Social investment funds are a key tool for closing the inequality gap without giving up financial returns. This type of investment channels capital toward initiatives that generate social transformation, from inclusion to education, health, or employment.
Only 17% of the targets set in the Sustainable Development Goals (SDGs) are close to being achieved. Progress has been especially slow in areas such as poverty reduction and the fight against hunger, as well as in regions like Latin America, according to the latest 2024 SDG report. Lack of financing remains the main obstacle. The UN estimates that vulnerable and developing countries need $4 trillion annually to achieve the sustainability goals. In this context, social investment funds can play a decisive role.
How Social Investment Funds Work
Social investment funds operate like collective investment vehicles but with an expanded mandate: in addition to seeking financial returns, they channel capital into projects and companies that create meaningful social change. This can include initiatives related to inclusion, education, sustainability, health, or employment. Fund managers make decisions aligned with both objectives—financial and social—and must demonstrate measurable results in both areas.
“The main difference between a traditional fund and a social investment fund is that investors give the manager a broader mandate, which goes beyond mere financial returns and seeks to generate measurable benefits for society,” explains Sebastián Welisiejko, Chief Policy Officer of GSG Impact, a global organization founded in 2013 under the UK G8 presidency to promote social or impact investing worldwide.
Key Differences Between ESG Funds and Social Impact Funds
In the past decade, sustainable investment has continued to grow: around 20% of total global assets under management operate under some environmental, social, or governance (ESG) criteria. Total assets invested through ESG funds have reached $30 trillion and could reach $33.9 trillion by 2026, according to PwC forecasts. In this context, social investment funds are still relatively small (around $1.5 trillion or about 5% of total ESG fund investments, according to the Global Impact Investing Network). But what is the difference between ESG funds and social investment funds?
“ESG funds are funds whose mandate commits them to consider ESG criteria. That can include anything from companies implementing equity policies to renewable energy projects, although there are also initiatives that seem sustainable but actually have very little positive impact,” adds Welisiejko, also a partner at New Ventures, an impact investment organization in Latin America. “Within this broad umbrella, social investment funds aim to address issues such as health, education, employment promotion for vulnerable populations, or affordable housing.”
Who Benefits from Social Investment Funds?
Viwala, part of the New Ventures group in Mexico, is a debt vehicle manager providing non-bank loans to impact companies or those aligning their business with a purpose. Originally created to support Mexican women-led companies or business models benefiting women, aiming to reduce the gender gap in Mexico’s labor market, in recent years Viwala has added investor mandates to support youth inclusion in the formal workforce, the growth of businesses led by trans entrepreneurs in Mexico, and marine biodiversity conservation, among other causes.
Investors place their money directly into Viwala to achieve financial returns but also measurable and reportable social impact, as the social investment manager demonstrates with data how the invested capital is influencing HR policies in specific companies, reducing carbon emissions and water usage, or increasing employment for vulnerable youth.
In Brazil, Vox Capital is one of the pioneering impact investment funds in the country, specializing in projects that improve education, health, and inclusion. Among its 2024 portfolio investments are Isa Lab, a home healthcare platform improving access to medical services, and Mevo, a digital health platform facilitating electronic prescriptions and home pharmaceutical care.
Another notable example in the region is the Acumen Latin America Early Growth Fund, operating in Colombia, Mexico, and Peru. This fund is a joint initiative between the NGO Acumen and the Latin American Development Bank (CAF), aiming for positive impact in sectors such as agriculture, energy, health, and basic services. Projects include initiatives supporting small Colombian coffee and cocoa producers or tools to reduce youth unemployment in the region.
In Spain, organizations such as COFIDES (a public-private entity under the Ministry of Economy, Commerce, and Enterprise) and associations like Spain NAB (a CSG member) promote social impact investing. According to the latest Spain NAB report, direct impact investment and impact-oriented bank financing have shown sustained growth in Spain. Supported projects include Kanjo and BCN-Resol, two startups that developed tech applications to prevent and reduce violence against children and adolescents, and Irisbond, a company designing and manufacturing digital devices that enable communication through eye movement for people with special needs.
The Importance of Channeling Capital Toward Social Change
“Interest in social investment is growing among all types of investors,” says Sebastián Welisiejko. “Some invest out of conviction, while others are realizing that harm to ecosystems and society ultimately harms their business. Additionally, some are entering for regulatory reasons, especially in the European Union, with the implementation of the Corporate Sustainability Reporting Directive (CSRD).”
The growth of social investment is still far from what is needed to close the $4 trillion annual gap required for developing countries to reach the SDGs by 2030. This is largely due to persistent challenges among both investors and fund managers—social investment is still associated with lower returns—as well as among companies seeking such investment, which may lack a commercial proposal, product, or strategy capable of attracting capital.
“All public money combined will never be enough to cover a significant portion of the social and environmental investment needs that exist. We need to overcome the false dichotomy that capital creates the problems and states solve them. If we continue with maximizing returns as the only guide, we will live in a very uncomfortable and unstable world,” concludes Sebastián Welisiejko. “We need the system and capital to align with social and environmental sustainability to move toward a world in which we all live better.”
Frequently Asked Questions About Social Investment Funds
What are social investment funds?
They are investment vehicles aiming to generate financial returns while also creating measurable positive social impact.
How are they different from ESG funds?
ESG funds apply environmental, social, and governance criteria, while social investment funds pursue direct social impact as their primary objective.
Are social investment funds profitable?
Yes. They aim to combine social impact with risk-adjusted financial returns.
Which sectors do they typically finance?
Education, health, financial inclusion, employment, affordable housing, and basic services
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