Businesses are increasingly understanding that operating sustainably means more than just managing their environmental impact. Instead, businesses are looking at how they can tackle key social issues that have an impact on their organisation.
One way is by supporting social enterprises, recognising they can be key to creating social change, and businesses also have lots to learn from them. Some of the UK’s biggest businesses have begun putting serious amounts of capital into social enterprises – businesses that are fundamentally committed to delivering a social impact. And the investors are definitely expecting a return – both societal and financial, allowing them to recycle their money so it works even harder.
Jonathan Gill, corporate advisor at Charities Aid Foundation (CAF), has witnessed the transformation of the social investment market over the last five years. It is, he says, the result of multiple forces that are breaking down the historic barriers between corporate investors and social investment.
At a macro level, there appears to be a correlation between the economic recession and an increased appetite among corporate investors to support social businesses. Companies are choosing more entrepreneurial and innovative ways to use their capital. This is supported by the fact that corporate investors typically understand social businesses better than they do charities, which don’t experience the same market pressures. There is, says Gill, a closer “cultural fit”.
Supporting this is the growing influence of the ‘millennial generation’ in the private sector – and their corresponding say in how capital is spent. “90% of millennials say that success should be measured by more than profit,” says Gill.
Businesses are also concerned about mitigating future business risk – another driver of the growth in social investment. A bank investing in a social enterprise working in youth financial education, for example, is reducing its own future risk, making itself more sustainable, and driving new business from a younger generation.
Lastly, the changing public sector commissioning and procurement landscape for business is also playing a part. The government is increasingly looking to transfer risk to the delivery organisation, often charities or social enterprises, who require capital to work in this manner.
Traditional investors are recognising this increasing opportunity and are looking to learn about how to work with non-traditional investees. Additionally, since January 2013, the government’s Social Value Act has stipulated that the ‘social value’ of a contract deliverer must now be taken into consideration in any public procurement process. This, says Gill, effectively forces private companies to recognise they have an additional responsibility to society beyond profit.
The result is a corporate sector increasingly disposed to investing time and money in social businesses. In summer 2013, CAF and Legal & General published Unlocking the Power of Creative Capitalism Through Social Investment, which reveals the changing corporate attitudes to the social investment market.
The signs are encouraging. CAF’s specialist advisory service helps companies to maximise the impact of their corporate responsibility and sustainability activities. Increasingly, it is helping clients to look beyond traditional charitable donations, to design innovative new strategies that create benefits for society and the business.
The three most popular corporate models for social investment, says Gill, are incubation, investment and supply chain integration. These are increasingly being combined to maximise the impact.
With the incubation model, a corporate business will help nurture, support and grow social organisations. Successful examples include SE Assist, run by CAF and Legal & General, supported by Nesta, which gives social businesses a support package including an interest-free loan of between £10,000 and £30,000, a mentor, and access to a bank of experts.
Deloitte’s Social Pioneers programme focuses on intensive expert support: the global finance corporation gives 30 selected social businesses an intensive 12-month package of support using Deloitte’s skills and expertise to provide support to their core business.
PriceWaterhouseCoopers, meanwhile, has created a physical social enterprise hub called The Fire Station. As well as providing office space – at a renovated fire station next to its London offices near London Bridge – the company shares its finance and business knowledge to help social businesses flourish. The return for PwC lies in “tangible social, environmental and business value”.
By supporting business focused primarily on sustainability, it can help develop mutually beneficial business solutions that are economically viable, environmentally stable and socially inclusive. It can also help them understand how these businesses operate and their ability to scale up.
Traditional investment is the second model. A growing number of major investment banks have launched multi-million pound investment funds for social enterprise in recent years. These include Deutsche Bank’s Impact Investment Fund and the J.P. Morgan Social Finance initiative.
On the retail side, Threadneedle Investments and Big Issue Invest have teamed up to launch the first daily liquid, FCA-registered diversified Social Bond Fund to the UK market. Available to retail and institutional investors since January 2014, it provides funding for companies, associations, charities and trusts in social intensive areas including affordable housing, community services, employment and training, financial inclusion, health and social care, transport and communications, utilities and the environment.
The third social investment model is through supply chain integration. Gill points to private construction firm Waites, which is spending a huge amount of money with social businesses – not as direct investment vehicles, but as suppliers. Working with businesses who place social return above profit challenges traditional procurement processes, but helps to instil social values throughout business operations.
This, says Gill, is an example of a change in corporate mind-sets in how they invest in what is – arguably – a new asset class. Since 2002, CAF Venturesome – CAF’s own award-wining social investment arm – has supported more than 450 social businesses with £40m of affordable finance. And the market shows no signs of slowing.
Looking to the future, Gill hopes that – in the short to medium term – social enterprises will increasingly be able to compete against and beat traditional businesses. “They shouldn’t be seen as second rate just because they have a social purpose,” he says. “And if they can outcompete other businesses, the questions about social investment will diminish.”
In the longer term, he hopes that the structural differences between entrepreneurial organisations will simply become less important.
“It doesn’t matter whether we’re talking about businesses, charities or social enterprises, it’s in our self interest to create a better country and a healthier economy,” he says. “Fundamentally, everything is interconnected and that’s why we’re all in it together”.
For further information, please contact Jonathan Gill, corporate advisor at CAF: jgill@cafonline.org
Content on this page is paid for and provided by the Charities Aid Foundation sponsor of the Guardian Voluntary Sector Network’s Charity Money hub.
