The Palgrave Handbook of Social Finance

This chapter provides an overview of this handbook. It begins by providing a brief background of social finance, which highlights the changing views involving a company's obligation to society. It then discusses the handbook's distinguishing features and intended audience. Next, the chapter provides a brief description of Chapters 2 through 26. Finally, it offers a summary and conclusions.

The social finance ecosystem is a network of organizations, actors, and systems that mobilize capital for investments that create financial returns and social and environmental value. This ecosystem includes investors, social enterprises, intermediaries, banks, and policymakers, all of whom are co-creating solutions for global issues ranging from poverty and inequality to climate change and access to healthcare. This chapter provides an overview of the ecosystem’s components, how they interact, and how they come together to support sustainable development and social change. It discusses the role of investors who fund impact-oriented projects, social enterprises that combine business and social purpose, intermediaries who facilitate exchanges and hold actors accountable, and policymakers who establish regulation and incentives. By emphasizing the relationship and purpose of these components, the chapter exhibits how social finance promotes innovation, transparency, and scalable solutions for critical social problems.

In recent years, sustainable investment has gained considerable traction among private and institutional investors, leading strategies such as socially responsible investing (SRI), environmental, social, and governance (ESG) investing, and impact investing to become mainstream. This chapter examines the evolution of these investment approaches, highlighting their distinct methodologies, the challenges they face, and the opportunities they provide for driving positive societal and environmental change. Although sustainable investing is not without its challenges—including subjective criteria, varying standards, and issues with measurement—its growth reflects an increasing commitment among investors to align their financial objectives with their values. Sustainable investment offers a powerful framework for making meaningful and lasting contributions to corporate behavior and global sustainability while pursuing financial returns.

The global social finance market has grown considerably in recent decades, including socially responsible investing (SRI), investing with environmental, social, and governance (ESG) criteria, sustainable investing, and impact investing. This chapter examines the factors contributing to expanding social finance, focusing on six key areas: (1) individual perception and social influence, (2) institutional environment and government policy, (3) corporate governance and stakeholders, (4) technological advancements, (5) chief executive officer characteristics, and (6) national culture. These factors influence social finance by shaping investment behaviors, regulatory frameworks, corporate strategy, and technological innovations. This chapter sheds light on how these elements collectively drive the growth of social finance and contribute to the broader integration of ethical and sustainable practices into global financial systems. Exploring these drivers offers critical insights into the future trajectory of social finance, highlighting its role as a vehicle for achieving global sustainability goals.

These initiatives enable organizations to demonstrate their efforts' impact and social value. This chapter delivers an engaging bibliometric review that delves into four pivotal research questions within social finance. It maps the current literature, identifies significant trends and themes, and pinpoints research gaps, offering a detailed field analysis. The findings reveal a marked increase in social finance research since 2014, with leading contributions from the United States, the United Kingdom, and China. Prominent journals include the Journal of Business Ethics, Journal of Sustainable Finance, and Finance Research Letters. Influential authors such as Bert Scholtens, Maria Ceu Cortez, M. Kabir Hassan, and Sebastian Utz stand out in the field. Various bibliometric techniques identify high-frequency keywords like socially responsible investment and ESG investment. The bibliographical coupling analysis uncovers four primary clusters, while an alluvial diagram showcases the evolution of research topics, highlighting the growing significance of resilient financial mechanisms and standardized ESG ratings. Future research could focus on these areas to bolster sustainable recovery and advance social finance practices.

This chapter discusses social and development impact bonds. Impact bonds are innovative financing instruments designed to fund social and developmental programs using private capital instead of government funding. Two common impact bonds are social impact bonds (SIBs) and development impact bonds (DIBs). These bonds closely align with the United Nations Sustainable Development Goals by focusing on funding initiatives in social services, environmental projects, education, and poverty reduction. Notably, specific, measurable outcomes are tied to the bond’s payout. SIBs are becoming more popular as investors and municipalities seek alternative debt structuring. Impact bonds have been implemented in over 30 countries worldwide, reflecting their adaptability to diverse socio-economic demands. These bonds are common in the United States, the United Kingdom, and several other developed countries. Still, they are also gaining traction in developing economies. Impact bonds initially focused on education and social services but increasingly represent a broader range of sectors, including healthcare, environmental sustainability, and infrastructure development.

This chapter reconceptualizes social finance through a broad sustainable economic development lens that extends beyond increasing gross domestic product (GDP) as the definition of economic development. In integrating social finance, the chapter introduces a triangular framework that connects philanthropy to traditional business and adds mutual aid as a distinct dimension for using social finance to improve a community’s total factor productivity (TFP). The framework demonstrates how various approaches to using social finance can address market, government, and philanthropic failures to address social issues while improving economic productivity. Social financing can enhance economic development by fostering social trust networks and encouraging industrial clusters. Using social financing approaches that emphasize community decision-making and self-organization, and cultivating the social infrastructure necessary for managing common-pool resources, will foster sustainable development.

Social investment funds (SIFs) have emerged in recent decades to showcase public sector interventions’ impact and social value. This chapter examines the argument, paradoxes, and constitutive effects of SIFs as an evaluation logic within the Swedish public sector. The chapter contends that SIFs align with various social impact measurement methods, drawing on data from a multi-site case study, emphasizing accountability by assessing how investments foster social impact and inform stakeholder decision-making. However, expenditures are often deemed justifiable only if they promise a financial return rather than contributing to the overall quality of life. This evaluation approach reflects a knowledge transfer model that struggles to meet modern expectations for evaluation as an objective and impartial truth-telling process. This result leads to a potential symbolic nature of SIF evaluations.

Sustainable finance is a long-term approach to finance and investing, emphasizing long-term thinking, decision-making, and value creation. Impact investing is an emerging category of sustainable finance aimed at creating a positive environmental or social impact through identifying and funding entrepreneurs working to solve environmental or social problems while achieving a financial return. One of the foundational premises of impact investing is that society’s most challenging problems can only be addressed by harnessing entrepreneurship, innovation, and capital. This chapter discusses the core principles of impact investing and the emerging impact investing ecosystem. It also describes the inherent linkages between impact investment and social entrepreneurship. The chapter continues with an overview of impact investment tools and structures, impact measurement and management, and impact reporting, and it closes with thoughts on the future of impact investing.

This chapter explores the principles and practices of social banking, aiming to generate both financial and social returns by prioritizing ethical and sustainable practices and addressing financial opportunities and social inclusion. Social banks provide financial services that address environmental and social issues, such as renewable energy, affordable housing, and social enterprises. In contrast to conventional banks, social banks focus on creating a positive societal impact as a core business objective. Based on the members of the Global Alliance for Banking on Values, the chapter highlights the role of social banks in promoting financial inclusion, particularly for underserved communities, through products like microfinance and loans to small and medium-sized enterprises. Social banks also actively engage in impact investing and value-based banking, aligning financial opportunities with sustainability and social development goals. The chapter concludes that social banking is a transformative approach emphasizing ethical responsibility, sustainability, financial opportunities, and social inclusion.

Impact venture capital is an emerging financial sector focusing on investments in for-profit companies working on developing and commercializing technologies, processes, or products with positive environmental, social, and economic outcomes. Impact venture capitalists use various financial tools and provide sustainable entrepreneurs with resources unique to venture capital, such as mentorship, networking, and technical assistance. This chapter discusses the “impact start-up” financial market and the place for venture capital in the broader domain of sustainable investment and impact investing. It covers the core activities for the practice of impact venture capital and the different roles that venture capitalists assume in their relationships with investees. The chapter also examines the challenges that must be overcome for the impact venture capital sector to fulfill its promise as an important contributor to achieving society’s aspirations for sustainable development and progress.

This chapter examines the role of crowdfunding in social finance, focusing on how it provides social enterprises (SEs) with alternative methods of raising capital. Crowdfunding allows SEs to engage directly with backers motivated by social and financial returns. The chapter covers various crowdfunding models, including donation-based, reward-based, equity-based, and debt-based, while addressing the challenges SEs encounter, such as illiquidity, regulatory barriers, and market saturation. It also discusses emerging trends, like blockchain technology and hybrid crowdfunding models, as potential solutions for improving social finance transparency, liquidity, and flexibility. The chapter discusses the importance of policy support and standardized social impact metrics to ensure the continued growth of crowdfunding as a sustainable tool for financing socially impactful ventures.

Although lagging behind green finance, the market for social financial instruments, such as social bonds or social equity funds, has gained traction in recent years. This chapter focuses on the conceptual underpinnings of social finance. It also provides an overview of the heterogeneous definitions of social investments common in financial markets. It distinguishes between a focus on the impact of goods and services produced and one on process-related impacts in social investment criteria. The chapter describes a positive selection of sectors, exclusion of specific sectors, best-in-class procedures, and applying minimum standards as selection procedures commonly used for social financial instruments. The diversity of existing criteria and selection procedures in financial markets increases transaction costs, can facilitate deceptive practices, and might lead to adverse selection. Public governance frameworks are thus necessary to set common standards for social financial instruments.

Social finance in frontier and emerging markets requires distinct theoretical and practical approaches. This chapter examines how social finance initiatives navigate unique challenges and opportunities in these dynamic markets through institutional voids, adaptive innovation, and social-financial tension perspectives. Through analysis of four cases—Grameen Bank in Bangladesh, PRODEM and BancoSol in Bolivia, the Village Enterprise Development Impact Bond in Uganda and Kenya, and the Educate Girls Development Impact Bond in India—the chapter demonstrates how successful initiatives effectively bridge institutional gaps while balancing social impact with financial sustainability. This work contributes to theory and practice by developing an integrated framework for analyzing social finance in frontier markets, providing actionable insights for practitioners and policymakers working in challenging contexts.

Social finance aims to generate social and environmental impact alongside financial returns. This chapter explores the landscape of social finance, examining its successes, failures, and challenges. Through a comprehensive analysis, the chapter discusses key organizations, initiatives, and products such as social banks, social impact bonds, social ventures, green bonds, and crowdfunding that have contributed to successful social finance with the support of effective collaboration among multiple stakeholders, innovative funding mechanisms, robust impact measurement frameworks, and successful regulatory environments. The challenges and setbacks assessed include the complexities of measuring the social impact of financial returns. This study provides insights into the dynamics of social finance in developed markets. The findings aim to guide policymakers, investors, and practitioners to achieve meaningful social impact.

Impact measurement is a crucial component of social finance. This chapter presents a practical overview of the key elements of impact measurement for social finance, including definitions, essential practices, and an introduction to the different frameworks and standards. It also presents some tensions and challenges with impact measurement. The chapter focuses on the tension between the different motivations for undertaking impact measurement—to prove and to improve. This challenge arises because tension exists between uniform metrics, which are well-suited to benchmarking and auditing, and flexible, bespoke approaches, which are well-suited to learning. The challenges discussed are data interoperability and establishing attribution and causality, emphasizing the importance of stakeholder voice and impact valuation.

This chapter presents an integrated framework for understanding and managing risk in social finance investments, centered on a fundamental asymmetry. Although financial returns can be measured through standardized monetary units affected uniformly by inflation, social returns follow complex learning patterns, path dependencies, and contested measures. The chapter introduces a dual return-risk matrix that maps investments based on their social and financial performance relative to expectations. It builds on insights from developmental evaluation, complex systems theory, and portfolio management. The framework reveals how organizational learning and stakeholder contestation shape portfolio evolution. It considers how different scaling strategies—scaling out through replication, scaling up through systemic change, and scaling deep through cultural transformation—create distinct risk-return dynamics. The chapter focuses on developing governance systems that can productively engage with contested financial and social goals while maintaining sufficient focus to deploy capital effectively.

The public sector has traditionally provided social finance. As the importance of private social finance investors and companies grows, so too do calls for their regulation to avoid potential conflicts of interest between financial and social returns. Based on existing efforts and experiences in the European Union, this chapter provides an overview of regulatory approaches to social finance, including minimum standards and the disclosure of social risk and impact data. When regulating social finance, the chapter maintains that authorities must consider proportionality, sufficient scope, a greater focus on qualitative impact measures, and a need to ensure data quality and availability before mandating disclosures.

Social finance is an emerging concept that seeks to increase financial flows to activities and projects that improve society and the world while generating financial returns. This chapter examines the link between digital finance, green finance, and social finance. It also explores the empirical link between people’s interest in information about these three types of finance. The empirical analyses show a strong positive correlation between people’s interest in digital, green, and social finance information. A unidirectional causality exists between interest in social and green finance information. People’s interest in social finance information significantly negatively impacts their interest in digital finance information. In contrast, interest in social finance information significantly positively affects green finance information. The findings imply that social finance is linked to digital and green finance. Thus, policymakers should not explore social finance opportunities in isolation. Instead, they should investigate the intersection between digital, green, and social finance.

Financial technology (fintech) has rapidly emerged as a transformative force in the financial sector, offering innovative solutions to address critical social challenges such as financial inclusion, poverty reduction, reduced inequalities, and economic growth. By leveraging technologies like big data, blockchain, and artificial intelligence/machine learning (AI/ML), fintech is reshaping financial services, making them more accessible, efficient, and transparent. These innovations are aligned with the Sustainable Development Goals (SDGs), adopted by the United Nations in 2015, contributing to broader global efforts toward sustainability, climate action, zero hunger, and quality education. However, fintech’s continued success depends on overcoming regulatory requirements, digital access inequalities, and ethical considerations surrounding data privacy and algorithmic bias. This chapter explores the role of fintech in driving social impact, examining key technologies and applications, and analyzing future opportunities and challenges in creating a more inclusive and sustainable financial ecosystem.

Across the globe, countries are struggling with growing pressures on publicly funded health systems and difficulties transitioning toward Universal Health Coverage (UHC). This situation is in the context of obstinate and widening health inequalities. New ways to fund health systems and improve health are needed. One potential response is social finance. This chapter explores the underrecognized and potentially underexploited role of two forms of social finance—microfinance and impact bonds—in responding to aspects of these global health challenges. These challenges involve funding and facilitating access to healthcare services and acting on health through social determinants of health. Although social finance performs imperfectly in these roles, the exploration raises interesting debates and ideas about how countries fund healthcare and impact health.

Social finance involves a range of participants, including governments, companies, individuals, and financial institutions. The challenges these investors aim to address are just as diverse, spanning issues from poverty and climate change, exacerbated by global illnesses and regional conflicts. As awareness of these issues grows, so does interest in addressing them, leading to the expansion of impact investing. This chapter aims to explore issues affecting the future of social finance, from the populations it serves to the politics that might get in the way. Executives at large companies are increasingly emphasizing their commitment to all stakeholders, not just shareholders. However, challenges remain. Recently, ESG investing has become politicized. A broader political shift to the right could also challenge advancing social initiatives. Although the future of social finance remains uncertain, the foundational frameworks for its growth are already in place.