Implications of UK Report on Social Investment

A landmark report by the Alternative Commission on Social Investment, launched in London has wide ranging implications for the Australian social investment market, according to social impact investor and analyst, Emma Tomkinson.

After the Gold Rush, the final report of the Alternative Commission on Social Investment, contains 50 recommendations for improving the social investment market.

Australian analyst Emma Tomkinson said the Commission report is a response to growing recognition in the UK that the social investment market is not meeting the needs of the organisations and individuals it seeks to serve.

“It was established to take stock, investigate what’s wrong with the UK social investment market and to make some practical suggestions for how the market can be made relevant and useful to a wider range of charities, social enterprises and citizens working to bring about positive social change.”

The commission was funded with a grant from the Esmée Fairbairn Foundation and was led by David Floyd, managing director of social enterprise Social Spider. It was established to assess whether the social investment market in the UK was meeting the access to finance needs of social sector organisations.

Commission Secretariat and Managing Director of Social Spider CIC, David Floyd said: “We often hear from Ministers, champions of social investment and the G8 that the UK is a world leader in social investment. Yet for charities and social entrepreneurs here in the UK, it doesn’t feel like that.

“The Alternative Commission on Social Investment was set up to ask why and to make some practical suggestions as to how things could be improved.”

The report recommends that Social investment in the UK should produce less social investment hype that might inflate expectations, deliver more transparency from lenders and more focus on the needs of charities and social enterprises if it is going to succeed.

The commission delivered five key areas for action:

1. Transparency

• Publish information on all social investments across all investors – with investees anonymised if required (Big Society Capital, SIFIs, the Social Investment Forum). Delegates at roundtables also called for upfront transparency from social investors on:

  • what they will and won’t fund

  • where the money goes

  • the terms of investment

  • how to present a case for investment

  • what the application process will involve

• Explain if and how social value is accounted for within your investments – do you expect investees to demonstrate their impact as a condition of investment? Do you offer lower interest rates based on expected impact? Are you prepared to take bigger risks based on expected impact? (Big Society Capital, SIFIs)

2. Wholesale changes

• Reconsider the role of Big Society Capital – prioritise building a sustainable and distinctively social investment market over securing a sustainable existence for Big Society Capital – (Big Society Capital, Cabinet Office)

• Consider splitting the investment of Unclaimed Assets and Merlin bank funds. Unclaimed Assets, allocated by law to Social Sector Organisations, could be invested on terms that better meet demand than currently, while Merlin bank funds could be invested in a wider group of organisations, with a focus on positive social value – (Big Society Capital, Cabinet Office)

3. Social investment is dead!

• Minimise all forms of social investment hype that might inflate expectations and under no circumstances imply that social investment can fill gaps left by cuts in public spending (Cabinet Office, DWP, MoJ, HM Treasury, Big Society Capital, Big Lottery Fund, NCVO, ACEVO, Social Enterprise UK)

• Avoid treating the development of the social investment market as an end itself – social investment is a relatively small phenomenon overlapping with but not the same as ‘access to finance for social sector organisations’ and ‘increasing flows of capital to socially useful investment’. These wider goals should be prioritised over a drive to grow the social investment market for its own sake – (Cabinet Office, Big Society Capital)

4. Long live social investment!

• Work together in equal partnership with the social sector to develop a set of principles for what makes an investment ‘social’ – (Policymakers, Big Society Capital, Key Stakeholders, SIFIs, Umbrella bodies, the Social Investment Forum, SSOs)

• Social investors should better reflect and understand the market they are seeking to serve by getting out and about, meeting a broader range of organisations – particularly organisations based outside London – recruiting from the sector and cutting costs that deliver no social value – (SIFIs)

5. Doing it Ourselves

• Create a ‘Compare the market’/’trip advisor’ tool for social investment – enabling organisations to rate their experiences and comment – (Umbrella bodies and SSOs)

• Back yourselves and invest in each other – Social sector organisations should consider cutting out the middleman and developing models where they can invest in each other, where legal and appropriate – (SSOs)

Emma Tomkinson said the report enables Australia to learn from the mistakes of the UK market. Tomkinson created the Social Impact Bond Knowledge Box for the Centre for Social Impact Bonds at the UK Cabinet Office and also developed the social impact bond concept for application in New South Wales.

“The report should also encourage us to embrace our own failures and learn as we go. We can build an Australian social investment market that better meets the needs of social purpose organisations and the communities they serve.

“This is also an important report because it is a reflection on the UK Social Investment market by social enterprises, using information gathered from social enterprises, investors and research.”

“As the Australian social/impact investment market is still being designed, we have a precious opportunity to learn from the UK and the report has lots of great recommendations that we can easily implement as we go.”

“We also have an opportunity to correct some of the things that didn't go so well, rather than repeat the mistakes.

Tomkinson said that the particularly relevant lessons for Australia from the Alternative Social Investment Commission's report are:

1. Minimise the hype: e.g. “Best available estimates are that the domestic market could reach A$32 billion in a decade (IMPACT-Australia 2013)”. This is not a forecast, but the most optimistic of goals. We can track the progress we do make, rather than set ourselves up for failure and disappointment. We can likewise cease talk of social investment filling the gap left by funding cuts unless there is any evidence that this has occurred.

2. Increase investor transparency: information on investments made will help organisations seeking finance navigate investors more efficiently. It will also help coordinate efforts and highlight gaps between investors.

3. Don’t just replicate the mainstream finance market for social investment: some mainstream finance models don't transpose well to social investment – we can develop a social finance market that is fit-for-purpose and takes advantage of modern technology.

4. Understand the market we seek to serve: we can avoid some of the 'us and them' mentality that has arisen in the UK by seeking and listening to the voice of the investee in order to develop social investment that is useful to them.

5. Fill the gaps: similar to the UK, there is a funding gap for small, high-risk, unsecured investments. If this is the type of investment we are going to talk about all the time, let's provide it.

6. Redefine social investors: social investors don't have to be just rich people and financial institutions. In order to achieve the three points above, we should encourage and highlight social investments by social purpose organisations, individuals who are not 'wholesale' or 'sophisticated' investors and superannuation funds. Individual investment currently occurs in Australia through cooperatives, mutuals and small private investment. Crowd-sourced equity funding reform is being considered by the Australian Treasury and may reduce the regulatory burden and cost associated with making investments available to individuals who aren't already rich.

Download the report and its summary of recommendations at http://socinvalternativecommission.org.uk/home/.