New report says social enterprise must seek investment from big city capital funds

A new report on social investment prepared for the City of London Corporation, the City Bridge Trust and the BIG Lottery by ClearlySo has just been published. Investor Perspectives on Social Enterprise Financing says that the concept of social investment is not yet sufficiently widely understood nor sufficiently appealing to city investors. Last year some £190m was invested in social enterprise, but this, ClearlySo says, was overwhelmingly dominated by just ten investors primarily from the philanthropic sector and government.

The report says that social enterprise investment opportunities must offer near-market returns, be easily traded or sold, and relatively low risk if they are to attract institutional investors, such as pension funds, socially responsible investment funds, and intermediaries investing on behalf of clients and retail banks.

Institutional investors also want products with a robust measurement of social return, larger investment opportunities, and products and managers with a proven track record. There are currently not enough investment opportunities which meet these criteria, the report concludes.

For an investment sector which is in its infancy, this seems hardly surprising and it’s very tempting to award this 170-page report one of this blog’s No sh*t, Sherlock Awards.

But then a bigger thought struck me. While  the report does make some case for banks and other investors making a greater investment in existing Community Development Finance Institutions its primary argument is that the social enterprise must tap into the “global pools of capital which operate out of the City of London”.

Is this really the case? Does social enterprise have to climb into bed with big capital and seek investment from what are arguably some of the least ethical sources — moreover, whose investment (and disinvestment) practices create far more social and economic problems than they can ever hope to solve? Someone somewhere is losing the social enterprise plot, surely?

There’s more on this story in Third Sector Online.

With thanks to Chris Newis for the nudge on this story.

  1. Bret Willers Reply

    If I recall during the last political administration a study was carried out on which sectors in the economy demonstrated growth. In the case of inner cities the largest area for growth by far were social enterprises!

    I also recall reading about returns on ethical investment funds and despite what the opponents of social enterpise and ethical investment stated over the years those companies which adopted ethical investment criteria were the organisations which showed the best performance and illustrated growth.

    So is this not illustrative of the lack or entrepreneurship and initiative on the part of banks this is an untapped market and the Big Society changes can only add up to opportunities for further growthand these institutions are missing an opportunity. Also they present a lower risk as all profits get ploughed back into the business and not shareholders who want quick returns for their investment whereas social enterprises have a longer term view.

    Social enterprises should work with those investment institutions banks pension funds etc which have an ethical criteria for business and so create an incentive for other institutions to follow as they see the business growth in this sector. Triodos Bank and similar institutions should have a stronger focus on this sector. We need the venture capitalists and investment angels as well as the banks to support this sector they are less risk averse and once they understand the business may invest in order to meet their ethical investment quotas etc.

    We need to set targets for ethical investment and social capital on the above institutions to stimulate interest and create an incentive to support social enterprises.

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