Mobilizing capital for responsible innovation: the role of social finance in supporting innovative projects

ABSTRACT

The literature on Responsible Innovation (RI) has not yet fully addressed the role played by social finance (SF) in supporting projects and organizations engaged in the production of innovations that tackle grand societal challenges. This study addresses this gap by empirically examining how SF investors select potential investees and the principles they judge important in SF. Our findings show that SF investors apply a combination of criteria to select investment projects where entrepreneurial motivations, environmental, social and governance commitments, and the nature of the impacts being generated align with their portfolio's mission. Though not all SF investors in our sample had knowledge about the concept of responsibility, they nonetheless mobilized a broad set of principles that are closely aligned with the aims and practices of RI. More research is needed to clarify the type of resources SF use to support RI and the conditions under which these resources are provided.

KEYWORDS:

• Responsible innovation
• social finance
• impact investing
• responsibility
• grand challenges
• environmental, social and governance

Introduction

Insufficient financial resources and lack of investors are important challenges faced by innovative small- and medium-sized enterprises (SMEs) in their entrepreneurial journey (Bosma et al. 2020; Cantamessa et al. 2018) and may compromise their ability to develop responsible innovation (RI)¹ towards sustainable development (Halme and Korpela 2014) as well as their long-term survival (Grant, Croteau, and Aziz 2019). Research also shows that the availability of financial resources is an important system barrier to the adoption of RI practices in SMEs (Auer and Jarmai 2018). However, not all forms of investment might be conducive to the aims and processes of RI. For Lehoux et al. (2014) the short-term requirements of venture capital (VC) along with established business models frequently result in the development of solutions that healthcare systems can no longer afford and whose added value may be minimal from a clinical or population health standpoint. They argue that the logic behind VC favors conventional business models and encourages technology-based ventures to replicate current approaches to producing innovations.

One possible alternative to address this problem and support innovations that can generate greater system-level benefits is to seek the financial resources provided by social finance (or impact investing), which refers to ‘the active investment of capital in businesses and funds that generate positive social and/or environmental impacts, as well as financial returns’ to the investor (Finance, Canadian Task Force on Social 2010). Social finance (SF) consists in ‘the application of tools, instruments and strategies where capital’ is deliberately and intentionally put to the service of ‘blended value’ returns (i.e. economic, social, and environmental) (Andrikopoulos 2020; Emerson 2003; Islam 2022; Moore, Westley, and Nicholls 2012). In doing so, SF may offer the ‘patient’ and long-term financial support that impact-driven organizations need to engage in research and development (R&D) activities and bring to market more responsible solutions. For instance, the Fiducie du Chantier de l’économie sociale, a social finance organization in Quebec, Canada, provides capital to social enterprises that is repaid only after 15 years.² Although this form of financing is rapidly growing – the impact investing market is estimated at USD 2.3 trillion (Volk 2021) – and could leverage RI, the ability of SF to unlock RI has not been fully examined.

Responsible innovation in finance was initially explored by Armstrong et al. (2012) who suggest that RI research in this sector should focus on function, moral rules, internalized values, aggregate consequences, accountability, precaution, and democracy. Reflecting on debates promoted by the Observatory for Responsible Innovation, Muniesa and Lacoste (2012) point out that innovating responsibly in finance requires aligning three cultures: (1) a culture of testing, precaution and vigilance; (2) a culture of democratic assessment and public debate; and (3) a culture of shared knowledge, mutual awareness and multiple viewpoints. The perceptions of responsible innovation and the governance of new product development in the financial sector was described by Asante, Owen, and Williamson (2014) through a case study on a global asset management company. Lastly, Hilmi (2018) explored RI practices in the financial sector from an Islamic perspective using the framework proposed by (Stilgoe, Owen, and Macnaghten 2013).

While such efforts by the RI community help clarify how responsible innovation is perceived and sometimes operationalized in the (traditional) financial sector, little is known about how SF supports entrepreneurial activities aiming to generate RI. To address this research gap, the aim of this paper is to investigate the views of SF investors on responsibility by examining a set of ‘dear to their heart’ and ‘more responsible’ innovative projects. Drawing on a qualitative study comprising 15 SF experts operating in Brazil and Canada, we aim to empirically explore the following research questions: (1) What criteria are used by SF investors to select impact-oriented projects?; (2) What do SF experts define as impactful and meaningful projects?; and (3) What principles do these experts consider important in social finance? For the purpose of this study, SF selection criteria refer to the conditions that need to be met by investees at the initial assessment of a potential investment opportunity, while principles concern the values that guide practices and interactions of SF investors with their investees.

The paper is structured as follows. First, we summarize bodies of literature on SF, seeking to clarify terminology, definitions, and market features. Second, we describe our qualitative study methods, including how participants were recruited and how our data were collected and analyzed. Third, we present the qualitative findings of our study along with several quotes to illustrate projects cited by participants and the principles they judge important in SF. Fourth, we discuss our study’s contributions and limitations and opportunities for future research.

Social finance

The term ‘social finance’ describes investments made by impact-oriented investors in private ventures, civil society organizations and funds with the intention to generate a beneficial and quantifiable impact on society and/or the environment, alongside a financial return to investors (Finance, Canadian Task Force on Social 2010; Nicholls, Paton, and Emerson 2015; Secinaro et al. 2020). While traditional finance is primarily concerned with generating profits for investors and maximizing shareholder value by investing in companies and projects that are expected to provide the highest financial returns – regardless of their social or environmental impact –, SF integrates social and/or environmental goals into financial decision-making by investing in projects and initiatives that address important societal issues such as poverty, inequality, and climate change.

Although SF is a relatively new field that has emerged over the past decades, ‘efforts to create mechanisms to allocate capital for social and economic value creation are not new’ and ‘there is a long history of faith-based, charitable, and mutual/co-operative finance organizations and models across many countries and numerous decades’ (Nicholls and Emerson 2015). For instance, cooperative credit unions were established in the nineteenth century in Europe to provide access to financial services for their members and local communities (McKillop and Wilson 2011). The modern concept of SF, however, has its roots in the ethical and socially responsible investing (SRI) movement of the 1960s and 1970s, which can be seen as the first ‘wave of responsibility’ in the financial sector. This movement sought to align investment decisions with personal values by excluding companies involved in harmful activities such as tobacco, weapons, fossil fuels, and the South African apartheid (Martini 2021). The emergence of microfinance in the 1970s and 1980s is one important milestone in the evolution of SF, providing financial services, such as small loans and saving accounts to low-income individuals and communities, in an effort to foster financial inclusion, stimulate small businesses and reduce poverty (Matin, Hulme, and Rutherford 2002). A second ‘wave of responsibility’ started in the 1990s with the rise of Corporate Social Responsibility (CSR), which refers to the integration of social and environmental goals into a company’s financial decisions and strategies by using financial resources and investments to support socially responsible projects and initiatives that benefit society and the environment (Latapí Agudelo, Jóhannsdóttir, and Davídsdóttir 2019). Finally, in the 2000s, the emergence of impact investing and its belief that investors could use their financial resources to generate measurable social and environmental impact, while also generating financial returns, characterizes the third ‘wave of responsibility’ in finance. This wave has led to the development of new financial products and services, such as Social Impact Bonds (SIB) and green bonds, and has attracted significant attention from investors, governments, and the public (Fraser et al. 2018). It is also worth noting that this period coincides with the growing inclusion of environment, social and governance (ESG) considerations into investors’ portfolio decisions, such as carbon emissions, employee satisfaction, and board structure of companies. The assumption is that ‘responsible investors will seek to either avoid or reduce exposure to investments that pose greater ESG risks or to influence companies in order to make them more ESG-friendly and thus generate more positive benefits for society’ (Matos 2020).

SF is often used interchangeably with the terms ‘impact investing’ and ‘social impact investment’ (Agrawal and Hockerts 2021; Höchstädter and Scheck 2015; OECD 2019). Although SF shares many commonalities with other terms, including microfinance, inclusive finance, sustainable investment, venture philanthropy, SRI, and SIB, Agrawal and Hockerts (2021) suggest that different factors such as the amount of capital invested and the degree of engagement with the investee bring significant distinctions between these terms. For instance, the level of engagement of SRI investors, who favor ESG policies by investing in publicly traded securities, is lower compared to SF investors, whereas venture philanthropy seeks to maximize social impact (like SF) but not financial return (unlike SF). Though we recognize terminology variations, we use the terms ‘social finance’ and ‘impact investing’ as synonyms in the reminder of this paper.

The concept of ‘blended value’ introduced by Emerson (2003) is often used to define SF. While ‘traditional investors and philanthropists primarily seek either financial or social returns, impact investors seek both financial and social returns on their investments’ (Roundy, Holzhauer, and Dai 2017). This mixed or blended value is achieved by investing in ventures that generate both financial and social and/or environmental value. Because there is usually a trade-off between value creation (impact) and value capture (financial returns), some authors suggest that impact investors can be classified into two groups based on their primary objective: (1) ‘impact first’ investors primarily aim to generate positive benefits to society and the environment with a floor for financial returns; and (2) and ‘financial first’ investors primarily ‘seek to optimize financial returns with a floor for social or environmental impact’ (Monitor Institute 2009). More recently, the concept of ‘integral investing’ was introduced to capture the idea that ‘financial returns must be inseparable from a deep impact on the social, environmental, cultural, and behavioural aspects of reality’ (Bozesan 2013). Figure 1 shows where traditional investment, traditional philanthropy, and SF are respectively situated along the impact (value creation) and financial returns axes (value capture).

Figure 1. Types of investment according to their focus on value creation or value capture. Source: Adapted from (Bozesan 2020).

The SF market comprises three main participants (Nicholls, Paton, and Emerson 2015). The first includes those individuals, institutions, and governments that own capital and seek different blended returns on their capital allocation (supply-side). The second comprises impact-driven companies and organizations that have a social or environmental mission, define outcome objectives, and measure their achievement (demand-side). The third consists of SF or impact-investing organizations such as asset managers, banks, and foundations, linking supply and demand (intermediaries). We focus our study on the latter because of their strategic role in SF market: they provide market access and distribution, finance and support for innovation and impact-driven organizations, and investment monitoring and performance information to investors (Nicholls, Paton, and Emerson 2015).

While the broad SF market is estimated at USD 2.3 trillion in 2020, including assets that are managed by both privately and publicly owned entities, with at least a credible intent and contribution to impact (Volk 2021), the core market where intent, contribution, and impact measurement are identified comprises investments of USD 686 billion (30% of the total), which represents an increase of 26% compared to 2019 (Volk 2021). As shown in Box 1, many drivers help explain the growing number of both impact-driven organizations and capital owners seeking to allocate their resources to generate blended value, including growing questions on how traditional financial markets operate and how they benefit society, changes in society values, increased awareness of climate change and social challenges, changes in the shape and function of the state, proactive policy agenda regarding SF in several countries, and new technologies and approaches for impact measurement and management (Nicholls, Paton, and Emerson 2015).

Box 1. Market drivers of social finance

Market drivers

• Growing questions on how conventional financial markets operate and how they benefit society.

• Changes in society values leading consumers to avoid purchasing products from companies that harm people and ecosystems.

• Increased awareness of climate change and social challenges such as unequal access to healthcare and racial and gender inequality.

• Changes in the shape and function of the state, from direct provider to commissioner or facilitator of welfare services.

• Proactive policy agenda regarding social finance in several countries (e.g. UK, USA, Canada, Australia, South Africa, South Korea, Japan, France, and India).

• New foreign direct opportunities in many emerging economies.

• Globalization of securitized microfinance debt products on mainstream markets.

• Increasing development of external systems, tools and frameworks for impact measurement and management.

Source: Adapted from (Nicholls, Paton, and Emerson 2015; OECD 2019)

It is also important to mention that the SF industry is diverse. According to the 2020 Annual Impact Investor Survey (Hand et al. 2020), which comprises insights from 294 respondents who collectively manage USD 404 billions in impact investing assets, most organizations in the sample are headquartered in developed markets (77%), manage assets geographically allocated in both developed (48%) and emerging markets (43%), invest directly into companies, projects, or real assets (76%), target both social and environmental impact (60%) as well as risk-adjusted, market-rate returns (67%), and allocate their assets in multiple sectors with emphasis on financial services and microfinance (61%), food and agriculture (57%), and healthcare (49%). In addition, the following SDG-aligned themes are targeted by more than half of respondents: decent work and economic growth (SDG8, 71%), no poverty (SDG1, 62%), good health and well-being (SDG3, 59%), reduced inequalities (SDG 10, 58%), affordable and clean energy (SDG7, 56%), gender equality (SDG5, 56%), sustainable cities and communities (SDG11, 55%), and climate action (SDG13, 54%).

To summarize, the literature suggests that the adoption of RI practices by impact-driven SMEs is challenged by insufficient financial resources. At the same time, traditional investors such as VC may not be conducive to the aims and practices of RI because of their short-term approach and focus on maximizing financial returns, which tend to reinforce current ways of developing and marketing innovations. SF, which aims to generate positive impacts on society and the environment along with financial returns, may provide the resources innovators and entrepreneurs need to produce more responsible solutions. Despite its increasing importance, little is known about the actual role of SF in supporting innovative projects that can tackle grand societal challenges. Our study thus aims to bridge this research gap by examining the criteria used by SF investors to select impact-oriented projects and the principles they judge important in social finance.

Methods

The current study is part of a research program that aims to clarify the conditions under which social finance provides high-impact enterprises with the resources (e.g. financing, coaching, networking, business tools) they need to design, develop, and market responsible innovations in mature and emerging economies. Our qualitative dataset consists of semi-structured, in-depth interviews with 15 SF investors, supplemented with information collected from the websites of the investment projects and organizations identified by the respondents. The study was approved by the ethics review board of Université de Montréal (Canada) and the National Commission of Ethics in Research in Brazil, and participants provided written informed consent prior to their interview.

Case sampling strategy

Our study focuses on three different regions – two provinces in Canada (Ontario and Quebec) and one state in Brazil (Sao Paulo) – for both theoretical and practical reasons. From a theoretical standpoint, examining how the phenomenon of interest unfolds in different contexts is likely to provide more robust and rich insights (Goffin et al. 2019; Miles, Huberman, and Saldana 2019). Available data suggest that industrial capacities in several sectors are declining in Canada (Asselin, Speer, and Mendes 2020), while emerging economies such as Brazil and India are increasingly investing in innovation to address major societal challenges (Patra and Muchie 2020). Ontario, Quebec, and Sao Paulo are the most populated and economically developed regions in their respective countries, have publicly financed health systems, and play a leading role in their national health innovation systems. Practical reasons include our research team location (Quebec, bordering Ontario), linguistic skills (English, French, Portuguese), and cultural origins (team members were born and trained in these regions).

We used different sources to identify potential participants in each region, including the member list of Responsible Investment Association (RiA) in Canada, the Social Finance Forum (SFF) of MaRS³ in Ontario, the report on socially responsible finance of the Institut de Recherche en Économie Contemporaine (IRÉC) in Quebec,⁴ and the report on the impact investing landscape of the Aspen Network of Development Entrepreneurs (ANDE) in Brazil.⁵ A personalized e-mail was sent to 40 potential participants (12 from Ontario, 14 from Quebec, and 14 from Brazil) explaining the study and the reason why they were invited to participate. In some cases, a phone call was made to check eligibility of participants and provide additional information on the study.

We recruited five participants per region based on their expertise in SF. Inclusion criteria included: (1) cumulating five years or more of experience in the field; and (2) having been involved in the entire investment lifecycle (case assessment, project management, and ‘exit’). Diversification criteria included gender, the profile of the investment portfolio under responsibility of the respondent (e.g. more social or more technological innovations), and the level of responsibility of the respondent’s position (more senior or more operational).

Data sources and analysis

A total of 15 participants were interviewed by the first author using the Zoom video platform from October to December 2020. On average, interviews lasted 70 min and aimed to clarify under what conditions social finance provides innovative organizations with the resources to design and commercialize RI, the impact metrics used to assess their social, economic, or environmental impact, and the milestones used in the monitoring of their progress over time. Depending on informants’ preferences, interviews took place in French, English, or Portuguese. With the consent of each participant, all interviews were recorded and transcribed verbatim. Transcripts were then approved by interviewees after reading and revising them when necessary (Mero-Jaffe 2011).

We used the Dedoose™ software to perform a qualitative thematic content analysis (Miles, Huberman, and Saldana 2019). The preliminary coding framework was developed by the first author and then refined with the second and third authors (Goffin et al. 2019). For the purpose of this study, we aimed to compare and contrast respondents’ views on responsibility in SF by examining: (1) the criteria they use to select investment projects; (2) a set of innovative projects they mentioned during the interviews and saw as particularly impactful and meaningful; and (3) how the latter illustrate principles they judge important in SF. We listed all the innovative projects cited by respondents and extracted information from the websites of these projects to describe their sectors of activity, geographic location, target beneficiaries, and the SDGs addressed by each project. Our analyses identified variations within the sample, but also similarities that supported empirical saturation around our research questions.

Our qualitative findings are presented below with participant quotes that were translated from French to English or from Portuguese to English when needed. In agreement with our research ethics approvals, we do not disclose the names of participants, of the organizations they work for, and of the investment projects they mentioned. We use numbers to designate interviewees (from 1 to 15) and uppercase letters to designate regions (ON = Ontario, QC = Quebec, SP = Sao Paulo). For instance, QC-7 stands for participant 7 from Quebec.

Findings

We first provide an overview of the portfolio of investment under the responsibility of respondents for readers to gain a better understanding of the scope of their activities. Then, we describe how investment projects are selected by these SF investors and the reasons why specific innovative projects are ‘dear to their heart’ or perceived as ‘more responsible.’ This set of impact-oriented projects enable us to illustrate the principles they consider important in SF and how they may support the emergence and production of RI.

Description of respondents and their portfolio of investments

As described in Table 1, most of the respondents are men (n = 9), have between five and seven years of experience in the field of social finance (n = 9), work for an asset management organization (n = 11) that make direct investments in impact-driven projects and companies (n = 13) at a provincial (n = 4), national (n = 7) or global level (n = 4), and hold a senior position (Partner, CEO, VP, Director) (n = 10). While all respondents have been involved in the entire lifecycle of an investment at some point of their careers, their current role in SF is quite diversified, ranging from developing ‘responsible investing strategies’ (QC-6) and ‘raising capital’ (ON-4) to ‘identifying investment opportunities, then defending these opportunities in investment committees’ (SP-14) to support ‘implementation, monitoring and disinvestment’ (SP-15).

Table 1. Profile of respondents.

Code	Gender	Years of experience	Type of organization*	Type of investment*	Geographical scope	Position
ON-1	F	5–7	AM	Indirect	Global	Director of Client Services
ON-2	M	5–7	PF	Direct	National (CA)	Director Finance & Impact Invest
ON-3	M	5–7	BI	Direct	National (CA)	Investment Product Manager
ON-4	M	>10	AM	Direct	National (CA)	Managing Partner
ON-5	F	5–7	AM	Direct	National (CA)	Vice-President of Lending
QC-6	F	8–10	PF	Indirect	National (CA)	Social Finance Director
QC-7	M	8–10	AM	Direct	Provincial (QC)	General Director
QC-8	M	>10	AM	Direct	Provincial (QC)	Portfolio Manager
QC-9	F	>10	BI	Direct	Provincial (QC)	Finance Director
QC-10	M	5–7	AM	Direct	Provincial (QC)	Senior Advisor
SP-11	M	5–7	AM	Direct	National (BR)	Co-founder & CEO
SP-12	M	5–7	AM	Direct	National (BR)	Partner
SP-13	F	5–7	AM	Direct	Global	Investment Officer
SP-14	F	8–10	AM	Direct	Global	Country Director
SP-15	M	5–7	AM	Direct	Global	Senior Associate
Total	F = 6 M = 9	5–7 yrs = 9 8–10 yrs = 3 >10 yrs = 3	AM = 11 BI = 2 PF = 2	Direct = 13 Indirect = 2	Provincial = 4 National = 7 Global = 4	Partner, CEO, VP, Director = 10 Advisor, Associate, Officer = 5

*Legend:

AM = asset management; BI = bank institution; PF = private foundation.

Direct investment = social finance organization that makes direct investments into projects and companies; Indirect investment = social finance organizations that invest indirectly through intermediaries, including fund managers.

Source: Interviews with 15 social finance investors.

We asked participants to describe the portfolio of investments under their responsibility. As shown in Table 2, it includes both for-profit (n = 15) and not-for-profit impact-driven organizations (n = 11) operating in multiple sectors of activity such as health and well-being (n = 12), affordable housing (n = 7), food and agriculture (n = 6), arts and culture (n = 6), the environment and sustainable development (n = 6), financial services (n = 5), and education (n = 4). The majority of respondents manage portfolios focused on three or more sectors (n = 12), while two respondents manage a portfolio focused in one specific sector. Investments are made mostly in more socially-oriented innovations (n = 13) and in organizations that have reached a later-stage of development (n = 14) in comparison to early-stage organizations (n = 9). A focus on organizations that adopt a cooperative model is observed in about a third of the portfolios (n = 5).

Table 2. Characteristics of the portfolio of investments under respondents’ management.

Code	Respondent profile	Portfolio of investments
		Legal structure of investees*	Focus on cooperatives	Type of innovation	Development stage	Sectors of activity**
ON-1	F, 5–7 years, Director of Client Services	FP + NFP	No	More technological	Early + late	A, B, E, G
ON-2	M, 5–7 years, Director Finance & Impact Investing	FP + NFP	No	More social	Late	A, D, I
ON-3	M, 5–7 years, Investment Product Manager	FP + NFP	No	More social	Late	B, E
ON-4	M, > 10 years, Managing Partner	FP	No	More technological	Early + late	A, C, F, G, H, I, L, P
ON-5	F, 5–7 years, Vice-President of Lending	FP + NFP	Yes	More social	Early + late	A, B, D
QC-6	F, 8–10 years, Social Finance Director	FP + NFP	No	More social	Early + late	A, B, C, E, F, N
QC-7	M, 8–10 years, General Director	FP + NFP	Yes	More social	Early + late	A, C, D, F, K, J, M
QC-8	M, > 10 years, Portfolio Manager	FP + NFP	Yes	More social	Early + late	A, C, D, F, K, J, M
QC-9	F, > 10 years, Finance Director	FP + NFP	Yes	More social	Early + late	A, B, C, D, E, I, K, L, J, M, N, Q
QC-10	M, 5–7 years, Senior Advisor	FP + NFP	Yes	More social	Late	A, B, D, E, G, H
SP-11	M, 5–7 years, Co-founder & CEO	FP	No	More social	Early	A, B, G, H
SP-12	M, 5–7 years, Partner	FP	No	More technological	Early + late	A
SP-13	F, 5–7 years, Investment Officer	FP + NFP	No	More social	Late	C, E, F
SP-14	F, 8–10 years, Country Director	FP + NFP	No	More social	Late	H
SP-15	M, 5–7 years, Senior Associate	FP	No	More social	Late	A, L, O
Total		FP = 15 NFP = 11	Yes = 5 No = 10	More social = 12 More technological = 3	Early = 9 Late = 14	A = 12; B = 7; C = 6; D = 6; E = 6; F = 5; G = 4; H = 3; I = 3; J = 3; K = 3; L = 3; M = 3, N = 2; O = 1; P = 1; Q = 1

* FP = for-profits; NFP = not-for-profits.

** A = health and well-being; B = affordable housing; C = food and agriculture; D = arts and culture; E = environment and sustainable development; F = financial services; G = education; H = decent work and income generation; I = media; J = recreation and tourism; K = retail; L = supply chain, manufacturing and logistics; M = local and personal services; N = business services and entrepreneurship; O = water and sanitation; P = privacy and security; Q = ICT.

Source: Interviews with 15 social finance investors.

Criteria for selecting investment projects

Several criteria were cited by respondents for selecting their investment projects (see Figure 2). The alignment of investors and investees on the changes they want to create in society was defined by respondents as one of the most important selection criteria. For instance, the Director of an impact investing company that supports social enterprises in emerging markets reported that ‘the first criterion [they] communicate the most is the social change [they] want to see, which is decent jobs and income for marginalized communities’ (SP-14). She mentioned that her organization wants ‘to know, to evaluate, to investigate better’ (SP-14) any business model aligned with this vision and that may lead to this type of change. Similarly, for the cofounder and CEO of a Brazilian investment company focused on reducing socioeconomic inequalities, ‘the first criterion is to meet [their] thesis of impact and theory of change’ (SP-11), which is oriented towards the SDG3 (health and well-being), the SDG4 (quality education), and the SDG11 (sustainable cities and communities). For the Director of a Canadian public foundation that invests in projects addressing discrimination based on ethnicity, race, or religion, projects are selected based on their contribution to the foundation’s mission of inclusion and pluralism, which comprises four investment themes: ‘increasing livelihoods, building community infrastructure, supporting climate change solutions, and increasing access to art, culture and important services’ (ON-2).

Figure 2. Criteria used to select investment projects.

Social finance investors also select investment projects by gaining a thorough understanding of the reasons why entrepreneurs seek to generate social and environmental impacts. The Portfolio Manager of a development fund in Quebec ‘really focuses on what motivates the company to look for interesting social impacts’ (QC-8). As explained by the Director of an impact investing company in the city of Toronto (Ontario), they want to ‘really understand that there is a genuine motive for wanting to create impact. Is it a big oil company that just wants to do this as part of a green-washing effect? You know, that’s probably not somebody who we want to work with’ (ON-1). Because her clients are fund managers, her team strives ‘to understand what their intention is behind wanting to do impact investing in general […] what is their motivation, what’s the impact that they’re trying to create, what problem are they trying to address’ (ON-1).

Unsurprisingly, ESG criteria play a significant role in selecting investment projects. A respondent who works for a worldwide cooperative focused on supporting microcredit institutions in Africa, Asia, and Latin America reported that a proprietary ESG model is used to perform ‘an X-ray of the institution’ (SP-13). She described the five dimensions of this model: (a) outreach and inclusion, ‘in the sense of how they guarantee that they are serving vulnerable groups’; (b) social performance and governance, which covers ‘the mission, vision, values of the institution, how the board of directors is involved in the topic, how the staff is also committed to it’; (c) social responsibility in terms of their relations ‘with the community and with the employees’; (d) the environment using ‘some environmental indicators’; and (e) the well-being of the micro-credit client, with the aim ‘to ensure that the credit is being transparent, fair, with a proper pricing, that it’s not going to over-indebt the client, that the institution has no improper collection techniques’ (SP-13).

Other criteria mentioned by the SF investors include: the location where the investees operate; their development stage; their legal structure; their business model; their human resources; their sectors of activity; their supply chain and procurement practices; their competitors; the problems, challenges or needs being addressed by their projects; the benefits their products and services may have on clients, users and communities; and the potential value the investors can bring to them. SF investors may ‘mix and match’ these criteria in different combinations. For instance, the founder and managing partner of an impact investment fund that supports technology-based solutions to deliver value to women, people suffering systemic racial injustices, and other underserved groups combine location, stage, legal structure, sectors, human resource management, supply chain, and expected benefits and returns:

Geographically, Canada and the North-East, Midwest and Great Lakes areas of the United States. Stage, we’re normally looking at companies that are raising seed capital […] They’re for-profit, simple business model that is driven by tech […] Let me just repeat the sectors again: mental health, sexual reproductive health and rights, financial inclusion, education, advocacy and then ethical supply chain. […] We look at whom their employees are and how they treat them, we look at who the board of advisors or directors is, and how that’s inclusive and diverse. We look at what their supply chain or procurement practices are in terms of how they obtain their goods. We look at what the product and service is that the company is providing and look to see the benefits that it may have on communities. And finally, we look at who their actual customers, clients, users are in hopes that they are also benefiting from the product or service. We consider all of the above in addition to what value we might bring as investors before making an investment decision (ON-4).

Impactful and meaningful projects

We asked participants to describe projects to which they have directly contributed and that are ‘dear to their heart’ and illustrate well the principles they consider important in social finance. We also asked them to identify innovative projects (not necessarily under their responsibility) that they believed were more responsible than others, and the reasons why. Few participants did not identify such a project and those who were reluctant to do so provided two main reasons. First, the dual nature of innovation was underscored. For the General Director of a development fund that supports SMEs in Quebec, ‘innovation has no positive or negative bias […] Everything will depend on the way in which the innovation is carried out and what impact [its promoters are] trying to have’ (QC-8). Likewise, for two other participants ‘innovations are tools [that] can be used for good or evil depending on which direction you give them’ (SP-12) and they ‘can bring something very positive or something very negative, depending on how [they are] handled’ (SP-13). Second, some participants found it difficult to determine whether some projects are more (or less) responsible than others because they either lacked knowledge about the concept or understood that impact-oriented innovative projects cannot be ‘irresponsible.’ The following quote from the Director of an organization dedicated to financing social economy ventures is illustrative of this point of view:

More responsible than others … What do you mean by that? Because for me, in the social economy, if they’re not responsible, we won’t fund them, that’s for sure. I don’t know what you mean, and we don’t compare degrees of responsibility: this one is more responsible, that one is less responsible […] I don’t see any company that is more responsible than another. In the social economy, at least, we don’t ask this question (QC-9).

A total of 28 innovative projects were mentioned by respondents, including 19 ‘dear to their heart’ projects that they directly contributed as investors and 9 ‘more responsible’ ones (see Table 3). Drawing on the websites describing these projects, we found that they were developed by organizations: (a) operating in different sectors but with an emphasis on financial services (N = 9) and health and well-being (N = 5); (b) targeting different types of beneficiaries, including low-income individuals and families, social and microentrepreneurs, indigenous peoples, immigrants, local farmers, urban workers, women, and elderly people; (c) located both in developed (Canada, USA, Europe) and developing countries (Brazil, Chile, Colombia, Mexico, Peru, etc.); and (d) that aim to contribute to the UN 2030 Agenda for Sustainable Development by addressing particular challenges such as decent work and economic growth (SDG8, N = 13), reduced inequalities (SDG10, N = 9), sustainable cities and communities (SDG11, N = 6), good health and well-being (SDG3, N = 5), and climate action (SDG13, N = 5). A more detailed description of these projects can be found in Supplementary Material.

Table 3. Characteristics of the innovative projects cited by respondents.

Code	Type*	Sector of activity	Location	Target beneficiaries	SDG
P1	DH	Financial services	Canada	Immigrants and refugees	8, 10
P2	DH	Affordable housing	Canada	Low-income people	11
P3	DH	Health and well-being	USA	Marginalized women	1, 3, 5
P4	DH	N/A	Canada	Workers	8
P5	MR	Financial services	Developing countries	Low-income people	4, 8, 10
P6	MR	Financial services	Global	Social entrepreneurs	8
P7	MR	Supply chain	Developing countries	Workers	8
P8	DH	Financial services	Canada	Indigenous peoples	10, 11
P9	DH	Food and agriculture	Peru	Local farmers	2, 12, 13
P10	DH	Food and agriculture	Colombia	Local farmers; indigenous peoples; women	2, 5, 12
P11	DH	Retail	Canada	Indigenous peoples	8, 10
P12	DH	Retail	Canada	Workers	8
P13	DH	Logistics	Canada	Residents of the Montreal area	11, 13
P14	DH	Financial services	Canada	Social entrepreneurs	8
P15	DH	Sustainable development	Canada	People engaged in sustainable development	7, 11, 12, 13
P16	MR	Financial services	Canada	Social entrepreneurs	8
P17	MR	Arts and culture	Canada	Film lovers	8
P18	DH	Affordable housing	Brazil	Low-income people	10, 11
P19	DH	Health and well-being	Brazil	Elderly people	3
P20	DH	Financial services	Brazil	Microentrepreneurs; low-income people; women	5, 8, 10
P21	DH	Financial services	Developing countries	Low-income people	6, 10
P22	DH	Logistics	Brazil	Low-income people	8, 10, 11, 13
P23	DH	Health and well-being	Mexico	Eye care patients	3, 10
P24	DH	Education	Chile	Children and their parents	4, 8
P25	MR	Health and well-being	Brazil	Covid-19 patients	3
P26	MR	Health and well-being	Developing countries	Low-income people	3, 10
P27	MR	Financial services	Global	Financial service providers	8, 12, 13
P28	MR	Financial services	Brazil	Microentrepreneurs	4, 8

*Legend:

DH = Projects directly supported by respondents as investors, considered ‘dear to one’s heart.’

MR = Projects not necessarily under respondents’ responsibility but considered ‘more responsible.’

Source: Interviews with 15 social finance investors, supplemented by our searches on the websites of each innovative project or organization.

Distinct reasons were reported by social finance investors to justify the choice of the above projects. First, the type of problem or need being addressed by the project was evoked. For instance, innovative projects that address gender, social, and/or racial justice, and low-income populations were mentioned because of the ‘massive amounts of inequalities that exist in the world’ (ON-1). Second, social finance investors carefully examine the impact caused by the project and its associated financial risks and return. According to one respondent, ‘some projects have higher financial returns and not a deep impact, while others have lower financial returns and a deeper impact. The most near and dear to [his] heart are the ones with the deepest impact’ (ON-2). Similarly, projects showing a ‘very good blend of social outcomes and financial outcomes’ (ON-4) or that have ‘a high impact, moderate risk, kind of moderate return’ (ON-3) were also cited. Third, the role investors could play in successful projects was an important reason. An agroforestry project in Latin America was described because investors’ participation was important – ‘close to $1 million’ – and integrated ‘knowledge transfer’ activities (QC-7), whereas a bicycle-based urban delivery social enterprise that employs people from low-income communities illustrates a ‘super success story’ because investors ‘imagined three years of investment and technical support’ and the investee was able to do it in two years: ‘the exit is what we want’ (SP-14).

Principles considered important in social finance

When elaborating on the aforementioned projects, participants described many different principles they consider important in SF. Following our thematic analyses, these principles are grouped into four interrelated dimensions: process, product, organization, and impact (see Figure 3). Process-related principles include intentionality, engagement of community and investors, and a systemic approach. For social investors, ‘there is an aspect that precedes everything, which is intentionality’ (SP-12) because ‘projects that show that intentionality to address a specific problem would be the ones that are more responsible’ (ON-1). However, intentions are not enough for viewing projects as responsible because ‘maybe the intentions are there, but there is no community engagement, there is no stakeholder engagement, and community feedback is missing’ (ON-4). For instance, the development of financial solutions to improve indigenous peoples’ access to affordable housing in Quebec was dear to QC-6’s heart because it illustrates well the investor’s operating principles in terms of understanding ‘the beneficiaries, the clients, the needs of communities and try to build the financing mechanisms and responses to that, as opposed to making it top-down’ (QC-6). Finally, ‘an approach that doesn’t take a more holistic view could be perceived as less responsible or not as effective’ (ON-1). A project to support sustainable development in South America illustrates this holistic approach principle because they ‘really look at the process and all the elements in it. […] It’s not just a question of technique, it’s a whole collective approach to reach these objectives that they put forward’ (QC-8).

Figure 3. Principles considered important in social finance.

Client-centered, high-quality, and competitive products that address societal problems were pointed out by SF investors as principles associated with the product or the service itself. The creation of the Universal Standards for Social and Environmental Performance Management to help financial institutions achieve their social goals was mentioned to illustrate a client-centered product because in addition to not harm clients, which ‘is the minimum [SF investors] expect,’ it seeks to generate ‘a positive return for that client’ (SP-13). The importance of having high-quality, competitive products was exemplified by the pulmonary ventilators used in intensive care during the Covid-19 pandemic in Brazil because the company ‘knows the level of quality required, […] exports [the product] to 26 countries, […] and competes with the big players there, especially in Germany’ (SP-12). Solutions developed to address important societal problems include, for instance, the fund created to tackle climate change by financing projects that fight against deforestation and land degradation in the Peruvian Amazonia, which benefit ‘2,000 people grouped in six cooperatives’ (QC-7). A SF investor from Sao Paulo ‘really liked solutions that address this type of problem [because] it’s not a question of generating externalities, it’s a question of having [this purpose] in the core of your solution’ (SP-11).

Principles reported by respondents underscored the characteristics of the organization leading the project, such as its mission and business model, its team’s capacities and qualification, and its governance structure. Highlighting the importance of the organization’s mission, a microcredit institution went through all the social auditing process to fit in the universal standards of management and social performance, ‘revised its mission from the beginning’ and is now ‘a good reference in responsible innovation in the sector’ (SP-13). Another respondent explained that the social impact of ‘a worker’s cooperative whose mission is to give work to its members […] is not the same as an organization whose social mission is to help young people in difficulty and homelessness by offering accommodation’ (QC-9). Business models with ‘a significant social and environmental impact approach’ (QC-8) and ‘that look at people and at the environment in a different and, at least, responsible way’ (SP-14) were emphasized. In addition, successful projects are carried out by ‘qualified professionals, trained and skilled in the subject […] as consultants, as specialists or as employees’ (SP-12). A film distributor supporting independent movies in Quebec illustrates this principle because its founder and CEO is an experienced professional who ‘has touched on all the variety of content that there is, she’s promoted and marketed blockbusters as well as art movies’ (QC-8). Regarding the organization’s governance structure, SF investors reported that it is ‘a really good indicator of how companies operate’ (ON-2) since it clarifies how they treat their employees the extent to which their board of directors is ‘inclusive and diverse’ (ON-4). Some investors emphasize social economy enterprises such as cooperatives and not-for-profit organizations because their collective nature is associated to a more democratic decision-making process and aims to benefit communities instead of certain individuals: ‘I want to contaminate the economy with collective projects. […] For me, the collective is important and the more we fund the collective, the better’ (QC-9).

Impact-related principles draw attention to the type of impacts generated (economic, social, environmental), their extent and depth as well as the way they may intersect. As shown in Table 3, projects supported by SF target vulnerable groups including ‘the base of the pyramid’ (ON-1), ‘underserved populations, lower-class people, communities’ (ON-3), ‘women of color, women in rural communities, women in urban centers’ (ON-4), ‘indigenous peoples’ (QC-6), ‘young people in difficulty’ (QC-9), ‘elderly people’ (SP-11), ‘microentrepreneurs and low-income families’ (SP-13), and ‘patients lacking access to eye care services’ (SP-15). Multiple projects generating positive environmental impacts were mentioned, including a Canadian fund that invests directly in community-based sustainable agroforestry projects in Latin America, a green building that shares infrastructure and educational resources to people involved in sustainable development initiatives, and a last-mile delivery company that avoids CO₂ emissions through its bicycle delivery model. The provision of resources to support housing renovations in low-income communities in the city of Sao Paulo exemplified the need for SF investors to help achieve deeper and more integrated social and economic impacts, i.e. impacts that dovetail and go beyond those of a single innovation:

We’ve been supporting it for five years now. For me, it is [an example of] strong impact. When you see a picture of a favela house before and after [the renovation], you just need to look at the picture and understand [the value] it brings to a family […] It is not building a business, it’s building a market that didn’t exist. […] This is an element of innovation that goes beyond the company itself (SP-11).

Lastly, as explained by a SF investor who supports gender-inclusive projects, ‘you also have to consider how those women-led companies are affecting the environment, how they are affecting local ecosystems’ (ON-1). Hence, there is a need to appraise how economic, social, and environmental impacts intersect in specific projects.

Overall, our findings indicate that SF investors apply a combination of criteria to select investment projects where entrepreneurial motivations, ESG commitments, and the nature of the impacts being generated align with their portfolio’s mission. Though not all SF investors in our sample had knowledge about the concept of RI, they nonetheless mobilized a broad set of process, product, organizational, and impact-related principles. The latter are both concrete and operational as they enabled them to elaborate on real-world examples of innovative projects they considered impactful and meaningful.

Discussion

We began this paper by underscoring that SF could provide the financial resources that impact-driven organizations need to engage in R&D activities and bring to market more responsible solutions. By documenting the views of SF investors on responsibility, we brought to the fore the expertise and role of an actor understudied in RI but key in innovation ecosystems. Despite some variations, our findings show striking similarities in terms of aims, criteria, target groups, and principles across the three regions where investors in our sample operate. We summarize below the contributions of our exploratory study to current knowledge, its implications for practice, its limitations as well as research gaps that call for further research.

Contribution of our study

The impactful and meaningful projects cited by our respondents provide real-world examples of investments made with the intention to generate social and/or environmental impact alongside financial returns. These investments not only aim to address the needs and challenges of particularly vulnerable groups in both developed and developing economies, but they also illustrate the principles considered important in SF. A close look at these principles suggests an important alignment with the aims and practices of RI (see Table 4). For instance, the three process-related principles identified in our study – intentionality, engagement, and systemic approach – align with the notions that: (a) underlying purposes, motivations, and intentions of science and innovation should be considered at an early stage (Owen, Macnaghten, and Stilgoe 2012) because micro-level motivations are a key driver for RI in business contexts (Schönherr, Martinuzzi, and Jarmai 2020); (b) researchers and organizations must ‘engage with a wide range of stakeholders on the visions, impacts and broader socio-economic questions associated with particular R&I initiatives’ (Macnaghten 2020); and (c) a systemic approach to foster a democratic governance of science and innovation, such as the Anticipation-Inclusion-Reflexivity-Responsiveness framework by Stilgoe, Owen, and Macnaghten (2013). Similarly, principles related to the social and environmental impacts generated by SF investments converge with RI principles, according to which: (a) innovations have both positive and negative impacts on society (Owen, Macnaghten, and Stilgoe 2012); (b) RI has a dual responsibility (avoid harm and do good) (Voegtlin and Scherer 2017); and (c) RI should address the ‘right impacts’ in a way that is ‘ethically acceptable, sustainable, and socially desirable’ (von Schomberg 2014). Such a strong alignment between SF principles and RI aims and practices can also be observed in the criteria used by SF investors to guide their investment decisions such as entrepreneurial motivations, ESG commitments, and the nature of the impacts being generated.

Table 4. SF principles and alignment with RI.

Dimension	SF principles	Alignment with RI
Process	Intentionality: A positive impact on society and on environment is generated through the intentional character of thoughts and actions of investors and investees. Engagement: Decision-making and problem-solving processes should include different stakeholders, including the communities and individuals who may be impacted by the investment. Systemic approach: All components of the economic, social, and environmental systems in which investments are made should be considered.	RI is concerned with the underlying purposes, motivations and intentions of science and innovation (Owen, Macnaghten, and Stilgoe 2012) and intrinsic motivation of key individuals can be a driver of RI (Schönherr, Martinuzzi, and Jarmai 2020). RI calls for engagement ‘with a wide range of stakeholders on the visions, impacts and broader socio-economic questions associated with particular R&I initiatives’ (Macnaghten 2020). The AIRR framework for RI (Stilgoe, Owen, and Macnaghten 2013) addresses social and ethical concerns and a systemic approach to a democratic governance of science and innovation.
Product	Client-centered: Clear and measurable benefits are delivered by products focused on the needs and preferences of customers and users. High-quality and competitive: Meeting or exceeding customers’ expectations is achieved by products with a superior value proposition and good value for money. Societal-problems oriented: A positive impact on society and the environment is generated by products that address a critical problem and help to mitigate or solve it.	‘Providing client satisfaction and meeting their needs is a generally accepted definition’ of RI in the financial sector (Asante, Owen, and Williamson 2014). The products of innovation and its purposes raise questions that RI aims to discuss and respond (Stilgoe, Owen, and Macnaghten 2013). Innovations should be developed to solve ‘the Grand Challenges of our time for which we share a collective responsibility’ (von Schomberg 2014).
Organization	Mission and business model: The core purpose of the organization and how it creates, deliver and capture value is a decisive element for investors. Capacities and qualification: To achieve its goals and objectives, the organization must possess the appropriate resources, skills, and abilities. Governance structure: How the organization is directed, controlled, and managed is critical to ensure transparency, accountability, and the protection of stakeholder interests.	Responsible innovation is better supported by ‘hybrid organizations that rely on alternative, economically viable business models’ (Silva et al. 2018) ‘Responsible innovation requires building up new skills and capacities within companies’ (Schönherr, Martinuzzi, and Jarmai 2020). Responsible governance requires governance structures at various levels (e.g. global, societal, corporate) ‘to facilitate an inclusive process and the societal acceptability of innovations’ (Braun and Starkbaum 2022).
Impact	Nature and diversity: The various types of impact and how they can contribute to the achievement of the SDGs are critical in social finance. Extent and depth: The intensity of benefits and outcomes should be properly measured and reported by investors and investees. Interaction: Social, environmental and economic impacts are interrelated and can generate both positive and negative effects on each other.	RI is oriented to pursue the ‘right impacts’ in a way that is ethically acceptable, sustainable, and socially desirable (von Schomberg 2014). Innovations have a dual responsibility: avoid harming people and the planet (avoid harm) and improve conditions for people and the planet (do good) (Voegtlin and Scherer 2017). RI emerged as a response to the growing recognition that innovation can have both positive and negative impacts on society, and that it is important to consider its broader social and ethical implications (Owen, Macnaghten, and Stilgoe 2012).

Source: Interviews with 15 social finance investors; RI literature (Asante, Owen, and Williamson 2014; Braun and Starkbaum 2022; Macnaghten 2020; Nicholls, Paton, and Emerson 2015; OECD 2019; Owen, Macnaghten, and Stilgoe 2012; Schönherr, Martinuzzi, and Jarmai 2020; Silva et al. 2018; Stilgoe, Owen, and Macnaghten 2013; Voegtlin and Scherer 2017; von Schomberg 2014).

In addition, the literature on SF and responsibility often mobilizes concepts emphasized by RI scholars and our study findings have made them more evident. For instance, the focal views on responsibility proposed by Armstrong et al. (2012) and the types of culture needed for innovating responsibly in finance described by Muniesa and Lacoste (2012) highlight core principles of RI such as examining the aggregate risks and consequences of a financial innovation, the involvement of stakeholders in the innovation development processes, and the role played by moral principles and internalized values of innovators in the finance industry. One element underlined in the literature of RI in finance that is particularly interesting and may provide some insights on how RI can be conceptualized under SF is the purpose of finance in society, which is one of the functions highlighted by Armstrong et al. (2012). In addition to the current economic functions of finance (e.g. the provision of a medium for exchange, the funding of economic enterprise, the transfer of resources, the management of risk), SF combines other societal functions (e.g. financial inclusion, support to social enterprises, impact measurement and reporting) that can contribute to addressing social and environmental challenges and promoting a more inclusive and equitable economy.

In light of the findings of our study, it is possible to argue that SF practitioners are supporting and even perhaps ‘pushing’ the RI agenda, and many of them in a conscious way. First, there is evidence that some RI practices are well integrated in some sectors of the financial industry. For instance, the stage-gate model of innovation governance described by Asante, Owen, and Williamson (2014) in their study on the process and governance of new product development in a global asset management company is one interesting example of this scenario. This ‘well-structured and coordinated’ model involves ‘multiple actors, with phased innovation activities punctuated by clearly defined decision gates, and which included risk assessment and regulatory compliance’ (Asante, Owen, and Williamson 2014). It thus points to what may probably be a common practice in SF, given the role played by new product and investment committees (Armstrong et al. 2012; Muniesa and Lacoste 2012). Second, the selection criteria and principles highlighted by our respondents support the idea that the SF community has the ability and skills to foster and consolidate the adoption of RI practices in SMEs. As suggested by studies in the field of responsible innovation in health (Silva et al. 2018), responsible practices cover not only the processes leading to an innovation (e.g. intentionality, engagement), but also the characteristics of the new product or service being developed (e.g. societal challenge-oriented), and the organization that makes it available to end users (e.g. business model, governance structure).

While our findings indicate that SF can play an important role in unlocking RI in innovative SMEs, six issues may significantly compromise this potential. First, not all SF investors have a clear understanding of the concept of RI and at least one of our respondents believed that investments made in social economy organizations cannot be ‘irresponsible.’ This view flags the risk of equating ‘social’ with ‘responsibility’ (Demers-Payette, Lehoux, and Daudelin 2016). Second, SF investors tend to provide more support to impactful projects led by ventures in their late stage of development, which is problematic because many failures occur during the early stages of innovation, that is, when securing financial resources is particularly difficult. Third, the ‘multi-criteria’ decision-making process adopted in SF (Monika and Sharma 2015) tends to make it particularly difficult for many entrepreneurs and organizations to comply with all the requirements of SF investors. Fourth, although RI-driven policies have been adopted in the European context to help different types of entrepreneurial organizations engaged in research and innovation to gain easier access to risk finance,⁶ it is not clear to what extent these policies are effective in promoting RI in the business context. For instance, available evaluations and empirical studies suggest that the implementation of RI across Horizon 2020 was limited and diffuse (Tabarés et al. 2022). Fifth, several barriers are documented in the SF literature, including the relatively small size of the SF market (only 2% of all assets managed globally) and the fact that ‘few social enterprises or impact-oriented projects’ are ‘mature enough to warrant investment,’ that a limited number of SF intermediaries exist (particularly in developing countries), and that challenges associated to the ‘illiquidity’ of impact investments, to complex exiting strategies, and to the measurement of the effect of impact investment are sizeable (McCallum and Viviers 2020). Lastly, in addition to these barriers, it should be stressed that not-for-profit organizations struggle to access the resources of SF because of poor financial literacy and lack of knowledge about SF and because their investment scale and organizational size may not correspond to a typical SF portfolio (Phillips Susan and Johnson 2021).

Implications for practice

Our study has practical implications for socially-oriented entrepreneurs, impact-driven investors, and policymakers. First, to increase their ability to develop RI towards sustainable development, innovators and entrepreneurs who face insufficient financial resources should look for capital and technical support at an early stage to be able to successfully cross the ‘valley of death’ (Ellwood, Williams, and Egan 2022). It is important to improve financial literacy and identify SF investors who are aligned with their practices and purposes and who can effectively contribute to addressing the many challenges faced by organizations engaged in the production of RI (Lehoux et al. 2021). Second, although SF has grown in depth and sophistication over time and impact measurement and management practices have matured (Hand et al. 2020), impact investors and fund managers need to address the many barriers that still affect the market, particularly ‘the shortage of investment-ready deals that offer satisfactory financial returns alongside social and environmental impact’ and ‘the challenges in measuring the effect of impact investments’ (McCallum and Viviers 2020). Special attention should be given to social economy ventures ‘because they hold a great potential to adopt RI principles and produce innovative solutions to complex societal challenges’ (Silva, Lehoux, and Sabio 2022). Lastly, policymakers should acknowledge and expand their role as ‘facilitators’ of the impact investing marketplace by ‘stimulating the growth of social enterprises and non-profits, and assist them in attaining scale, such that they are fundable by larger impact investors’ (Tekula and Andersen 2019). A range of policy instruments can be used for this purpose, including infrastructure projects, regulations, supportive legislation, credit guarantees, tax credits, and direct provision of initial capital (or seed capital).

Limitations and strengths of the study and further research

The empirical results we reported should be considered in the light of its limitations. Because there is little prior research on how resources provided by SF can be mobilized to support RI, we have designed and conducted an exploratory study oriented to generate insights without using a pre-defined framework of RI. Rather, we used real-world examples to avoid overly abstract principles, which enabled us to examine how they are aligned with the aims and practices of RI. Another limitation concerns the generalization of our results (lack of statistical representation), considering the qualitative nature of our research. Although our findings are based on data collected from a small sample of SF experts, the fact that we examined how SF unfolds in different contexts provides more robust and rich insights. Finally, interviews were conducted during the first year of the Covid-19 pandemic (October-December 2020), which may have affected the work of SF investors and their answers to our questions.

Further research could explore the resources used by SF investors to support the needs of impact-oriented ventures to design, develop, and market RI on a larger scale such as financial instruments, coaching, networking, or business tools that are specific to SF. It is particularly important to identify the value-adding activities that need to be more systematically integrated, on the one hand, and other activities that should be avoided, on the other (e.g. too frequent demands, contradictory advice or tools). The conditions under which SF provides resources are another critical object of investigation because they refer to the constraints and opportunities that investors put in place to support innovative projects (e.g. timelines for milestones to be achieved, framework for assessing expected economic, social, and/or environmental impacts). Finally, more studies need to be conducted on how the barriers mentioned above operate in different contexts, including the challenges reported by impact investors on the 2020 Annual Impact Investor Survey (Hand et al. 2020) for the next five years (e.g. impact washing, inability to demonstrate impact results, inability to compare impact results with peers, and lack of a common language to describe impact performance).

Conclusion

Our study explored the views of impact investors on responsibility by examining what criteria they use to make investment decisions, what defines impactful and meaningful projects, and the principles they judge important in social finance. It showed that these investors apply a combination of criteria to assess to what extent investees are aligned with their portfolio’s mission and capable of generating expected benefits and returns. Though not all SF investors had knowledge about the concept of RI, they nonetheless mobilized a broad set of process-, product-, organization- and impact-related principles that are convergent with the aims and practices of RI. SF could thus play a critical role in providing the resources impact-driven organizations need to foster RI activities. Nevertheless, the fulfillment of this role depends on acknowledging and addressing several barriers and challenges that limit the ability of SF to unlock RI. By bringing to the fore a key actor in innovation ecosystems that can contribute to the emergence and consolidation of products and services addressing grand societal challenges, this study offers a first step towards shedding light on this important issue.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by Canadian Institutes of Health Research [grant number #FDN-143294].

Notes on contributors

H. P. Silva

H. P. Silva holds a bachelor's degree in Economics (State University of Campinas), a Ph.D. in Public Health (University of São Paulo) and completed his postdoctoral studies in Health Innovations (University of Montreal). He is a Senior Research Advisor with the In Fieri research program on Responsible Innovation in Health, based at the Public Health Research Center (CReSP) of University of Montreal. Before moving to Montreal, Canada, he was a Public Policy and Management professor at the State University of Campinas. He also worked as a technical advisor for the Brazilian Ministry of Health and as a research assistant at the Center for Public Policy Studies (University of Campinas) and at the Department of Social and Preventive Medicine (University of São Paulo).

P. Lehoux

P. Lehoux completed a bachelor's degree in Industrial Design, a Ph.D. in Public Health (University of Montreal) and postdoctoral studies in Science & Technology Dynamics (University of Amsterdam). She is Professor with the Department of Health Management, Evaluation and Policy at the School of Public Health of University of Montreal. When holding the Canada Research Chair on Innovation in Health (2005-2015), her research clarified the impact of business models, capital investment and economic policy on technology design processes in academic spin-offs. Her current work focuses on Responsible Innovation in Health, examining the way hybrid organizations, impact investing and alternative business models lead to innovations that better address the needs and challenges of health systems.

R. P. Sabio

R. P. Sabio holds a bachelor's degree in Food Sciences (University of São Paulo) and a master's degree in Administration (Higher School of Advertising and Marketing). She has completed a PhD thesis with the In Fieri research program on Responsible Innovation in Health (RIH) at the Public Health Research Center of the University of Montreal (CReSP). Her thesis focuses on food systems transition, where she analyses the emergence of responsible organizations and practices in food systems in the province of Québec and in the state of São Paulo.

Notes

1 While responsible innovation (RI) and responsible research and innovation (RRI) are two discourses (and umbrella terms) that are often used interchangeably in the literature, they hold different meanings (Owen and Pansera 2019). RI is a concept that emerged from academic discussions, particularly in the field of Science and Technology Studies (STS), and identifies shared principles and best practices for improving the social impact of technology. RRI, on the other hand, is the policy-oriented translation of these principles by bodies such as the European Commission (EC). Although our study has policy-oriented implications, in this paper we use the term RI (instead of RRI) to emphasize our alignment with academic research.

2 https://fiducieduchantier.qc.ca/en/

3 https://socialfinanceforum.ca/sff-2019/

4 https://irec.quebec/publications/rapports-de-recherche/portrait-2016-de-la-finance-responsable

5 https://www.andeglobal.org/publication/impact-investing-landscape-in-brazil/

6 https://ec.europa.eu/research/participants/docs/h2020-funding-guide/financial-instruments/financial-instruments_en.htm