Social investment at the early stage
Social investment (often called social impact investment, particularly in the US) is the provision of repayable finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial return. In a way it sits between philanthropy on the one hand, where funds are given away with the expectation of a positive social outcome, and on the other hand, a purely market based investing model where the focus is only on financial return. There has been a growing interest in this space from investors looking for a social and financial return, driven by both, a realisation that there is a need to complement the roles of philanthropy and government in tackling social challenges, and by a distinct generational trend towards individuals and organisations seeking to do well by doing good.
For example, as reported in Deloitte’s Millennial Survey 2014, ‘Members of the millennial generation that are entering the workforce today want their work to have a purpose beyond merely making money, whilst older generations too are ever less willing to settle for a compartmentalisation of how they earn a living and how they want the world to be’.
Here in the UK we have seen the clear emergence of a market in social impact investing. Government has been supportive, from setting up the Social Investment Taskforce in 2000, followed by the Commission on Unclaimed Assets, to facilitating the creation of an independent institution like Big Society Capital. The mission of Big Society Capital is to help build the social investment market in the UK through deployment of capital to social investment finance intermediaries, such as Big Issue Invest, Bridges Ventures, Charity Bank, ClearlySo, Impetus –PEF, LGT-Berenberg, NESTA, Social Finance, Social Investment Business, and Unlimited. Government has been instrumental in shaping this ecosystem by acting as a market champion.
Measurement of social impact can of course be difficult – a lack of standardised metrics and language make this a challenging area. That said, organisations like NPC, Big Society Capital and GIIN (the Global Impact Investing Network) have made much progress in developing social impact frameworks and measurement tools to assist, as has the work of the Social Impact Investment Taskforce established under the UK’s presidency of the G8.
The emerging social impact investing ecosystem in the UK looks unsurprisingly similar to the start-up business world – family and friends and angel finance backing new ideas and innovation; business models that can be scaled; advisory firms; fund managers, social banks, and individuals as providers of funding; and with the introduction of Social Investment Tax Relief (SITR) tax incentives similar to EIS. And while it is still very much an emerging market, most commentators expect to see significant growth looking forward.
To deliver on this promise what we need is more social entrepreneurs bringing in innovative ideas to help effectively address stubborn social problems; and more commissioning of these social outcomes by government, business, foundations and individuals.