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Social Impact Investing: View from an individual investor

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Outside the social impact investing world, what motivates someone to become an investor into social enterprises? Dr Thelma Lovick, a professor and research fellow at University of Bristol writes about what attracted her to social impact investing. She also offers her perspective for those interested in following her example.

By accident of birth, I’m a baby boomer: one of that incredibly fortunate post-war generation who had it all. We had free education, we had free health care, there were jobs and social barriers were coming down. There was opportunity on a scale not experienced by previous generations. At the time, I took it for granted. I went on from school into higher education and embarked on a life-long career in the University sector, which has been successful.

However, I’m very aware that it’s not so easy for many these days. As retirement approaches, I started to look around for other avenues to pursue and financial considerations start to become important. This is how I came across social enterprise and social impact investing.

 

Why I was drawn to social impact investing

The way I see social impact investing is that it is a way to give a bit back to society by creating opportunities for others. There are lots of ways of doing this of course, depending on your circumstances and interests. For instance, there is volunteering, philanthropic or charitable giving as well as impact investing.  For me social impact investing seemed to tick several boxes:

 

  1. I liked the fact that investments are intended to generate a positive social and environmental impact.
  2. Social impact investing often targets organisations that do not have access to the mainstream finance sector; it gives enterprising organisations that are passionate about making a positive social impact a leg up to progress and become more independent businesses.
  3. Lastly - and this one is purely pragmatic - there is the opportunity for personal financial gain.

 

An opportunity to invest in local businesses doing good

Jericho Foundation - The ReUsers Shop

The ReUsers is one of the social enterprises Jericho Foundation runs. They rescue, restore and recycle second-hand items, which they go on to sell in their stores at Sutton Coldfield and Balsall Heath.

 

Another attraction of social impact investing was the chance to invest in a local organisation that was doing great work. As a long-time Birmingham resident I had become aware of the Jericho Foundation, which operates eight social enterprise businesses that provide employment, training and personal support for marginalised individuals who have been held back by a wide range of barriers to employment, training or social inclusion. 

They work in a supportive environment alongside skilled tradespeople, doing a real job that gives them relevant vocational skills to be able to move on and secure sustainable employment. I’ve been able to invest in this through a fund managed by Resonance, whose mission is to dismantle poverty by investing in sustainable small businesses that deliver a social impact, in order to allow them to grow and develop whilst at the same time, providing a diversification of risk for the investor.

And an opportunity to benefit from Social Investment Tax Relief

A feature of the fund is that investments are made specifically into social enterprises eligible for Social Investment Tax Relief (SITR). This is a tax incentive, which offers investors a 30% tax break on those investments. Designed especially for individuals looking to invest into social enterprises and charities, SITR was introduced to offset the risk of investing.

Go in with your eyes wide open

Even so, as with any type of investing, it’s important to go in with your eyes open.  One of the cardinal rules is to spread the load and not to put all your eggs in one basket. Social impact investing is relatively high risk and there is no guarantee of a financial return, although there is an expectation. So you do have to accept that you might have to withstand the hit. On the other hand, it is not necessary to invest large amounts of money.

If you’re interested, you can follow the projects you’re helping get off the ground and there is the option of personal involvement. By offering a social as well as a financial return there’s a lot to like. I think investment in social enterprise is well worth considering as part of anyone’s investment portfolio.


FIND OUT MORE

 

Social Impact Investing

There are a number of ways individual investors can get involved in social impact investing. For instance, they can invest into social impact funds (including SITR funds like Thelma did). Investors may also choose to invest into specific social enterprises. They can do this directly as a loan or by buying equity through community shares. They can also invest into a social enterprise using crowdfunding and peer-to-peer lending platforms.

For more on social impact investing, Personal Finance Society have produced the Practical Guide to Social Impact Investing for financial advisers.

And to learn more about impact investing in general, Good With Money have a useful guide: The Good Guide to Impact Investing. It covers investing into organisations whose activities have a direct, measurable positive impact on society and/or the environment.

 

Tax incentives including Social Investment Tax Relief

A range of tax incentives are available to investors into businesses. As mentioned in Thelma's blog, Social Investment Tax Relief is designed especially for investors looking to invest into social enterprises or charities.

You can find more information on how it works including a comparison of SITR and other tax efficient investments into businesses (SEIS, EIS & VCT) in the Factsheet for Professional Advisers from GET SITR.

Do also read the Essential Guide to Social Investment Tax Relief, which outlines the eligibility criteria for an SITR investment.

Last updated | 
26 March 2019

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