Impact investing as a way to solve social problems

Objective of the study: This paper examines the role of the capital market, with a specific focus on fixed-income securities, in solving global social challenges. Methodology / approach: This research relies on case studies and the efficient market hypothesis to develop a roadmap for creating an efficient social bond instrument. Originality / relevance: Despite the willingness of some charities, foundations and government agencies to fund social projects, there is a huge gap between the need to finance social projects and the availability of resources to support them. Existing literature does not adequately address the role of the global capital market in closing this gap. Main results: The paper recommends the use of a revenue participation bond, as adopted by the World Bank regarding green bond structure to address the financing need of the social challenges. The study also recommends that a set payback period is established and a multilateral approach is taken when issuing social bonds. Theoretical / methodological contributions: The results of the study imply that the current capital market is capable of offering more financial instruments to address the funding need of some of the key global social challenges. Social / management contributions: This research focuses on the case for social bonds as a means of bridging the gap between social need and the capital markets ability to issue a stable, liquid, fixed-income instrument that promotes social good. The contribution of this research is to identify the key characteristics of a tradable social bond as a vehicle of funding social problems.