IMAGINE KANAZAWA 2030 held study session #2 on the use of private resources for promotion of SDGs on October 11. Recently we have been hearing the term “social investment” a lot. This type of investment is different from conventional investment, which is only for economic returns. Social investment aims to contribute to the solution of social problems and socially valuable issues (social impact) in addition to gaining economic returns. This system makes it easier for organisations that are addressing social challenges to receive funding from financial markets. It has been difficult for such organisations to receive public funds and private financing. In addition, the system enables them to run their organisations effectively by using private resources such as the know-how on organisation management that financial institutions have. This leads to a higher likelihood of attaining SDGs goals.
In this session, we focused on social investment, in particular, the social impact bond. The Development Bank of Japan (a government-affiliated financial institution) gave a presentation on the system and examples of financial and non-financial support. As well, Astena Holdings, a private enterprise that has been executing projects that result in social impact and innovation through partnerships with local residents, presented examples of their activities in the Noto region.
The social impact bond (SIB), an investment system that recently developed mainly in England, facilitates the flow of private funds into social business. It has been garnering attention in Japan since about 2017.
SIB is used in medical services in Newcastle, UK, where there are now new types of health and welfare services such as provision of exercise and food and creation of communities. These services contribute to disease prevention, social impact and reduction of medical costs. For this reason, SIB has been attracting attention in Japan as a means of procuring funds to cope with increasing medical costs and to reduce the burden on municipalities with regard to medical services. Moreover, its use is also being discussed in other fields such as caregiving, employment assistance and town planning.
The Development Bank of Japan offers a social investment service that combines SIB and PFS (payment for success) services. PFS is one of the public services provided through a public-private partnership by means of private consignment. The government, which is the ordering party, pays money according to the degree of attainment according to the social impact index, in other words, according to how much success was achieved in finding solutions for social challenges. In addition to financial support, the Development Bank of Japan provides non-financial support for the attainment of social impact and effective management of organisations.
However, there are various challenges with regard to the use of SIB for a wide range of social businesses. Firstly, the process from establishment of the project to the execution of a loan is complicated and takes a long time — about two years. It is complicated and troublesome for municipal governments. The financing scale for Japanese proven projects is small — several tens of millions of yen, and the number of consulting firms supporting the projects is limited. In addition, social organisations that have no experience in the “Payment for Success” system cannot accept the risk that may occur in conjunction with the business results by themselves, and they lack the capacity to coordinate with various institutions and organisations through a consortium. Although it is still early days since SIB was introduced to Japan and there are many challenges associated with it, it is expected to develop as an investment means to bring about social impact.
Mr. Iwaki, CEO of Astena Holdings, presented the two core projects that his company is carrying out in the Noto region: Noto SDGs Lab New Project and Noto SDGs Fund. They bring about social impact and create a business that contributes to the attainment of SDGs in Suzu City through a partnership with the municipal government, universities, enterprises both in and out of the region, and financial institutions.
Noto SDGs Lab New Business Project is a collaborative project carried out with SDGs Lab, an industry-government-academia research institute in Suzu City, and the Graduate School of Project Design, which is based in Tokyo. It is an educational project involving a series of classes to train future personnel who will be able to solve regional challenges in Suzu City and draw up a business plan that will contribute to SDGs. The classes started in May 2021, and have included practical lectures about business models and how to launch a business.
The other project is Noto SDGs Fund, which was established in July 2021. It aims to contribute to the attainment of SDGs in the Noto region and provide funds to support the creation of new businesses, as well as the inheritance and regeneration of existing businesses for effective use of natural resources and properties in the region. Although Noto SDGs Fund restrains the internal rate, it is designed in such a way that the fund’s stakeholders will benefit when they establish an SDGs business. In addition, the Fund will invest in businesses established via SDGs Lab New Project.
Astena Holdings established a system for collaboration among industry, government, academia and financial institutions based on the two projects outlined above. It introduced the know-how of leading universities, enterprises and financial institutions, and it has been involved in developing human resources and regional business using regional funds. Moreover, it helps find solutions to social challenges and contributes to the development of sustainability and a circulation system in the region.
In this session, we learned about the mechanism of the social investment system from the two perspectives of government-affiliated financial institutes and private companies, and how to develop human resources and organisations in charge of planning and management. In particular, we learned about the importance of connections for bringing about a collective impact, and how to develop business through a consortium using the strengths of its members. Through the discussion, we also learned about social challenges to be solved, the building of a vision, and the importance of leadership with regard to project coordination.
