Social investment
Third sector organisations need access to finance to carry out their social and environmental objectives. Social investment is investment made for a social purpose in organisations committed to delivering benefits society and the environment. This investment – whether from grants, loans, equity investments or other emerging forms – can enable third sector organisations, including social enterprises, to develop their operations and become more sustainable.
Social investors seek a blend of social and financial return on their investments. The range and number of financial institutions that lend to or invest in the third sector has increased in recent years. Some of these, such as the high street banks, do so at a market rate of return. Others lend to organisations that find it difficult to obtain finance from mainstream providers, again at market rates. Still others might accept a financial return that is lower than in a truly commercial arrangement, due to the extra social return that is generated.
Examples of social investors include:
The Government needs to tackle barriers that might prevent investors from investing in social enterprises, or social enterprises from seeking appropriate finance.
Established social enterprises (particularly small ones) are more likely to feel discouraged from applying for finance than small and medium-sized enterprises. Government and the sector can play a role in trying to overcome this perceived barrier.
Government advice and training
The Office of the Third Sector and the Department for Trade and Industry’s Small Business Service are working with the regional development agencies and the social enterprise sector to roll out financial awareness training for social enterprises, working with the regional development agencies and the social enterprise sector.
In addition, the Government is making some of its information and advice for businesses relevant and accessible to social enterprises, particularly advice to businesses on different ways of financing their activities.
A 2004 government report to explain Social Enterprise to mainstream financial providers and encourage them to lend to the sector can be found here:
Social investment pilots
The Office of the Third Sector has commissioned two projects to investigate ways to promote private investment in social enterprises. The projects have been assessing whether there is demand for investment among suitable social enterprises, and which investors may be willing to accept a blended financial and social return on their investment. They will also establish whether the lack of a network, or other infrastructure that can bring together investors and firms, is the major barrier to the growth in social investment.
Charity Bank and Community Innovations UK are leading these pilot programmes, together worth almost £200,000, to investigate how to encourage private sector investment in the third sector, deepen our understanding of how to increase the range of finance available for social enterprises, and successfully broaden the research base of the sector.
The findings of the projects will be made widely available to inform the social enterprise and broader finance sectors.
More information on the pilots is available from:
