Last week, it was great to be able to participate in a discussion on social investment with the All Party Parliamentary Group (APPG) for Charities and Volunteering – the first time this topic had been discussed at length with parliamentarians interested in the voluntary sector.
The discussion was focused on exactly the areas that we’re mindful of in our role to enable charities and social enterprises to do more of their good work through use of social investment:
- The realities for organisations who have used social investment
- How to make the products better understood
- What can be done to help organisations work out whether SI is right for them
The input from the panel included some good challenges from David Floyd around the danger of high level government messages (e.g. around social impact bonds) clouding the sector’s perceptions of social investment, particularly given the challenges of operating in public services markets for charities and social enterprises.
Real experiences makes these discussions meaningful, and John Smart, FD of HCT Group highlighted both the positive opportunities of social investment for ambitious social enterprises, as well as issues around high transaction costs, the often long timescales for raising investment (and the need for longer term and equity-like investment to be made available) and challenges for bidding for public services contracts for social enterprises.
Unsurprisingly, Seb Elsworth from Access and myself both acknowledged the challenges there have been to date for smaller organisations in accessing social investment. As recently highlighted by research from Lloyds Bank Foundation, small and medium size charities have been disproportionately affected by the financial climate in recent years, but also have a key role to play in tackling disadvantage at a local level. We’re keen to ensure that social investment opportunities are also available for this part of the sector - some of the initiatives underway:
1) To improve information and support available to charities and social enterprises. For example through the launch of GoodFinance.org.uk, as well as Access’s capacity building programmes. Critically, our work here needs to be developed in partnership with the sector, and we are working with sector membership bodies, foundations, and federated charities amongst others to see how we can better reach and support smaller charities and make social investment relevant. The need for more peer-to-peer support and sharing was also drawn out by the panel.
2) To increase availability of more relevant products for smaller organisations. For us, this will include smaller loans through Access’s Growth Fund. We are also working to promote the take up of the Social Investment Tax Relief (SITR) through our GET SITR campaign and to support crowdfunding platforms which will enable more organisations to raise investment direct from individuals.
We then had a good discussion with parliamentarians and sector representatives which centred on these themes:
1) Social investment is not reaching those outside of London?
There was a strong view expressed that social investment is still a London/Westminster driven activity, but for us the real action of delivering impact through social investment is elsewhere. Interestingly, the vast majority of our investment (including through social impact bonds) is reaching charities and social enterprises based outside London, and the same is true of investment using SITR or community shares. We have also set up a social investment fund dedicated to the North East in conjunction with the Northern Rock Foundation.
However, we recognise that connections to social investors are often easier for London based organisations, and are looking to develop regional networks to help with knowledge sharing and local networking.
2) Is it realistic for smaller organisations, particularly those that are mostly volunteer run to get involved? How can the information available to them be made more accessible?
We think that social investment may not be right for all organisations, and this may be more so for smaller organisations that may have less capacity to take on and manage investment. However, where there is a sustainable revenue model, social investment can be relevant irrespective of the size of the organistion. There are examples of community led organisations taking on social investment (e.g. Clevedon Pier raising £250,000 through community shares and using SITR) to retain assets for local benefit). Even in SIBs, seen as complex, there are models such as Ways to Wellness in Newcastle which are enabling groups of service providers to participate, and could allow joint working and greater participation in social investment.
We’d welcome the input from smaller organisations to the development of GoodFinance.org.uk and Access are making bursaries available to help make this happen, and will follow up with some of the organisations representing smaller charities who attended.
3) Does risk appetite of social investors need to change to get more affordable finance to the sector?
Again, a hot topic often debated. The risk appetite of the social investor will often depend on whose money is being invested – an individual in a local project close to their heart and a pension fund manager investing more socially as an alternative to mainstream investment will have different risk appetites and return expectations. It was highlighted that often some subsidy may be needed through grants or SITR. Getting the cap on SITR lifted through the government’s work with the EU will be welcomed and increase availability of risk-taking capital for the sector.
4) Is the discussion around social investment one-way – how can the sector influence what is offered by investors?
Hopefully greater involvement of charities with social investment will create a more level basis for discussion with investors on shaping their product. We’re seeing some interesting ideas being developed on this basis. For example in HCT’s recent investment raise, some of the financial interest to be paid will be reduced if certain social impact targets are met. We also welcome input from the sector in co-developing ideas.
Finally, it was encouraging to hear the positive interest from parliamentarians in this area and the appetite to discuss the challenges raised in more detail in future. There was also an acknowledgement that whilst the development of social investment will take time, there was long term significant potential, particularly through attracting the public to invest in the voluntary sector.
This encourages us to recommend that organisations or individuals raise the question to their constituency MPs to consider how social investment could help in their own areas and enable local organisations to thrive and better support their community.