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Discussing social investment
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11 The purpose of this section
Discussing social investment
Mark Salway
This and the other discussing social investment chapters have been written by various authors. They offer their thoughts and wisdom on social investment. Some of these chapters are wide-ranging thought pieces, while others are very technical in nature.
Readers will learn from these experts and commentators as they explore the nature and complexity of social investment.
This section
The discussing social investment section allows the reader to dive into and explore different elements of social investment.
ā¢ It starts by looking at the case for social investment and explores how we can democratise capital such that social investment principles can be used across an entire investment portfolio.
ā¢ The discussion then looks at charity and non-profit culture and how this can be quite conflicted when we talk about āinvestmentā tools working in āsocialā businesses.
ā¢ We then touch on what family offices (as investors) want from social investment. Where they lead, other investors typically follow.
ā¢ We next look at a critique of social investment from Northampton University, before deep-diving into impact measurement and the technical knowledge needed to deliver this.
ā¢ We ask if social investment can develop a market space sufficient to become sustainable from a government and investor perspective.
ā¢ We next explore small charities and how their needs differ from large charities with regards to social investment.
ā¢ Finally, we look to the future of social investment and what may be in store.
In between each of these practitioner-led articles sits a case study. These case studies seek to highlight certain aspects of social investment and bring the topic to life.
We hope the reader will enjoy the discussions and depth of practitoner thought ā sometimes inspiring and always thought provoking ā in these chapters.
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12 The case for social investment, and how to ādemocratiseā capital
Mark Salway and Nigel Kershaw
Mark Salway draws inspiration from a conversation with Nigel Kershaw, Chair of Big Issue Invest and The Big Exchange.
The starting point for social finance
Within the vast spectrum of social purpose organisations there is an ever-present cultural difference between those organisations who focus on philanthropy for their funding, versus those who trade.
A more traditional charity model might ask a third party for money which is subsequently spent on the cause. Once this funding has been spent, the charity must return to the donor for more funds to distribute. Meanwhile, social businesses and social enterprise aim to deliver social change in a more sustainable way through trading.
Of course, there are many areas of charity in which trading just wonāt work; for example, in a humanitarian crisis you just need grants and donations to save lives. However, there are equally many examples where social business could well work better, or certainly more efficiently, as a model to create social value.
Social businesses need social capital (āsocial financeā) to help them grow. It is this which we explore now.
Making social finance mainstream
Some commentators feel there has perhaps been too much discussion in the past about whether the intention behind social finance is to gain either financial return or social return in a binary way. As Nigel Kershaw suggests,
If youāre delivering both a financial and social return from both markets, itās the bit where they overlap in the middle that youāre creating, itās neither one nor the other. Itās something new; a contradiction in some ways but also a synthesis of the two.
Similarly, labelling the returns of social organisations as āsub-market returnā is also the wrong perspective.
Most social entrepreneurs are addressing a market failure. Both a social-market failure and a financial-market failure. So, how can solutions be āsub-marketā, when we are actually creating solutions?
Social entrepreneurs are creating something different that is not easy to categorise. As the goal is to bring about much needed social benefits, social finance and social investment need to become part of the mainstream narrative.
With social businesses, we need to move away from referring to them as ānot-for-profitā organisations. To be sustainable using trading, any organisation has to be for-profit or for-surplus. The way you make that profit and how you re-invest these in your mission is the question.
Many business leaders believe they are creating social value simply through creating jobs. However, to get corporates consistently focused on creating social value calls for a profound change of mind-set and system. Although some CEOs are really committed to social change, often their business decisions are guided by the shareholder value and corporate reporting systems.
Trading within social businesses creates profit which need to be reinvested into social causes at the same time as creating financial returns for investors. In social enterprises, for example, the majority of the dividends or surpluses are reinvested to further the social mission (Social Enterprise UK, 2018).
There is no sacrifice of financial returns
āThe [Big Issue] mission encouraged us to be ambitiousā, Mr Kershaw says. Although he likes to joke that people were surprised when they received money back, he insists that socially responsible investing does not come at the cost of financial returns. āThere is no sacrifice of financial returnsā (FT, December 2018).
Impact matters
Social investment is a powerful tool within this dynamic. It enables you to really look at need first, and focus more on mission; this enables you to systematically address social problems more effectively.
Nigel Kershaw explains that
We, as social investors, need to be able to see the social changes we are creating ā good and bad. We need to enable people to help themselves not in top-down way; feeling somehow that we know best, when we often donāt understand or have the experience or donāt ask people and communities what they want.
Looking at outcomes and impact systematically is a very important exercise. Organisations need to measure the social value they create, not just focus on financial returns.
Narrative can be qualitative, quantitative or both. That said, some outcomes are difficult to quantify and care must be taken not to enforce measurements which may end up being inaccurate or over-complex.
Across the world ā enterprise not aid
Other commentators are focusing on the need to develop enterprise not aid, again challenging the traditional notion of charity. Kim Tan Dato and Sir Brian Griffiths, writing for the Transformational Business Network (Tan and Griffiths, 2017, p. 23) express their thoughts. They mirror those of Henry Ford: āA business that only makes money is a poor kind of businessā.
They argue that it makes sense to invest in aid through enterprise. Investing in sustainable businesses creates employment in low-income countries. Real employment gives people the dignity and self-determination to transform their own communities. This is in contrast to the dependency culture which may have been engendered by aid.
They further add (p. 23): āAn ecosystem to facilitate SME [social business] development is needed. Incubator and accelerator hubs, government business grants, angel networks and venture capital providers are all components of this enabling environment.ā
Many businesses exist solely to make a profit for their shareholders: that is the financial bottom line. Social investment doesnāt necessarily require the same high rate of financial return because it also seeks social and environmental returns. In other words, it is not investing purely for a financial return. That is not to say that it loses money. In order for businesses to be sustainable, they have to be profitable.
A āhand-up not a hand-outā to alleviate poverty.
The Big Exchange
Nigel Kershaw and Big Issue Invest want to go further: āWe have come to see that core to The Big Issueās mission of dismantling poverty is how we impact the mainstream by ādemocratisingā capitalā (Nigel Kershaw, Good with Money, 2019).
Big Issue Invest sees that itās all about giving ordinary people, such as readers of The Big Issue, a choice in how they invest, how they save, and also where their ISA and pension goes, in a way that will give them a financial return that benefits their families and communities and helps create a more fair, inclusive and balanced economy. This, in turn, will help towards Big Issue Investās mission of dismantling and preventing poverty.
It was in response to these issues that The Big Exchange was set up. It sees the creation of a blockchain-powered platform that offers impact funds to retail investors. It will invest in impact investments ā those that generate a positive social return.
To measure impact, The Big Exchange have created a methodology whereby they look in detail at each investment and see how much positive impact it has. Mr Kershaw says that
funds are assessed against a robust criteria to make sure they help achieve real change for People and Planet. We have awarded Medals acknowledging those funds that really go the extra mile in contributing to the UN Sustainable Development Goals (SDGs).
This is a fledgling initiative that will help organisations in the social sector work together to develop the āsocial poundā...
