Social investment: funding for charities or white-washing of capitalism?

Social investment: funding for charities or white-washing of capitalism?
Civil Society, by Vibeka Mair

You wouldn’t traditionally associate the words right-wing, speculative or high-finance with the charity and social enterprise sector, yet these are exactly the terms which some frontline organisations are using to describe the social investment space in the UK.

For example, Robbie Davison, chief executive of community interest company Can Cook, has accused Big Society Capital, the biggest social investor in the UK, of imposing a market-based ideology on the social investment sector. And he and others say that social investment intermediaries are concentrated in a City-of-London bubble with no real understanding of the finance needs of the voluntary sector.

A recent report on social investment by Clore fellow Mary Duffy chimes with these concerns. Her research, which uncovered a number of tensions in the social investment world on issues such as cost of capital, profit, culture and values, also found there were suspicions around social investment intermediaries with negative stereotypes about their motivations. She writes: “There is a view that many intermediary organisations populate their teams mainly with those from the finance side, demonstrating what they prioritise and what they are seeking in terms of direction. This leads to trust issues – are these bankers out of work following the crash trying to cash in on something to tide them over until they go back to earning big bucks? Are they rich ex-City guys seeking salvation?”

These suspicions are likely being fuelled by a lack of dialogue between charities and social investment intermediaries. Recent research from the Charity Commission says: “The charity sector appears to be largely absent from conversations about the social investment market, while non-charitable intermediaries have been actively participating in them.”

Critics highlight charity governance failings

At first it seems strange that charities would be absent from these conversations when social investment is often billed as a new finance tool for the voluntary sector. But a recent Financial Times feature by Norma Cohen on social investment explains why this may be the case. In the piece, Rodney Schwartz, CEO of social investment consultancy ClearlySo, explains that he got involved with charitable work after leaving the City, but became disenchanted with the charity model, especially the governance. The FT interviewer writes: “Schwartz is not alone in turning to social investment after spotting failings within the charitable sector.”

This demarcation between social investment and the charitable sector is striking. Here, social investment is no longer a finance tool for the charity sector, but has become a distinct sector in its own right, better at effecting social change than the conventional charity way.

Social investors ‘are becoming sector-neutral’

This is the key issue causing tension between charities and the social investment intermediaries. Charities and social enterprises look at social investment as a new form of funding in an increasingly challenging financial landscape, while social investment sees itself as a way to create social change by unlocking pools of capital towards social need. Undoubtedly, some of this will flow through to charities and social enterprises as they work in the area of social need. But those funding social investment are increasingly becoming sector-neutral. Big Society Capital, Nesta and Social Investment Business already do, or have suggested, funding for-profits with a social aim.

They are simply looking for organisations which can deliver a social and a financial return. Some describe it as a new, more responsible form of capitalism.

So it has been unhelpful and confusing that when politicians and sector leaders are quizzed on the lack of funding for the charity sector they point to Big Society Capital (BSC) as providing new finance for the sector. Because Big Society Capital’s remit is not to fund the charity and social enterprise sector, it is to grow the social investment market – this is very different.

New organisations more likely to benefit

Sir Ronald Cohen, chair of Big Society Capital, has said that money is one of the few commodities where supply creates demand. And Big Society Capital’s chief executive Nick O’Donohoe has said the flow of new money will lead to new ideas and interest.

So I suspect that it may be the case that established charities and social enterprise will not be the main beneficiaries of BSC cash, but new organisations will spring up attracted to the flow of new capital enabling them to use business to do good; and more able to fit the model that social investment is taking in the UK. It’s likely that a lot of these people will come from City or business backgrounds which will unfortunately fuel more of the criticisms which I mentioned at the start of this blog.

Blogger Leslie Huckfield has already called for a line to be drawn in the sand with social investment and that the £400m in unclaimed assets going to BSC be used to support the real needs of the social enterprise and charity sector.

This is unlikely to happen. But government needs to stop highlighting BSC as a funder for the charity sector, when it may not be able to fulfil this role as widely as politicians claim.

Ian Tuckett, secretary at Coin Street Community Builders, highlighted this issue at an All Party Parliamentary Group event organised by Social Enterprise UK to celebrate the first year of Big Society Capital yesterday, when he called for a new body whose sole remit is to create a robust social enterprise industry and grow social entrepreneurship in the UK