So is it best to invest?

 

Abigail Rotheroe

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New Philanthropy CapitalRight now lots of people are talking about social investment. We are being flooded with reports about the size of the market, the government’s desire to stimulate it and funders are increasingly thinking ‘so what should I do?’

Maybe you don’t have a legion of staff; you are worried about maintaining your grant funding stream in what has been a hostile environment but you know that the need from those you fund has never been greater. So is social investment the answer? Is it the silver bullet that enables you to have more impact but also to still generate a return of your assets?

Abigail Rotheroe

Abigail Rotheroe

Well, yes and no. 

Yes, social investment can help you align more of your assets with your mission. Some funders have a background that leads them to prefer social investment over grant giving, for example if they are motivated by their professional background or business experience, meaning they think to create sustainable organisations by requiring both a social and financial return. And yes, when used correctly – ie when you fund the right organisations at the right time – social investment is an excellent additional tool to grantmaking (though there is no way it will ever be able to replace grantmaking).

On the flip-side though, we have the noes. The main thing to point out here is that you will probably have to give up some financial return to make a social return or social impact. But having said that, the amount of financial return that you give up may well be compensated for by the extra social impact that you generate. Furthermore it is also important to be aware that you may lose some of your money if things go wrong – but if things go right your investment will be repaid and you can recycle the money to fund again.

Those are just a couple of the pros and cons we’ve come across whilst developing Best to invest?, the social investment guide for funders that we’ve launched today. The report starts at the beginning, taking a funder through what they need to consider if they’re interested in social investment, assessing the advantages and disadvantages they face and moving them towards creating a plan for their social investment. In the process of writing the report we have found that although social investment may look complicated – and possibly even a bit scary – from the outside, when broken down into a few simple steps it can be within the grasp of a much wider group of funders than is currently the case.

At NPC we believe that more funders should consider making social investments alongside their grants, but only when the conditions are right. This means that funders need to assess whether a grant or an investment is likely to create that greater social return and balance this against the financial trade-off required. Best to invest? gives a worked example to show how this can be thought through, taking into account the need to produce a financial return to maintain the capital value of an endowment.

As the number of instruments that make up social investment increases, and the UK market surpasses the £200 million mark, there is a lot here for funders to get their head around. To date, much of the investment has been either by social banks or a small group of funders who have developed a good knowledge of the market, but there is no reason why more people can’t get involved. I hope that this report provides welcome advice for newcomers and encourages them to dip their toe into the world of social investment.

Abigail Rotheroe is a consultant at NPC and lead author of Best to invest?

Tagged in: Mission-related investing Social investment


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