Can social investment really take off?
Social Enterprise Live
Dan Corry, CEO of New Philanthropy Capital, looks at where social investment is heading and what sort of organisations are in the best position to take advantage of the opportunities
Social investment is the phrase of the moment. It is bringing exciting new people with new vocabularies and new agendas into the sector. Perhaps more importantly, unless we are massively surprised by George Osborne’s Autumn Statement today, funding for charities and social enterprise is going to remain very scarce. So it’s no wonder the sector takes note when they hear about a potential new source of funding—especially as Big Society Capital is likely to be dishing out some £600m.
At NPC (New Philanthropy Capital) we have tried to bring some sense and order to this debate. Yes, we like social investment and hope it all works. But we know that it is complex, it places demands on the people who lend it and on those who want to use it. If we don’t get it right then the wrong organisations will sign up to the wrong deals at the wrong time, and rather than success we will look back at the wreckage that social investment brought.
This is why we have produced a new report, Best to borrow?, to help charities and social enterprises develop a better understanding of what this is all about. We hope it guides organisations through the thought processes they need to undertake before deciding if social investment can work for them. We are also finding an increasing workload in our consultancy business from charities who want help to think this through before going straight to the financial intermediaries.
But while it is right to counsel many charities to be a bit wary of social investment, those involved in social enterprise may be in a better position to take advantage straightaway.
In the first instance if we do end up with a great supply of social investment then it will be looking for a good home. Not as many charities will be ready for it so for those social entrepreneurs with good ideas, life may become that bit easier.
Perhaps more profoundly, in a world which relies less on upfront grants, and much more on money that is ‘loaned’ or invested, those with sustainable models capable of raising revenues to pay back loans are at a huge advantage. And those capable of absorbing, coping with and managing risk will thrive. If social enterprise can’t do both these things, we might well ask what it can do.
Some may not welcome the trend towards social investment. Pushing down risk towards the third sector is in general not putting the risk in the places that can best absorb it. But for social investment to be value for money it is essential. In general, funding through social investing will cost more than funding through other means. The justification for it—as it is in PFI and other public-private partnerships—is that one gets more innovation out of the system as a result and that this outweighs the extra cost of the finance.
Some—probably most—charities will undoubtedly want to continue with grants, straightforward volume-based contracts and donation-based models. But other charities and social enterprises will want to embrace this agenda and even reorganise themselves so that they can access outcome payments better and use social investment to their advantage. Already hundreds of organisations are getting involved and are using social investment to launch innovative services. The charity Turning Point developed a new social enterprise, called Connected Care, to expand its offering of health, housing and social care services. Connected Care reached 120,000 people in its first year of trading.
My guess is that today’s Autumn Statement will be a bit of a damp squib—having been over-hyped it will be hard to live up to it. But the arrival of social investment will have a long lasting, if somewhat unpredictable, effect on the ability of the sector to improve its impact.
Dan Corry is chief executive of New Philanthropy Capital and a former Downing Street adviser. NPC is a charity think tank and consultancy, dedicated to helping funders and charities make the greatest possible difference, www.philanthropycapital.org
Read the full report – Best to Borrow? – A Charity Guide to Social Investment