IMPACT investment, also known as social investment, or social
finance, is a form of investment model that invests money in
projects offering a social return - and, in most cases, a financial
one, too, at below-market or at-market rate.
Investment can be large-scale, such as through Social Impact
Bonds (SIBs) - complex multi-partner investment projects that
tackle difficult societal problems; or small-scale, such as
crowdfunding or microfinance loans to entrepreneurs in developing
The CEO and founder of I.G. Advisors, Carlos Miranda, works with
funders, charities, and social enterprises to explore their access
to social investment. He says that impact investors need to clarify
their goals: "What is your ultimate objective - is it about making
money? Having a positive social impact? Both? And where is the
balance between the two?
"Even with social finance on the rise, odds are that your return
on investment is not going to be as great as more traditional forms
of investment. But for most people who choose these vehicles, their
'return' is about more than the percentage they get back."
Ethex is a not-for-profit company based in Oxford, whose goal is
to "make money do good". The managing director, Jamie Hartzell,
says that what is happening to the investment market is similar to
what happened with the organic and Fairtrade movements in the '80s
and '90s, when people started to realise that the choices they made
had an impact on the world.
Positive investment is different from negative screening: "It's
not about not doing harm: it's about trying to do good."
The Ethex website makes it possible to view and compare
different "positive investment" products. Projects include:
Woodheat Co-operative, a school aiming to provide renewable energy
from a state-of-the-art woodchip boiler; and the Golden Lane
Housing Bond, which raises funds for Mencap to build homes for
people with severe learning difficulties.
Returns range from about two per cent on a microcredit
investment to about five to eight per cent for community renewable
Social impact bonds
WITH Social Impact Bonds (SIBs), private investors put up the
funds to support a project that would normally be funded by local
or central government. Currently, ten SIBs have been commissioned
by the Department of Work and Pensions, one by the Ministry of
Justice, and two by local councils.
There are three parties involved in any SIB: the investors; a
"third-sector" organisation, such as a charity or charities who
work to deliver the required social change; and a facilitating
partner, such as the not-for-profit social-investment intermediary
Investment is high risk; investors only get a return if the
project achieves the required social change. And, currently, they
are available only to professional investors (the minimum
investment tends to be about £100,000).
The sales director of Social Finance, Martin Rich, says,
however, that "We continue to explore different routes to enable
individuals to access this market, and hope this will happen in the
not too distant future."
The Government would welcome this, too. A recent report by the
City of London estimated that £480 million could flow into the
social sector over five years, from more than 225,000
Tax relief for social finance was proposed in this year's
Budget, with the aim of introducing it in the Chancellor's autumn
statement. If this happens, there would be potential for products
such as SIBs to enter the retail investment market, and similar
products for individual investors could follow.
One possible example could be the Allia Retail Charitable Bond,
to be launched in the next six months. Individuals will be able to
invest £2000 in well-established charities that would otherwise use
banks to raise finance to acquire capital assets, or finance
existing assets. These assets, such as social housing or care-home
provision, are expected to generate a return for the investor of
about four per cent.
HALF the world's adult population have no access to formal
financial services, a report by McKinsey in 2009 suggests. Either
they have no, or few, assets, or there is no bank where they live.
Microfinance has, over the past quarter of a century, been viewed
as one of the solutions.
Microfinance works to provide growth by giving access to loans
and savings. Often, the group most helped by microfinance is women.
By receiving loans for small enterprises, they not only expand
their businesses, but through that growth can better feed and
educate their families.
Check how microfinance is managed in the country it is lending
to. Is it done at arm's length, or is there a local agency working
with the people it lends to, training and supporting them?
"Due diligence is important, but when done well - and when it
includes other services, like financial literacy, or microinsurance
- microfinance can be an excellent investment," Mr Miranda
Five Talents is the official Anglican microfinance charity,
established at the 1998 Lambeth Conference. Currently, 68,000
individuals are enrolled in either village savings or lending
programmes in 11 countries worldwide, including Sudan, north
Uganda, and Burundi.
Donations are channelled to specific projects supported by the
Anglican Church in the countries concerned. As savings groups grow,
Five Talents helps to establish village banks to create a local
independent source of finance.
Kubaru is a non-profit online microlending platform specialising
in post-disaster microfinance. Investors can lend as little as £10
to an individual with an online profile.
A Kubaru loan is paid back over six to 18 months. Local
community banks administer the loans, and give training to
recipients. Once repaid, the choice is to lend to someone new,
withdraw the loan, or donate it to Kubaru.
Oikocredit grew from a meeting of the World Council of Churches
in 1968, and promotes social justice in developing countries by
providing loans, credit, and equity investments to businesses.
While microfinance makes up the majority of Oikocredit's
activity, it also invests in agricultural and fair-trade
enterprises. Eighty-four per cent of its clients are women.
Oikocredit has 48,000 investors in 69 countries, and from a
minimum investment of £150 to a maximum of £6000, you can expect a
modest two per cent return.
PUBS, bakeries, grocery shops, sustainable-energy projects, and
football clubs are among the enterprises that are embracing the
community share offer as a way of raising finance and getting local
people to invest in their futures.
Community share initiatives are normally linked to
co-operatives. They are run for the benefit of its members, and are
completely democratic, giving one member one vote. Shares are
non-transferable, and their value does not go up (it can go down,
if the co-operative decides it is good for the business), and they
can be "withdrawn" (or sold back to) the co-operative.
There have been almost 150 community share offers in the UK
since 2009, raising more than £25 million in equity from about
20,000 members. The average share offer is between £150,000 and
£200,000, and the average individual investment is about £1000.
Simon Borkin, the project leader of the Community Shares Unit,
which provides support and advice to groups considering this route,
says: "We are seeing considerable growth." The unit is funded by
the Department for Communities and Local Government.
As with any investment, there are risks: a share offer may not
reach target, or the co-operative may not pay interest to its
investors if the business is not robust enough.
In Manchester, solar panels on a south-facing church roof in
Manchester, funded by community shares, have been the key to
helping a community centre to secure a long-term future.
St John's Centre, next door to St John's, Old Trafford, was set
up in 1981 as a response to the Moss Side riots. It provides a
welcoming place to learn and meet in a deprived interfaith area.
Initially a church-run voluntary project, it now has charitable
The Priest-in-Charge of St John's and chairman of the centre's
board, the Revd John Hughes, had the idea of installing solar
panels on the roof to save money on bills, and to raise money by
selling electricity back to the utility provider.
A director of the consultancy Sustainable Change, Fiona
Nicholls, suggested that the project could be run as a
co-operative. She gave advice on forming a co-operative and how to
set up a community share offer, to raise the £15,000 needed to buy
and install the panels.
In the project's first year, there was a £350 saving on
electricity bills, and £1500 was made through the Feed-in Tariff,
creating a fund for "Sunshine Grants".
Any financial return is likely to be several years away, and
modest. "It is an investment, but it's not a pension plan," he