It is now six years since the Alternative Commission on Social Investment shared their report and recommendations on how to make social impact investment more accessible and relevant for the social sector. The launch of the report coincided with me joining Big Society Capital. At that time, fresh from running a social enterprise, I ‘thought’ I understood something about repayable finance. However, with no investment background I was keen to make sure I understood the challenges, misconceptions and opportunities from the perspective of social entrepreneurs (like me). The report listed 50 recommendations so we certainly had a fair amount to go at!
With a number of reviews and upcoming commissions looking into the effectiveness of social investment such as the Oversight Trust’s Quadrennial Reviews, The Adebowale Commission on Social Investment and the soon to be launched Snapshot on Social Investment commissioned by Esmée Fairbairn Foundation, it seems a good time to reflect. How far has Big Society Capital and the wider social impact investment sector come? And where is there still much more to do?
David Floyd, Managing Director of Social Spider CIC and one of the authors of the Alternative Commission on Social Investment and I took some time to reflect on the direction of travel. In our respective roles, we are committed to be both a champion and a challenger, whether externally or internally. Here, we highlight some of the key areas we have seen progress and those that need further development to unlock the full potential of social impact investment.
On the upside
Always be clear about terminology
David: There is an ongoing challenge in balancing the use of terminology that enables as many people as possible to understand what is meant, with the need to introduce technical language, which is unfamiliar, but may be necessary to understand.
Mel: Hear, hear to that – jargon, acronyms and financial technical speak are the enemy of straightforward and simple. Understanding social investment should not be confined to a few.
Through our work at Good Finance, we are committed to helping the sector be better at this with our Jargon Buster (get in touch if there is a term here we should be covering).
Minimise all forms of social investment hype
David: some formerly over-exuberant people have calmed down a bit; some formerly over-confident people have realised that investing for both social and financial returns is a bit more difficult than they thought it was and have left the sector! Dwindling interest from government (though maybe negative in other ways) has contributed to more realistic assessments of what's possible.
Mel: Against the backdrop of austerity under which social investment became the next new shiny thing and the monopolising Brexit, General Election, and then the COVID-19 pandemic, it’s not surprising that government interest is no longer in launch fervour. Social investment was never going to be a silver bullet and it’s helpful that is now accepted. Positive signs include: a small win on retaining Social Investment Tax Relief and a chance to develop a more effective replacement; and a recent partnership with the Ministry of Housing, Communities and Local Government, investing £30 million into the ‘Everyone In homelessness scheme’.
Identify what is ‘social’ about the investment approach that you are hoping for from investors
David: There is now a much bigger pool of potential investees who are clued up about what social investors may be able to offer that mainstream investors can't - as a result investable charity and social enterprises recognise they have a reasonable amount of power in negotiations (because social investors want to invest and have a relatively small number of organisations who want their money - particularly compared to grant funders).
Mel: More power to the user we say. With more choice of investors, and with more investees comes confidence. We actively encourage social enterprises and charities to shop around not just for the best price (although that is a key consideration) but also for the best financial product. Most importantly, to quote many of our peer speakers who have taken investment: ‘find an investor who shares your values’. This is a long-term relationship for you both.
On the downside
Publish information on all social investments
David: Big Society Capital has certainly made progress on this, but the picture is far much more patchy at the intermediary social investor level. There are few social investors who enable potential investees to see a spreadsheet of their previous investments - explaining the size and terms of the investment - in the way that grant funders do via 360Giving.
Mel: Transparency was a big focus in the early reports and continues to be a key focus. There are some commercial sensitivities but none of us should feel we can hide behind those. There are ways we can all get better at sharing data particularly as we are all committed to addressing the imbalance which exists around equality, inclusion and diversity.
Be clear about what is ‘social’ about your approach to investment
David: We have seen a massive increase in people earning a living explaining the social/impact investing but the result, so far, has been less clarity rather than more. There's now a massive range of (at best) loosely connected activity lumped under the ‘social/impact investing’ banner: this may or may not be a bad thing but it's a notable drift.
Mel: The term ‘social impact investment’ means different things to different people, that’s for sure. Finding ways to invest capital, crowd in capital, make sustainable returns for investors whilst keeping capital affordable and preserving and growing the capital available to lend is a balancing act. Time will tell how right or wrong our approach is. However, being clear for each individual organisation what your mission is and being accountable to that drift we must all be prepared to reel in.
A tale of two halves
Focus on additionality and filling the gaps especially small, patient risky, equity-like
David:There has been major progress on small and patient lending, with the establishment of Access Growth Fund, SITR Funds to name but a few but virtually no progress on patient, risky equity-like (other than the publication of some really engaging research*!). Obviously this is (hopefully) about to change.
With Access Flexible Finance programme new initiatives from Scottish Government backed Social Catalyst Fund and entries by organisations like Sumerian Partners and Comic Relief to the equity like lending space.
Mel: As we await the next generation of products – we are restless for change (I remember this was in the job advert I applied to), and it has stuck with me because it is exactly how I feel. We are passionate about social and environmental change; capital is just one way we can effect some of this change. I am in firm agreement with David as both champion and challenger, that this is one of the most important gaps that now needs to be filled.
As we look forward to six years on since the publication of the Alternative Commission on Social Investment, I am comforted we can see notable progress. Whilst it is good to reflect, what I am really interested in is the future and what is next for the social impact investment sector and Big Society Capital – that’s where our focus must be.