Five per cent philanthropy as an early form of social impact investing – differences, parallels, and what can be learned for today.

Abstract

The paper deals with financing social innovation today and during the Victorian age. It explores ways in which capital markets can create value beyond private profit today and how private actors did the same thing back then. The ways to do this are nowadays often subsumed under the heading of social impact investing and one of the historical paths was called five percent philanthropy. When successful, both approaches create financial as well as social, yet there are substantial differences. We look at both concepts and how they are/were practiced, practitioners’ motivations, contexts/ecosystems, driving forces, investment fields, financial performance and their impact on beneficiaries’ capabilities. We do so by applying two theoretical lenses: The extended social grid model and the multi-level perspective. We found that the Victorian approach did not target the most marginalized, and so did not enhance their capabilities significantly and therefore would not completely qualify as an early form of financing social innovation; but it did fare quite well economically. In contrast, social impact investing today has the potential to make a difference for the most marginalized, however it needs to be seen whether or not it can leave its niche status behind and gather momentum, and that in turn depends on whether practitioners succeed in finding enough economically successful investment opportunities. However, the historical case provides some evidence for the claim that in order to make a difference with severe social problems, a finance first investment approach may not be sufficient.

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2. Five Per Cent Philanthropy as an Early Form of Social Impact
Investing – Differences, Parallels, and What can be Learned
for Today
Thomas Scheuerle and Gunnar Glänzel
(University of Heidelberg)
Abstract
The paper deals with financing social innovation today and during the Victorian age. It
explores ways in which capital markets can create value beyond private profit today and how
private actors did the same thing back then. The ways to do this are nowadays often
subsumed under the heading of social impact investing and one of the historical paths was
called five percent philanthropy. When successful, both approaches create financial as well as
social, yet there are substantial differences. We look at both concepts and how they are/were
practiced, practitioners’ motivations, contexts/ecosystems, driving forces, investment fields,
financial performance and their impact on beneficiaries’ capabilities. We do so by applying
two theoretical lenses: The extended social grid model and the multi-level perspective. We
found that the Victorian approach did not target the most marginalized, and so did not
enhance their capabilities significantly and therefore would not completely qualify as an early
form of financing social innovation; but it did fare quite well economically. In contrast, social
impact investing today has the potential to make a difference for the most marginalized,
however it needs to be seen whether or not it can leave its niche status behind and gather
momentum, and that in turn depends on whether practitioners succeed in finding enough
economically successful investment opportunities. However, the historical case provides
some evidence for the claim that in order to make a difference with severe social problems, a
finance first investment approach may not be sufficient.
2.1. Introduction
2.1.1. Practical problem
Along with the rising discussion of social innovation, the discussion on financing such
endeavors has also increased, both as a supportive activity (Glänzel et al., 2013) as well as a
social innovation itself (Nicholls, 2010) Among the core topics here are instruments that blur
the boundaries between what are seen as financial market instruments and funding sources in
the social sector, such as philanthropic grants and state spending (Bugg-Levine and Emerson,
2011; Grabenwarter and Liechtenstein Heinrich, 2011; Hebb, 2013). The latter are often
perceived as being too restrictive for increasingly entrepreneurial and income-based social
innovation approaches (e.g. Priller et al., 2012; Thompson and Williams, 2014), since they
are often quantitatively limited, tied to specific projects, or may not allow investments in
overheads or R&D or innovation (Brown, 2006). Thus, this paper explores in what ways
capital markets can create value beyond private profit.

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One of these ways is social impact investing (SII), which draws on financial instruments from
venture capital (VC) such as private equity, debt, or hybrids of these (convertible debt,
mezzanine capital, etc.) (Martin, 2013), but incorporates the idea that investors do not
exclusively target financial returns. Instead they additionally focus on measurable social
returns as well and accept lower or no financial compensation for their investments as a
consequence (Hebb, 2013). SII markets and ecosystems have begun to develop in several
countries, most notably in the UK and US, but also in Australia, Germany, India, China,
France, Belgium, Canada, Brazil, and South Africa. The development was initiated by
private, entrepreneurial and socially responsible individuals and organizations from the
charitable sector as well as from the financial industry, but it has also been increasingly
driven by a growing variety of political support measures, most recently the Social Impact
Investment Taskforce convened under the UK’s presidency of the G8 in 2013. Under this
umbrella, National Advisory Boards with stakeholders from civil society, policy makers, and
financial institutions were set up to discuss and develop measures to develop favorable
ecosystems for SII that are well adjusted to the national preconditions (Social Impact
Investment Taskforce, 2014).
Although SII is often framed as a highly innovative approach, the basic idea of addressing
social needs of marginalized populations through financial means following a capitalist logic
has been around for centuries. In particular, the approach of “five per cent philanthropy”2
(FPP) that was practiced in Victorian London in the mid of the 19th century seems to have
various parallels with what is discussed under the SII label today. In this approach, local
proactive bourgeois personalities tried to prove that the housing misery caused by
industrialization could be solved with market-based approaches if investors would be
satisfied with a moderate return (below market rate) (Adam, 2002; Tarn, 1973). Since
innovations are quite often reconfigurations of existing practices, this does not mean that SII
today cannot be seen as an innovation itself (Nicholls, 2010), although it might only be an
incremental improvement when taking a larger lens and looking at the general idea of
financial investments in social and ecological goods.
2.1.2 Previous research
Previous research on this issue is rather limited, since research on SII or social finance in
general is only in its beginnings (Daggers and Nicholls, 2016; Nicholls, 2010; Glänzel and
Scheuerle, 2015). Very few authors take a historic perspective, and if so they do not
decisively look at social finance and investment, but more generally on the cultural and social
development of money and finance through the times (Ferguson, 2009; Jung, 2010; Sedlacek,
2011). Younger developments such as microfinance (Battilana and Dorado, 2010; Glänzel
and Schmitz, 2016) (since the 1970’s) or ethical/socially responsible investment (Dunfee,
2003; Johnsen, 2003) (SRI; since the 1990’s) are not very much comparable with SII and
research on them neither takes a historic perspective or makes comparisons.
2 The term has been coined in a 1887 pamphlet published by the National Dwellings Society and entitled
“Homes of the London Working Classes: Philanthropy and Five Percent” Wohl (1977, p. 141)

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2.1.3 Approach
In this paper, we make a closer comparison between SII in general today and FPP in the
context of social housing to understand the differences and similarities and what might be
learned from the historic example. For doing so, we apply the extended social grid model
(Nicholls and Ziegler, 2014), which has been developed as a framework to understand change
processes within social innovations. Building on three different strands of research, the model
integrates cognitive frames, social networks and institutions as “irreducible social forces” to
explain change in markets (Beckert, 2010) with a model from historic sociology that
distinguishes different sources of societal power to understand influential factors beyond the
economic domain (Mann, 2013; Heiskala, 2014b) and the capability approach according to
Sen (2001) and Nussbaum (2006) to give conceptual underpinning to the ‘social’ part of
social innovation.
2.1.4 Main findings
1. The strict business case orientation of the FPP approach led to the most marginalized not
being targeted and reached. In general, the approach has more or less failed as an attempt to
solve the social housing question it sought to address. It did succeed in a small niche though,
but that was way too small in relation to the sheer size of the problem.
2. The FPP approach did not fail economically, however. Translated into modern SII
terminology it was a “finance first”3 form of impact investing which helped to make it an
economic success but prevented it from alleviating the social problem it aimed to tackle.
3. SII in contrast may be more likely to make a difference, but has not left its niche yet.
Nevertheless, supporting institutions and cognitive frames are nowadays more developed and
may help SII to reach mainstream.
For SII actors and policy makers today, this means cognitive frames and institutions can be
built on, but they also require attention and careful further development. And it also means
that making a difference with severe social problems, a finance first approach may not be
sufficient. As a result, various actors may have to cooperate and contribute resources to SII
approaches that are not always entirely self-sufficient on their own.
3 A „finance first“ approach to SII places higher emphasis on financial returns compared to what is called an
“impact first” approach in which social impact is valued relatively higher Hebb (2013); also see p. 7 below.

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2.2. Conceptual foundation
2.2.1 The Extended Social Grid Model
Our conceptual foundation is the extended social grid model (ESGM) (Nicholls and Ziegler,
2014) which combines three theoretical strands in economic and historic sociology (for the
following paragraphs cf. Nicholls and Ziegler 2014: pp. 2-4) linked through the constructs of
power and capabilities. The first stream draws upon Jens Beckert’s (2010) work on change in
markets, in which he identifies three irreducible “social forces” which constitute a “social
grid” influencing the resources and power positions of different actors (Beckert, 2010, p.
606): social networks comprise the structures of social relations and relational patterns in
society; cognitive frames are commonly shared meanings and interpretive material by which
to make sense of society and its actions; and institutions are the constraining rules and norms
of a given society. The ESGM extends this approach, which is based on the theory of
(institutional) fields (DiMaggio and Powell, 1991; Bourdieu, 2005; Fligstein, 2001, pp. 67–
69), beyond the market domain, assuming that social issues such as marginalization are also
caused by non-market factors.
For doing so, different societal sources are drawn from the concept of power mechanisms
within social change (Mann, 2013) as the second theoretical strand. Power is understood here
as the ability to pursue and attain goals through mastery of one’s environment. Mann’s
sources of power (economic4, ideology, military-related, and political) (Mann, 1986, p. 22)
are extended to include natural (e.g. natural catastrophes, topographical or weather
conditions) and artefactual power (science, tools, technologies, infrastructure etc.) (Heiskala,
2014a; Nicholls and Ziegler, 2014). It is important to note that power usually does not result
from just one category, but there are “multiple overlapping and intersecting socio-spatial
networks of power” exhibiting “functional promiscuity” (Mann, 1986, p. 17), such as the
administration of a nation state which is not purely focused on politics, but also on other
issues, such as economics or culture.
The third strand of the ESGM is the Capabilities Approach (CA) to human development and
empowerment exploring the effects of (changes in) prevalent socio-economic structures on
the opportunities to act of marginalized populations (Sen, 1999; Nussbaum, 2006). Within the
ESGM, the CA serves for the evaluation of process and impact of the change in the socio-
environmental context induced by the social innovations for the beneficiaries from the micro-
level, not the least because the capabilities (individual and collective) constitute a form of
power as well. They encompass the real opportunity to do (e.g. participate politically) and to
be (e.g. being healthy) what one has reason to value. Even more, the approach allows one to
think of the citizens not just as “patients” but also “agents”, who co-shape innovation
processes (Nicholls and Ziegler, 2014).
4 In this paper, economic power is broadly understood in terms of the transformation, distribution and
consumption of the produce of nature, and exchange relations in markets are one especially dynamic part of this
power, but they do no exhaust economic power Nicholls and Ziegler (2014, p. 5).

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2.2.2 Multi-level perspective
The ‘multi-level perspective’ (MLP) on transition towards holistic sustainability understands
transition as an ‘outcome of alignments between developments at multiple levels’ (Geels and
Schot, 2007). It assumes that socio-technical transitions occur in the interaction between three
analytical levels: niches, sociotechnical regimes5 and sociotechnical landscape. The niches
form the micro-level where novelties, ideas and innovations emerge. Geels and Schot
describe niches as incubation rooms because they comprise unstable configurations and
protect innovations against well-established market structures (2007, p. 400). The
sociotechnical regimes form the meso-level, which refers to cognitive routines, belief
systems, regulative rules and normative roles. Hence, the regimes are responsible for the
stability of existing sociotechnical systems (Schot and Geels, 2008, p. 545). The macro-level
or rather the environment beyond the niches and regimes is the sociotechnical landscape. An
example of such a landscape are deep cultural patterns or macro-political developments
(Geels and Schot, 2007, p. 400). Between these three analytical levels exist everlasting
mutual interactions. For example, niche-innovation arises through learning processes while
simultaneous change at the landscape-level provokes struggle and uncertainty within the
regimes, e.g. in times of crisis. Consequently, the “destabilization of the regime creates
windows of opportunity for niche-innovation” (ibid.).
Different kinds of transition pathways emerge through different kinds of multi-level
interactions. Therefore, an extended MLP provides a typology of transition pathways which
consider reproduction processes, transformation paths, de-alignment and re-alignment paths,
technological substitutions and reconfiguration pathways (Geels and Schot, 2007, pp. 406–
413):
· Reproduction processes of the regimes occur if there is no external pressure
from the socio-technical landscape, and even fully developed niche-
innovations might be unable to stand up to stable regimes.
· Reconfiguration pathways occur when regimes adopt niche innovations,
although there is no external landscape pressure, but because they have a
symbiotic relationship with the regimes or can resolve some problems. The
base architecture of the regime is not changed rapidly, but might open
opportunities for further adaptions and a slow-moving change.
· Transformation paths occur under moderate (perceived) landscape pressure
yet without sufficiently developed niche innovations. In this case, new regimes
emerge mainly through reorientation, potentially with an advising role of
system outsiders. Sometimes some knowledge from niches is adopted, but
rather in addition to and not to transform the regimes.
5 The term regime was coined by Nelson and Winter (1982) in their classic innovation system work, referring to
the technological domain only, however, by meaning shared cognitive routines among a wide community of
technicians, e.g. engineers.

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· De-alignment and re-alignment paths occur under divergent and sudden
landscape pressure. If there are no fully developed niche-innovations as clear
substitutes, huge insecurity in the regimes arise, and multiple poorly conceived
niche-innovations co-exist until eventually one innovation gains momentum
and becomes dominant as re-alignment and re-institutionalism of the
sociotechnical regime.
· Finally, technological substitution occurs when landscape pressure on the
regimes offers ‘windows of opportunities’ for sufficiently developed niche-
innovations which are capable of replacing established regimes and to provoke
knock-out effects, causing further possibilities for the implementation of
niche-innovations.
In response to critique stating a lack of agency in the model (Smith et al., 2005; Genus and
Coles, 2008), Geels argues that the MLP acknowledges agency by considering trial and error,
learning, searching, or interpretative activities of the niche and regime actors (Geels, 2011,
pp. 29–30). Another criticism refers to the operation and specification of the regimes.
Further, Berkhout et al. (2004), (Genus and Coles, 2008; Markard and Truffer, 2008) point
out the inaccuracy of the conceptual levels for empirical application. Geels counters with the
argument that the sociotechnical levels could be defined on various empirical levels
according to their scope. The MLP does not determine the narrow or extent for the
operationalization because a regime should be an “interpretive analytical concept that invites
the analyst to investigate what lies underneath the activities of actors who reproduce system
elements” (Geels, 2011, p. 31).
2.2.3 Complementing the Extended Social Grid Model and the Multi-level Perspective
Because the MLP provides a background for analyzing the path from innovation to
mainstream by distinguishing different analytical levels (macro, meso, micro) it is a good
complement to the ESGM, which is particularly valuable as a heuristic means to structure a
comprehensive picture of relevant processes for social change to occur independent of a
certain level. As there is some overlap in both concepts, we argue that they can be
meaningfully integrated with some minor adaptations, and that the analytical levels of the
MPL model particularly help to understand the roles of competing social forces. We suggest
that cognitive frames, social networks and institutions can exist and develop within each level
(i.e. the niche, the regime and the landscape level), but that they can also span across different
levels. For example, innovators in a niche might have strong social ties with actors on the
regime level. Cognitive frames on the landscape level might be shared by niche innovators
(or be entirely different), but their particular solution can still be at odds with the existing
institutions on the regime level.
Beyond the different levels, the terminologies and suggested structure between the ESGM
and the MLP might slightly differ. However, there are still very strong similarities. E.g.,
cognitive frames are very similar to the notion of cognitive routines. And the categories
constituting the sociotechnical regime (market user preferences, industry, science, culture,

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policy, technology) could be in principal extended with the ESGM categories (natural,
artefactual (à technology and science), cultural, (economic (à comprises market user
preferences and industry), military-related, political; following the NACEMP) without losing
any substantial aspect and even widening the scope. What is more, the ESGM heuristic could
even be applied for the macro and micro-level, given the general limitation of the ESGM
framework (Cf. Deliverable 5.1, UHEI contribution). However, the presence of different
social forces probably varies across levels. For example, institutions are probably weaker or
less frequent in the niche, but depending on the analytical viewpoint, can still exist. For
example, the housing system for employees of early industrialist Alfred Krupp (1812 – 1887)
can be seen as an institution within the niche in which social housing as an idea developed
(Cf. Scheuerle and Glänzel, 2015).
Table 1: Key concepts within the multi-level perspective on socio-technical transitions
integrated with social forces as in the ESGM
Concept
Level
Description
Socio-technical
landscape
Macro
Cognitive frames, institutions and social networks
(NACEMP) constituting the background, e.g. deep cultural
patterns or macro-economic developments
Socio-technical
regime
Meso
Dominant cognitive frames, institutions and social networks
(NACEMP), stabilizing the current functioning of the
system, e.g. the dominant production or financing mode,
ruling political networks, welfare state set up
Niche
Micro
Rising cognitive frames, institutions and social networks
(NACEMP), flourishing in protected spaces where radical
innovation can develop, e.g. new perspectives on financing
social ventures, associations of niche actors
Source: Based on Geels (2002) and Geels and Schot (2007)
2.3. Social impact investing and Five percent philanthropy
compared through the ESGM
In this chapter, we will compare social impact investing today and five percent philanthropy
in the 19th century guided by the ESGM and the MLP framework. We are aware that this is
not a symmetric comparison since we have a financing tool in a specific field (social housing)
on the one side and social finance as an approach emerging in numerous fields today on the
other. Nevertheless, we argue that the similarities of both phenomena overweigh the
differences and may help to explain different development paths of social innovations and
their support structures. The assumption is, however, that the fundamental cognitive frame is
the same, namely the conviction that social problems can be mitigated and solved with a
(financial) market logic.

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2.3.1 Five per cent philanthropy in Victorian London in the 19th century
There was a whole plethora of companies practicing the FPP approach or some close relative
in the second half of 19th London (Wohl, 1977, p. 146). Out of these we can distill at least
two exemplary models of FPP: First, there is the approach practiced by the Peabody Trust
founded in 1864, which was initiated and run by the wealthy American banker George
Peabody (1795-1869). It involved the objective of a moderate annual net return even lower
than five per cent, but rather for self-perpetuating and expansion of the trust than for making
profits. The Trust aimed to employ its endowment economically and sustainably in order to
“recycle” the capital as much as possible to help the poor, and there were no repayment
obligations to shareholders in principal (Tarn, 1973). The second approach is closer to
today’s actual conception of social impact investing: The Improved Industrial Dwellings
Company (IIDC) was founded by Sir Sydney Waterlow (1822 – 1906), son of a city stationer
who worked his way up to the middle and finally upper class through setting up a major
printing company; in 1872, he would become Lord Mayor of London. Having housed some
80 families as a private philanthropist before (Wohl, 1977, p. 149), he founded the IIDC with
only GBP 50,000 starting capital but on the premise that it would pay investors their money
back plus a five percent return; as a result, the capital grew vastly and reached GBP 921,500
by 1884 (ibid.). Set up as a limited-dividend company, this approach is at the core of five
percent philanthropy and close to today’s conception of (finance first) social impact investing
(Hebb, 2013; Adam, 2002).
The approach spread fairly well in London (Wohl, 1977, pp. 145–146): In 1875, there were
3,300 dwellings built by the two FPP companies mentioned herein in the city area (1,800 by
the Peabody Trust and 1,500 by the IIDC), and in 1895, that figure had risen to 10,450 (5,100
and 5,350 respectively) (Tarn, 1973, p. 58). By 1900, the Peabody Trust was housing 19,000
people, and Waterlow’s Improved Industrial Dwellings Company housed even nearly 30,000
in its 45 estates (Wohl, 1977, p. 149). Although we do not have quantitative material that is
precise for other major UK cities, we know that the approach was subsequently adopted in
many of them, most notably in Liverpool, Leeds, Manchester, Birmingham, Glasgow and
Edinburgh. The quantitative data available is very limited, but compared to London the
figures are fairly small, a couple of projects and houses with a few hundred dwellings in each
of the cities named above (Tarn, 1973, pp. 61-66; 89-94). However, later the approach even
spread to continental Europe where the Leipzig merchant Gustav de Liagre was the first
German philanthropist to use the FPP principles, purchasing two buildings with 240 rooms in
Leipzig in 1883. He in turn inspired publisher Herrmann Julius Meyer who bought and rented
500 dwellings for a rent yielding 3% return which he reinvested in the approach (Adam,
2002, pp. 334–335).
In the following section, we will concentrate on the second approach outlined above,
Waterlow’s five percent philanthropy, and consider the Peabody Trust only where
appropriate as a contrasting example.

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2.3.2. Context, motivation and driving forces
When Sydney Waterlow set up the IIDC, social forces of the time were dominated by
industrialization, the rise of a new class of bourgeois capitalist with distinctive values from
the previous feudal system, and wide-spread ‘free’ market, liberal thinking. The transition
from agricultural and rural societies to urban and industrialised ones in many European
countries had caused structural pauperism and existential insecurity (Brakelmann, 1962;
Tocqueville, 2007), which became particularly visible in an extremely poor housing situation
with overcrowded and dirty dwellings. The reasons for and solution to this “housing
question” were hardly understood. The welfare system was only dawning on the horizon, and
housing was perceived as an individual responsibility. Furthermore, free-market-based
solutions caused speculation and the unimpeded exploitation of the situation by many
landlords (Fuhrmann et al., 2008). Institutions such as rent controls, building regulations, or
enforceable hygiene standards were hardly existing, relatively weak, or even
counterproductive, and infrastructure improvements were not undertaken (Chadwick, 1842,
p. 5).
A range of social reformers from the upper and middle classes, however, was very much
interested in politics and in the social problems of communities. And also there was a quite
widespread belief in “philanthropic capitalism” (Wohl, 1977, p. 141) and its ability to tackle
social problems by steering “investment into philanthropic channels” (ibid.). It needs to be
emphasized that charitable activity was very much supported and a significant constituent of
the Victorian “Zeitgeist”. For instance, in 1861 London charities had an aggregate income of
almost GBP 2.5 million, and by the end of the 1880’s this figure had even doubled. As a
result, there was a whole plethora of different approaches and ventures competing for that
capital (ibid.).
With his business background, Waterlow sought to show that housing for the laboring poor
could be provided by doing business according to strictly set economic and carefully defined
architectural guidelines. These became the core of the FPP approach and the central
ingredient to its (temporary) success. Waterlow summarises the rationale behind his
approach:
“All I have endeavoured to show is that capital, expended in the erection of light,
cheerful, healthy habitations for the industrial classes in crowded cities, may be made to
yield a fair interest on its investment, if care is taken to avoid extravagance in external
architectural decoration or loss by large management expenses.” (Tarn, 1973, p. 52)
In consultation with builder Matthew Allen, he intended to produce a housing unit that could
be be built easily, let at a suitable rate6 to beneficiaries, and generate a profit of five-per-cent
6 In rural England of the late mid-19th century, the average rent was about 1s 6d per week; for the same space in
London, dwellers had to pay 4s 6d or more Wohl (1983, p. 304); wages for common workers in London varied
between 12s and 15s a week (http://www.victorianweb.org/science/health/health9.html). Engels (1845, p. 128)
reports of a case where workers earning 11 shillings and 4 pence a week had to pay 4 sh. 4 p. for rent, heating
and lighting (also see Scheuerle et al. (2015)). Another source speaks of 2-5s Morris (2001).

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for the owner. By doing this, Waterlow hoped to convince his friends that they might invest
their money in a good cause (Tarn, 1973, p. 51). The motivation to solve the problem with
business means was also shaped by two contextual circumstances typical for the Victorian
age: First, the success of many of the business people who had come to wealth through the
rise of capitalism led them to seek some form of ethical “compensation”; and second, state
involvement was more or less unthinkable.
Concerning the first context variable, a five per cent return was rather little as compared to
the standards of these days (Wohl, 1977, p. 142), providing successful businessmen with the
chance to do something as compensation by becoming FPP investors, making it a particularly
Victorian habit (Tarn, 1973, p. 43). The approach was also designed to attract capital from
those wealthy individuals who otherwise disapproved of charity, but would be more inclined
to take part in a more entrepreneurial approach which would also yield a small return (Wohl,
1977, p. 142). Thus, a central element to the FPP approach seems to be traceable to a
cognitive frame (Nicholls and Ziegler, 2014; Beckert, 2010) which was shaped by a) sort of a
“bad conscience” among business men because of their success in the free market economy
and b) a free market economic spirit with some significant degree of aversion to state
interference and charity. The “bad conscience” aspect is a psychological mechanism that
seemed to be rather new at the time compared with Western history through which donating
some income unconditional of the level of that income was a cultural constant, but “giving
something back” (i.e. making charity conditional upon one’s own business success) is not
very widespread (Sedlacek, 2011).
The second context variable lay in some form of “negative” motivation, i.e. within the
cognitive frame of free market thinking it was not conceivable at that time that the state or
any public body should solve the housing problem or any other problem of the poor. An
intervention at the regime level of the housing market such as subsidization was not part of
the dominant cognitive frame. It was common sense among everyone who got involved in
thinking about these problems that a solution should be found by means of private initiative
(Tarn, 1973, p. 44)7. FPP was supposed to be a third way, in between business solutions that
end up in speculation and philanthropy incapable of solving a problem with such massive
scale.
Overall, the approach with its innovative combination of philanthropy and capitalism had
great appeal in the popular press, reform literature, and even the Royal Family (Wohl, 1977,
p. 145). It was often presented as a panacea and in 1862 even an anonymous poem praising
its merits appeared in the City press (ibid.: 142-144).
2.3.3 Investment fields, transactions and ecosystem
Waterlow’s FPP was built as a limited liability company, where investors became direct
owners of the housing facilities or building projects. There were no investment intermediaries

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who would help them set up investments in fields where investors did not have solid business
expertise (as is the case with SII today) or who would structure and administer financial and
business activities, i.e. there was no real institutionalisation of the field (Nicholls and Ziegler,
2014; Fligstein, 2001; DiMaggio and Powell, 1991). These responsibilities were assumed by
Waterlow and the Trustees themselves, all of whom were highly respected and valued
members of society. That raised the cultural power of the movement enormously (Tarn, 1973,
p. 48), enabling them to access elite networks which – alongside many other less “concrete”
effects – helped in the acquisition of land at attractive prices (Wohl, 1977, p. 145).
Accordingly, the promoters of FPP had access to powerful social networks on the regime
level.
Like venture philanthropists and some impact investors (or their intermediaries) today, they
also actively engaged in ensuring their investment and management policy were “free from
scandal and accusations of mal-practices“(Tarn, 1973, p. 55). Moreover, they had profound
knowledge of the housing market and could estimate from their experience what return was
possible. This may be part of the reason why the IIDC (and other FPP investors) concentrated
their investment activities in fields where they knew their approach would work. In turn, this
meant they excluded those parts of the housing market where their approach would not fit,
essentially entailing two main considerations: one on the cost side and one on the revenue
side. On the cost side, the FPP approach very much built on a strict business case orientation,
i.e. FPP investors and managers took very seriously the premise that every activity pays off
and does not cause losses. In this context, it turned out that low-cost building depended in
particular on acquiring building land at low cost. To achieve that FPP builders had to find
ways to make attractive bargains which were not available on a regular basis or let alone in
the required quantity to make a difference given the size of the problem, or they had to
develop ways to acquire land on a more regular and predictable basis. For a certain period,
the Metropolitan Board of Works (the public body responsible for regulating housing and
infrastructure in London) was primarily involved with implementing numerous schemes
under the two Metropolitan Acts of 1866 and 1875 aiming to clear the slums in the city.
Under the second Act alone, it cleared some 42 acres of slum property, displacing more than
23,000 people while at the end rehousing almost 28,000 in close co-operation with housing
companies such as the IIDC. For them, the major result of the slum clearance schemes
consisted in land that they could acquire at very favourable prices. In MLP terminology we
might say that the crisis on the landscape level (slum building) opened up possibilities for
social innovators on the regime level (favourable legislation and public administration
leading to attractive buying conditions for land) (Geels and Schot, 2007).
Overall, the involvement of the state and the Metropolitan Board was very important to the
FPP movement. Probably one of the crucial success factors was the fact that the model
dwelling companies could borrow capital from the state for 4%, repayable over 40 years.
Waterlow’s company borrowed GBP 84,000; overall by 1875, GBP 250,000 had been lent to
the model dwelling movement. It is reasonable to say that these “government loans
represented unpublicised subsidies to the constructors of model dwellings” (Wohl, 1977, p.
144). A second “subsidy” was less planned, as in total the Board “lost” more than 1.3 million

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GBP on the sale of the sites acquired in the course of its slum clearing schemes compared to
market prices. These prices could not be achieved, and the resulting loss can be seen as
another indirect subsidy to the building companies. In turn, they faced tight regulation
concerning building standards from the Board (Tarn, 1973, pp. 83–88). But overall, these
very low land and capital prices and costs were central ingredients to the success of the FPP
approach on the cost side (ibid.; Wohl, 1977, pp. 144–145)
On the revenue side, the IIDC concentrated on those shares of the market where sufficient
revenue from rent could actually be made and charged about 2s in the 1880s (Morris, 2001, p.
534). That meant in terms of beneficiaries concentrating on those working poor who were not
too poor to pay a rent high enough for the requirements of the IIDC’s business plan at the
expense of those actually living in extreme poverty. Yet, it might be overstating the business
orientation of the approach to say that they were excluded on purely economic grounds.
Instead, this approach was chosen to maximize social impact: The rationale (or the cognitive
frame at work in this niche of FPP actors) was that if the money invested goes into a business
venture from which it will flow back to the investor, then it can be used repeatedly – thus
overall and in the long run the capital employed can make more impact. In other words: FPP
investors “believed their greatest and most effective contributions could be made at this
particular level in society and with the approach they adopted.” (Tarn, 1973, p. 48) So
although FPP actors had considerable economic power, it was not unlimited, leading to two
interwoven strategies: (1) the capital had to be “recycled”, i.e. repaid + 5%, in order to let
future generations benefit from it too (“the approach they adopted”); and (2) the most
marginalized could not be targeted, while standards like comfort or privacy (but not security
and hygiene) had to be compromised in order for the approach to be economically sound
(Wohl, 1977, p. 150). Waterlow replied with a third and fourth argument to contemporary
critics of this pragmatic approach: (3) “it would not have been right to build down to the
lowest class, because you must have built a class of tenement which I hope none of them
would be satisfied with at the end of 50 years; [4] we have rather tried to build for the best
class, and by lifting them up to leave more room for the second and third who are below
them.” (Tarn, 1973, p. 53). So he already employs what is nowadays called a trickle down or
elevator effect (Beck, 1986, pp. 121–160) argument in a wider sense, an economic
mechanism assumed to be active and working well within the cognitive frame dominant
among the FPP actors involved here.
2.3.4. Financial performance and impact on capabilities
Although financial data concerning the performance of Waterlow’s and other FPP actors’
endeavours is scarce, we can say that apparently they were successful as indicated by the
growth in both the capital invested and the number of people housed, as described above.
From their beginnings in the early 1860’s on, Waterlow succeeded in building and managing
dwellings in a way that allowed him continuously to pay the envisaged 5% dividend to
investors (Wohl, 1977, p. 151; Morris, 2001, p. 536). That suggests that the model worked
economically under the circumstances for which it had originally been developed. Later on,
beginning with the 1890’s, increasingly unfavourable and costly requirements from the

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Metropolitan Board made costs rise at the same time as there were increases in the price of
land.
The way the IIDC built and managed its dwellings and its invested capital had a strong
influence on worker beneficiaries’ capabilities. First and foremost, they had roofs over their
heads and clean, secure and often also significantly better lighted buildings. Before, they
often lived in overcrowded, shared rooms and slums where families accepted additional
tenants sleeping in their beds for certain hours to improve their rent (“Bettgeher”), and there
was usually only one room that was used for cooking, eating, sleeping, or having sex
(Fuhrmann et al., 2008). In this way, a very basic capability was improved (Nussbaum, 2011,
p. 33). In terms of measurable social impact we can refer to the death rate among IIDC
inhabitants which was very much lower than for London as a whole: only 17‰ as compared
to 22‰ (Wohl, 1977, p. 151). That may be attributed to the fact that Waterlow and his
partners also took care of hygiene (and thus health) and privacy standards as additional
elementary capabilities. They built dwellings with separate flats for families, each with their
own sculleries. This was in contrast to Peabody’s approach which featured shared bathrooms
for entire floors. And although the buildings of the IIDC might not look very attractive from
today’s point of view, they marked a significant aesthetic improvement compared to earlier
dwellings of the working poor, showing also respect for their dignity.
Overall, however, there was nothing like a sound “impact assessment” made, let alone one
which would let us assess the impact which the FPP approach or even social housing in
general had on the capabilities of the working poor. Nevertheless, one can say that even
though the FPP approach was successful to the extent it was practiced, that very extent lagged
far behind the size of the problem (Wohl, 1977, p. 151). Therefore, it did have some impact,
but compared to the overall problem, it can be seen as rather limited (just as is the impact of
SII today compared to the problems it aims to tackle): “For the few who were lucky enough
to obtain a model dwelling and were able to pay the rent, it did very often mark a turning
point in their lives, but London continued to grow in size far faster that good cheap new
housing could be built (…).” (Tarn, 1973, p. 61).
2.3.5 Social impact investing today
In contrast to FPP, SII has quickly become a global phenomenon with specialized actors
spanning across developing and developed countries as well as across different themes. As
well as affordable housing, it includes for example financial inclusion, employment and
inclusion, economic development, health, sustainable energy, agriculture or education (GIIN
and Cambridge Associates, 2015; Social Investment Research Council, 2015). Different
studies suggest that there are several hundred SII funds today. The ImpactBase of the Global
Impact Investing Network (GIIN; see below) listed 310 funds in April 2015 (286 of them
funded after 2001), of which 153 exclusively invest via private equity and venture capital,
and 63 use multiple instruments (Mudaliar and Barra, 2015, p. 2). The investment consulting
company Cambridge Associates runs a Mission-Related Investing (MRI) database with 579
private MRI funds of which 392 are private equity or venture capital funds. And this does not

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include the direct investments of private business angels or family offices8. Those funds (also
referred to as social investment financial intermediaries (SIFIs)(Social Investment Research
Council, 2015) vary considerably in size and scope, however. While more than half of the
private equity and venture capital funds have a capital endowment of less than USD 20
million (Mudaliar and Barra, 2015, p. 4), pioneers in the field have grown beyond USD 2,6
billion of investments (ResponsAbility, 2012) and invest up to USD 10 million in one
organization (LGT). Moreover, of the 153 private equity and venture capital funds from the
impact database, only 17 exclusively invested in Europe, most of them in the UK (Social
Investment Research Council, 2015). The main investment field statistically is financial
inclusion (GIIN and Cambridge Associates, 2015), which is apparently the most
straightforward cause for SII.
While the data generally indicate that the field is growing, early optimistic estimates that saw
a potential investment volume of US$400 billion to US$1 trillion until 2020 (O’Donohoe et
al., 2010) have recently been judged more skeptically (Alto, 2012; Oldenburg and Daub,
2016; Petrick and Birnbaum, 2016), and the future directions for the spread of SII are still
under discussion.
2.3.6. Context, motivation and driving forces
The idea of investing money for social purposes never disappeared, but diversified even more
over time and was adopted in aspects of social finance such as micro credit and socially
responsible investing (Barnett and Salomon, 2003; Johnsen, 2003). This shows on the one
hand that the idea of leveraging financial assets for the social good is a live and continuously
practiced major social innovation on its own (Nicholls, 2010). On the other hand, the
particular idea of SII can be seen as closely interlinked with the increasing emphasis on
market-based approaches to social problems, expressed in the idea of social entrepreneurship
(SE) (Austin et al., 2006; Dees, 2001; Mair and Marti, 2006). Not a new phenomenon9, social
entrepreneurship has been attributed with the potential to develop new and innovative
solutions for social problems, often by developing a source of market income to increase the
self-sufficiency of problem-solving approaches (Di Domenico, Maria Laura et al., 2010;
Dorado, 2006). SII can be seen as an instrument to create beneficial ecosystem conditions for
such ventures that is – as many measures in the context of SE – borrowed from the business
domain.
Entering social networks
SII entered Europe through social networks created at the intersection of two fields or, more
specifically, two developments within specific fields. On the one hand, in the social sector
8 However, approximately 75% of investors invest via intermediaries, regardless of whether they also invest
directly in companies Saltuk et al. (2015).
9 In fact, SE can be traced back at least to the 19th century with people such as Florence Nightingale, Maria
Montessori, Friedrich Wilhelm Raiffeisen or Herrmann Schultze-Delitsch, engaging in fields of community
building, care, work integration, education, protection of environmental resources and further social services.

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there has been an increasing trend since the 1990s amongst private foundations with a more
liberal welfare understanding10 to apply business-driven methods for promoting innovative
social purpose organizations. Those methods were in particular borrowed from the field of
venture capital and lead to the rise of “venture philanthropy” (Letts et al., 1997; van Slyke
and Newman, 2006) or, as some critiques phrased it, “philanthrocapitalism” (Bishop and
Green, 2010; Bishop, 2006; Edwards, 2010). To make their approaches even more efficient,
those actors partnered with actors from the classical market domain, where the idea of
corporate social responsibility had been on the rise since the high times of shareholder
capitalism in the 1980s (Dyllick and Muff, 2015). What is more, employees are increasingly
motivated by post material values and want to do “meaningful” work, causing an increasing
interest of young, well-educated persons from the business domain in fields such as SII.
Unifying cognitive frame
The cognitive frame that tied these networks together was the idea that social problems
needed to and could be addressed by (social) entrepreneurial means more efficiently and
effectively than by the status quo of established welfare systems. SII was seen to fill the
finance gap in the scaling process from small and local initiatives to spreading an innovative
approach nationally or even internationally (Bugg-Levine and Emerson, 2011; Grabenwarter
and Liechtenstein Heinrich, 2011). Both regular public financial support as well as private
funding such as foundation grants or donations were not sufficient in their amount and
flexibility for this purpose (Achleitner et al., 2013; SEFORIS, 2014; Glänzel et al., 2012).
What is more, innovative social enterprises’ capital needs often are at odds with regular
social welfare provision and thus have problems in accessing financial capital at all(Scheuerle
and Schmitz, 2015). From the investor perspective, the SII idea implied that the repayable
money could be re-invested again to create even more social value (Leßmann and Schirwitz,
2008). Even more, there was a possibility to earn an interest rate while doing good.
Prevalent developments – economization of the social sector
This background is interesting for different reasons. First, the welfare systems in many
European states have reached a very mature stage in comparison to the 19th century, and also
differentiated in regard to their institutions and dominant social networks, guided in turn by
different cognitive frames (Esping-Andersen, 1990; Henriksen et al., 2012). Within these
systems, earned-income approaches (with centrally negotiated, fixed service fees) have been
a constitutive part of many welfare states. For instance in the ‘corporatist welfare’ regime in
Germany, it is usual for public purpose limited liability companies (gemeinnützige GmbHs)
or cooperatives (Genossenschaften) to generate the majority their income from regular
10 Three ideal types of welfare regimes can be distinguished according to Esping-Andersen’s (1990) seminal
work: ‘social-democratic’’ regimes providing extensive public services in an universal approach that serves all
members of society based on high taxation, with nonprofit organizations as supplementary service providers
(e.g. Denmark), ‘‘corporatist’’ regimes characterized by close partnership between nonprofits mainly as service
providers and the state on an insurance-based system (e.g. Germany), and ‘‘liberal’’ regimes with little public
support for social services and strong philanthropic engagement (e.g. the UK, the US)

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markets or public quasi-markets (Priller et al., 2012). The same holds true for all other types
of welfare states (SEFORIS, 2014). Even more, in the last decades in nearly all European
welfare states on both the regime and landscape level, there has been an increasing dynamic
towards more efficiency, competition, and free consumer choice through market-oriented
solutions for social issues (Henriksen et al., 2012), as claimed by the new public management
(Hood, 1991; Rhodes, R. A. W., 1996)11 approach. This holds true to different extents for all
fields of activity that are typically associated with the “social sector”, such as social
services12, health care, or education. Also specific credit-based financing instruments and
institutions have already been established, such as the Bank für Sozialwirtschaft in Germany
or Charity Bank in the UK.
Prevalent developments – elite networks
Second, albeit social networks promoting SII are comparably small, the actors are part of or
have access to elite power networks in the economic and political domain (Wohl, 1977, p.
145). From the perspective of public bodies, the idea of leveraging public money by means of
additional private capital to support public causes is particularly attractive. Accordingly, the
idea of SII has risen comparably rapidly on public agendas across Europe and beyond. It was
picked up and discussed by different states, the OECD (Wilson, 2014), and the European
Union (Glänzel et al., 2012; European Commission). When the presidency in the former G8
(now G7) turned to the UK, British prime minister David Cameron also established the Social
Impact Investment Taskforce13 in late 2013 that bundled and promoted national multi
stakeholder initiatives to review possibilities for (increased) local adaptation of SII (Social
Impact Investment Taskforce, 2014). Those national advisory boards comprise investors and
intermediaries, politicians, researchers and social sector representatives. In August, the
Global Social Impact Investment Steering Group (GSG)14 was established as a successor with
members from 14 countries, including also Australia, Brazil, India, Israel, Mexico, Portugal,
and the EU.
2.3.7. Investment fields, transactions and ecosystem
When it comes to the concrete implementation of SII, emerging and changing institutions,
social networks, and cognitive frames within the niche of the SII community can be observed,
which also reach out to or resonate with some more general social forces on the regime or
landscape level.
11 Some scholars have even argued that there might be a trend of convergence amongst different welfare regimes
in response to similar problems, although research has also shown that the influence of different welfare
traditions and structures still result in slightly different outcomes, e.g. regarding the role of organization from
the third sector Henriksen et al. (2012).
12 What is understood under social services differs from country to country, usually covered, however, are
community care, family counselling services, youth and elderly care, and in most cases also services for
mentally ill and disabled persons or job training programs Henriksen et al. (2012, pp. 462–463).
13 https://www.gov.uk/government/groups/social-impact-investment-taskforce
14 http://www.socialimpactinvestment.org/

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Policies
Most visible are policy initiatives on the national and international level aiming at supporting
and institutionalizing SII. Amongst the most prominent examples are the Big Society
initiative15 under the conservative Prime Minister Cameron in 2010 that intends to strengthen
the role of civil society organizations in social service provision16 and comprises its own SIFI
(Big Society Capital) following SII principles for this goal, or the “90-10” scheme in France
that obliges companies to invest 10 per cent of their employee savings in government-
recognized solidarity companies or revenue sharing funds (Jégourel and Maveyraud, 2008).
In Germany, the German Federal Ministry of Family, Senior Citizens, Women and Youth
commissioned the public bank Kreditanstalt für Wiederaufbau (KfW) in 2011 to develop a
‘promotion programme for social enterprises’ that works as a ‘matching fund’ with a private
lead investor, which however has since (2014) terminated. The European Union is also very
active, witness its Regulation on European Social Entrepreneurship Funds17 designed to
promote social impact investing by defining core criteria and a specific status for such funds.
It also set up its own investment vehicle, the Social Impact Accelerator (SIA)18 in 2013.
Enabler associations, intermediaries, etc.
But there are also other signs of continuing institutionalization of the field, at least in some
countries. One sign for the development towards more maturity in the field is the setup or
evolution of different intermediaries and associations. Marketplaces for social impact
investing with a variety of “enablers” beyond the actual SIFIs are emerging in different
countries, although at a different pace (Alto, 2012; Guézennec and Malochet, 2013; Koh et
al., 2012; O’Donohoe et al., 2010). They provide consulting for both social enterprises to get
“investment-ready” (Gregory et al., 2012) and investors new to the field, provide data in a
specific field (Petrick et al., 2014; Petrick and Weber, 2013), or connect capital providers and
investees. Also established actors like ethical banks or increasingly institutional investors set
up responsibilities for the topic. And also associations have been emerging. For example, the
Global Impact Investing Network (GIIN)19, founded in 2009 on the initiative of the
Rockefeller Foundation to promote the field of impact investing in general by strengthening
social networks amongst organizations interested in impact investing. Also, the European
Venture Philanthropy Association (EVPA)20, founded by individuals with a background in
private equity, increasingly put the focus on repayable funds over time, as the structure of its
now over 210 members and annual gatherings show. These organizations not only offer tools
and trainings and facilitate knowledge exchange even at high profile conferences such as the
15 http://www.bigsocietycapital.com/
16 The initiative promotes the increased freedom for private initiative and volunteerism in social issues. As it
went along with considerable cut backs in public spending in these fields, it has been criticized as actually
following a neo-liberal doctrine while hiding behind civils society talk.
17 http://ec.europa.eu/internal_market/investment/social_investment_funds/index_en.htm
18 http://www.eif.org/what_we_do/equity/sia/index.htm
19 https://thegiin.org/about/
20 http://evpa.eu.com/

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World Economic Forum and other events; they also provide intelligence in the field and are
involved in policy making processes.
Data availability/research
Generally, knowledge is also further institutionalizing. The data situation was initially weak
but has lately been improved by different analysts, with various investor surveys and
databases (Hehenberger et al., 2014; Mudaliar and Barra, 2015; Saltuk and Idrissi, 2014;
Saltuk et al., 2015), national or regional reports (Guézennec and Malochet, 2013; Heap and
Davison, 2014; Petrick and Birnbaum, 2016), investment field specific reports (Emerson et
al., 2007; Petrick et al., 2014; Petrick, 2013)and recently two benchmark studies – a typical
institutional element of conventional financial markets – that were published concerning the
financial performance of SII funds across the globe and in the UK since the late 1990s (GIIN
and Cambridge Associates, 2015; Social Investment Research Council, 2015). Also there is a
huge amount of practitioner publications (Achleitner et al., 2011; Balbo et al., 2008;
Cummings and Hehenberger, 2011; Shortall and Alter, 2009) as well as an increasing field of
academic research(Daggers and Nicholls, 2016). Further, teaching formats are beginning to
enter major, often high profile universities.21
Challenges
Despite the fact that SII seems to be in line with cognitive frames in fields of social policy
and also the business domains on the landscape level, there are still some issues for
implementation (Emerson et al., 2007; Freirich and Fulton, 2009; Glänzel and Scheuerle,
2015; Gregory, 2013; Martin, 2013; Saltuk et al., 2015). Only few investors such as high net
worth individuals (HNWIs), family offices, institutional investors, foundations are familiar
with the concept of SII, indicating that SII is still mostly in the niche and has not fully entered
the regime level yet.
Infrastructure
One of the key problems is the still insufficient institutionalized infrastructure in many
countries. This causes high transactions costs, particularly given the fact than social impact
investments are usually much lower than their commercial counterparts, for example, in
Germany with an estimated average of 10-15 deals of over €100,000 closed per year (Petrick
and Weber, 2013) . Based on an analysis of more mature markets, (Gregory, 2013, p. 4) lists
as elements of a supporting infrastructure “brokers and advisors, product developers, data and
information providers, research houses, product reviewers, mechanisms for collaboration, a
trade body, education, skills and training providers, rating agencies, platforms and
exchanges.” He also emphasizes, however, the necessity of high governance, ownership,
transparency and accountability standards in the field, as well as clarity about whether
investors are primarily driven by financial or social motives. Other authors emphasize the
21 http://www.sbs.ox.ac.uk/programmes/execed/iip

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need for primary and secondary exchange platforms where shares can be exchanged (Mendell
and Barbosa, 2013) and stress the lack of adequate ‘pipelines’ for investments among
intermediary organizations (Brown, 2006; Emerson et al., 2007; Freirich and Fulton, 2009;
Moore et al., 2012; Weber and Scheck, 2012).
Impact measurement
A crucial problem in this respect is the question of how social value is measured and valued
in financial terms. For some stakeholders, this is necessary to show the social impact
achieved, but also during the investment decision in the due diligence process and the
valuation of social enterprises (Alemany and Scarlata, 2010; Evans, 2013). Investors still
apply different metrics here, amongst which the most prominent ones are IRIS22 or SROI23,
but to date all of them impose high transaction costs particularly on the investees (Clark et
al., 2012; Glänzel and Scheuerle, 2015; Jackson, 2013; Meehan et al., 2004; Repp, 2013).
Investment readiness
One of the major problems seems to be also the investment-readiness of social enterprises.
Data from 2012 show that experienced impact investors such as Acumen Fund or LGT
Venture Philanthropy have invested in under 1 per cent of the several thousand social
ventures they had reviewed, and even within this subset, only a small proportion have been
operating at scale (Alto, 2012).Overall, investment-readiness in terms of (potential)
investees’ capability to repay an investment at market or even below-market rates of return
seems to be fairly limited (Glänzel et al., 2013). Several authors showed that lacking
management skills as well as the absence of real business cases (Glänzel and Scheuerle,
2015; Moore et al., 2012; Spiess-Knafl, 2012) can be problems that are hard to overcome. In
consequence, there is a risk that impact investing – seen as a seductive idea for doing good
while making returns – will attract both social enterprises and capital providers that might be
better off working with grants, etc.
Relationship
Further, there is a problem that in contrast to the previous ones rather refers to social
networks and cognitive frames. Personal relationship between investors and investees may be
burdened by different value dispositions and biographic backgrounds as well as autonomy
issues (Achleitner et al., 2013; Glänzel and Scheuerle, 2015).
22 Impact Reporting & Investment Standards of the Global Impact Investing Network;
www.iris.thegiin.org/about-iris
23 Social Return on Investment; a recent study has shown that the UK has so far been the World’s most SROI-
affine country with the vast majority (70) of all 118 SROI analyses conducted between 2002 and 2012 having
taken place there. Nevertheless, the absolute numbers of mere 70 in the UK, five each in Austria and the
Netherlands, and three in Germany underscore that this method is not very widespread in Europe so far (even in
the US where the resource-intensive SROI analysis was invented, so far only seven full-scale SROIs have been
conducted) Krlev et al. (2014).

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2.3.8 Financial performance and impact on capabilities
Available data suggests that SII funds perform comparably well in financial terms in
comparison to SME data of commercial investments, which is relatively successful
considering the fact that the analyzed data comprises the financial crisis starting in 2008
(GIIN and Cambridge Associates, 2015; Social Investment Research Council, 2015). The
total turnover, however, is still comparatively low and illustrates the niche character of the
SII. In Germany, in 2014 there was a total amount of EUR 6,400 billion, about EUR 60
billion socially responsible investments, and only about EUR 0.07 billion of SII (Oldenburg
and Daub, 2016). However, the amount of capital that can be invested had risen from EUR
0.024 billion since 2012 (Petrick and Birnbaum, 2016).
On the other hand, social performance data that could give insights on changing the
capabilities of the addressed beneficiaries are hardly available, not surprisingly given the
measurement problems illustrated above. Actors in the field have criticized the fact that the
focus regarding data is currently more on the financial performance aspect.
2.4. Learnings and Discussion
Comparing FPP and SII through the lens of the ESGM and the MLP can help to deepen our
understanding of why the idea of applying financial investment logic to social causes might
or might not move from a niche to the regime level in society. Comparing both cases in terms
of the different aspects of our analysis indicates that SII today might be a better way to
achieve a broader diffusion and more social impact than FPP, mainly because it is backed by
more promoting cognitive frames and powerful social networks on more societal levels, but
also because it is about to develop a more solid institutional base. However, there are also
substantial barriers that can be identified.
The first major difference between now and then is that today there are cognitive frames in
place that support the claim that solving social problems is a societal responsibility (not one
of markets or private philanthropic initiative). To a certain extent, this is (or has been) a
shared conception (until) today – although far from what was public opinion in the Victorian
age. As a result, there is a common understanding that social problem solving deserves broad
societal support, and that cognitive frame is of course supportive for SII which is an
advantage of that approach over FPP.
In contrast, a cognitive frame that both approaches share consists in the idea that social
problems need to and can be addressed by (social) entrepreneurial means efficiently and
effectively. This is what efficiency and cost pressures today and a belief in and excitement for
market-based approaches then have as a common result: Today, the argument goes that we
have to be cost-effective; back then, the argument was that FPP actors wanted to show that
market-based strategies work well for social problems. However, cost-effectiveness and
efficiency is and was paramount in both approaches, yet the outcome and impact are

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different, because the means-ends relationship is different between FPP and SII: The first
comes in with an approach, i.e. the goal to show that social housing can be provided by
developing and implementing a working and sustainable business model; to showcase is the
final end, while social housing is one of the means. In contrast, SII is based on a heritage of
social problem solving first (ends) with increasingly entrepreneurial approaches (means)
coming later in the form of social entrepreneurship; in its current form, the “impact first” SII
variant emphasized herein thus features a relationship of means and ends in which the social
problem is the end while its support via investment in social entrepreneurship investees is
(part of) the means. In contrast, in this terminology the FPP approach translates more into a
“finance first” form of impact investing with all its consequences.
The most serious and far-reaching consequence is that the strict business case orientation led
to the most marginalized not being targeted and reached. Overall, although it was an
economic success (Morris, 2001), the FPP approach can be said to have failed as an attempt
to solve the social housing question it initially stepped up against (Wohl, 1977, p. 176). In
terms of the ESGM, social impact in form of enhanced capabilities of the marginalized had
not been part of the cognitive frame on which the approach was built. Consequently, probably
the most important learning is that the approach failed to improve the capabilities of the
marginalized but also never set out to do so, as the cognitive frames at work within the
networks of FPP actors were instead shaped by business logics and market liberalism.
Modern SII, in contrast, puts much more emphasis on social impact and its measurement,
particularly at the niche level, even if it is a “finance first” variant. Thus, the preconditions to
achieve at least some form of social impact are much better, because social impact is a
decisive constituent of the cognitive frame on which SII is based. This is enhanced by social
networks spanning from the niche to the landscape levels within which modern investors are
integrated: They are much more under observance from all types of stakeholders, all of them
asking critical questions about the social impact achieved by SII.
In contrast, overall it can be stated that the Victorian cognitive frames shaping and
surrounding the FPP approach did not contain the notion that social problems are a societal
responsibility. Therefore, although the approach worked economically, it could not attract
additional capital in order to tackle a problem of the size of the demand for working class
housing. Thus, it remained successful at the niche level, but wider cognitive frames were not
favorable enough for the approach to take hold.
The second major difference between FPP and SII obviously consists in the institutional
environment of contemporary SII: First, there are (mostly) functioning social welfare systems
existing today, and second the ecosystem is much more developed (although still far from
being fully or even adequately developed). As a result, the entire institutional landscape level
is very much different and much more promoting today. This is expressed at the regime level
where there is a vast and powerful system of resources flowing into solving or reducing
social problem institutionalized. In principle, everyone involved in social problem solving
can benefit from that (although in practice there are regulatory and bureaucratic hurdles),
including social entrepreneurs and their investors. The institutions, networks (associations),

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(18 October 2016 )
and even first regulations outlined above are already working on the regime level as a
precondition for the SI to grow beyond its niche. In contrast, no such favorable regime level
conditions were in place for the FPP approach. Today, social networks between the SII niche
and the regime level are stronger, despite the fact that FPP actors also had very good
connections to local policy-makers. But the cognitive frame element stating that social
problems need to be addressed by society as a whole shapes those relationships within
contemporary social networks in enhancing their social impact orientation, whereas at the
time of the FPP approach, shared cognitive frames were more business case oriented. Thus,
whereas there is direct and open support for SII on all societal levels, FPP was only supported
in indirect and often even concealed ways. Ideas of mixing social and business means and
methods to improve efficiency and effectiveness of social problem solving (public money
leverage, capital “recycling” instead of philanthropic spending, etc.), have entered into and
shaped contemporary institutions surrounding SII.
In addition it needs to be noted that also a single policy promoting SII can be a strong game
changer. France as another country with strong welfare institutions showcased that with
establishment of the “90-10” scheme. As a result, a huge amount of capital became available
to be invested in government-recognized solidarity companies or revenue sharing
funds(Jégourel and Maveyraud, 2008). Many institutional investors did not have the expertise
necessary, so the field had to be built more or less from scratch, with innovative social
organisations taking the lead (Scheuerle, 2014).
2.5. Conclusion
Both the impact orientation within the cognitive frame on which SII is based and the tight
and large social networks within which it is practiced nowadays (and in which the impact
orientation is shared and reinforced) are major success ingredients in modern SII. Both
factors were absent or not as strongly developed at the time of the FPP phenomenon. And
also today we see some pull factors from the regime level (policy makers) and push factors
from the niche, with networks often spanning across both. Overall, one might cautiously
hypothesize that SII might be on the way to mainstream (about to leave the niche), but that
also depends on the country one is talking about. FPP in contrast was too weak to reach
mainstream, because networks and institutions were not sufficiently developed: Although the
approach worked economically, it could not leave its niche, because wider cognitive frames
would not be supportive enough. As a result, the approach worked only in a very small niche,
and that niche did not even include the most marginalized. In terms of social innovation, we
can thus call it a failed approach. This may be an important learning for those contemporary
forms of SII subsumed under the “finance first” label. What is more, the approach of
combining entrepreneurial and investment methods to solve social problems practiced by FPP
actors appears to have failed to act as a precursor to later forms of social impact investing.
Instead, it was more or less forgotten and had to be re-discovered and developed after WWII.

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(18 October 2016 )
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3. Financing of Social Housing
Susanne Giesecke
(Austrian Institute of Technology, June 2016)
3.1. Introduction
Municipal, non-profit housing exists in most of the EU Member States, often called communal
housing, and often provided by private developers (Ammon 2014: 7; Scanlon et al. 2015; 10). Though
comparisons might at times be difficult, we find common features in Austria, the Netherlands and in
some Scandinavian countries having a high share of communal housing, targeting large parts of
society. In the literature we find terms such as “limited-profit”, non-profit, gemeinnützig (social
profit). These concepts are to some degree market-oriented, with a social conviction, organized under
private law but state-controlled; and the small profits generated are reinvested into the cycle of
residential construction and maintenance. (Amann 2014: 8). In this paper we are selectively
highlighting the latest developments in some EU Member States against the background of EU
policies for the sector and the credit crunch of 2008 which hit the housing market very hard and gave
incentives for some policy changes with regard to funding measures.
3.2. Financing of Social Housing and EU Regulations
The funding of social housing (or community housing) in accordance with the EU
subsidiarity principle is subject to national housing policy. In some strongly federal EU
countries such as Germany and Austria, specific regulations differ in the various states.
However, over recent years, a number of EU directives have caused some discontent among
housing policy makers and related actors due to attempts to restrict national sovereignty in
the field. Such resistance stems from the European Parliament (EP 2013
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+REPORT+A7-2013-
0155+0+DOC+XML+V0//EN#title1), the European Economic and Social Committee (EESC
2013), the Committee of the Regions (CoR 2012), the Federal Council of Germany
(Bundesrat 2011), the Association of Austrian Cities, Towns and Local Authorities (ÖStB
2013) and the mayor’s initiative for social housing (initiated by the Vienna mayor Michael
Häupl together with some 30 mayors of big European cities) (SPOE 2014). They are all
protesting against the European Commission’s attempt to influence social housing policies.
EU regulators – and also some free market advocates in the housing sector – see EU
Competition law and state aid rules infringed by national and regional housing policies. They
claim additional breaches against national laws to implement climate protection and energy
directives, capital market regulations and procurement laws as well as some macro-economic
alert mechanism that some states have implemented in response to the real estate crisis
(Streimelweger 2014).
Article 107 of the TFEU rules:
1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources
in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings
or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible
with the internal market.
(http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:12008E107&from=EN)