Social investment offers the opportunity for socially-minded investors to increase the impact of their money. It’s still early days, but already the concept has attracted much interest from funders and has the potential to help charities access long-term, affordable finance. Best to Invest? helps funders think through the benefits and risks of social investment, and how to decide if it is for them.
Best to invest? A funders’ guide to social investment
Social investment is the provision of repayable finance to charities and social enterprises with the aim of creating social impact, and sometimes generating a financial return. Currently, relatively few grant-making trusts and individual philanthropists (collectively funders) are involved with social investment. These tend to be the larger UK grant-makers with professional staff and enough resources to be innovators in the sector. However, interest in social investment among funders is growing.
Deciding if it’s right
Funders considering social investment should focus on how it could help them achieve their mission. Social investment promotes greater alignment between funders’ social mission and investment portfolio, and creates the potential to achieve greater social impact through the recycling of funds. However, the market is new and developing all the time, and funders will have to contend with a high level of uncertainty.
The decision is often framed as the choice between making a grant or social investment. There are four key questions to consider when deciding which option is best, outlined on page 26. If the answer to most of the questions is ‘no’, then social investment is likely to be very high risk and a grant or venture philanthropy is more suitable. But if all the conditions are in place, the funder will then need to balance financial and social considerations.
Funders need to develop a plan: every plan is unique and will depend on their motivation, the mission and aim of the organisation, the trade-off between financial and social return, the appetite for risk, and the resources required to carry it out. In the report, we provide a checklist to help funders think through the planning stage. We also suggest ways in which funders coming to social investment for the first time can find out more.