July 28 – There is growing pressure on sustainability, ESG, and diversity initiatives to demonstrate economic value alongside moral justification. To convince skeptics, it must be shown that social progress can also drive economic benefits.
Economic incentives for positive social or environmental actions could pave the way for an impact-focused economy. Currently, social enterprises generate significant social and environmental benefits but are primarily rewarded based on financial performance.
New concepts like impact credits, marketplaces, and registries are advancing the idea of ‘tradeable impact’—the ability to quantify, verify, and trade tangible social outcomes as part of economic transactions.
South Korea’s Social Progress Credit (SPC) program, launched in 2015 by SK Group and the Centre for Social Value Enhancement Studies (CSES), has issued over $52 million in cash incentives to more than 400 social enterprises. These funds, proportional to the value created, have enabled reinvestment and scaling, generating over $360 million in verified social value, including healthcare access and employment for vulnerable populations.
The Common Good Marketplace (CGM) offers a vision of digital platforms where impact can be traded. CGM has developed standardized impact assets—each representing a year of improved income adjusted for socioeconomic context—which funders can purchase. In 2024, it facilitated $2.1 million in social value transactions, supporting initiatives like Village Enterprise’s poverty alleviation programs in Kenya, where participating households saw a 74% increase in asset savings.
The European Commission’s Roadmap towards Nature Credits indicates growing public sector interest in creating the necessary infrastructure and regulation for impact markets.
Six key elements are essential for building effective impact markets:
1. **Demand**: Governments can stimulate demand through public procurement policies that consider social value, subsidies, and tax incentives. The UK’s Social Value Act requires public bodies to evaluate broader social, economic, and environmental benefits. Companies can also purchase impact credits to address social issues in their supply chains.
2. **Measuring Impact**: Consistent measurement frameworks are crucial. Unlike carbon markets that use a single metric (CO2e), social outcomes are complex and context-dependent. Standardization is necessary to make these outcomes comparable and fungible.
3. **Valuation**: Impact must be priced, often based on the value of harm avoided or societal benefits. Community participation in determining value can help set initial prices, with market dynamics influencing trading values over time.
4. **Market Infrastructure**: Secure and transparent systems are essential, including registries to prevent double-counting and platforms with exchange functionality.
5. **Verification**: Independent verification systems ensure outcomes are real and meaningful. Technology like AI, blockchain, and mobile tracking can reduce verification costs and improve data availability.
6. **Governance**: Effective governance structures protect stakeholders and support market evolution through multi-stakeholder models involving communities, regulators, and advisory groups.
The foundation for tradeable impact markets already exists through systems like outcome-based financing, social impact bonds, and sustainable reporting frameworks. At the United Nations’ International Conference on Financing for Development in Seville, discussions highlighted the potential for impact credits alongside existing tools like impact investing and blended finance.
The market is already evolving, with organizations like British International Investment, Bridges Outcomes Partnerships, UBS Optimus Foundation, and the Outcomes Finance Alliance launching the $100 million SDG Outcomes Fund with the European Union to mobilize capital tied to verified impact.
A transformation in development financing is needed. With collaboration from social enterprises, governments, the private sector, and civil society, impact credits can become a vital tool in creating an economy focused on measurable social impact.