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The concept of "social impact" does not currently exist in Russian law, which also imposes a number of restrictions.
"There are always questions with its definition, measurement, its stretch in time. If you think in terms of "customer – contractor – subcontractor", there is a service provided and the result of that service. Since it is not defined in the Budget Code of the Russian Federation or in any bylaws, no one understands how to work with this, everything is quite complicated. SIB projects are usually expensive, they are more difficult in implementation and achieving social impact than ordinary social projects. In each specific case, the risks of the project participants must be insured, which is especially difficult in case of large investment amounts. These difficulties will likely prevent SIBs from becoming really widespread", says Yakov Samokhvalov, General Director of the Yugra Center for Civic and Social Initiatives foundation.
Here is an example. All social projects are aimed at improving the quality of life of their beneficiaries, in one way or another. Take the area of smoking prevention. Let’s say the project authors claim that 300 students participating in the project will stop smoking after five years. That is, the social effect will be achieved over a span of five years. But from the point of view of the Russian law, the project should be closed and reported on after one or two years in implementation. Also there is no norm that would allow a social project to be recognized as unsuccessful if the social effect is not achieved, the technology does not work, or the results are affected by some external factors, like deteriorating social and economic situation. You can go ahead and criticize the project, saying that there is no proof that the respective social effects were achieved as a result of the project. If the targets are not reached, however, then the supervisory authorities will certainly have questions as to why it happened.
Olga Balabkina, Deputy Chairman of the Government of the Republic of Sakha (Yakutia), emphasizes that once a SIB project is successfully implemented, it can be repeated in other territories. Or, by testing how a particular i
"In this case, such projects will be more attractive to the investor (lower risk of failure in achieving the results), and on the other hand, the project could potentially become cheaper to implement, after cutting out all the inefficiencies, which the customer will appreciate. Finally, there are ideas of dividing complex projects into separate components, which have proven effective, and their further implementation will take place individually", she says.
The growth of impact investing can also occur without government involvement, when private funds are invested either by venture capitalists or investment funds, or by foundations that provide loans or grants to achieve social effects. At the end of 2021, there was a growing interest in return impact investing, in entering the capital of startups whose activities led to an impact in the social or environmental sphere, Tatyana Burmistrova says.
But since the market situation has changed dramatically, one can hardly expect an acceleration of growth and interest in impact investing by market players, since what is needed first and foremost is general economic stabilization.
The market situation has changed dramatically, one can hardly expect an acceleration of growth and interest in impact investing by market players.
According to Sir Ronald Cohen, founder of Social Finance and pioneer of social impact projects worldwide, the SIB model optimizes risks, returns and impact, as return on investment does not depend on the stock market activity but solely on the social impact achieved.
"This gives us hope that the development of impact investing will take place primarily through the development of the SIB model", Tatiana Burmistrova explains.
Alexey Ryzhkov, the founder of Seven Suns Development Group, entrepreneur and social investor, believes that at the moment we can only talk about individual examples of social impact projects or the establishment of such a niche in the market.
"The current model of social structure in the world in general and in our country in particular does not provide for or accept the existence of such a phenomenon as social investment and social investors. It is rather an exception to the rule. The very notion of "social investment" means people acting from surplus rather than deficit; it means the society has confidently reached the level of carrying out independent economic activity; it means the realization that every activity has its social impact in one way or another. And we need to make sure that this impact is positive and constructive, which in turn means that people are ready to take responsibility for society into their own hands. The existence of a large number of people in the society who have crossed this path on their own, allows us to raise the question of the transition to the economy of positive social impact. But this can only work fully if all of the society, that is, the majority of people in the society, have realized these things or at least share an understanding of them. This is a very high development level. Until we as a society have realized this, we can talk about individual examples of social impact projects or about creating a niche in the market that will include various positive social impact projects and enterprises. We need to make this niche a trendsetter in the market of independent economic activity. The world is now experiencing a tectonic shift of global transformation, as President Putin says. Russia has its own role in this process – the role of a crossroads, which should unite the world, first preventing it from self-destruction, acting as an exemplary country – a design of positive, constructive social impact, if you will, then spreading this model to the whole world. We’ll be working on this", Alexey Ryzhkov says.
The SIB model is a long game, which should have its own logic of change and monitoring of intermediate results.
The mechanism of social impact bonds initiated by VEB.RF was included in the Concept for Improving the Efficiency of Budget Expenditures in 2019–2024. Resources, including financial resources spent on social problems, must improve the quality of life of citizens.
According to Tatyana Burmistrova, there is a growing consensus in the society that the focus of paying for public services should shift from ensuring the fulfillment of formal quantitative results to achieving social effects.
Right now, most social services are provided by the state with little regard for how effective these programs and services are in achieving positive outcomes for the demographics served. Existing contracts with state or private providers of social services are paid based on a measurement of quantitative results achieved. The SIB model is in fact the key to effectiveness, as long as the social effect is not replaced by quantitative results. For example, the number of social contracts concluded (the expected result of one of the social impact projects in the Russian Federation) ca
"These kinds of errors occur as early as the design level of the project, and can only be avoided through a more thorough, sometimes longer design phase, involving all stakeholders, including beneficiaries. The design should be preceded by the data collection stage, the involvement of professionals in the field of evaluation and theory of change at the stage of project development", says Tatiana Burmistrova.