The fledgling market in investing for social good needs to base its decisions on target groups’ needs and analyse what works and why in order to grow globally, the 34-nation think tank the OECD said on Tuesday.

Social investment has become increasingly relevant as the public funds on offer in many countries decline and the problems facing some groups in society increase, the Organisation for Economic Co-operation and Development(OECD)said in a report.

Much of the discussion about social impact investing (SII) has been dominated by which financial instruments are best suited rather than looking first at the needs of the beneficiaries, said Karen Wilson, the report’s lead author.

“You need to locate what the needs are, what the social issues are and then find innovative ways to address these problems,” Wilson told the Thomson Reuters Foundation.

The report aims to lay the groundwork for an international framework to help assess investments that can provide a measurable social benefit as well as a financial return.

Core areas for SII are populations at risk in sectors such as health, employment and education, housing, criminal justice and family services, the report said.

It provides data on social needs and spending in the United States, Britain, Japan, Australia, Canada, Germany, France and Italy to illustrate the gap that SII could fill.

There is high demand for impact investments in affordable housing, for example, as one in 10 people in OECD countries have trouble meeting the cost of accommodation, the report said.

Another area ripe for SII is criminal justice as prisons in the United States, Italy, France, the United Kingdom and many other countries are full or over-full.

“Providing for prisoners is a costly process, and so innovation in crime and recidivism prevention services will be in general demand,” the report said.

Britain led the way with the introduction of social impact, or “pay for success”, bonds to help reduce recidivism, and it has extended this form of spending to other areas, such as reducing youth unemployment.

Data Challenges

Data on social impact investment is very limited, Wilson said, partly because there is no common definition of what constitutes such an investment.

“There is a lot of showcasing but not enough learning and evidence about what is working and what is not,” she said.

The challenges of building an evidence base are huge, as there are neither common definitions of social enterprises and social impact investors nor clarity on what should be measured, Wilson said.

“How do we start comparing the same thing instead of comparing apples, oranges and pears? It’s a crucial question that needs to be answered to grow the market,” she said.

Among the most comprehensive data sets are three impact investor surveys carried out since 2011 by the Global Impact Investing Network and J.P. Morgan, which look at foundations, funds and financial institutions.

Wilson said the OECD was working on including the G20 countries in its SII research later this year.

This article is published in collaboration with Thomson Reuters Foundation. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Astrid Zweynert is an award-winning journalist, editor and social media specialist.

Image: Prisoners queue for a meal in the renovated wing of Najayo prison in San Cristobal. The Dominican Republic’s New Model of Prison Management is gaining recognition in the region for its drive to reduce prison numbers and cut recidivism. REUTERS/Ricardo Rojas