Has social finance been overtaken by the mainstream?

By Danyal Sattar, Big Issue Invest CEO

I’ve had a week of being out at social investment sector events. Across three different events this week, I had the sense that we are experiencing a real shift in the way finance views its impact on people and the planet.

I am not always so change conscious. Those of you who know me well, know I like to put social investment into the context of a long history of investing. Typically I hark back to 1542 when Sir Thomas White set up his eponymous loan charity in Leicester, to lend to apprentices so they could buy their own tools and become master craftsmen. By making these loans, apprentices who were too poor to afford their tools, could buy them and make the step up in status and income accordingly. So as an industry, we social purpose investors have been around for a long time.

I hear a number from the Principles for Responsible Investment of $1.3 trillion of funds in impact investment, or from the Global Impact Investors Network with a narrower definition of £228 billion of impact investment assets under management, doubling from the previous years. Here in the UK, Big Society Capital (BSC) estimates some £2bn of social investments under management, focusing on a tighter cohort of eligible social sector organisations (charities, social enterprises and other asset locked organisations).

The Sir Thomas White Loan Charity still operates to this day in Leicester. But looking at the numbers above, does make me wonder if we are indeed seeing a step change in the world in which Big Issue Invest operates.

It was in Leicester that we gathered for two days to take stock of the social investment sphere during our bi-annual social investment industry gathering. One of the questions we asked ourselves was whether we were already history. Had this new world, of professional fund managers, focused on the sustainable development goals, with large billion pound funds, overtaken us? Later in the week, I attended the British Venture Capital Association’s Minorities Breakfast. The speaker was a black woman entrepreneur who had started her own investment fund, Good Soil. The room was full of a diverse group of people, all from mainstream financial institutions.

And at the end of the week, I was at the annual Responsible Finance conference in Liverpool, with community focused small business and micro lenders. A key issue there was around the role of technology in relation to responsible lenders.  Was there an opportunity to be seized with off the shelf, rent by the month software designed to enhance our services, or did this same software pose a threat that will allow mainstream financiers to readily and fairly serve the communities we were set up to work for?

If things get confusing, go back to the needs of the charities and social enterprises,

So three events. Three changed circumstances. Large amounts of money moving around the impact space. A different and diverse group of people in the room, who are not normally present. Rapid technological change. Could these be the ingredients for a revolution?

I am not sure. Amongst the many pieces of advice I’ve received, there are two that spring to mind. The first, so many people have said to me, that I don’t know who to name: follow the money. The second, from John Kingston, founder of CAF Venturesome and chair of the Access Foundation for social investment: if things get confusing, go back to the needs of the charities and social enterprises. What do they need? This tends to make things clearer.

So can we follow this wave of money and technological innovation back to the charities and social enterprises that we lend to and invest in, to prevent the causes of poverty?

I feel a bit like I have in the past, like someone wanting a glass of water at the bottom of a large dam. Someone up top turns a big wheel and a stream of water comes out, so overwhelming it is impossible to fill the glass. The money is there, but it is not coming out in the right way, so it bounces around and past the people we serve. Now, some of this new money is hitting the ground. Social property, for charities and social enterprises. Some of the property funds coming out of BSC, housing association and social property finance. Some is flowing to the Columbia Threadneedle UK Social Bond Fund we helped develop and are social advisor to with the Good Economy Partnership. I’m particularly heartened by Social and Sustainable Capital’s new fund, aiming to serve social property needs of charities.

Your job as a social investment sector at present – while serving our communities – is proving and bridging to the new wave of social investors.

But much of this flow passes our sector by. The investments we make and the Funds we raise are often too small for the mainstream. The markets are hard to serve, too varied and bespoke to research. Our job as a social investment sector at present – while serving our communities – is proving and bridging to the new wave of social investors. I look around and see a sector with increasingly strong and healthy growth and sound social investors, but not yet a supercharging of new impact funds at scale able to reach the charities and social enterprises we serve. It has to come. It must happen. The need is so great, we must draw in the mainstream impact investors.

But we are not quite yet there, not quite yet.