Investment is the allocation of current resources, which have alternative productive uses, to an activity whose benefits will accrue over the future. The benefits take the form of production of goods and services that are of individual or social (public) benefit. The cost of an investment is the benefit that could have been derived by using the resources in some other activity. An investment is justified if the benefits anticipated are greater than the costs. (Arrow 1965). An approach to investment in the present period that is intended to produce social (or public) benefits rather than purely financial returns in the future may be described as social investment, socially responsible investing, social impact investment or impact investing (OECD 2015).

The term social investment is more commonly used in Europe. Indeed, in February 2013 the European Commission launched its ‘Social Investment Package’ (SIP) (European Commission 2013). This offered an innovative social policy instrument in the context of demographic change and economic pressures across Europe. The social investment approach promotes policy measures that frame welfare or public spending as investments aiming to enhance the stock of human capital stock, maintain social protection buffers and enable people to live an independent life, and facilitate flow in the labour market (Hemerjick 2015).

The fundamental pillars of social investment as a policy paradigm involve a significant change in the core elements of the policy-making process inherited from the post-war welfare models of many European states, moving from a focus on “repairing” the unforeseen damages caused by events to a focus on “preparing” individuals and families to address life chances and deal with disruptive events, preventing or lessening the damages they can cause. The philosophy underpinning social investment involves advocating for three main social policy functions: (i) the creation of capacities, which involves a shift in policy analysis from an exclusive focus on present costs to a focus on current and future impacts; (ii) addressing social risks within life-course dynamics, which involves a move from a clear cut divide between those that pay and those who are recipients of welfare provision to a more dynamic and better adjusted vision of contemporary social reality where individuals have different status in different phases of their lives; and (iii) the reconciliation of work and family life, not only responding to ideologies of gender that pressure towards gender equality but also as a pre-requisite to deal with the consequences of demographic ageing and the need to secure economic and fiscal sustainability.