurship)
Social Impact Bond
Results-based contract between governments/public entities and social investors that enables federal state, and local governments to partner with high-performing service providers by using private investment to develop, coordinate, or expand effective programs.
(Source: Dear, A., Helbitz, A., Khare, R., Lotan, R., Newman, J., Crosby Sims, G., and Zaroulis, A., (2016), “Social Impact Bonds. The early years”, Social Finance)
Social Impact Ecosystem
The social impact ecosystem is the space where organisations adopt impact strategies, which can be classified as investing for impact or investing with impact.
Social Impact Funds
Social impact funds are investment vehicles that deploy different forms of debt and equity to support innovative business models that tackle pressing societal issues and have the potential to scale. Social impact funds emerged when a number of socially-oriented VC/PE practitioners entered the impact ecosystem to foster social innovation and help solve pressing societal issues, and, at EVPA, we consider them as the initiators of the investing for impact movement in Europe.
Social innovations are new ideas that meet social needs, create social relationships and form new collaborations. These innovations can be products, services or models addressing unmet needs more effectively. (Source: European Commission)
Social Investment (SI) (also known as Social Finance)
Social investment is the provision and use of capital to generate social as well as financial returns. The social investment approach has many overlaps with the key characteristics of venture philanthropy, however social investment means investment mainly to generate social impact, but with the expectation of some financial return (or preservation of capital).
Social investment intermediaries
Organisations that aim at increasing the pool of financial resources available for social purpose organisations to reach and scale their social impact by bridging the demand and the supply side of capital, channelling funds towards social purpose organisations in a more efficient way and bringing more resources into the social impact ecosystem.
Social value is the quantification of the relative importance that people place on the changes they experience in their lives. Some, but not all of this value is captured in market prices. It is important to consider and measure this social value from the perspective of those affected by an organisation’s work. (Source: Social Value UK)
Social Return on Investment (SROI)
SROI is a framework of principles that allows us to account for social value/impacts. It places the involvement of stakeholders as central to understanding the consequences of activities and the value of experiences so that we can better understand, report and manage impacts to improve performance.
Social sector is an alternative term used in reference to the non-profit sector, non-governmental sector, voluntary sector, independent sector, or third sector.
Social risk is the risk related to the achievement of the intended social impact. Concretely, social risk considerations are given by the risk of:
- not achieving the desired social impact;
- achieving unexpected impact different from the one aimed at;
- achieving positive social impact but with unintended negative consequences;
- achieving unexpected negative impact.
Solidarity-saving schemes are companies-specific employees’ savings plans, such as retirement plans, or internal corporate saving plans for employees. These schemes aim at increasing the resources going into the social investment market, engaging new actors (e.g. retail investors) into a space in which they were not present before.
Soft loans are debts investors for impact offer to social purpose organisations with no interest (i.e. 0% interest rate loans) or with a below-market rate interest. The main difference with recoverable grants lies in the repayment scheme, which is agreed ex-ante between the two parts and it is not conditional to any specific KPI.
Any party that is effecting or affected by the activities of an organisation. The most prominent stakeholders are the direct or target beneficiaries, though stakeholders as a group also includes the organisation’s staff and volunteers, its service-users and investees, its suppliers and purchasers and most likely the families of beneficiaries and those close to them, and the communities in which they live.
Subordinated loans (or subordinated debt)
Subordinated loans (or subordinated debt) are financial instruments that, in the case of borrower default, are paid after all other loans. Although subordinated debt is a riskier instrument than unsubordinated debt for lenders, it is still paid out prior to any equity holders.
Sustainable and responsible investment (SRI)
SRI is a long-term oriented investment approach which integrates ESG factors in the research, analysis and selection process of securities within an investment portfolio. (Source: Eurosif(2018), “European SRI Study 2018”)
A type of organisational support that is provided in complex contexts and is often provided by specialised external third parties (e.g. pro bono contributors). Some examples are sales and marketing support, business process and management and pipeline support.
Theory of Change (ToC)
A theory of change defines all building blocks required to bring about a given long-term goal. This set of connected building blocks is depicted on a map known as a pathway of change or change framework, which is a graphic representation of the change process.
Traditional philanthropy refers to impact strategies implemented by philanthropic institutions, which are aimed at generating impact through more traditional grant-making activities.
A person who voluntarily offers himself or herself to perform a service willingly and without pay. Differently from pro-bono and low-bono supporters, volunteers offer unskilled labour.