Social investment is the provision and use of finance to generate social, or social as well as economic, returns.
Over the last ten years various forms of social investment have grown rapidly and new forms have been introduced. This growth reflects a range of developments on both the demand side (a new generation of social entrepreneurs and new opportunities for them) and the supply side (new investor preferences, new modes of public action), supported in some contexts by tax incentives or other government policies. The main developments have been in the areas of socially responsible investment (SRI), social impact investment (SII), and social enterprise investment (SEI) – read more on these forms.
For example, over this period, micro-finance has become part of the mainstream, now often funded through bonds. Community Investment Tax Relief (with a draw-down to date of £65 million) has given a big boost to Community Development Finance Institutions (a grouping now worth more than £400 million). Future Builders, a fund worth £215 million is only one of several new funding streams. Another indication is that net investment in charities (one possible vehicle for social investment) reached £578 million in 2005, and banks, investment banks and ratings agencies (as well as other major sources of private capital, such as pension funds and insurance companies) are all interested in the extent to which this level might rise in the future.
As new forms of resource allocation, these developments are stimulating a high level of policy discussion and activity in the UK. For example, in the second half of 2006 HM government published a new Social Enterprise Action Plan, the New Economics Foundation published a report ‘Developing a Social Equity Capital Market’ (Brown, 2006), and the Commission on Unclaimed Assets brought forward proposals for capitalising a new Social Investment Bank with £600 million. The new forms of social investment are becoming central to several major policy domains – and not just in the UK. Social investment is now widespread in Europe, North America and developing countries. But as usual, theory lags behind practice – which is where most of the knowledge currently lies, in industry surveys, practitioner experience and policy studies (hence we welcome practitioner involvement).
This also means that the evidence-base for ideas and proposals concerning social investment is still quite limited. In consequence, the field offers considerable research opportunities. These do not just involve technical financial issues, important though these are.
Major cultural as well as organisational development challenges are involved for both investors and investees when they operate as hybrids under more challenging social and financial regimes. At the same time, the emergence of a social investment marketplace – if indeed this is what is happening – bears on some of the major theoretical developments and debates of recent years. These include the variety and evolution of market institutions, distributed governance, new modes of regulation, and systems of innovation and entrepreneurship.
Hence, developing a deeper, more rounded understanding of these developments will require the contribution of researchers from a wide range of disciplines – from finance to social policy, from entrepreneurship to sociology, and from, innovation studies to political science. The central purpose of the seminar series is to prepare the ground for more and better research in this area.
The Forms of Social Investment
- Socially responsible investment (SRI)
In the UK, SRI began to move into the financial mainstream with the SRI Financial Disclosure Regulations of 2000 and industry surveys predict this trend to continue apace (see for example,www.mercerIC.com. Estimates of size depend on definitions, but many billions of pounds and more than 50 retail funds, are involved. Another important recent trend (usefully reviewed in Smith, 2006) is the emergence of a wider range of asset classes, beyond equities. Much SRI is based on negative approaches – that is, ones that screen out the ‘bad guys’ of tobacco, armaments, gambling and so on. But more vigorous versions of SRI, involving forms of positive screening, are now becoming established. Many commentators believe this area will grow considerably and it is a development of particular interest in the context of this seminar series.
- Social Impact Investment (SII)
Many established forms of public investment – for example, the building of schools and hospitals – could be seen as social investments; but since they are determined through public/political decision processes they are peripheral to our concerns in these seminars. Instead the focus is on non- and quasi- governmental funds designed to achieve specific social impacts. These have been created and supported both by governments and by the new generation of philanthropists and foundations aimed at bring about maximum social impact. Examples of these developments include the creation and rapid expansion of Community Development Finance Institutions (CDFIs), the development of ‘Venture philanthropy’ (appraised in John, 2006), and the creation of publicly-funded, ‘venture capital’ funds for voluntary and community organizations (the Adventure Capital Fund, FutureBuilders).
- Social Enterprise Investment (SEI)
Some social investors chose to finance social enterprises – generally, organizations that are socially owned and that pursue a combination of social and economic objectives through (more or less) market-based operations. Cooperatives – in housing, retail, agriculture and financial services – are a historically familiar form of social enterprise, and they remain a major presence in several sectors of the economy. Over the last 20 years new forms of social enterprise have been developing to tackle new social challenges in a wide range of fields. The Social Enterprise Coalition website gives UK data on size and growth of this sector (see also the website of INIASE the International Association of Investors in the Social Economy) – though bedevilled by definitional problems. The various EMES studies (most recently, Nyssens, ed, 2006) are unusual in offering comparative analyses of this disparate phenomenon across Europe, showing both similarities and differences according to institutional context.
These three different forms used each to be quite limited and discrete. But as they have grown they have also tended to blur and overlap (‘programme-related investment’ by foundations, is a case in point -it is both SRI and SII). The extent of the similarities and differences between these three types of social investment, and how far funds of each type face similar challenges, is not clear. The evaluations of the ACF and FutureBuilders promise some insight into the policy and practice issues of operating such funds, while work currently being undertaken by the Commission on Unclaimed Assets, including a survey of the thirty major social investors promises valuable new information.
The Policy Relevance of Social Investment
The different forms of social investment attract cross-party support in the UK; they are manifest both at small-scale or local levels, and at pooled/scalable/system levels; and all are international trends. Optimists claim a paradigm shift is taking place, while pessimists say they generalise from the special cases of particular sectors. CSR and ethical investment advocates tend to think in terms of extensions to the existing panoply of financial instruments, specialist funds and services, and of a market that is differentiated by field. Those with social movement backgrounds tend to think in terms of the emergence of a more or less separated and parallel set of institutions, governed by different norms and logics. Such debates often reflect wider differences over the role of social enterprise and the social economy that reflect contrasting institutional and ideological positions.
The significance of these developments is shown by the policy areas and approaches that increasingly depend on them:
- Social inclusion and asset-based strategies for poverty reduction and community development – and in particular, the search for scalable initiatives in social policy and programmes.
- Public benefit bio-technology initiatives – for example, regarding neglected diseases, large-scale vaccination programmes (eg, http://www.oneworldhealth.org/index.php)
- Modernisation of public services and the creation of quasi-markets in health, social housing, social care, offender management and rehabilitation, work integration, etc.
- Market based forms of regulation and policy-making (eg, ‘fairtrade’ and carbon trading schemes, sustainable forestry and fishing; and the avoidance of child-labour, ‘blood’ diamonds, human rights violations, etc) which in turn depend on reliable systems of social accounting and certification, and the intermediaries that sustain them.
Aims and Intended Outcomes
The primary purpose of the seminars will be to create a basis for longer term, high-quality research in this burgeoning area. More specifically, the aims of the seminars are to:
- Gather and review the diversity of existing work.
- Build linkages and connections among academic participants, among policy and practitioner contributors, and between these highly differentiated communities.
- Increase the international profile and connectedness of UK research in this field.
The intended outputs and outcomes of the series are:
- An edited collection based on the best of the seminar contributions and with linking and synthesising material generated in part through face to face and on-line discussions (this would be in addition to any journal articles also produced by particular contributors).
- Specialist resources for research training and support, captured and developed through the seminar process
- Much strengthened academic, professional, and academic-professional networks that will continue to function after the end of the series (eg, through sessions at the SERC and other forums; through the UNSE).
- A variety of quality research proposals – ranging from substantial, comparative and collaborative projects through to focussed enquiries suitable for doctoral candidates – developed to address the key questions emerging from the interaction of practitioners, policy-analysts and academics.