At the Crossroads – Building a Better Social Investment Market
Social investment can be complex. At its best, a well-functioning social investment market prioritises impact and catalyses social change. The goal is to start with the beneficiary and maximise social outcomes. In reality, risk, return, and deal structures often take priority – leading to what we call a “finance first” approach. The result is that not enough charities and social enterprises access simple, affordable, repayable finance.
I have heard mixed views on the social investment market. After years of hard work to build the sector, many are discouraged. There are still many challenges. The sustainability of many funds and advisors remains uncertain. Social investment intermediaries struggle to meet the finance needs of the bulk of the social sector. Yet others are bullish about the promise of impact investing, for-profit social businesses, and developing impact funds for mainstream financial markets.
Social innovation is happening in communities all over the UK. Creative solutions to health, homelessness or housing – to name a few – are inspiring. These initiatives need funding. In the ‘new normal’, uncertainty prevails and access to grants or public resources is scarce. Social investment can be a resource for enterprise-driven charities or social enterprises to achieve mission with new revenue streams.
The social investment market has reached a turning point. Investing in social ventures, property initiatives and secured loans has worked reasonably well. But providing charities and social enterprises with low cost, unsecured, blended finance, hasn’t really taken off. The pipeline for new investments is relatively thin. Small to medium sized charities, social enterprises and community businesses form the core of the UK social sector, where real impact is generated. Can we continue to ignore the finance gap?
Social investment has come a long way since 2009 when the Barrow Cadbury Trust made its first foray into the current market. How will the sector define its next phase of development? Should the market move upstream to attract mainstream investors? A “finance first” model that requires market-level returns drives many intermediaries to move in this direction. What happens if social investment becomes disconnected from the communities where impact is created?
Social investment is only a good thing if it keeps social mission at its heart. Values like diversity, equality, social justice, and mission are critical. If we lose sight of these values in the market, where will the “social” be in social investment? The market will simply reflect the existing financial sector.
At this stage, there are more questions than answers. The immature state of the market means there are many resource and infrastructure gaps. Social enterprises need capacity building. More diverse participants with strong connections to places or sectors may be required. No doubt the solution lies in a combination of factors.
Some of these challenges can be addressed by catalysing shared resources and market infrastructure; and by testing new ways for existing voluntary sector infrastructure to engage with social investment. The Connect Fund will strive to support positive solutions to build a better social investment market through a process of consultation and collaboration, underpinned by learning.
Jessica Brown, Connect Fund Manager
14 June 2017
