Finance

Investing for Good and for Money

12 August 2016

Social investment is often touted as a “new” type of investment that charities can make. In reality, like most good ideas, it is not something new at all.

The history of social investing; investing not just for financial return but with the intended purpose of creating social impact goes as far back as 1542, when Sir Thomas White Loan Charity was set up to provide interest free loans to aspiring business people in Leicestershire.

The charity still exists and makes loans today.

Another example is the Four Per Cent Industrial Dwellings Company in the Victoria era, set up by Jewish philanthropists to build housing for poor immigrants.

Investors would get a modest 4% return on investment from the rents as well as the knowledge that they were helping these new arrivals settle in sanitary housing rather than the East End slums that were often the only alternative.

Social investment as a concept is not new but the number of opportunities have substantially developed. Unsurprisingly as grants continue to diminish, charities and social enterprises are increasingly looking for ways to adapt, diversify their income stream and continue to deliver social impact to their beneficiaries.

The Association of Charitable Foundations (ACF) research in 2013 showed that up to 30 UK charitable funders were making or planned to make social investments. These early adopters saw their investment capital as another tool that could help them achieve their charitable mission.

While some of those at the vanguard felt comfortable making these investments, some trustees still questioned their powers to do this as there was a general perception that they must always seek to maximise risk-adjusted financial returns on their investment assets, or because social investing appeared at odds with the duties and responsibilities imposed by the Trustees Act 2000. 

The Charities (Protection and Social Investment) Act 2016 gives more regulatory powers to the Charity Commission and responds to current concerns in the sector.

In relation to social investments, the Act gives all charities (except statutory charities and Royal Charter bodies) statutory powers to make social investments, taking on the recommendations made by the Law Commission in its 2014 report on social investment.

Section 15 of the Acts explicitly grants powers to charities to allow them to make social investments which means investments that are not being made solely to achieving a financial return but also to further the charity’s purposes.

Even though some charitable foundations were already making these types of investments without being given these explicit powers to do so, erasing any question marks and doubts trustees had would undoubtedly be helpful. 

So how might a charity want to get involved?

This really depends on the charity and what their mission is, their size and where in the ecosystem they feel they are best placed to play a role.

Some foundations have chosen to carve out a small portion of their endowment to make social investments that help them to achieve their mission, directly or through funds. 

Others take a more grants plus approach, where they are actively helping their existing grantees to diversify their income stream. They help by offering advice, help, grants and loans.

The non-financial support is as valuable, if not more so than the money (both grant and investment) on offer.

Some foundations are specifically interested in making investments that are more than the sum of their parts, something that can bring in other types of funders to causes they care about.

And then you have those who are moving towards 100% impact where they have actively made a commitment that all resources and financial assets will be positively impactful.

And it’s not just trusts and foundations… we have seen an operational charity Macmillan Cancer Support make its first social investment in the Care and Wellbeing fund run by Social Finance.

Charities interested in exploring social investment can join the Social Impact Investors Group (SIIG), an informal group of foundations that meet regularly to learn from each other and exchange information and consider investable opportunities.

Evita Zanuso is Financial Relationships Director at Big Society Capital (BSC). She leads on BSC’s engagement with trusts and foundations. Twitter: @ezanuso1

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Evita Zanuso
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