Views on social investment, strathclyde university presentation, social investment for 21st century
Views on Social InvestmentAlastair Davis
2Who we are• Social Investment Scotland was established in 2001 and is now the largestCommunity Development Finance Institution (CDFI) in Scotland and one ofthe largest in the UK• A CDFI connects communities with capital they are unable to access fromelsewhere. It does not fund anything that is “bankable”• CDFIs are either regional or thematic and cover market failure in distinctsegments• SIS is a unique social investment partnership with five UK banks and theScottish Government; SIS has £7m of on balance sheet capital (£4m ofwhich is borrowed from these banks under a tax relief scheme)• SIS also manages the £31.8m Scottish Investment Fund on behalf of theScottish Government• Over the last 10+ years our investments have supported almost 200charities, community organisations and social enterprises across Scotlandproviding investments totalling just under £43 million• SIS is a registered charity and a social enterprise in its own right. Interestpaid on loans supports the costs of the organisation
3What is Social Investment?• SIS defines social investment as an investment of capital where thereis an expected financial and social return• In its widest sense this financial return is expected to be at the veryleast the repayment of the original capital amount, however most willcarry an interest rate in addition• The social return is determined in a range of different ways and itsmeasurement is more subjective. SIS measures social impact using arange of proxy indicators• Key to the equation is the perspective of the investor, the nature of thecapital and their attitude to risk.• It is not a grant, a simple donation or a normal bank loan.
4Social Investment Products• SIS offers a range of Social Investment Products using existing investmentcapital• Investments are flexible and tailored specifically to our clients needs• Our Loans:All Purpose LoanBridging LoanProperty LoanSIS Community RenewablesRisk Capital
9Perspectives: In Scotland“…we believe that it would be wrong to completely exclude companies that seek tocreate significant social value but have organised themselves as for-profit companies.”“our proposed governance rules seek to find a middle ground”“Nick O’Donohoe asked recently whether a Tesco branch- offering employment in adeprived area- could be considered a social enterprise (unfortunately he wasn’tjoking)”“a fundamental tension between the values of the private and third sector”“tedious third sector self-congratulation”“po-faced moralising”“SIS…are actually quite excited by the possibilities that this new source of finance (BigSociety Capital) may bring for Scotland…the motives of those in charge seem sincereand we remain open minded”
10Perspectives: In Scotland• Everyone is talking about social investment; a change in attitude andappetite from some organisations and intermediaries• Spectrum of opinions about who the beneficiaries of social investmentshould be: can organisations beyond the traditional third sector deliversocial impact and create a financial return?• Spectrum of opinions about who the investor should be: everyone fromgovernment to financial institutions to large corporates to individuals hasthe potential to be a social investor• Related to this what is an acceptable rate of return for these investors?• What models are required to deliver social investment, beyond moretraditional models of loan finance? Have Social Impact Bonds and otherPayment by Results models overshadowed the debate?• On the ground, are there organisations that have the attitude, desire andappetite to take on new models of social investment?
11Perspectives: Who makes the impact?Case Study: California Fresh Works Fund• a public-private partnership loan fund created tobring grocery stores and fresh produce markets tocommunities that do not have them• Significant social need in defined local postcodes,centrally classified as being food deserts• Fund has committed $264m to projects acrossCalifornia. Investors include a range of banks andtrusts/foundations. Interest rate paid in return.• Social impacts created by the fund are many:nutrition/health; environmental; local economicdevelopment.• Crucially, however, the fund will invest in a for-profitenterprise located in an area of defined social need
12Perspectives: Who makes the impact?• Founded by leading social investor JacquelineNovogratz• Established for 10 years and have invested $81m in72 enterprises supporting 55,000 jobs and impactingupon 86 million lives• New York based but invests in projects in sub-Saharan Africa and India. Focus on projects whichreach the Base of Pyramid (BoP)• Acumen will invest in private and social businesses• Investments are focussed on healthcare,infrastructure, eyesight, food and nutrition• Acumen invest long term patient capital to createreal and measurable social change
13Perspectives: Who provides the cash?• Social investment is traditionally channelled via an intermediaryorganisation who raise investment capital for distribution• Traditionally, investment capital has been provided largely by government,however also from banks• A new breed of social investors are emerging:• Trusts and Foundations• Private individuals• Corporates• Debate has been heightened largely as a result of the development of theSocial Impact Bond (SIB)• Other social investment intermediaries exploring ways of channelling newsources of capital into social investment.
14Perspectives: Continuing the debate• What kind of organisations should be eligible for social investment?• Should a for-profit community food outlet in Govan (for example) beeligible?• How can social impact be more effectively predicted?• How can social investment innovation being seen elsewhere betransferred into a Scottish policy context?• What social investment products are required? Where are the gaps?• What is the demand like?
15Perspectives: Continuing the debate• What do we do for the organisations that are not, and perhaps never willbe, able to take on social investment but generate significant socialimpact?• If we are uncomfortable with private capital being invested socially, wherecould and should capital come from?• Is it time to stop talking and just have a go?