SOCIAL ENTREPRENEURSHIP AND COMMUNITY

DEVELOPMENT

TANJANG STELLA BITONG

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 CONTENTS

SECTION ONE:.......................................................................................................................4

INTRODUCTION AND SCOPE OF SOCIAL ENTREPRENEURSHIP.........................4

Introduction............................................................................................................................4

Defining Social Entrepreneurship..........................................................................................4

The Social Innovation Landscape – Global Trends...............................................................5

Conclusion..............................................................................................................................6

SECTION TWO:......................................................................................................................8

SIGNIFICANCE AND ROLE OF SOCIAL ENTREPRENEURS IN COMMUNITY

DEVELOPMENT....................................................................................................................8

Introduction............................................................................................................................8

Significance of Social Entrepreneurship in Community Development.................................8

The Role of Social Entrepreneurs in Community Development............................................9

Identifying and Addressing Local Needs through Social Entrepreneurship........................11

Creating Sustainable Solutions for Community Challenges................................................12

Empowering Marginalized Groups through Social Entrepreneurship.................................14

Collaboration between Social Entrepreneurs and Local Stakeholders.................................16

The Economic Benefits of Social Entrepreneurship in Local Communities........................18

Enhancing Social Capital through Social Entrepreneurship................................................19

Case Studies: Successful Social Entrepreneurship Initiatives in Local Communities.........21

Overcoming Challenges and Obstacles in Social Entrepreneurship....................................23

Government Support and Policy Implications for Social Entrepreneurs.............................25

The Future of Social Entrepreneurship in Local Communities............................................26

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SECTION FOUR...................................................................................................................29

THE CONCEPT OF SOCIAL CAPITAL OR FINANCE.................................................29

Introduction..........................................................................................................................29

The relevance of social finance............................................................................................30

Definitions of social finance by market participants............................................................32

Social bonds..........................................................................................................................34

Social equity and sustainability ratings................................................................................36

REFERENCES.......................................................................................................................38

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 SECTION ONE:

INTRODUCTION AND SCOPE OF SOCIAL ENTREPRENEURSHIP

Introduction

Social entrepreneurship is a concept that has gained traction in recent years, as individuals
and organizations seek innovative solutions to address social and environmental challenges. It
can be defined as the practice of using entrepreneurial principles to create, organize, and
manage ventures that have a social or environmental mission at their core.

Defining Social Entrepreneurship

Social entrepreneurship is intrinsically a difficult phenomenon to pin down and describe. Its
very nature calls for a combination of logics and activities typical for the social and public
sectors with logics and activities associated with the business sector. Because of such
hybridity, social entrepreneurship as a concept usually is context- related and expressed
logics and self-legitimating discourses of a broad range of influential, resource holding actors
who are actively engaged in building the field, rather than any particular “reality”. Thus,
government has conceptualized social entrepreneurship as the solution to state failures in
welfare provision. Civil society has conceived it instead as a space for new hybrid
partnerships, a model of political transformation and empowerment, or a driver of systemic
social change. Finally, for business, social entrepreneurship has represented a new market
opportunity or a natural development from corporate social responsibility and socially
responsible investment.

Despite evidence that social entrepreneurship is growing in influence as a field of action,

significant questions remain concerning the definition of its limits and boundaries, particularly
in terms of how broad or narrow its scope should be. At its simplest, social entrepreneurship
is private action for public good. Nonetheless, there is now some broad agreement that a
number of other dominant characteristics set the boundaries of such action through very
different forms and combinations.

Social entrepreneurs and enterprises operate in a broad range of sectors: from arts and culture
to banking, from real estate development to agriculture. Furthermore, their hybrid nature can
manifest itself in different ways. For example, social enterprises and entrepreneurs can solve
wicked problems through innovation or create employment opportunities for marginalized

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people and communities. This variety makes it difficult to circumscribe the phenomenon,
since this may cause the exclusion of important projects and innovative solutions. Dacin et al.
identified 37 different definitions of social enterprises and social entrepreneurs. These
definitions mentioned, as core characteristics of this new phenomenon, concepts as varied as
innovativeness, creation of social change, embeddedness in a specific community, adoption
of virtuous entrepreneurial behaviors, diffused ownership and financial sustainability. The
only common trait among these 37 different views is the description of social entrepreneurs
and enterprises as able to mobilize resources primarily for the creation of a positive social
and/or environmental impact and the association of social entrepreneurship with optimism
and social change.

Today, social entrepreneurship is a fluid and contested phenomenon. Indeed, in some senses,
it is a field of action in search of an established institutional narrative and conception.
Largely, the diversity of discourses and logics that characterize social entrepreneurship
reflects the internal First, all social entrepreneurship shares a primary, strategic focus on social
or environmental outcomes that will always override other managerial considerations such as
profit maximization. Second, there is always evidence of innovation and novelty either in
challenging normative conceptions of an issue, in the organizational models and processes
that are developed, or in the products and services that are delivered (and sometimes in all
three of these dimensions). Third, there is always a strong emphasis on performance
measurement and improved accountability, aligned with a relentless focus on improving the
effectiveness of organizational impact and scale and the durability of outcomes. Finally,
much of social entrepreneurship blends logics and organizational models from across the
three sectors of liberal democratic society, namely, the state, private business and civil
society. These blended models – such as social enterprises or businesses for a social purpose
– introduce innovation to challenge the status quo. These defining factors can be further
refined under four headings: sociality, innovation, market orientation, hybridity.

The Social Innovation Landscape – Global Trends

Beyond these four defining elements, a detailed analysis of the discourses around social
entrepreneurship globally also reveals four categories of definition. The first view of social
entrepreneurship is characterized by a focus on social enterprises as businesses trading for a
social purpose. This perspective has been developed by funding organizations such as Social
Enterprise UK in the UK and research networks such as EMES across Europe. The second

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discourse around social entrepreneurship focuses instead on social entrepreneurs. It depicts
them as ‘hero’ innovators and disruptors, changing the status quo of multiple sectors to create
a fairer and more equal society. The main proponents of this view are international
organizations like Ashoka and the Skoll Foundation. The third view describes social
entrepreneurship as the realization of initiatives – either business-like or charity-like – that
benefit the community where they are implemented, increasing the participation of
marginalized groups and people in the local economy or society. This type of discourse was
predominantly found in the U.K. at the origins of the sector but has been gradually
marginalized from public discourse. Such a conceptualization is still nonetheless endorsed in
the U.K. by intermediaries such as the School for Social Entrepreneurs and, to some extent,
UnLtd. Finally, especially in the U.S., social entrepreneurship is seen as the undertaking o f
revenue generating activities and trade from the side of non-profits that want to enhance their
financial independence and sustainability.

The four contextual views of social entrepreneurship are generally included, at least to some
extent, in the three main schools of thought within the research literature. The “social
entrepreneurs as innovators and disruptors view” is closely related to the school of thought
referred to by Defourny and Nyssens as “The Social Innovation School of Thought” [8]. The
“social enterprises as businesses” view is instead connected to the “EMES approach to social
enterprise” and, to a certain extent, to the scholarship looking at social practices of
businesses. The understanding of social entrepreneurship as the undertaking of income-
generating activities matches instead the „Earned income school of thought. Finally, the view
of “social entrepreneurship as community initiatives” can be seen as implicitly encompassing
the definitions of social entrepreneurship as collective activity, solving failures of either the
public or private sectors.

Conclusion

This section has suggested that social entrepreneurship represents a new, important, and
growing subsector of civil society. It also proposes that this new field encompasses a variety
of sector-blurring discourses that are being driven by significant institutional changes in
modern societies. Research suggests that social entrepreneurship is something of an umbrella
term for a wide variety of organizational forms and activities, but also that boundaries can be
set for the field in terms of the presence of four qualifying factors at the organizational level:
sociality, innovation, market orientation, and hybridity. However, these boundary conditions

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are being expressed in the context of three larger sets of discourses and logics in the field
globally: social entrepreneurship as business for a social purpose, social entrepreneurship as
hero-lead social change, social entrepreneurship as community development and action. As a
consequence, there remains some ambiguity and contestation surrounding the concept of
social entrepreneurship. Yet, this very ambiguity may also be strength as it facilitates this
emergent sector to be adaptable and innovative when faced with the most demanding
problems of our time.

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 SECTION TWO:

SIGNIFICANCE AND ROLE OF SOCIAL ENTREPRENEURS IN COMMUNITY

DEVELOPMENT

Introduction

Social entrepreneurship holds immense significance in today's world, as it offers a unique

approach to addressing social issues that traditional methods often fail to tackle effectively.
Here are a few reasons why social entrepreneurship is so important:

Significance of Social Entrepreneurship in Community Development

A) creating Lasting Social impact: Social entrepreneurs are driven by a deep desire to
create lasting change in society. They identify pressing social issues, analyze their root
causes, and develop innovative solutions that have the potential to create a significant impact
on individuals and communities. For example, grameen bank, founded by Nobel Laureate
Muhammad Yunus, provides microcredit to impoverished individuals, enabling them to start
small businesses and lift themselves out of poverty. This model has been replicated
worldwide, empowering millions of individuals to become self-sufficient and improve their
quality of life.

B) filling gaps in traditional approaches: Social entrepreneurs often identify gaps in existing
systems and approaches to social problems. They challenge the status quo and develop new
models that are more efficient, sustainable, and inclusive. One such example is TOMS Shoes,
a company that pioneered the "One for One" model. For every pair of shoes purchased,
TOMS donates a pair to a child in need. This innovative approach not only addresses the
issue of inadequate footwear in impoverished communities but also creates a sustainable
business model that drives social impact.

C) driving Economic growth: Social entrepreneurship not only creates social impact but also
contributes to economic growth. By addressing social issues, social entrepreneurs create
opportunities for employment, income generation, and economic development in
marginalized communities. An inspiring example is the Aravind Eye Care System in India.
This social enterprise provides affordable eye care services, including cataract surgeries, to
underserved populations. By offering high-quality healthcare at a fraction of the cost,

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Aravind not only improves the lives of millions but also generates economic benefits by
reducing the burden of blindness on individuals, families, and the economy.

D) Inspiring and Mobilizing Change: Social entrepreneurs serve as catalysts for change,
inspiring and mobilizing individuals and communities to take action. Their passion, vision,
and resilience inspire others to believe in the power of collective action and work towards a
better future. A remarkable example is Malala Yousafzai, the youngest Nobel Laureate, who
started advocating for girls' education in Pakistan at the age of 11. Despite facing threats and
violence, Malala's courage and determination have inspired a global movement for gender
equality in education.

In conclusion, social entrepreneurship is not just a buzzword; it is a powerful force that has
the potential to transform communities and address pressing social and environmental
challenges. By defining social entrepreneurship and understanding its significance, we can
appreciate the immense impact that social entrepreneurs have on local communities and
beyond.

The Role of Social Entrepreneurs in Community Development

1. Identifying and addressing community Needs

Social entrepreneurs play a crucial role in community development by identifying and

addressing the specific needs of local communities. They have a keen understanding of the
challenges faced by these communities and use their entrepreneurial skills to develop
innovative solutions. For example, let's consider an entrepreneur who notices a high
unemployment rate in a particular area. Instead of simply lamenting the situation, they may
start a training program or a cooperative business that provides job opportunities for the local
population.

2. creating Sustainable solutions

One of the distinguishing characteristics of social entrepreneurs is their focus on creating

sustainable solutions. They are not content with implementing short-term fixes; instead, they
seek to build long-lasting initiatives that can continue to benefit the community even after
their direct involvement has ended. For instance, a social entrepreneur working in the field of
renewable energy may set up a community-owned solar power project. This not only

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provides clean and affordable energy to the community but also generates revenue that can be
reinvested in other community development initiatives.

3. Empowering Local individuals and groups

Social entrepreneurs recognize the importance of empowering local individuals and groups to
bring about positive change in their own communities. They believe in the potential of
individuals to become change-makers and actively involve them in decision-making
processes. For example, a social entrepreneur working in education may engage parents,
teachers, and students in developing innovative teaching methods or curriculum that better
cater to the specific needs of the community.

4. Fostering collaboration and partnerships

Collaboration and partnerships are key elements of successful community development, and
social entrepreneurs excel in forging these connections. They bring together different
stakeholders, including local businesses, government agencies, nonprofits, and community
members, to collectively work towards a common goal. For instance, a social entrepreneur
aiming to improve healthcare in an underserved community may partner with local clinics,
doctors, and volunteers to establish a comprehensive healthcare system that addresses the
specific health needs of the community.

5. Mobilizing Resources

Social entrepreneurs often face resource constraints, but they are adept at mobilizing the
necessary resources to drive community development. They leverage their networks, engage
with potential donors and investors, and seek out grants and funding opportunities. For
instance, a social entrepreneur working on poverty alleviation may secure funding from
foundations, corporations, or government agencies to implement a microfinance program that
provides small loans to local entrepreneurs, enabling them to start or expand their businesses.

In conclusion, social entrepreneurs play a vital role in community development by identifying

and addressing community needs, creating sustainable solutions, empowering local
individuals and groups, fostering collaboration and partnerships, and mobilizing resources.
Their innovative and entrepreneurial approaches have the potential to create lasting positive

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impacts on local communities, improving the lives of individuals and promoting overall well-
being.

Identifying and Addressing Local Needs through Social Entrepreneurship

1. Understanding The Local Needs

Social entrepreneurship is all about identifying and addressing the pressing needs of a
community. To effectively fulfill this mission, it is crucial to have a deep understanding of
the local needs. This involves conducting thorough research, engaging with community
members, and identifying the most significant challenges and gaps in services or resources.
For instance, let's consider a social entrepreneur who wants to address the issue of food
insecurity in a low-income neighborhood. They would need to understand the specific factors
contributing to food insecurity, such as lack of access to fresh and affordable produce, limited
transportation options, or low-income households struggling to make ends meet. By
understanding these local needs, social entrepreneurs can develop targeted solutions that
address the root causes of the problem.

2. Engaging the Community

Engaging the local community is a fundamental aspect of social entrepreneurship. It is

essential to involve community members in the identification and development of solutions to
ensure their needs are accurately represented and addressed. This can be achieved through
community meetings, focus groups, surveys, or one-on-one conversations with individuals
who are directly affected by the issue. For example, a social entrepreneur aiming to improve
education outcomes in a disadvantaged community would engage with parents, teachers, and
students to understand the specific challenges they face. By actively involving the community
in the decision-making process, social entrepreneurs can build trust, gain valuable insights,
and create solutions that are truly tailored to the local needs.

3. Collaborating with Local Stakeholders

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Social entrepreneurs should also collaborate with local stakeholders to maximize their
impact. These stakeholders may include government agencies, nonprofits, businesses, and
other community organizations that have expertise or resources relevant to the identified
needs. Suppose a social entrepreneur wants to create employment opportunities for
marginalized youth in a particular neighborhood. Collaborating with local businesses and
organizations can provide access to job training programs, mentorship opportunities, and
even potential employment partnerships. By leveraging the strengths and resources of these
stakeholders, social entrepreneurs can create sustainable solutions that address the local needs
more effectively.

4. Measuring and Evaluating Impact

To ensure the effectiveness of their initiatives, social entrepreneurs must measure and
evaluate the impact of their interventions. This involves setting clear goals and metrics to
track progress, collecting relevant data, and analyzing the outcomes of their efforts. For
instance, a social entrepreneur working on environmental conservation might measure their
impact by tracking the reduction in carbon emissions or the increase in recycling rates. By
regularly assessing their impact, social entrepreneurs can make informed decisions, learn
from their successes and failures, and continuously improve their strategies to better address
the local needs.

In conclusion, social entrepreneurship is a powerful tool for identifying and addressing local
needs in communities. By understanding the local needs, engaging the community,
collaborating with stakeholders, and measuring impact, social entrepreneurs can create
innovative and sustainable

Creating Sustainable Solutions for Community Challenges

Creating Sustainable Solutions

1. Identifying The Root causes

One of the first steps in creating sustainable solutions for community challenges is to identify
the root causes of these challenges. Social entrepreneurs play a crucial role in this process by
conducting thorough research and analysis to understand the underlying issues. For example,
let's say a social entrepreneur is working to address food insecurity in a low-income

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community. Instead of just providing food aid, they may investigate the lack of access to
affordable and nutritious food, the absence of education on healthy eating habits, or the
limited job opportunities in the area. By understanding the root causes, social entrepreneurs
can develop more effective and sustainable solutions.

2. Engaging the community

Sustainable solutions can only be achieved through active engagement and participation from
the community itself. Social entrepreneurs understand the importance of involving
community members in the decision-making process. They organize community meetings,
focus groups, and surveys to gather input and insights from those directly affected by the
challenges. For instance, a social entrepreneur working on renewable energy projects may
seek input from community members to understand their energy needs and preferences. By
involving the community, solutions can be tailored to their specific requirements, ensuring
long-term success and acceptance.

3. Collaborating with stakeholders

Creating sustainable solutions requires collaboration and partnership with various

stakeholders, including government agencies, nonprofits, businesses, and community
organizations. Social entrepreneurs are adept at building and nurturing these partnerships to
leverage resources, knowledge, and expertise. For example, a social entrepreneur working on
youth empowerment programs may collaborate with local schools, government agencies, and
businesses to provide mentorship, training, and job opportunities. By pooling resources and
expertise, these collaborations can have a greater impact on the community and ensure the
longevity of the solutions implemented.

4. Leveraging technology and innovation

In today's digital age, social entrepreneurs are harnessing the power of technology and
innovation to address community challenges. They are using digital platforms, mobile
applications, and data analytics to streamline processes, improve access to information, and
scale their impact. For instance, a social entrepreneur working on improving access to
healthcare in underserved areas may develop a telemedicine platform that connects doctors
with patients remotely. By leveraging technology, social entrepreneurs can create sustainable
solutions that are scalable, cost-effective, and accessible to a larger population.

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5. Measuring and adapting

To ensure the sustainability of solutions, social entrepreneurs continuously measure and

evaluate their impact. They collect data, monitor progress, and adapt their strategies based on
feedback and outcomes. For example, a social entrepreneur working on waste management
may track the amount of waste diverted from landfills and assess the effectiveness of
recycling programs. By measuring and adapting, social entrepreneurs can identify what
works and what doesn't, allowing them to refine their solutions and maximize their impact on
the community.

In conclusion, social entrepreneurs play a vital role in creating sustainable solutions for
community challenges. By identifying root causes, engaging the community, collaborating
with stakeholders, leveraging technology, and continuously measuring and adapting, they can
develop effective and lasting solutions. Through their innovative approaches and dedication,
social entrepreneurs are making a significant impact on local communities and paving the
way for a brighter and more sustainable future.

Creating Sustainable Solutions for Community Challenges - The Impact of Social

Entrepreneurs on Local Communities

Empowering Marginalized Groups through Social Entrepreneurship

Empowering marginalized Marginalized Groups

1. Providing economic opportunities

Social entrepreneurship has proven to be a powerful tool in empowering marginalized groups

by providing them with economic opportunities. When individuals from marginalized
communities are given the chance to become social entrepreneurs, they are able to create
sustainable income streams for themselves and their communities. For example, in rural areas
where access to employment opportunities may be limited, social entrepreneurs can establish
businesses that not only generate income but also create jobs for others in the community.
This can have a transformative effect on the economic well-being of marginalized groups,
helping to break the cycle of poverty.

2. Fostering Skill Development and capacity building

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Social entrepreneurship also plays a crucial role in fostering skill development and capacity
building among marginalized groups. By providing training and resources, social
entrepreneurs can empower individuals to develop the necessary skills to start and manage
their own businesses. For instance, organizations like Grameen Bank in Bangladesh have
empowered women from impoverished backgrounds by providing them with microloans and
training in financial management. This has not only enabled these women to start their own
businesses but has also equipped them with the skills and knowledge to succeed in the long
run.

3. Addressing Social Issues and Inequality

One of the key aspects of social entrepreneurship is its focus on addressing social issues and
inequality. Social entrepreneurs often identify pressing problems within marginalized
communities and develop innovative solutions to tackle them. For example, organizations
like Kiva connect lenders with entrepreneurs from marginalized backgrounds, allowing them
to access much-needed capital to start or expand their businesses. This not only helps
individuals overcome financial barriers but also contributes to reducing social and economic
inequality within communities.

4. promoting inclusive Innovation

Social entrepreneurs have been instrumental in promoting inclusive innovation, ensuring that
marginalized groups are not left behind in technological advancements. They actively work
towards developing affordable and accessible solutions that cater to the specific needs of
marginalized communities. For instance, companies like Simprints have developed biometric
technology that can be used in remote areas where traditional forms of identification may not
be available. This technology has been particularly helpful in empowering marginalized
groups, such as refugees and individuals without official identification, by providing them
with access to essential services like healthcare and financial services.

5. Creating Social awareness and advocacy

In addition to their direct impact on marginalized communities, social entrepreneurs also play
a crucial role in creating social awareness and advocacy around the issues faced by these

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groups. By highlighting the challenges and successes of marginalized entrepreneurs, social
entrepreneurs can inspire others and create a ripple effect of positive change. For example,
through storytelling and media campaigns, organizations like Ashoka have been able to raise
awareness about the potential of social entrepreneurship to empower marginalized groups and
drive social change.

In conclusion, social entrepreneurship has the power to empower marginalized groups by

providing economic opportunities, fostering skill development, addressing social issues and
inequality, promoting inclusive innovation, and creating social awareness and advocacy. By
harnessing the entrepreneurial spirit and innovative mindset, social entrepreneurs can bring
about transformative change and create a more equitable and inclusive society.

Empowering Marginalized Groups through Social Entrepreneurship - The Impact of Social

Entrepreneurs on Local Communities

Collaboration between Social Entrepreneurs and Local Stakeholders

1. Identifying common goals and objectives

successful collaboration between social entrepreneurs and local stakeholders begins with the
identification of common goals and objectives. Both parties need to have a shared vision for
the community and an understanding of the desired impact they want to achieve. For
example, a social entrepreneur working to improve access to education in a low-income
neighborhood may collaborate with local schools, parents, and community organizations to
develop programs that address the specific needs of the students.

2. leveraging local knowledge and resources

Local stakeholders possess valuable knowledge about the community, including its culture,
challenges, and assets. Social entrepreneurs can leverage this knowledge by actively
involving local stakeholders in their initiatives. By including local representatives in
decision-making processes, social entrepreneurs can tap into their expertise and ensure that
their projects are contextually relevant and sustainable. For instance, a social entrepreneur
aiming to promote sustainable farming practices in a rural area could collaborate with local
farmers, agricultural experts, and community leaders to develop strategies that align with the
local agricultural practices and address the specific needs of the community.

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3. Building Trust And Fostering relationships

Collaboration requires trust and strong relationships between social entrepreneurs and local
stakeholders. Building these relationships takes time and effort but is crucial for long-term
success. Trust can be established through transparent communication, active listening, and
mutual respect. By actively involving local stakeholders in the decision-making process and
valuing their input, social entrepreneurs can demonstrate their commitment to the
community's well-being. For example, a social entrepreneur aiming to revitalize a neglected
urban area may collaborate with local residents, businesses, and government officials to
develop a shared vision and action plan for the neighborhood. By involving the community in
the decision-making process, the social entrepreneur can build trust and ensure that the
project meets the needs and desires of the local residents.

4. Sharing resources and expertise

collaboration between social entrepreneurs and local stakeholders can lead to the sharing of
resources and expertise. Social entrepreneurs often bring innovative ideas and access to
funding, while local stakeholders offer on-the-ground knowledge and connections within the
community. By pooling their resources and expertise, both parties can achieve greater impact.
For instance, a social entrepreneur working to address food insecurity in an underserved
community may partner with local food banks, farmers, and nutritionists to create a
comprehensive program that includes food distribution, education, and community
engagement. By combining their resources and expertise, they can create a more holistic and
sustainable solution to the problem.

5. Evaluating and adapting the collaboration

Regular evaluation and adaptation are essential for successful collaboration between social
entrepreneurs and local stakeholders. By tracking progress, measuring impact, and soliciting
feedback from all parties involved, the collaboration can be continuously improved and
adjusted to meet changing needs and circumstances. For example, a social entrepreneur
working to provide employment opportunities for disadvantaged youth may collaborate with
local businesses to create job training programs. Regular evaluation and feedback from both
the social entrepreneur and the local businesses can help identify areas for improvement and
ensure that the program remains effective and relevant.

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In conclusion, collaboration between social entrepreneurs and local stakeholders is crucial for
creating sustainable and impactful change in communities. By identifying common goals,
leveraging local knowledge and resources, building trust and fostering relationships, sharing
resources and expertise, and evaluating and adapting the collaboration, social entrepreneurs
can work hand in hand with local stakeholders to address pressing social and environmental
challenges and create lasting positive change.

Collaboration between Social Entrepreneurs and Local Stakeholders - The Impact of Social
Entrepreneurs on Local Communities

The Economic Benefits of Social Entrepreneurship in Local Communities

Entrepreneurship in Local Communities

1. Job Creation: One of the significant economic benefits of social entrepreneurship in local
communities is the creation of job opportunities. Social entrepreneurs often establish
enterprises that address specific social or environmental issues, which, in turn, require a
workforce to implement their solutions. For example, a social enterprise focused on
sustainable agriculture may employ local farmers, agronomists, and other professionals to
support their operations. By providing employment opportunities, social entrepreneurs
contribute to reducing unemployment rates and improving the overall economic well-being of
the community.

2. local Economic growth: Social entrepreneurs often prioritize sourcing their materials and
services locally, thereby providing a boost to the local economy. By partnering with local
suppliers and businesses, social enterprises create a ripple effect that stimulates economic
growth. For instance, a social enterprise focused on manufacturing eco-friendly products may
collaborate with local suppliers for raw materials, packaging, and logistics. This collaboration
not only supports local businesses but also encourages entrepreneurship within the
community.

3. Increased Consumer Spending: Social entrepreneurs often bring innovative products and
services to the market, attracting consumers who are conscious of social and environmental
issues. These socially responsible consumers are willing to spend their money on products
that align with their values. As a result, social enterprises can experience increased consumer
demand, leading to higher sales and revenue. The injection of money into the local economy

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through consumer spending can have a positive impact on local businesses, as well as support
the growth of other social entrepreneurs.

4. Community Development: Social entrepreneurs actively engage with the local community,
working towards addressing its needs and challenges. They often collaborate with local
organizations, government bodies, and community members to design and implement
sustainable solutions. This involvement in community development not only improves the
quality of life for residents but also contributes to the overall economic well-being. For
example, a social enterprise focused on education may partner with local schools and
organizations to provide educational resources and training programs, thereby enhancing the
community's human capital and fostering economic growth.

5. Attraction of Investments: Social entrepreneurship can attract investments from various

sources, including impact investors, philanthropic organizations, and government initiatives.
These investments not only provide financial support to social entrepreneurs but also have a
positive ripple effect on the local economy. For instance, when a social enterprise receives
funding, it may expand its operations, hire more employees, and invest in local infrastructure.
This expansion and investment create a multiplier effect, attracting further investments and
stimulating economic growth in the community.

In conclusion, social entrepreneurship brings several economic benefits to local communities.

Through job creation, local economic growth, increased consumer spending, community
development, and attraction of investments, social entrepreneurs contribute to the overall
prosperity and well-being of the community. By addressing social and environmental issues
while also generating economic value, social entrepreneurship can play a crucial role in
building sustainable and thriving local economies.

The Economic Benefits of Social Entrepreneurship in Local Communities - The Impact of

Social Entrepreneurs on Local Communities

Enhancing Social Capital through Social Entrepreneurship

Enhancing Your Social

1. Creating Networks and Relationships

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Social entrepreneurship plays a vital role in enhancing social capital within local
communities. By focusing on creating positive social change, social entrepreneurs are able to
build strong networks and relationships that contribute to the overall well-being of the
community. These connections can be between individuals, organizations, or even different
sectors of society.

For example, imagine a social entrepreneur who starts a nonprofit organization aimed at
providing education and job training for underprivileged youth. Through their work, they
establish relationships with local schools, businesses, and community leaders. These
connections create a network of support that not only benefits the youth involved but also
strengthens the community as a whole.

2. Mobilizing Resources

Another way social entrepreneurship enhances social capital is by mobilizing resources and
bringing people together to address social issues. Social entrepreneurs are skilled at
identifying resources, whether they be financial, human, or material, and leveraging them to
create sustainable solutions.

Take the example of a social entrepreneur who starts a community garden to address food
insecurity in their neighborhood. They mobilize volunteers from the community, secure
donations of seeds and gardening supplies from local businesses, and collaborate with nearby
schools to involve students in the gardening process. By bringing together these resources,
the social entrepreneur not only addresses the immediate issue of food insecurity but also
builds social capital by fostering collaboration and collective action.

3. fostering trust and Collaboration

Social entrepreneurship also plays a crucial role in fostering trust and collaboration within
local communities. By working towards a common goal and involving various stakeholders,
social entrepreneurs create an environment where individuals and organizations can come
together, share ideas, and collaborate on projects. For instance, consider a social entrepreneur
who starts a co-working space for freelancers and small business owners. This space not only
provides a physical workspace but also serves as a hub for networking and collaboration.

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Through shared resources and opportunities for collaboration, trust is built among members,
leading to increased social capital within the community.

4. empowering Individuals and communities

One of the fundamental principles of social entrepreneurship is empowering individuals and

communities to create sustainable change. By providing resources, support, and opportunities
for skill development, social entrepreneurs enable individuals to take control of their own
lives and contribute to the betterment of their community.

For example, a social entrepreneur might start a program that offers vocational training and
mentorship to unemployed individuals. By equipping them with the necessary skills and
knowledge, the program empowers participants to find stable employment and become active
contributors to their local economy. This not only enhances the social capital of the
individuals involved but also strengthens the community by reducing unemployment rates
and increasing economic stability.

In conclusion, social entrepreneurship has a significant impact on enhancing social capital

within local communities. Through creating networks and relationships, mobilizing
resources, fostering trust and collaboration, and empowering individuals and communities,
social entrepreneurs contribute to the overall well-being and growth of their communities. By
understanding and supporting social entrepreneurship, we can create stronger and more
resilient communities that thrive on social capital.

Enhancing Social Capital through Social Entrepreneurship - The Impact of Social

Entrepreneurs on Local Communities

Case Studies: Successful Social Entrepreneurship Initiatives in Local Communities

Case Studies of How Successful

Studies of successful social

Case Studies Successful Social

1. Grameen Bank - empowering Rural communities

21
One of the most successful social entrepreneurship initiatives in local communities is
Grameen Bank, founded by Nobel Laureate Muhammad Yunus in Bangladesh. The bank's
objective is to provide microcredit to individuals who are traditionally considered
unbankable, primarily women in rural areas. By granting small loans to aspiring
entrepreneurs, Grameen Bank has enabled countless individuals to start their own businesses
and lift themselves out of poverty.

For example, Fatima Begum, a resident of a remote village in Bangladesh, received a loan
from Grameen Bank to purchase a sewing machine and start her own tailoring business. With
her newfound financial independence, Fatima was able to support her family and even
employ other women from her community. Through Grameen Bank's microcredit model,
Fatima's success story is replicated in many other rural communities, catalyzing economic
growth and empowerment.

2. Barefoot College - Empowering Women and Rural Communities

Barefoot College, based in India, is another inspiring example of a social entrepreneurship

initiative making a significant impact in local communities. Founded by Bunker Roy, the
college focuses on empowering women and rural communities through education and skill-
building. One of the college's notable initiatives is the Barefoot Solar Engineers program. In
this program, illiterate or semi-literate women from rural areas are trained to become solar
engineers, providing them with the skills to install and maintain solar power systems in their
villages. By harnessing renewable energy, these women bring electricity to their
communities, transforming lives and creating socio-economic opportunities.

3. Kiva - Connecting lenders and borrowers

Kiva, a pioneering online crowdfunding platform, has revolutionized social entrepreneurship

by connecting lenders with borrowers around the world. Through Kiva's platform, individuals
can lend as little as $25 to support entrepreneurs in developing countries who lack access to
traditional financial institutions.

For instance, Maria, a small-scale farmer in Guatemala, was able to expand her business by
receiving a loan through Kiva. With the funds, she purchased additional livestock and

22
improved her farming techniques, ultimately increasing her income and improving her
family's quality of life. Kiva's innovative model not only provides financial support but also
fosters a sense of global community, empowering individuals to make a difference in the
lives of others.

4. PlayPumps International - Clean Water and Play for Children

PlayPumps International has successfully combined the need for clean water with the power
of play in local communities across Africa. This social entrepreneurship initiative installs
innovative water pumps within playground equipment, allowing children to have fun while
simultaneously pumping clean water into storage tanks.

One such success story is the installation of a PlayPump in a village in Mozambique. Prior to
its installation, community members, mostly children and women, had to walk several miles
each day to fetch water from a distant source. The PlayPump not only reduced the burden of
water collection but also provided children with a safe and enjoyable place to play. As a
result, school attendance improved, and the overall health and well-being of the community
significantly improved.

Conclusion

These case studies highlight the transformative power of social entrepreneurship initiatives in
local communities. Through innovative models, such as microcredit, education,
crowdfunding, and creative solutions, social entrepreneurs are creating positive change and
empowering individuals to overcome barriers and improve their lives. By supporting and
scaling these initiatives, we can further enhance the impact of social entrepreneurship on
local communities, fostering sustainable development, and creating a more equitable world
for all.

Overcoming Challenges and Obstacles in Social Entrepreneurship

1. Identifying and Defining the Challenge

The first step in overcoming challenges and obstacles in social entrepreneurship is to clearly
identify and define the challenge at hand. This involves conducting thorough research and
analysis to understand the root causes and complexities of the problem. For example, let's
consider a social entrepreneur who aims to address food insecurity in a local community.

23
They would need to investigate factors such as poverty, lack of access to nutritious food, and
systemic issues within the food supply chain.

2. developing Innovative solutions

Once the challenge has been identified, social entrepreneurs need to think creatively and
develop innovative solutions. This often involves thinking outside the box and considering
unconventional approaches. For instance, the social entrepreneur addressing food insecurity
might create a community garden program, where individuals can grow their own food and
share resources with others. This not only provides a sustainable solution but also fosters
community engagement and empowerment.

3. building collaborative Partnerships

Social entrepreneurs often face resource constraints and limited capacity to tackle challenges
on their own. Building collaborative partnerships with like-minded individuals, organizations,
and community members is crucial to overcome obstacles. These partnerships can bring
together diverse perspectives, expertise, and resources to address challenges more effectively.
For example, the social entrepreneur addressing food insecurity might partner with local
farmers, food banks, and community organizations to create a comprehensive and sustainable
food distribution network.

4. Engaging and Mobilizing the Community

Engaging and mobilizing the community is essential for social entrepreneurs to overcome
challenges and create lasting impact. By involving community members in the problem-
solving process, social entrepreneurs can gain valuable insights and ensure that their solutions
are tailored to the specific needs and aspirations of the community. For instance, the social
entrepreneur addressing food insecurity might organize workshops and awareness campaigns
to educate the community about nutrition, sustainable farming practices, and the importance
of local food systems.

5. Adapting and Iterating

Challenges and obstacles in social entrepreneurship are often complex and dynamic. It is
crucial for entrepreneurs to continuously adapt and iterate their approaches based on feedback
and learning from the field. This requires a willingness to embrace failure as an opportunity

24
for growth and improvement. For example, if the social entrepreneur's initial solution to food
insecurity proves to be ineffective, they might need to pivot and explore alternative strategies,
such as implementing a mobile food pantry or partnering with local schools to provide meals
for children.

Conclusion:

Overcoming challenges and obstacles in social entrepreneurship requires a combination of

strategic thinking, collaboration, community engagement, and adaptability. By identifying
and defining the challenge, developing innovative solutions, building collaborative
partnerships, engaging the community, and continuously adapting, social entrepreneurs can
create meaningful

Overcoming Challenges and Obstacles in Social Entrepreneurship - The Impact of Social

Entrepreneurs on Local Communities

Government Support and Policy Implications for Social Entrepreneurs

Government Support and Policy

1. Financial Support

Social entrepreneurs often face significant financial challenges when starting and scaling
their ventures. Recognizing the potential of these innovative enterprises to drive positive
change, governments around the world have implemented various support mechanisms to
alleviate the financial burden. For instance, in the United States, the small Business
administration (SBA) provides loans, grants, and counseling services to social entrepreneurs
through its Office of entrepreneurial development. This financial support enables social
entrepreneurs to access the capital needed to develop their ideas and implement their projects.

2. Tax Incentives

Governments also recognize the unique contributions of social entrepreneurs and have
introduced tax incentives to encourage their growth and sustainability. For example, in the
United Kingdom, social enterprises can register as Community Interest Companies (CICs)
and benefit from tax breaks such as reduced corporation tax rates. This not only helps social

25
entrepreneurs retain more of their profits but also incentivizes new entrepreneurs to enter the
field, leading to a larger impact on local communities.

3. Procurement Policies

Governments can use their purchasing power to support social entrepreneurs by

implementing procurement policies that prioritize social enterprises. By awarding contracts to
these ventures, governments create a steady stream of revenue, enabling social entrepreneurs
to scale their operations and create more employment opportunities. For instance, the city of
San Francisco in the United States has a local business Enterprise (LBE) certification
program, which provides preferences to local businesses, including social enterprises, in
public procurement processes. This policy empowers social entrepreneurs to contribute even
more to their local communities.

4. Regulatory Frameworks

Governments play a crucial role in creating an enabling environment for social entrepreneurs
by establishing supportive regulatory frameworks. By offering legal structures specifically
designed for social enterprises, governments can provide clarity and stability to these
ventures, making it easier for them to attract investment and operate effectively. For example,
in Canada, the province of British Columbia introduced the Community Contribution
Company (C3) legislation, which allows businesses to incorporate as a C3 and pursue social
and environmental objectives alongside financial goals. This legal framework ensures that
social entrepreneurs have the necessary legal protections and governance structures to drive
sustainable impact.

5. Capacity Building Programs

Government support for social entrepreneurs extends beyond financial assistance and policy
frameworks. Many governments also offer capacity building programs that provide training,
mentorship, and networking opportunities to help social entrepreneurs develop the skills and
knowledge needed to succeed. For instance, the Malaysian government established MaGIC
(Malaysian global innovation & Creativity Centre), a platform that offers various programs

26
and initiatives to support social entrepreneurs and foster ecosystem development. These
capacity building programs strengthen social entrepreneurs' abilities to create innovative
solutions and effectively address the needs of their local communities.

In conclusion, government support and policy implications are crucial for the success of
social entrepreneurs and their impact on local communities. Financial support, tax incentives,
procurement policies, regulatory frameworks, and capacity building programs all contribute
to creating an enabling environment for social entrepreneurs to thrive. By leveraging these
resources, social entrepreneurs can drive positive change, address social and environmental
challenges, and make lasting impacts in their communities.

The Future of Social Entrepreneurship in Local Communities

1. collaboration is key: One of the most promising aspects of the future of social
entrepreneurship in local communities is the emphasis on collaboration. Social entrepreneurs
are increasingly recognizing the power of working together with other organizations,
businesses, and community members to create meaningful change. By pooling resources,
sharing knowledge, and leveraging each other's strengths, social entrepreneurs can have a
greater impact on their communities. For example, imagine a social entrepreneur who is
passionate about addressing food insecurity in their local community. Rather than trying to
tackle this issue alone, they collaborate with local farmers, grocery stores, and community
organizations to create a comprehensive food distribution network. Through this
collaboration, they are able to reach more individuals in need and provide a sustainable
solution to the problem.

2. Technology as an enabler: The future of social entrepreneurship in local communities is

also closely tied to advancements in technology. With the rapid development of digital
platforms and tools, social entrepreneurs have more opportunities than ever to scale their
impact and reach a wider audience. For instance, consider a social entrepreneur who wants to
promote literacy in their community. They can leverage technology to create an online
platform that offers interactive reading materials, educational games, and virtual learning
resources. This allows them to extend their reach beyond their immediate community and
impact the lives of individuals in remote areas as well.

3. empowering marginalized communities: Another important aspect of the future of social

entrepreneurship in local communities is the focus on empowering marginalized groups.

27
Social entrepreneurs are increasingly working to address systemic inequalities and create
opportunities for those who have been historically disadvantaged. For example, a social
entrepreneur may start a training program that provides vocational skills and job
opportunities to individuals from low-income backgrounds. By empowering these individuals
with the necessary skills and resources, they are not only improving their immediate
economic prospects but also breaking the cycle of poverty in their communities.

4. Sustainable and ethical business practices: As the world becomes more conscious of
environmental and social issues, the future of social entrepreneurship in local communities
will also be characterized by sustainable and ethical business practices. Social entrepreneurs
are increasingly incorporating environmentally friendly practices, fair trade principles, and
social impact measurement into their operations. For instance, a social entrepreneur who runs
a clothing brand may choose to use sustainable materials, ensure fair wages for workers, and
donate a portion of their profits to social causes. By doing so, they are not only creating a
positive impact on their local community but also setting an example for other businesses to
follow.

In conclusion, the future of social entrepreneurship in local communities is promising.

Through collaboration, technology, empowerment, and sustainable practices, social
entrepreneurs have the potential to create lasting change and address the pressing issues faced
by their communities. By continuing to innovate and adapt to the changing landscape, social
entrepreneurs can truly make a difference in the lives of individuals and the overall well-
being of their local communities.

28
 SECTION FOUR

THE CONCEPT OF SOCIAL CAPITAL OR FINANCE

Introduction

A number of financial instruments are available on the market that are labelled as “social”,
“ethical”, “sustainable”, as “socially responsible investment” or as “impact investment”.
Increasingly, sustainable finance instruments focus not only on environmental issues but take
into account social objectives (alternatively or additionally). While social finance is still in its
infancy, financial products such as social bonds and social equity funds show extraordinary
growth rates. In addition, social finance has reached the international political agenda. The
European Union (EU) is currently developing a comprehensive taxonomy for sustainable
activities that will also include social objectives. The G20 transformed (and upgraded) its
Green Finance Study Group to a Sustainable Finance Working Group that also addresses
social issues. In addition, organisations such as the World Bank, the United Nations
Development Programme (UNDP), the Asian Development Bank (ADB), and the
Organisation for Economic Co-operation and Development (OECD) have taken up the topic,

29
compiling studies and facilitating dialogue on market development and governance (e.g.
ADB, 2021; OECD and UNDP, 2020), or issuing their own social bonds. In general, social
finance should help to close the funding gaps for investments that are necessary to achieve
social goals such as those included in the 2030 Agenda for Sustainable Development. By
influencing the cost of capital, social finance might also set incentives for firms to pursue
business models that are better aligned to social objectives. However, to what degree social
finance is able to live up to these promises has yet to be proven.

One of the main challenges for the further development of the social finance market concerns
its often-opaque conceptual underpinnings. There is no widely shared and reasonably concrete
understanding of what social finance is, let alone uniform and binding criteria applied to
financial products that are sold as “social”. A lack of common definitions can hamper further
development of a well-functioning social finance market by, for instance, increasing
transaction costs. (Investors need to devote resources to figuring out and comparing the
criteria that issuers of social financial products apply in selecting investment projects.) Due to
the important role of definitions, it is surprising that a comprehensive assessment of
sustainable finance definitions that focuses specifically on social finance is still lacking in the
literature. To fill this lacuna, this paper analyses the plethora of existing definitions and
distinguishes different foci and selection procedures. In addition, it discusses the most
prominent comprehensive effort by a public institution to establish a common classification
system: the ongoing work on the EU taxonomy for sustainable economic activities. As the
prospective governance of social finance, in general, and the EU taxonomy, in particular, will
have considerable global repercussions, the paper also discusses implications for
development policy. The remainder of this paper is structured as follows: Section 2 sketches
the potential for, and limitations of, social finance to contribute to social improvements.
Section 3 gives an overview of the very heterogeneous definitions of social investments
adopted by market participants. Section 4 argues that in light of the great diversity of
definitions, efforts to establish common standards for definitions are crucial. Section 5 deals
with the EU taxonomy for sustainable activities as a potential standard in this area. Finally,
section 6 discusses policy implications, in particular for development policy.

The relevance of social finance

Many important social goals, as they are described, for instance, in the 2030 Agenda for
Sustainable Development, can only be achieved if the financial system is aligned with these

30
goals and substantial financial resources are mobilised to finance the necessary investments.
The Covid-19 pandemic has shown once again that great funding gaps exist in many social
sectors, such as health. In addition, the pandemic has caused substantial setbacks with respect
to many social goals, for instance by increasing unemployment and poverty. At the same
time, available financial resources for the implementation of these goals have decreased in
many countries. For instance, the EU assumes that the tax revenue of its member states
declined by 4% in 2020 (European Commission, 2021, p. 18). The International Monetary
Fund (IMF) estimates that the general government revenue as share of GDP of “low-income
developing countries” declined from 15% in 2019 to 13.2% in 2020 (IMF, 2021, p. 85). The
Covid-19 pandemic has thus brought about the unfavourable combination of “declining
resources [and] increasing needs” (OECD & UNDP, 2020, p. 5).

Social financial instruments are meant to contribute to closing the funding gaps associated
with many social goals. Compared to green financial instruments, the market for social
financial products took off relatively late. In 2015, for instance, 303 green bonds and only
three social bonds were issued (ADB, 2021, p. 19). Since then, though, the market for social
financial products has rapidly developed. For instance, the issuance of global social bonds
rose by 27% from 2017 to 2018, 44% from 2018 to 2019, and an extraordinary 720% from

2019 to 2020 (ADB, 2021, p. 14). According to Morningstar, the number of sustainable
funds, which often also take into account social aspects, available in the USA had reached
392 in 2020, equals 20% more than in 2019 (Morningstar, 2021, p. 2). While annual net
capital flows to sustainable funds available in the USA were about $5 billion in 2016, 2017
and 2018, the funds attracted an additional $21.4 billion in 2019 and $51.1 billion in 2020
(Morningstar, 2021, p. 12).

Social financial products might improve the availabilityof capital for investments necessary
for the transformation towards sustainability and, by altering the supply, influence the cost of
capital for socially sustainable and unsustainable investment projects. In fact, a few studies
show that, for instance, green bonds are associated with a somewhat lower cost of capital
than conventional bonds with similar characteristics; investors seem to be willing to pay a
“greenium” – a premium for green financial products (Gianfrate & Peri, 2019; Löffler,
Petreski, & Stephan, 2021). Such cost advantages might also arise for social financial
products. If sustainable financial products can bring about substantial changes in cost of
capital, this could make sustainable projects economically viable and worsen the profitability

31
of unsustainable economic activities. However, the cost advantages of sustainable financial
products seem to have been rather small until now.

Investors can have different motivations for purchasing social financial products. They might
be moved by a genuine concern for social sustainability (instead of focusing exclusively on
the financial outlook of their investments). Investors might also hope that social investments
can improve their reputation and attract customers, or help with the recruitment of qualified
staff. Or they might believe that regulatory measures or changes in consumer preferences
might hurt the future business case for potential investment projects that do not meet criteria
of social sustainability. In the latter case, social financial products will only be purchased if
investors see credible steps in the direction of tighter regulations or changes in consumer
preferences. The success of social finance depends, then, on changes that concern the real
economy. Social financial products might play a role, though, in pulling forward the effects
of future developments to the present.

However, social finance also faces important challenges, and the magnitude of its potential
contribution to the transformation towards sustainability is subject to controversy. For
instance, on a general level, the so-called problem of additionality – as it is often described,
for instance, with respect to green bonds (Bracking, 2015; Hilbrandt & Grubbauer, 2020;
Schneeweiß, 2019) – constitutes a major challenge for most sustainable financial products.
Even if the capital raised through these products finances genuinely sustainable projects,
because of the fungibility of money this does not lead necessarily to additional funds for such
projects. If, for instance, a sovereign issues a social bond, the capital raised has to be invested
in projects that conform to predefined social criteria. That does not mean, though, that the
government would not have invested in these projects anyway. The capital raised through
social bonds makes up only a tiny fraction of the entire financial resources of states. As long
as the state would have made, in any case, some investments that are eligible for the social
bond, the conditions attached to the bond do not necessarily change anything with respect to
the overall investment decisions taken.

Some argue, therefore, that the benefits of products such as green bonds are associated more
with general shifts in financial practices than with directly redirecting capital flows. These
products might, for instance, raise awareness of sustainability issues on financial markets,
advance discussions on the nature and identification of green or social economic activities,
and improve the dialogue between issuers and investors on sustainability issues (Cripps,

32
2018). However, whether such potential “cultural change[s] and new standards of practice”
(Jones, Baker, Huet, Murphy, & Lewis, 2020, p. 56) are effectively catalysed by sustainable
financial products and can in the end make a substantial contribution to the realisation of
sustainability objectives is highly unclear. The limited existing research on the impact of
sustainable financial products does not, therefore, allow a definitive verdict on the magnitude
of the potential societal benefits of social financial instruments.

Definitions of social finance by market participants

No common understanding of the “social” in social finance has yet emerged. A great
diversity of definitions is used by market participants and informs the design of social
financial products. In general, two different foci and four different selection procedures can
be distinguished.

The two different foci concern the kind of causal linkages that are taken into account. On the
one hand, economic activities can have an impact on the realisation of social goals by
producing certain goods or services. Obviously, the production of certain goods or services,
such as medicines or educational services, are essential for the realisation of social goals,
while other goods or services do not have any impacts on these goals, and still others are
even harmful. Many definitions of social investments refer to these social impacts of the
goods or services produced.

On the other hand, economic activities also have direct process-related impacts on social
goals that have nothing to do with the nature of the goods or services produced. Unsafe
working conditions are, for instance, an important social issue, regardless of whether these
conditions are present in sectors that produce socially beneficial goods or services or in other
sectors. These impacts related to the process of an economic activity can also be positive. For
instance, local communities might benefit from taxes paid by a company. Definitions of
social investment often take into account such process-related issues.

Irrespective of the question of which of these two causal connections a definition of social
finance focuses on, four different selection procedures for social investments can be
distinguished: positive selection of sectors, sector exclusion, best-in-class procedures, and
minimum criteria. The first selection procedure specifies a number of sectors, such as the
health or education sector, and consider all investments in these sectors as eligible for social
financial products (positive selection). In the second procedure, a number of sectors are
33
excluded, such as the production of military weapons and the gambling industry (exclusion).
In the third, a specified share of all firms from each sector that do best in terms of some
social indicators is considered as being eligible (best-in-class). In the fourth, all investment
projects that meet certain minimum criteria, such as the payment of statutory minimum
wages, are considered as social.

The distinction between two foci and four selection procedures yields eight different
approaches. Definitions of social investment usually combine a number of these approaches
in the identification of social investments (see Table 3). One might, for instance, select a
number of sectors because of the impacts of the goods and services produced in these sectors
(e.g. the housing sector) and use additional minimum criteria to ensure that eligible firms
from these sectors do not engage in some process-related harmful practices, such as tax
evasion or corruption.

In the following, I describe for two categories of financial products – social bonds and social
equity – which of the described approaches are widespread among financial market
participants. I will focus on the general approaches used in the definitions and will touch only
in passing on issues related to reporting or verification. In addition, as the approaches
distinguished above leave open what is considered as relevant social goals, the following
sections will also sketch what social issues are typically taken into account.

Social bonds

Social bonds are bonds the proceeds of which have to finance certain social activities. Most
private and public issuers of social bonds follow the guidelines included in the Social Bond
Principles, which were developed by a committee of investors, issuers and underwriters,
hosted by the International Capital Market Association (ICMA) (ICMA, 2020a). The ICMA
is a Zürich-based trade organisation of capital market participants. The Social Bond
Principles include recommendations with respect to the use of proceeds, the process of
project evaluation and selection, the management of proceeds, and the reporting.

With respect to the use of proceeds, the Social Bond Principles do not concretely specify for
what kinds of projects the proceeds of social bonds should be used. They only state, first, that
issuers should disclose in the legal documentation of the bond for what the proceeds are used.
The principles state, secondly, that proceeds should finance projects that mitigate or address
social issues, and should be directed especially towards specific target populations, such as
34
people who live below the poverty line, people with disabilities, migrants or elderly people.
The positive social impact could arguably be caused by the production of certain goods or
services, or be constituted by process-related impacts. The examples mentioned, such as
affordable housing or employment generation, suggest that the principles recommend a
positive selection of social projects.

In general, the ICMA Social Bond Principles provide onlya verygeneral framework. Issuers
that follow the principles still have a lot of leeway to develop their own definitions of social
investments that can have rather different levels of ambition. When issuing a social bond,
issuers usually publish a so-called social bond framework that specifies more concretely their
definition of social finance. To obtain information on the social issues the proceeds of social
bonds should most often address, I searched for publicly available documents on the social
bonds listed in the ICMA sustainable bonds database. Information on the use of proceeds
by71 bonds was available. These bonds include those issued byprivate institutions (just under
half) and public institutions such as the EU or the Asian Development Bank (ADB). Table 1
summarises the main sectors in which the proceeds of social bonds are invested. Categories
of investment projects that are most often considered eligible for social bonds include health,
housing, education, micro, small and medium enterprises (MSMEs), employment creation,
and the socio-economic advancement of women.

Table 1:Eligible investment projects of 71 social bonds (projects categories most often
mentioned)

Eligible investment projects Share of social

bonds

Health 37%

Housing 35%

Education 31%

Micro, small and medium enterprises (MSME) 25%

Employment creation 21%

35
 Socio-economic advancement of women 21%

Basic infrastructure (e.g. sanitation, transportation, drinking water, 17%

electricity, sewers, internet)

Socio-economic advancement of disadvantaged groups (e.g. disabled, 13%

elderly, youth, immigrants, refugees)

Financial services 11%

Support after natural disasters 8%

NGO financing 7%

Food security 6%

Source: Author’s compilation based on publicly available documents provided by the bond
issuers

Social bonds, the proceeds of which have to be used for certain investments, should not be
confused with social impact bonds or sustainability-linked bonds. Social impact bonds
usually involve a service provider receiving capital from an investor to implement an
intervention. If this intervention achieves a certain predefined social impact, a (usually
public) institution pays the investor a return. Sustainability-linked bonds are “any type of
bond instrument for which the financial and/or structural characteristics can vary depending
on whether the issuer achieves predefined Sustainability/ESG [environmental, social and
governance] objectives” (ICMA, 2020b, p. 2). An investor might, for instance, agree to
receive lower coupons if the issuer achieves certain sustainability targets, in order to
incentivise the issuer to improve the sustainability of its activities. As with green and social
bonds, the ICMA has developed voluntary process guidelines for sustainability-linked bonds
(ICMA, 2020b). However, the guidelines leave much room for different sustainability
targets, allowing for different understandings of social (or environmental) investment.

Social equity and sustainability ratings

36
Social finance is increasingly playing a role on equity markets. For instance, equity funds –
taking the form either of actively managed funds or of exchange-traded funds (ETFs) – that
claim to offer the opportunity of a social investment have rapidly increased in number in
recent years. Sustainable ETFs replicate sustainable business indices, such as one of the
MSCI SRI Indexes or the Dow Jones Sustainability Indices. Such indices cover a subset of
the companies of a parent index that are selected for their sustainability performance.

Various combinations of the approaches distinguished above are used in the selection
procedures of actively managed funds or the compilation of sustainable business indices. For
instance, many sustainable equity funds exclude some sectors, such as the production of
military weapons, due to the kind of goods produced from their investment universe. This is
often combined with a best-in-class procedure, or the application of minimum criteria that
might also concern process-related impacts. Other funds use a positive selection of social
sectors.

The definitions of social sustainability employed by sustainable equity funds have very
different levels of ambition. In addition, many funds are not very transparent about the exact
selection procedure of stocks and the sustainability criteria employed in these procedures. In
general, in spite of the great number of financial products in this area, so far no common
definitions or standards for social equity have emerged.

Sustainable equity funds often rely in their investment decisions at least partly on ESG data
provided by sustainability rating agencies. Agencies such as MSCI, Refinitiv, or ISS-oekom
assign corporations a rating according to sustainability criteria, and often provide additional
ESG data. ESG ratings are typically relative to industry peers (MSCI, 2020, p. 4). Therefore,
investment decisions based on sustainability ratings can be described as employing a kind of
best-in-class procedure. Rating agencies usually focus predominantly on process-related
issues, but often also consider to some extent the impacts of the goods and services produced.

Criteria related to the social dimension of sustainability that are part of the rating processes
often concern, for instance, the situation of the workforce, product liability and engagement
with local communities. Table 2 summarises what social categories are taken into account by
four exemplary rating providers. On the level of general categories there is a rather high
degree of overlap among different rating providers. However, as detailed methodologies of
rating agencies are not always made publicly available, the precise understanding of the

37
social dimension of sustainable finance implicit in their ratings is often unclear. In addition,
sustainabilityratings of different agencies have been shown to diverge to a substantial extent
(Dorfleitner, Halbritter, & Nguyen, 2015). In general, the meaning and trustworthiness of
ESG data provided by these agencies is subject to debate (Berg, Koelbel, & Rigobon, 2019;
Busch, Bauer, & Orlitzky, 2016; Cash, 2018; Widyawati,

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