Could social investment help end inequality?

Social sector leader at Big Society Capital Geetha Rabindrakumar explores the role of social investment in putting an end to poverty and inequality in the UK.

During the 2015 general election campaign, hearing all political parties painting visions of a “fairer society” where everyone has the “opportunity to fulfil their potential” reminded me of why we choose to work in this sector – the crucial role of charities and social enterprises in working towards a better society, irrespective of the colour(s) of the government.

Clearly, government policies will have the greatest influence on addressing poverty and inequality – but can social investment provide a way for the voluntary and public sectors to help tackle these challenges?

Whilst social investment is only a funding tool, (and like philanthropy, its effectiveness depends how it is used) social investment does have relevance for these issues.

Scaling interventions that help address root causes of poverty and inequality

Access to high quality affordable childcare for all is important for improving children’s future opportunities, reducing the gap in educational attainment that starts from a young age, and supporting families to stay in work. Social investment is now being used to increase impact in this area – for example by London Early Years Foundation’s nursery provision through their cross subsidy model which makes high quality childcare available in areas of disadvantage in London with free places for those who need them.

Lack of genuinely affordable housing is a key driver of poverty and poor housing is linked to many other issues such as health inequalities – increasing housing supply is an area where large capital sums are required and social investment can play a role. Social investment is helping provide this kind of housing through routes such as the Cheyne Social Property Impact Fund which uses investors’ money to develop affordable housing, directed where possible to those in greatest need, and through the recent Retail Charity Bond issue, which raised £27m for Hightown Praetorian and Churches Housing Association.

Targeting funds to areas in greatest need

Social investors can direct their funds in targeted ways. At Big Society Capital, in our work to invest in community projects, we have been conscious that more affluent communities could be better placed to access investment, with stronger networks and capacity to raise funding and deliver projects. We can address this potential imbalance through our requirements as an investor.

For example, Pure Leapfrog runs a fund to provide low cost loans to community groups to purchase renewables assets such as solar panels which can generate income and reduce overheads. Here, we’ve specified that investments must be in more deprived areas (bottom 50% as specified under the Index of Multiple Deprivation). As a result, loans have been made to community organisations such as the Greenway Centre in Southmead, an area of Bristol where life expectancy for residents is 10 years lower than in the neighbouring area. 

Investing in the social economy rather than for maximum financial gain

Income equality is also about narrowing the gap between the richest and poorest in our society – perhaps social investment can help contribute to this. Rather than investing funds into mainstream companies for maximum financial returns, often on a like-for-like basis, social investors expect lower financial returns for the same level of financial risk, because they are motivated by the social benefits generated from their investment.  

38% of social enterprises operate in the most deprived 20% of the country, compared to 12% of mainstream SMEs, and many social enterprises have social impact models which involve training and employing those likely to be furthest away from employment, for example ex-offenders. By supporting social enterprises to grow, investors are more likely to be supporting income and jobs for people in the most deprived areas of the country, and who are often likely to be further away from work.

Supporting locally led solutions and more democratic models of enterprise and delivery 

One aspect of increasing equality could be through adoption of different ways of owning and managing services – whether it’s communities that are empowered to identify key local issues and own the solutions, or using mutual/co-operative approaches to enterprise and service delivery.

Social investment, in the form of community shares or loans, can support the financing of community projects and growth of these enterprises. Community shares have grown rapidly over the past few years, with £30m investment raised last year alone. BSC invested in Resonance’s Community Share Underwriting Fund last year, which has helped catalyse community share issues for projects such as the financing of a wind turbine by Ecodynamic, in Redruth, a former Cornish mining town. The proceeds from the energy generated will help fund organic farming projects for community benefit – helping to provide local employment opportunities and providing quality food for low income families.

Social investment can only ever be part of much bigger and broader solutions to many of these challenges – but there are now more opportunities available to harness investors’ money in a way that contributes to the social change that civil society is seeking to deliver.

 

Photo credit: Chris Guy