There’s more to social investment than SIBs, peers told

Social impact bonds should not continue to be promoted and supported at the expense of other forms of cheaper and simpler social finance, such as ISAs, crowdfunding and pensions, a committee of peers heard this week.

The Lords Select Committee on Charities took evidence on Tuesday 25 October from social enterprise and social investment experts.

Peter Holbrook, the chief executive of Social Enterprise UK, said social impact bonds had “a disproportionate amount of government attention, government resources and investment focus”.

Social investment bonds are incomprehensible to mainstream investors and broadly irrelevant to many frontline smaller organisations

He added: “There are many, many other forms of innovative and creative finance which can be as effective, in many respects cheaper and simpler to create…I wish the same level of investment and government time was spent on developing retail products because I recognise a significant consumer demand.”

People were interested in investing in their own communities, such as in their pubs, village halls or scout huts, Holbrook continued. He highlighted pensions and ISAs as products that deserved more attention.

Geoff Burnand, chief executive of Investing for Good, also attacked social impact bonds. He said they were “incomprehensible to mainstream investors and broadly irrelevant to many frontline smaller organisations”.

Social ISAs, crowdfunding and more

Caroline Mason, chief executive of the Esmée Fairbairn Foundation, said she saw an opportunity in more “simple retail products”.

She said: “Social ISAs, crowdfunding platforms, charity bonds – these are very simple, well-known, effective and efficient financial constructs that people understand, and people connect directly with these types of products and what they are trying to achieve.”

There had been a rise in interest in social investment among retail investors over the last 18 months to two years, pointed out Jonathan Jenkins, chief executive of the Social Investment Business, through products such as community share offers and retail bonds.

Other issues raised during the 90-minute session included:

• The need for investor readiness as well as investee readiness. “The social investment market doesn’t really understand the fabric of the social sector,” said Mason. “Social investors need to know the underlying context that charities operate in.”

• Holbrook called for the Social Value Act to be underwritten with statutory guidance to emphasise the community benefit for every public service contract.

• The social investment marketplace needed to become more accessible to potential investees. “We need to make ourselves more relevant and understandable to those organisations we are here to serve,” said Jenkins.

• Big Society Capital was too expensive for many. “The end cost of capital is 7, 8, 9 or 10% to the frontline,” said Burnand. “The cost of finance is unrealistic for this market. That’s why the market isn’t growing.”

• Jenkins added that Big Society Capital now had a perfect opportunity, with its new CEO and a forthcoming strategic review, to question its internal rates of return, its risk appetite and its role as a wholesaler. “That is the big £600m powerhouse that a lot of us will take our lead from. In reviewing that they could change the entire marketplace,” he said.

The House of Lords Select Committee on Charities was appointed in May 2016 and has a reporting deadline of 31 March 2017. You can follow evidence sessions via #HLCharities on Twitter. Tuesday's evidence session is available to watch on Parliament TV here.