Sep 25, 2012

Exporting the UK's social investment leadership

For some time now, I have been talking about two things in the social investment space:

a). The first is the changing views of some Trusts and Foundations that have moved away from making grants and moved into making investments, in the expectation that they can help kick start a social enterprise, get their money back in due course and re-invest into another social enterprise. This creates a virtuous circle of funding and more can be done in terms of creating social impact on an on-going basis by continuously re-investing the monies. 

b). The second point has been the need to upscale the level of funding to the sector. Much is already being done through Big Society Capital and there have been the creation of a number of new funds recently. However, if the social investment market is really to get to scale, then it requires social investment to enter the mainstream. That means the likes of pension funds, investment funds and the city generally taking the view that a proportion of their investible funds should be invested for a blended return including an element of social impact. I believe that even the government have been saying to the city that if it is to repair its reputation then their investment strategies need to be changed along these lines.

Whilst it will always be the case that grant funding will be required in certain situations, the concept of doing more for less has now become the mantra, and that is what can happen when you start to develop the virtuous circle of funding by making investments wherever possible. It may be controversial to say so, but one wonders whether the recent row over the increase in the overseas aid budget, during times of cutbacks in public spending at home, could have been overcome if the increase in the budget had been made available as social investment rather than grant. 

The micro-finance sector has already shown that it is possible to create sustainable businesses in many parts of the “majority world” so why not use a proportion of the aid budget to invest into social enterprises. If a return can be generated, then this could be re-cycled and in due course an increase in the aid budget each year could become self-generating. 

This would require a change of philosophy, but the approach is already being used by government at home – so why not overseas? It would also require a change in the mechanisms used for assessing potential projects.  Radical approaches to the aid budget might create adverse reactions in certain NGO’s, but unless new thinking is brought in then the old debates will continue and we will get nowhere in changing the world.