A few weeks ago, I was honoured to anchor a morning of keynotes and panel discussions on the new models of funding that are emerging into the mainstream for charities.
Along with around 50 leaders from across the sector, I listened to presentations from investors, charity CEOs and social finance intermediaries and, probably most valuable of all, got to hear the insightful challenges and questions from the audience during an extended panel Q&A. As becomes a host, it was then my job to pull together everything I’d heard into some form of coherent summary to close the proceedings. And here, in a slightly more polished form, are the main things I took from everything that was said.
To start with, there’s no shortage of money available for the right opportunities. Alastair Graham of Golden Lane Housing, for instance, showed how their £10m social bond issue was hugely oversubscribed, and as Bryn Jones, who manages the Ethical fund at Rathbones, stated unequivocally before going on to illustrate: “There is a lot of capital out there ready to invest.”
Another big theme that emerged was that, whilst one of the main reasons charities are looking to social finance is the increasingly tough grant environment, social investment is not a straight grant replacement. It’s a commercial transaction, and it needs a much more commercial approach – not just with the numbers, but also in the way it’s presented. Which is why, for many charities, it’s likely to need a shift in mindset and culture within the leadership and board to make it happen.
One thing that’s clear, is that returns still reign supreme for investors, and large-scale “impact investing” is some way off. Geoff Burnand of Investing for Good made the point, later endorsed by Jones, that to date he’s not seen a single investment turned down for lack of social impact; every single one has failed purely on the financials. Indeed, as David Marshall of Rent Plus made clear in the panel discussion, the more money that’s involved, the less impact the “impact” element seems to have.
Ethical investing may be in rapid growth – Jones’s Ethical fund at Rathbones has grown from just over £30m to nearly £600m in recent years – but it’s still based on providing market-rate returns, albeit with a clear conscience. Genuine impact investing, where significant money is put at risk for a lower rate because of the social benefit, is still largely the domain of foundations and philanthropists, and although investors seem to want to move in that direction, the financial instruments to do it simply aren’t there yet.
It also appears that the scope for social investment is still, in practice, quite narrow. It’s relatively straightforward to get a large investment for an asset that that has a track-record of returning money, like housing, but it’s a lot harder to secure funding for smaller amounts and unproven ideas. As Chris Wright from Catch22 explained, trying to get social investment to underwrite contract bids is nigh on impossible, and smaller investments (under half a million) are still difficult to secure. Wright and Marshall both concurred that commissioners, local authorities and government agencies could play a much bigger role, whether underwriting risks or providing more tax relief for impact investors, but it also became very apparent, particularly in the Q&A session, that investment funds urgently need to start developing new products that can meet some of those needs.
Finally, and here’s the upside, where it works, social investment can be transformational. Not just because of the money, although there were some fantastic examples shared of the impact investments have had, but from the engagement as well.
Many of the panellists talked about how investors had gone on to become private benefactors because of their closer involvement. Graham explained how the raft of publicity around Golden Lane’s bond issue generated a whole new wave of donors. And Mark Salway, of CASS CCE, told us of his time in Care International, developing their micro-loan platform for people to lend directly to third world projects. He recounted how one major agricultural project was destroyed by freak events, and he had to write to several hundred investors to explain what had happened. Just one single investor enquired about getting their money back, so emotionally invested were the others in the project.
None of these, in themselves, are a reason to seek social investment, but they’re all great reasons to make sure you get it right if that’s the route you choose.
If you want to find out more about social investment, you can download the CASS Social Investment Toolkit here, visit the Big Society Capital website here or test out their new social finance site here.