2020: A New Dawn for the corporate social investment and development sector


6th Nov 2019

2020: A New Dawn for the corporate social investment and development sector

2020: A New Dawn for the corporate social investment and development sector

Challenging Times

The continuing economic crises have forced corporate social investors, grant-makers, donors and philanthropists to reconsider their contributions to society and social purpose organisations as well as their investment and development strategies.

This refocus and reconsideration is compounded by increased expectations around transparency, accountability and questions have been asked regarding the effectiveness of grants, donations and corporate social investments.

In addition, new economic, social and environmental pressures have contributed to greater challenges and fierce competition for resources amongst organisations. For instance, investors need to make difficult choices between disaster funding in response to issues such as climate change or global health crises.

In Africa specifically, increased unemployment particularly amongst the youth is requiring innovative approaches that will yield guaranteed employment at the end of an investment and development cycle.

Lastly, the ineffectiveness of current corporate social investment funding and development practices, yet increased operational costs to fund certain development themes and portfolios has necessitated a rethink about the traditional ways of investing in social causes.

New Thinking

Whilst reconsidering their investment strategies, our research has indicated that social investors are also taking the time to redesign their own internal operational processes. Plenty of time and attention are currently devoted to redesigning performance management systems, in particular—monitoring, evaluation and impact assessment standards, guidelines and frameworks, and identifying the indicators and reporting processes are top of the agenda.

New strategies, operations and performance management activities also require the design of new governance guidelines and as such, policies and mandates are being reviewed and new performance standards and contracts are being developed.

Whilst overhauling their entire grant-making and investment processes, several leading investors are also considering new blended financial investment models. This is driven in part by the growth of impact investing which now has a direct impact on how social investors consider using a variety of blended financial instruments across the capital spectrum to ensure greater sustainability of their future investments.

In addition, the Sustainable Development Goals has brought about new thinking on two levels: 

  1. The SDG’s have provided a universal language and definition of development portfolios, and therefore most investment portfolios are being restructured to align with the objectives and envisaged outcomes of the SDG’s. 
  2. The SDG’s are also being integrated into business strategies, therefore the link between corporate social investment and business operations are being strengthened. This of course requires that the SDG indicators are being carefully assessed and reported on, again having an influence on how performance is being measured and reported on.

New Strategies for Corporate Social Investment and Development

Our work with some of Africa’s largest social investors over the past 24 months has indicated that there are clear signs that donors, grant-makers, philanthropists and social investors are becoming more much more strategic, intentional and directive in how they see the future. They’re redefining their roles and responsibilities, their approaches, capacity and their investment and development strategies.

The following table provides a summary of some of the changes we have witnessed to becoming much more strategic about corporate social investment and development.

Dimension

From

(Currently)

Towards

(Future orientation)

Evidence of change

Strategic Framing
Widespread giving (4 to 5 investment and development portfolios) and traditional resource transfer (i.e. grants and donations)
Targeted giving (1 to 2 investment and development portfolios) and resources targeted in new ways (i.e. loans, equity, venture capital)
Development and scale-up of market orientated solutions to address global challenges and development issues
Scale of intervention
Project or organisational focused
Systems or sector focused
Targets early-stage social enterprises and market enablers with a vision for global scale-up
Sector focus
Charity or development sector (non-profit and non-governmental organisations)
Sector agnostic (for profit, social purpose organisations, blended and hybrid i.e. social enterprises)

Cross cutting sectors addressing issues such as SMEs, urban mobility, agricultural supply chains, access to energy

Ecosystems focus, including health, secure livelihoods, cities (resilience and infrastructure)

Financial inclusion and gender specific focus

Funding mechanisms
Grants
Blended finance models – grants, loans, debt and equity finance

Direct internal grants

A combination of government and private sector funds

Smart subsidy, guarantees, convertible grant and program related investments

Engagement style

Minimal – reliant on implementation partner

Integrated – building the technical, management and capacity of internal and external stakeholders to engage holistically

Facilitator-style relationships with a diverse range of stakeholders and actors

Convenor and developer of networks

Formal and informal roles, management and strategic support, capacity building, linking between markets

Engagement period
Short – annual cycles
Longer term contracts: 3 – 5 years

Long term investments i.e.  7 to 10 years

Culture and capability of staff
Altruistic, administrative, financial knowledge
Innovative, financial, and development experts, multi-disciplinary, commercial expertise

Learning and development focused, increasingly enterprise oriented

Staff have social enterprise and business skills; sector and subject matter expertise is key

Venture capital style; staff are entrepreneurial, agile and results-focused

Investment into management resources

Scientific and evidence led; staff are increasingly business-like, and impact driven

Additional research and evaluation capability; sector and subject matter expertise

Entrepreneurial combining social values with commercial orientation

Additional business skills hired into teams

Success criteria
Inputs and outputs
Outcomes and impact

Programme level output KPIs set to measure success with ambition for wider impact assessment

SPO level KPIs linked to wider outcomes and third-party field studies

Programme KPIs and independent evaluation and monitoring at milestones linked to defined outcomes

SPO level KPIs linked to wider outcomes and third-party field studies

Independent verification, impact assessments and assurance

2020: A New Paradigm

It has become clear to us that our clients see their future in the pursuit of impact and scale, and they see that to achieve greater impact they’ll require a systems-thinking approach to solve some of the world’s greatest challenges.

This is visible in their initial research phase to identify points of leverage and in their efforts to intervene at multiple points and levels simultaneously.

Rather than funding individual organisations exclusively, they aim to convene numerous organisations and partners (including ODA providers) around a common issue. They are open to funding research to produce an evidence base of impact, they’re prepared to facilitate multi-stakeholder dialogues and influencing for policy change and of course, they’re prepared to contribute to market stimulation in order to facilitate and contribute to even greater economic, social and environmental impact.

For organisations preparing to enter 2020 with a renewed focus to create more meaningful impact, we would like to recommend the following:

  1. Undertake a complete strategic, operational and programmatic review. This includes interrogating the deep assumptions underlying the current development and investment operating models and Theory of Change and be willing to question deeply held beliefs, traditions and customs.
  2. Consider reviewing existing processes and systems. Plan for comprehensive change but start with small experiments to promote learning. Capture the learning and integrate lessons learnt into new strategies.
  3. Consider investing more in research to target investments and interventions more accurately and produce an evidence or baseline for evaluation at a later stage.
  4. Add market-based approaches to interventions. Remain aware that not all challenges will warrant a market-based solution; targeted grants and donations are still an essential funding tool. Intervention at policy and market level may also be required and thus require adequate capacity and skills development.
  5. Review the organisation’s competencies and capacity when considering change. Specialisation, outsourcing, recruiting and training offer different routes to meeting future requirements. Consciously manage the tensions between the size and bureaucracy of supporting projects while keeping enough flexibility to allow the organisation to offer appropriate and dynamic support for new investments and development focus areas.
  6. Be prepared to take more risk at an earlier stage while aiming for longer term and systems-level support. “Reframe” failure as a way of learning and experimenting, and as an input into the learning curve of change.
  7. Develop and review measures of success (qualitative and quantitative) indicators that will trigger exit and maintain sustainability for grantees/SPOs and other stakeholders.
  8. Take a more proactive position in the development sector and be prepared to both collaborate and “share the glory” of the innovation with others while considering other actors’ constraints.
  9. Commit to greater disclosure of lessons learned, either publicly through publication or privately in peer group forums. Integrate this with research and evaluation activity.

In Conclusion

The social sector is ready for disruption. Already leaders are changing development and funding models, engaging with new sectors, and preparing their organisations for scale and much deeper impact. 

Those that do not build organisations for the future, may never see the future.