Beyond Compliance 2024

Beyond Compliance: Embedding Impact through Innovative Finance22Public and private drivers of growth and OBF deployment FIGURE 5 Public sector activities that can drive further market growth Private sector activities that can drive further market growth Public procurement Public subsidies Official development assistance (ODA) Concessionary finance– Total public procurement at $13 trillion annually – Significant portions of public procurement can be channeled towards social impact – e.g. Indigenous procurement policy in Australia. – Globally at $1.8 trillion per annum, with agricultural subsidies alone at $520 billion – Governments can allocate part of such subsidies to OBF approaches to unlock verifiable social impact. – $220 billion per annum – ODA community increasingly needing to crowd in private investors – OBF a key tool to do so. – Development banks and agencies increasingly using and promoting OBF: – e.g. World Bank Program for Results increased RBF cap from 5% to 15%. Corporate procurement Corporate compliance spend Corporate philanthropy Impact investments– 70% international trade through supply chains. Companies increasingly focused on social impact in their supply chains. – Social procurement projected to reach $500 billion with the likes of Unilever and SAP committing to 5% of it. – Estimated average corporate spend per annum: – Ratings: $220,000 – $480,000 – Climate disclosure $667K – CSRD compliance $350k – $150 billion in global philanthropy – Median CSR allocation per company $28.4 million per annum. – Trend towards increasing alignment of corporate philanthropy with the business - increased use as catalyst tool - OBF suitable for this purpose. – $1.5 trillion globally, with $375 billion in concessionary capital. – Investor interest in embedding social KPIs in portfolios. – Emerging trend of carving out percentage of portfolios for impact-linked financing structures. Sources: Open Contracting Partnership and Spend Network. (2020). How governments spend: Opening up the value of global public procurement; D. Koplow and R. Steenblik. (2022). Financing Our Survival: Building a Nature Positive Economy through Subsidy Reform; OECD. (2023). International aid rises in 2023 with increased support to Ukraine and humanitarian needs; World Bank. (2019). Program-for-Results: Proposal to remove the cap on commitment authority; OECD. (2024). Global value and supply chains; Yunus Social Business and Boston Consulting Group. (2022). A $500 Billion Market Opportunity for Real Impact; Reuters. (2023). Companies pay up to $500,000 for sustainability ratings – report; J. Tyson. (2022). Climate-related disclosure annually costs companies $677,000 on average. CFO Dive; P . Johnson (2018). Global philanthropy report. The Hauser Institute for Civil Society, Harvard Kennedy School; Chief Executives for Corporate Purpose. (2023). Giving in numbers 2023 Edition; D. Hand, M. Ulanow, H. Pan, and K. Xiao. (2024). Sizing the impact investing market 2024. The Global Impact Investing Network (GIIN), New York.There are plausible scenarios towards a robust and scalable ecosystem for tradeable social impact in the coming 10 years. These scenarios will evolve differently, experience varying degrees of scale and could be adopted regionally or globally. Regardless, the social impact certification standards would likely mirror the Verified Carbon Standard – applied across platforms and financial mechanisms. These developments will ensure that social impact metrics are integrated into reporting frameworks, allowing companies to accurately value and trade their social outcomes alongside environmental and governance factors. A Social Impact Market Taskforce, modelled after the Taskforce on Scaling Voluntary Carbon Markets, will drive the standardization, best practices and integrity of these markets, ensuring transparency and scalability. On the supply side, multistakeholder partnerships will emerge, involving governments, companies, NGOs and investors to create investable projects addressing critical social issues such as education, healthcare and poverty reduction. Development funders will commit a percentage of their portfolios to catalysing commercial and institutional investment in these initiatives, leveraging technical expertise from existing markets.The demand side will be stimulated by international agreements that set global social targets, much like the Paris Agreement did for climate action. Companies will commit voluntarily to social impact, driven by investor and consumer pressure, alongside government mandates for social procurement. This surge in demand, combined with OBF models, will push companies and governments to procure services that deliver tangible social outcomes, enhancing societal well- being and contributing to a more equitable global economy. In this vision, the integration of impact trading into corporate strategies, public policies and financial markets will transform social outcomes into valuable, tradeable assets, unlocking new financing streams for sustainable and inclusive growth. Given the momentum in the OBF market and increasing recognition by companies of the value of social impact, OBF approaches are likely to be increasingly adopted in different settings and geographies. A robust and precise estimate of market growth is not possible at this stage, but the following selected data points illustrate the potential public and private drivers of increased adoption of OBF: