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A Wealth of Opportunity

Review: Social Investment as a new charity finance tool

Jun 27th 2017

City Bridge Trust Principal Grants and Social Investment Officer Tim Wilson reviews a new report that predicts a move by charities towards social investment and away from grant-making over then next five years. He finds much to agree with some exceptions.

This is an enjoyable and informative read from Mark Salway, an experienced charity finance professional who is now part of Cass Business School’s Centre for Charity Effectiveness. It’s broadly pro-social investment, but stands apart from much of the literature on the topic by looking at the market largely from the point of view of investee charities.
As such there’s content here for sceptics (and the author notes how wary many trustees can be of social investment), for investors who need to understand how best to align their finance with charitable need, and for those Finance Directors who might need to think again about how sustainable their organisations really are.

It offers a robust challenge to what the author views as organisational inertia. Perhaps it takes a former FD to point out that there’s a worrying paradox when we agree that the sector is facing financial pressure, but where many of the charities surveyed for the report still feel sanguine about their ongoing financial strategy and sustainability. The numbers involved in producing the report are impressive with over 120 organisations interviewed, 190 surveyed and dozens more engaged through seminars. This gives the final document credibility and a sector perspective.

Fewer grants, more social investment

Mark predicts there will be a shift in the way funding will be made available, with fewer grants and more social investment. This is supported by research from others including ACF who, through Giving Trends, have pointed out the rapid reduction in statutory grants in recent years. The report notes that there is interest in social investment, but a lot of work is still needed to build understanding, diversify the offer and simplify the experience for charities if we are to manage this change positively. He notes that “social investment does not have to be complicated, but the social investment community has often made it so”. The excellent Good Finance points a way forward here.

The report’s assessment of supply and demand constraints is particularly welcome. This gives both charities and funders practical issues to address in the coming months. For our part, we will continue to do what we can to build pipeline and help organisations overcome barriers to market entry through the Stepping Stones Fund which we run in partnership with UBS.

I don’t agree with everything the report presents. For example, the distinction drawn between mission motivated and finance first investors isn’t quite correct in my view. Some investors (ourselves included) are building portfolios with a mix of products that balance social impact and financial return in the interests of managing overall risk/return.

Mark highlights that social investment is a resource that may dry up unless charities take advantage. The argument many investors have to make to their boards is not which social investment to back, but rather whether it is worth the time and effort to provide social investment at all. If all that money and goodwill were simply to revert to commercial markets, an opportunity to create something significant will be lost.

Download Social investment as a new charity finance tool: using both head and heartfor free.




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