While money given as a donation is not expected to come back, social impact investing aims for a personal financial return for investors. This means they can keep recycling their investment to support more organisations and therefore help more people.
Investment provides charities and social enterprises with the working capital they so often need to sustain and grow their business models and in turn, increase their impact on society.
A crucial role
The global pandemic has highlighted the crucial role these organisations play in their communities; they support vulnerable people, create jobs and contribute to the local economy.
However, many viable and sustainable charities and social enterprises struggle to access affordable repayable finance. Traditional lenders typically perceive them to be high risk because they can lack security and a track record. They also often struggle to understand their business model.
The State of Social Enterprise Survey 2021 challenges this view, highlighting the financial strength of social enterprises in the UK despite the unprecedented challenges brought by Covid-19. It found that 44 per cent grew their turnover in the last year, with 76 per cent making a profit or breaking even.
What is social lending?
Social lending is a form of social impact investing that helps charities and social enterprises to access vital funding. From small loans to charity bonds, it enables them to increase their trading income and their long-term resilience.
Big Society Capital (BSC) works to connect investment with social enterprises and charities to tackle pressing social issues such as homelessness, poverty and domestic abuse.
Its mission is to improve the lives of people in the UK and help build a fairer society. Since it was founded in 2012, BSC has enabled more than 1,500 social purpose organisations to access a total of £1.85 billion in finance.
Social investment successes
The Sweet (Social Work Experience, Education and Training) Project helps low-income families in one of Birmingham’s most deprived areas to access quality support services. These include adult and child safeguarding assessments, parenting groups, and support groups for domestic violence survivors and perpetrators.
Last year, a £100,000 investment from the West Midlands Social Investment Tax Relief (SITR) Fund enabled the organisation to take on and refurbish suitable premises to facilitate its longer-term growth, and recruit new staff.
St John Ambulance Cymru provides ambulance and hospital transportation, as well as first aid training; alleviating the strain on the Welsh Ambulance Service. After its bank rejected a Coronavirus Business Interruption Loan Scheme (CBILS) application, the charity received a loan from the Resilience and Recovery Loan Fund.
By using private capital in this way to help charities and social enterprises grow, social impact investing can achieve far greater social impact than giving to charity or philanthropy can on their own.
How can I get involved?
The social impact investment market is growing fast in the UK – growing almost eight-fold from 2011 to £6.4 billion in 2020 – but opportunities to invest for social good are still not easily accessible to everyday investors.
To help address this issue, BSC partnered with Schroders to launch the Schroder BSC Social Impact Trust. This provides ordinary investors with access to a portfolio of high social impact, private market investments. Other options to invest for social good include Ethex, Energise Africa, Triodos Crowdfunding, and The Big Exchange.
What else can I do?
The more we talk about social impact investing, the more pressure it will put on the investment industry to allocate capital to it. Here are some key questions to ask your Independent Financial Advisor or wealth manager:
- What social impact investments are available to me?
- What is the minimum investment for them?
- What social change are they trying to achieve?
This article is in association with Big Society Capital.