In the following blog, IFT PhD researcher Filippo Addarii presents his rationale for engagement with sustainable finance. His story is that of the first Social Outcome Contract (SOC) in Italy for the work inclusion of prisoners. As an illustration of his attempt to put reformist theories into practice, it shows that the business of “changing the world” for good requires us to leverage market forces to serve a purpose that is more than profit.

The SOC – also referred to as a Social Impact Bond (SIB) – was conceived by a coalition of policymakers, financiers and charities to drive innovation and efficiency in public services and strengthen government to fulfil its mission. In essence, the SOC is a partnership between public and private sectors in which the former sets the goals – in this case, social outcomes – and the remuneration for having achieved them. The private sector provides risk capital, delivers services and manages the whole process. A third party, often academia, carries out the evaluation of the results that trigger payments. Application of the SOC is justified when straightforward state and market solutions fail or are not possible.

This is the theory – evidence reveals that real-time implementation of a SOC can vary greatly based on context. The first SIB/SOC was piloted in the UK in 2010 and since that time, the SOC model has been implemented across the world, with examples now totalling 251 worldwide. A SOC is the flagship product of impact investing, the international movement to put finance at the service of public value creation. It can be categorised as a form of sustainable finance.

My company, PlusValue, has been involved in the conceptualisation and implementation of the first SOC for the work inclusion of prisoners in the private sector in Italy.

Italian law allows prisoners to work outside a prison while serving their sentence, if they are deemed fit by a judge. There are 60,000 prisoners in Italy, most of them on short term sentences. At least 4000 of these prisoners meet the criteria for employment. There is overwhelming evidence about the effectiveness of employment in reducing re-offending rates and fostering social inclusion. Furthermore, scaling employment of the prison population would not only reduce costs of the prison system (approx. €3bn annually) but would also reduce the need for new prisons. (more…)

During the summer heat in Rome, Professor Francesca Medda, our Institute Director, likes to escape to the Vatican Museum. In this blog, she reflects on why we have named this platform Parnassus, in celebration of Rafael’s painting by the same name. Rafael’s work pictures a host of artists from Sappho to Dante, surrounded by the muses on the mythological mountain, Parnassus, where the arts and study are protected. This painting is our inspiration – a blog that will be a sounding board for new ideas and discussions on digital finance. 

We live in chaotic times. Covid-19 is not yet over, the war in Ukraine rages on, and the climate crisis is not only accelerating the digitalisation of the financial market, but also highlighting the chronic difficulties – of time and sometimes complex procedures – that we face to supply capital from conventional financial services.

The implementation of effective finance and economic solutions calls for responses to several preliminary concerns, including applicability, types of technology, time frame, budget constraints, acceptability and awareness of stakeholders, and declining central government revenues. Solutions must also correspond with levels of risk and the uncertainty posed by an unknown future. Importantly, however, these concerns cannot be resolved by ‘one-size-fits-all’ or ‘try-everything’ strategies for digital transition, particularly when future uncertainty is likely to exacerbate social and income inequality.

Given the interdependency characterised by the financial market today – and noting that digital silo-based solutions have fallen short of expectations – we can take the position of curatorship in this era of exponential change, as in The Parnassus of Rafael, where solving problems takes priority over incremental solutions.

From the perspective of a curator, we are indeed on the cusp of finance change and new technologies in digital finance that arise from the need for sustainable and efficient financial market systems. However, managing innovation for the financial market is not easy-peasy, given the current and predicted global trends. These include:

• demographic and social imbalances, often dramatic and diverse in different countries, from sharp growth in migration patterns in many emerging economies, and aging and population decline in cities of several of the richer economies;
• risks and hazards in the form of natural and human-caused disruptive events, particularly to infrastructure, and to assets that are complex systems and therefore potentially most vulnerable to threats; and
• issues relating to resource protection and steady supplies required to maintain productivity and welfare.

Writing from the vantage point of IFT, it seems that these complex issues can be transformed from challenges into opportunities only if we focus on research and apply our knowledge towards enhancing access to information and communication technologies, to the better management of resources, and to improving our financial systems by reducing waste, to mention just a few. Fortunately, the research panorama is very fertile; scholars from a variety of organisations, not only from established academic institutions, are responding to these challenges by developing solutions and merging instruments that leverage excellence in research and knowledge and also within the social and environmental impacts they produce. In this context, our blog is indeed a sounding board, a protected area, as in The Parnassus, where we can benefit from the exchange and development of ideas.

This blog also aligns with the spirit of the Institute of Finance & Technology’s work and research generally. Three words encapsulate our objectives and vision.

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