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Last updated: 18 September 2009
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.
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:
In 2007, The Office of the Third Sector invested in 2 social investment pilots, led by Community Innovation UK and Charity Bank, with the objective of:
Charity Bank was awarded £100k to carry out action research into the market appetite for and availability of investment from the demand and supply side. The programme was undertaken jointly with the advisory firm, Investing for Good. Its work centred upon Yorkshire and Humber although interviews were also held in London and other locations. Outcomes of the pilot include 3 infrastructure and product development projects underway which will introduce new investment into the social enterprise sector.
Communities Innovation UK led the other (Equity Plus pilot) aiming to create the UK’s first social business angel network, alongside an investment readiness support service. Outcomes of the project include provision of education and advice to over 35 social enterprises, and approximately £800,000 of new private investment into the sector, with other deals in development.
You can download a copy of the report below:
In May 2008, The Office of the Third Sector was the lead sponsor of the first annual social investment conference in the UK, the Good Deals conference. The event was organised by Society Media and other sponsors included NESTA and RBS.
We are now pleased to announce the publication of the follow-up publication entitled the Good Deals Social Investment Almanack to discuss issues raised at the conference and look forward to a second event.
The aim of the Almanack is to produce an authoritative, informative, innovative guide to the social investment marketplace in 2008/09 and beyond. Using factual information, case studies and discussions, the Almanack aims to promote and facilitate the growth of social enterprise through improved understanding of and access to social investment.
The Almanac brings together a mix of views from experts in social finance and investment in the UK and beyond, including social entrepreneurs, investors and philanthropists and will look at the development of the social investment market over the years, exploring past, present and future models of social finance.
The Rt Honourable Angela Smith, Minister for the Third Sector,
“I am pleased to introduce the first ever UK Social Investment Almanack. This collection of think pieces and case studies will help to build knowledge within social investment and hopefully inspire more people to get more involved in this important sector.
Across the Government, there is a shared belief that social enterprise and the third sector can play a significant role in overcoming some of the most entrenched problems of society. The current economic climate obviously raises challenges but there are also opportunities for social enterprise and the third sector.
People are increasingly looking to buy from and invest in businesses with strong social and environmental purpose. There is an opportunity here for a new culture of investment inspired by a new generation of social enterprises.
I look forward to this new Almanack being widely used as an important resource for social entrepreneurs seeking to make a real difference to society and also for investors keen to see their money delivering benefits for people and the planet.”