Accelerating Impact and LuxFLAG release a Comprehensive Social Investment Framework

Accelerating Impact and LuxFLAG release a Comprehensive Social Investment Framework

Accelerating Impact and LuxFLAG announce the release of the Social Investment Framework, a consolidated and aligned tool designed to support the development of social finance by providing a clear and comprehensive structure for social impact investing. This framework addresses key gaps in the sector and aims to drive greater alignment of capital flows with social objectives.

Challenges in Social Finance

One major challenge in social finance is the lack of a universally accepted definition and framework for “social finance” and “social impact”. Different organizations use varying definitions and criteria, leading to inefficiencies and confusion, especially for new fund managers and investors.

Unlike financial returns, social outcomes are context-specific and complex, making them harder to measure and compare. Furthermore, measuring social metrics, specifically non-quantitative indicators, is more time-consuming than environmental metrics.

Additionally, there is a significant funding gap in social finance. Despite rising interest, social SDGs receive the lowest funding levels compared to other development goals. The European Commission estimates a funding gap of over EUR 1 billion per year in Europe alone. Addressing this requires fostering dialogue among key stakeholders and partnering with the private sector.

This Social Investment Framework is the result of an extensive research process conducted over six months. It aims to provide a clear definition of social impact investing, explain the basis of the defining elements, provide a non-exhaustive list of social activities, and nurture the development of social investment products.

Key Highlights of the Social Investment Framework:

• A Shared Definition: The framework offers a definition of social impact investing, emphasizing the importance of generating substantial positive impact while avoiding or mitigating negative impacts.
• Eligible Activities: By mapping current market practices, a non-exhaustive list of eligible activities has been compiled related to social themes such as promoting decent work, adequate living standards, and inclusive and sustainable communities.
• Exclusions and Safeguards: The framework also includes suggested list of exclusions and minimum safeguards to ensure adherence to social and environmental standards. These measures are designed to avoid or mitigate negative impacts and promote responsible investing practices

The framework emphasizes importance of key concepts for impact investing: financing of activities made with the intention to generate measured and managed substantial positive impact, implying that the activity should address an unmet need for a target population, while avoiding or mitigating negative impact, alongside a financial return.

This framework is expected to drive greater alignment of capital flows with social objectives, fostering the growth and legitimacy of the social investing ecosystem. By setting clear standards and providing meaningful recognition, the Social Investment Framework aims to encourage more investors to allocate portions of their portfolios to impact investments.