Social Investment is known by many guises. It is related to concepts such as ‘impact investment’, ‘socially responsible investing (SRI)’, ‘positive investment’ or ‘sustainable, socially conscious, "green" or ethical investing’. As such, it can be difficult to determine what is social investment and what isn’t.
How does social investment differ from other types of investment?
Big Society Capital defines social investment as ‘the provision of finance to generate social and financial returns’. The key differentiator is therefore the social impact element.
Social investment most commonly takes the form of debt or equity (depending on the legal structure of the organisation). The investors will require a financial and social return on their investment, which means that the social impact of the organisation must be measurable. For the financial return, generally the principle amount invested will need to be repaid with an element of interest on top.
Note that the requirement for a social return means that social investment is different from some forms of ‘ethical investment’ that rely solely on a ‘negative screen’. A ‘negative screen’ means the investor excludes certain investments due to social or environmental criteria. An investor may therefore choose not to invest in tobacco or arms companies due to their perceived negative impact. The social investor goes further by investing in organisations with a positive impact.
Is there a trade-off between social and financial returns?
This is a common assumption of social investment, but it does not have to be the case. There is some evidence to suggest that ethical/social investing can outperform traditional investment strategies (see for example, Sonen Capital’s report). What is true is that social investors will often accept lower financial returns to achieve greater social impact.
How much expected financial return is required to classify funding as social investment (rather than, say, a grant) is debated. Some argue that the investor must expect back at least the principle of their investment, although mixtures of grant and returnable finance are also available.
What sort of organisations could look for social investment?
The simple answer to this is ‘any organisation that explicitly seeks to generate a positive social or environmental impact through its operations’. Practically speaking, the type of organisations that social investment is available to are: Social Enterprises, CICs, Charities, and other Voluntary, Community and Social Enterprises, (VCSEs).
To understand a bit more about Social Enterprises and what they truly are take a look at our last Jargon Busting article ‘What does being a social enterprise actually mean?’
CAN both advises and builds the capability of organisations looking to secure social investment and makes social investments itself as a Social Investment and Finance Intermediary (SIFI). For further information about CAN Invest’s services, click here