Around the globe, efforts to address significant, long-term societal concerns – such as economic development in marginalized communities, or access to healthcare, education, and financial services – have increasingly included the emerging fields of social innovation and social entrepreneurship. The goal of these efforts is to creatively apply tools from the finance and business worlds to areas that have traditionally been seen as the focus of nonprofit and governmental work exclusively. But how do these relatively unconventional approaches attract investment capital to build scale and capacity?

In the eyes of many policy-makers, the scale of potential investors is key. Pension funds in particular have often seemed an attractive option – they pool large amounts of capital and have beneficiaries who care about the places in which they live. In theory, they can be partners in pairing financial returns with developmental goals. However, for many of these targeted investors, it can be difficult to meet the challenges of fiduciary duty requirements – that is, the legal obligation to act in the best interests of your clients – as well as integrating new practices into the fund-consultant-manager nexus.

One case where policymakers have sought to address the challenges of using institutional capital to improve society is the Revised Regulation 28 of the Pension Fund Act in South Africa. The 2011 revisions to Regulation 28 integrated guidelines supporting the incorporation of explicit analysis of environmental, social, and governance (ESG) information into the pension fund investment decision-making processes.

The revisions to Regulation 28, which aimed to update pension fund investment practices in light of changing investment patterns and political and economic contexts in South Africa, was an opportunity for the South African government to link the regulatory reform of pension fund investment with the government’s broader goals of encouraging economic development and social investment. The updates include specific language that suggests an intention to channel increased capital investment from pension funds into responsible investments, including social innovation.

Opening the door to responsible investment, of course, does not guarantee that funds will take the next step and invest. Due to their relative newness, the impact of the revisions on the investment practices of South African pension funds and their alignment with South Africa’s developmental goals is still unclear. But the case of Regulation 28 does offer a window into how one policy initiative sought to balance the needs of institutional investors with opportunities for impact investing, and the coming years should help policy-makers and investors better understand how such regulation interacts with the practicalities of institutional investment.

Author: David Wood is the Director of the Initiative for Responsible Investment at the Hauser Center for Nonprofit Organizations at Harvard University, and co-author of the World Economic Forum’s report Breaking the Binary: Policy Guide to Scaling Social Innovation.