Investments’ Social Impacts

Victoria Schoenlaub

10 min Read Time | August 10th 2021

Key takeaways

Financial institutions finance companies, NGOs, projects that may bring forward socially positive or negative impacts. When assessing the impact of investments, make sure to focus on social impacts to contextualise the impact (i.e. assessing how and how many vulnerable/underserved persons benefited from the initiative and projects directly funded by a financial institution).

Investments’ Environmental Impacts on Ecosystems & Biodiversity, as well as impacts from Energy Finance, and Community Relations, are covered in separate topics.

Make sure the readers are able to clearly identify the scale by providing the amount of money invested and people reached, via which type of investment’ sector and/or industry (i.e. Arms sector, Tobacco, Sustainable Housing).

What is it?

Social investments are commonly defined as “the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial, return.” The other side of the coin would represent any investment having a negative effect on society, i.e. financing the arms sector, negatively impacting people’s lives; or the financing of tobacco, having an impact on health and the healthcare system.

Companies investing in the social sphere aspire to see a change in society while having a return. Ultimately, social investments are about people and their impact on their lives. Expressly, how the funds are strengthening or weakening people’s access to resources, standards of living, and human rights? Public challenges/social causes can be tackled through social investments. The impacts can either be positive or negative.

If you are unsure about debt financing and equity investments, please refer to this guide.

Sources
https://www.oecd.org/social/social-impact-investment.htm
http://wordpress.collaboratei.com/wp-content/uploads/Supporting-Social-Change-_-The-Role-of-Social-Investment_Digital.pdf
https://ec.europa.eu/social/main.jsp?catId=1044&langId=en
https://www.who.int/news-room/fact-sheets/detail/tobacco
https://www.worldbank.org/en/t...

Impact Assessment

Companies have a wide array of social impacts, depending on their activities, such as through:

  1. The finance of third party’s arms trade and supply to conflict-affected and high-risk nations. This hinders the life of civilians who have no other choice but to live in conflict areas, migrate, and endure human rights abuses and violations.

  2. Tobacco companies receiving funds from the financial sector. The expansion of this industry encourages the utilization of cigarettes and tobacco-related products. Ultimately, this has a negative effect on people’s health. Tobacco products kill around 8 million people every year around the globe.

  3. Forest-risk (palm oil, timber, pulp & paper) companies receiving funds from financial firms. To fall under this topic, it is not important to know about ecological & biodiversity impacts, rather to know how indigenous communities, vulnerable populations, minorities have been impacted by the companies’ actions. For instance, it would fall under this topic of discussion: the land-grabbing of indigenous people. Indigenous people rely on their lands and most of the time they do not have property rights over their lands.

  4. Other subjects that might fall under this topic are:

  5. Housing supports and construction for under-represented groups

  6. Social enterprises’ funding that supports social/economic growth

  7. Social projects/initiatives empowering/benefiting vulnerable/under-represented groups

  8. Poverty alleviation funding and sponsorship

  9. Investing in companies that engage in bad practices, such as negative labour practices.


Caution: If a firm is directly involved in social degradation and or empowerment, thus not financing rather supplying (i.e., an arms company supplying weapons to high-risk nations falling under Investments’ Social Impacts), then the note should fall under Human Rights & Community Relations (i.e., a company spending money on local public facilities in a low-income neighbourhood where their operations are located). Whenever we are dealing with a firm injecting money into a third party to have a financial return, even if the human rights’ sphere applies here as well, the note should fall under Investment’s Social Impacts.


Ideally, the introduction should try to capture:

  • What sector and impact is the note analysing? In other words, is the financial institution funding a company that is engaging in adverse social externalities, such as human rights abuses?

Example: “Each year, about 63.5 Mn tonnes of palm oil is produced globally1. Millions of farmers rely upon palm oil for their livelihood1. However, palm oil plantations are notorious for workers’ abuse and violation of human rights2.

  • What is the relevance of this analysis from a social perspective?

Example: These workers work long hours, get meager payment, and are exposed to chemicals2. Women workers are sexually abused on these plantations2.

  • You should provide the geopolitical context of where those activities are taking place.

Example:As of 2020, one billion small arms are in circulation around the world8.

  • Is it a recent issue? Is it a rooted phenomenon?

Note: Please note that all the above depends on data availability and retrievability.

Caution: Nuclear financing shall be tackled from a broader arms' perspective. A note exclusively on Nuclear weapons deals with future/potential impact.


If the company is financing the arms, tobacco, forest-risk groups known for human rights abuses, etc.:



The core analysis should capture the company’s impact in relation to the broader issue by providing the following information:

  1. How much money did the company provide through funding, investment, loans, underwriting, and/or credit? (2018-onward amounts, even aggregated)

  2. Both equity and debt financing can be considered as an investment, as long as the sum is over USD or EUR 100 million. Equity investments can be considered as long as it reaches a 5% holding.

  3. What main company(s) received the funds? You may discuss the companies activities that received the largest sums or that have a large stake owned by the financial institution.

  4. Who and in what form and how many were impacted by the company that received these funds?

  5. What is the social impact of the activities that have taken place? How is the population/society affected? Are underserved groups/vulnerable communities empowered or degraded from such financial activities?

  6. Try to be as specific as you can.

No matter what the company’s activities are, you may go back to the Logical Model if needed.



To help readers assess the impact scale and value, you should contextualise the impact. For instance:

  • How extensive is the bank’s funding compared to the industry it is part of? (Learn more about comparisons here.)

  • If evaluating the impact on people/society, how many people were affected and how?



Also, ask yourselves the following questions:

1/ The breadth of the impact

  • Is the impact local, national, or global?

  • How many people are concerned?

2/ The depth of the impact

  • Are the people concerned deeply affected, or does the issue just marginally impact them?

  • Are the changes brought by the issue profoundly changing society or the planet?

3/ The persistence of the impact

  • How long would the impact described last for? Months? Years? Decades?

  • How reversible is the impact described in the impact analysis? Can it be easily stopped/extended?



Find more about evaluating the scale of the impact in Step 5: Assess scale and value.

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Helpful sources

BankTrack: an international organisation focused on tracking banks and their investments.

Facing Finance: a small NGO producing quality reports on financial institutions that profit from human rights and environmental violations, controversial weapons financing and corruption.

TobaccoFreeFunds

https://www.dontbankonthebomb....

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