You relocated to the UK to work on social investment. Could you tell us why and what you see as the most important UK innovations in that sector?
Through thought leadership and a string of innovations, the UK has positioned itself as a social investment hotbed in recent years. This very fact made me relocate to London to start up my new venture, Congress for Environmental Advancement, in the impact investing sphere.
In terms of importance the creation of Big Society Bank signified that the governmental sector got behind this movement in a big way, establishing a fund with a size that impressed.
Continued leadership with the world's first Social Impact Bond showed how private capital could work in tandem with the public sector, something of utmost importance in the social investing space.
The recent news on the 30% tax relief is proof that the UK does not want to relinquish its leadership position any time soon.
Other notable developments include the special company form CIC and the creation of the Social Stock Exchange, the latter an important milestone in providing transparency around performance.
What impact will the UK's social impact tax relief have?
It sends an important signal that the sector is prioritized and desirable and one can expect faster growth. In terms of concrete numbers the government is hoping to unlock up to a half a billion pounds over the next five years but there is EU legislation that needs to be navigated, specifically the State Aid issue.
The move can encourage new finance-first actors to step in as the financial calculus has become more attractive. Further investments are essential for the sector to scale and in return attract the best entrepreneurs, including international entrepreneurs who will see the UK as a great destination for establishing their business.
I hope the greatest impact will manifest itself in similar moves across the globe as other countries take steps to grow their own social investment sectors.
After the G8 social impact investment forum in 2013, what is next for impact investment globally in 2014?
Hindrances to impact investing reaching its true potential need to be removed. Global policy coordination would be welcome to spur cross border deals of considerable size and establishing transnational funds. Impact investing means different things in different regions based on traditions and local needs but for the sector to become a massive force for good a more predictable playing field with common rules would be a welcome boost. The GIIN and like organizations are important players in this endeavor.
Ambitious predictions have been made about the growth of the global social investment market but it still remains fairly small. What steps could be taken to generate more social investment from governments and corporations?
The positive atmosphere and burgeoning impact investing ecosystem should be accelerated to reach tipping points in invested capital. We need to create conditions on the ground that will spur more specialization, new financial products and attract larger actors like multinationals to adopt impact investing. To scale impact investing means to invest in wider eco-system change. This includes educational strategies where students are introduced to the concept as well as lobbying rating agencies, stock markets, asset managers and owners to break free of the restricting short termism currently afflicting them.
Basically what is next is expansion, consolidate the progress so far and start approaching larger players in a partnership. There is a risk of procrastination as the sector wants more track record to appeal to investors. The world can't wait for this, we need these balanced investments to happen now, as recent climate reports show for example. Public – private partnerships is one way to go with catalytic capital to de-risk pioneering investments of significant size.
Start-up social enterprises can access grant funding and large scale social enterprises can attract impact investment, but those in the middle often struggle to obtain funding. What can be done to bridge the gap and help these organisations scale up?
There are lessons to be learned from the venture capital industry where different funds establish themselves to target startups in different stages of development, the social investment sector is not there yet.
Additionally, more funds with a blended value approach are desirable, mixing impact first capital from foundations and the governmental sector with private capital seeking market rate returns. Investments would be tranched where early tranches sees a majority of impact first capital to lessen the risk and cost for subsequent finance first capital.
On the flipside, startups in this stage of development would benefit greatly from added emphasis on customer financing, i.e. focusing on sales. A way to boost their chances of client acquisition is to mandate that governmental agencies dedicate a certain percentage of their procurement of products, services and consulting to social enterprises, to complement existing policies targeting SME's and sustainable practices.
What were the key messages you delivered in your talk in Stockholm?
Impact investing is more or less synonymous with investment in the social startup scene, which is great in itself. However the scalability of the impacting sector hinges on its ability to attract larger players like institutional investors, multinationals and the governmental sector. These entities need to apply impact investing in their own operations. A large-scale adoption here would dramatically increase positive impact across the board. The need is there and so are the opportunities, for example in the welfare sector, Base of Pyramid sectors as well as large infrastructure investments. They all need to look beyond pure economics and incorporate non-economic metrics in their investment analysis.
Richard Lindberg is the founder and director of the Congress for Environmental Advancement which catalyzes the shift towards impact investments in the interdependent Water, Energy and Food sectors. They specialize in strategies for priming investments to maximize positive environmental impact and financial returns. You can follow them on twitter or facebook.
Contact the British Council at social.enterprise@britishcouncil.org
More from the British Council partnerzone:
• Canada draws on UK experience to scale up social investment
• Slovenia, the UK, and the future of social enterprise in Europe
• Social Investment in Germany: context and contestation
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