Views on social investment, strathclyde university presentation, social investment for 21st century

Views on Social Investment Alastair Davis

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Who we are

• Social Investment Scotland was established in 2001 and is now the largest Community Development Finance Institution (CDFI) in Scotland and one of the largest in the UK

• A CDFI connects communities with capital they are unable to access from elsewhere. It does not fund anything that is “bankable”

• CDFIs are either regional or thematic and cover market failure in distinct segments

• SIS is a unique social investment partnership with five UK banks and the Scottish Government; SIS has £7m of on balance sheet capital (£4m of which is borrowed from these banks under a tax relief scheme)

• SIS also manages the £31.8m Scottish Investment Fund on behalf of the Scottish Government

• Over the last 10+ years our investments have supported almost 200 charities, community organisations and social enterprises across Scotland providing investments totalling just under £43 million

• SIS is a registered charity and a social enterprise in its own right. Interest paid on loans supports the costs of the organisation

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What is Social Investment?

• SIS defines social investment as an investment of capital where there is an expected financial and social return

• In its widest sense this financial return is expected to be at the very least the repayment of the original capital amount, however most will carry an interest rate in addition

• The social return is determined in a range of different ways and its measurement is more subjective. SIS measures social impact using a range of proxy indicators

• Key to the equation is the perspective of the investor, the nature of the capital and their attitude to risk.  

• It is not a grant, a simple donation or a normal bank loan.

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Social Investment Products

• SIS offers a range of Social Investment Products using existing investment capital

• Investments are flexible and tailored specifically to our clients needs

• Our Loans:

All Purpose Loan

Bridging Loan

Property Loan

SIS Community Renewables

Risk Capital

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Where we work - SIS

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Where we work - SIF

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Who Benefits

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Perspectives: In Scotland

“…we believe that it would be wrong to completely exclude companies that seek to create 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 a deprived area- could be considered a social enterprise (unfortunately he wasn’t joking)”

“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 (Big Society Capital) may bring for Scotland…the motives of those in charge seem sincere and we remain open minded”

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Perspectives: In Scotland

• Everyone is talking about social investment; a change in attitude and appetite from some organisations and intermediaries

• Spectrum of opinions about who the beneficiaries of social investment should be: can organisations beyond the traditional third sector deliver social impact and create a financial return?

• Spectrum of opinions about who the investor should be: everyone from government to financial institutions to large corporates to individuals has the 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 more

traditional models of loan finance? Have Social Impact Bonds and other Payment by Results models overshadowed the debate?

• On the ground, are there organisations that have the attitude, desire and appetite to take on new models of social investment?

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Perspectives: Who makes the impact?

Case Study: California Fresh Works Fund• a public-private partnership loan fund created to

bring grocery stores and fresh produce markets to communities that do not have them

• Significant social need in defined local postcodes, centrally classified as being food deserts

• Fund has committed $264m to projects across California. Investors include a range of banks and trusts/foundations. Interest rate paid in return.

• Social impacts created by the fund are many: nutrition/health; environmental; local economic development.

• Crucially, however, the fund will invest in a for-profit enterprise located in an area of defined social need

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Perspectives: Who makes the impact?

• Founded by leading social investor Jacqueline Novogratz

• Established for 10 years and have invested $81m in 72 enterprises supporting 55,000 jobs and impacting upon 86 million lives

• New York based but invests in projects in sub-Saharan Africa and India. Focus on projects which reach 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 create real and measurable social change

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Perspectives: Who provides the cash?

• Social investment is traditionally channelled via an intermediary organisation 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 the Social Impact Bond (SIB)

• Other social investment intermediaries exploring ways of channelling new sources of capital into social investment.

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Perspectives: Continuing the debate

• What kind of organisations should be eligible for social investment?

• Should a for-profit community food outlet in Govan (for example) be eligible?

• How can social impact be more effectively predicted?

• How can social investment innovation being seen elsewhere be transferred into a Scottish policy context?

• What social investment products are required? Where are the gaps?

• What is the demand like?

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Perspectives: Continuing the debate

• What do we do for the organisations that are not, and perhaps never will be, able to take on social investment but generate significant social impact?

• If we are uncomfortable with private capital being invested socially, where could and should capital come from?

• Is it time to stop talking and just have a go?

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Contact Details

Social Investment Scotland

12 Broughton Place

Edinburgh

EH1 3RX

Telephone +44 (0) 131 558 7706

Fax +44 (0) 131 5588357

Email [email protected]

www.socialinvestmentscotland.com

Charity No. SC036875

Registered in Scotland SC223302