SMUG MONEY: Why #impinv is not charity giving

Written by Rebecca O'Connor on 9th March 2016

Who doesn’t love charities? OK, the odd charity chief exec is overpaid and sometimes, they are guilty of bad bookkeeping, but in essence, the principle of giving cash to those in greater need via an organisation with the skills and infrastructure to help those individuals is, most of us agree, vital to the healthy function of society.

An institutional means of conscience appeasing, tax mitigation or genuine selflessness – whatever the motivations of the givers, charities can save lives, provide hope, comfort and vital information, beds, clothing, education… and generally bring us all up a notch or two on the evolutionary ladder.

The role of charities is even more vital now, given the depth and severity of government cuts on everything from hospitals to daycare centres to tax credits.

Against this backdrop of increasing dependence on the work of charities, Charity Bank has launched a #CharityIs social media campaign.

While charity is about giving with no expectation of reward, social or impact investing is investing in socially beneficial organisations, with an expectation of financial reward.

It’s not giving, it’s not totally selfless. It’s being a teeny bit selfish, but wanting to do good at the same time: or “enlightened self-interest”. The hope is that investors benefit as well as the organisation.

The distinction between charity giving and social investing is important and occasionally at risk of being blurred, to the detriment of this important and fast-growing sector of investment.

When words like “community” and “society” are used in an investment context, our tendency is to assume that the activity is not a profitable one, because they are words we associate with charity giving and not with making money. And so viable investment opportunities may find it harder to raise the funds they require if they use the social benefits of the investment in their marketing.

At the same time, they SHOULD be upfront about these social benefits, as it brings a new, potentially very enriching dimension to investing – possibly persuading new people, who had previously considered money very dull and functional, to the investment market. Because finally, it can have an agreeable purpose beyond making more of itself.

From giving with one hand and taking with the other

To some ears, social investment might sound like having your cake and eating it too. Charity is one thing, what we do to make a profit is completely another, and the two SHOULD be separate. This is the traditional wisdom of the investment industry, which considers that taking into account ethical concerns is: “investing with one arm tied behind your back”.

This view has resulted in the rather dark belief that to make money, you have to leave your heart at the door.

So rather perversely, you have a situation where people who want to make money turn to industries and sectors that cause damage and harm, in the belief that making a profit requires you to be emotionally and morally divorced from the impact your cash is having.

But of course, people do have hearts. So what happens is we have an odd cycle of making money from bad things, then giving a bit of what we have made that we can afford to live without to good things, via charity.

It’s the absurdity of philanthropic organisations funded by oil and mining companies, or charity fundraiser dinners, where City suits who made huge amounts of cash on the back of the Government’s Quantitative Easing programme, ostentatiously throw huge sums to benefit childrens’ hospitals. All very beneficial, but not as beneficial as just making that money nicely in the first place.

Why do we think we shouldn’t make money from doing good?

Reserving all your “good” money for charity-giving, then investing your ISA in tobacco and arms makes no sense. We are in effect giving to society with one hand, and taking with the other. 

The barrier to correcting these misconceptions is creating enough investment opportunities that do good and are also profitable. Not off-the-scale, retire-at-40-and-sail-around-the-world profitable, but just, you know, decently profitable. They do exist, but they are, for the most part, not mainstream enough or visible enough for us all to get a piece of it. And too few, as the experts required to structure deals that can deliver on all counts are a minority (you can check Big Society Capital, Social Stock Exchange, Big Issue Invest and Buzzbnk for deals currently available).

Charities should not feel threatened by this movement to bring a conscience into investing, because it should benefit them. People will always give to charity. It wouldn’t be the money that is currently being donated to charity that would find its way into impact investments, but the money currently invested in the bad stuff. And the sooner we can get that money into things that benefit other people and the planet too, the better.