Authors: Andreas Andrikopoulos

Title: Social finance and capital markets: the case of social impact bonds and crowdfunding platforms

Abstract

Social finance is about the provision of capital to produce public goods that are, in part, provided by the private sector. The fusion of private and public sector to produce public goods is often called the “third sector” of the economy. Therefore, social finance blends profit with social and environmental impact as motives and criteria for investment decision making and security valuation. The emergence of social economy spawns fundamental challenges in capital market design, financial engineering and the pursuit of impact. In this context, social impact bonds and crowdfunding platforms are major emerging innovation in capital markets. This paper discusses the principal characteristics of these financial institutions of social economy, focusing on novel possibilities for a financially viable production of public goods. This study also stresses the emerging challenges of asymmetric information, legitimacy and capital market liquidity in social finance. The most important challenge pertains to the identification and measurement of social and environmental change as outcome of impact investments.