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.

Getting started

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.