Private view

Following years spent endlessly reprising the Godot role on the UK’s social business stage, B Corps have finally arrived. You could be a B Corp in the UK before but B Lab UK has now been launched to ‘support a community of UK-based B Corps’ and, as of last week’s launch, that community consisted of 62 ‘founder members’.

If you’re one of those ‘general public’ types who’s never engaged in a passionate debate about what a social enterprise is, or whether ‘social enterprise’ is really the right combination of words to describe what some people choose to call a social enterprise, you might not appreciate just how big a deal this is. It’s a big deal.

That’s not to say it’s immediately clear exactly why it’s a big deal.

A reminder, in case you’ve somehow how missed it, that a B Corps is a: “for-profit business that has social and/or environmental outcomes as part of its mission. They are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.

It’s not about the 1% – not even close

Founded by three longtime friends, two of whom previously ran a successful basketball footwear company, the US B Lab opened for business in 2006. Nine years on there are 1400 of them, 65% of which are based in the US. So, just over 900 US businesses have gone through the process of being certified as a B Corp. As there are around 28 million small businesses in the US,  approximately 0.003% of US small businesses have joined the B Corp movement*.

This is not to say the remaining 99.997% are necessarily entirely uninterested. It’s not easy to become a B Corp. Whether or not B Lab’s ‘B Impact Assessment’ is a set of ‘rigorous standards of social and environmental performance, accountability, and transparency’ that I (or you) personally support, the process is definitely serious.

The fact that you don’t just pay your money and get your certificate means B Corp status means something. Unfortunately, it currently means something primarily to a tiny minority of people who are very interested.

The B Corp movement’s lack of traction, so far, with American businesspeople has been inversely proportional to its popularity with politicians, philanthropic foundations and extraordinarily rich people who believe that business should be nicer.

The most recent flurry of high profile support came last year, when Jeff Skoll gave them loads of cash as part of his popular award-scheme. Then, a few months later, New York Times columnist David Brooks compared the B Corp model to a combination of John Lennon and Paul McCartney because (it makes perfect/some sense if you read the full article) they are “seeking to reinvent both capitalism and do-gooder-ism, and living in the contradiction between these traditions.”

Since then, registrations have been growing comparatively fast but from an extraordinarily low base. There is ongoing talk that Unilever, who own hippy ice-cream brand (and B Corp), Ben & Jerry’s might be the first big corporate to sign up. That would be a big deal.

There’s no business like business

At this point, rather than speculate on whether the B Corp movement will succeed in the UK, it’s worth considering whether or not we (in the social enterprise movement) want it to.

For me, that depends on what they’re trying to do and the messages so far are mixed. ‘Business’ in general is a far bigger bit of the economy than ‘social enterprise/social business/the social economy’ (delete according to taste). While it doesn’t rival B Corps for comparative obscurity, as discussed previously the UK’s social enterprise movement – which has been around a bit longer – currently encompasses somewhere (quite vaguely) between 1% and 2% of the economy.

So, if the aim of B Corps is to get more new and existing private businesses to focus on social and environmental goals then that’s an equivocal win. B Lab UK will have the challenge of making the case UK businesspeople that B Corp certification (and membership of the movement) gives them something they need. That might not be easy but it’s a laudable aim.

And there is  a potential gap. ‘For-profit’ business people are our friends, families and, in some cases, ourselves for part of the working week – they’re as likely as anyone else to care about doing good – but in the vast majority of cases they’re not choosing to turn their newsagents, hair salons or haulage companies into Community Interest Companies (despite the option being available since 2005).

If the major (or a significant) way to ensure UK business does more good is for more businesses to change their entire conception of themselves (I’m not personally convinced it is) then it’s currently not really happening.  Last week I was asked to name examples of existing private companies who’ve converted to a CIC structure. I came up with one but there wasn’t a list on the tip of my tongue. Employee ownership is, my anecdotal knowledge suggests, doing slightly better but not by much.

This is not a criticism of existing social organisational structures and/or registration models but there’s a gap in the market there for B Corps to change mainstream business and their challenge is to find out if there’s a market in the gap.

Mark my words: the social economy will eat itself

The late Mandy Rice-Davies successfully anticipated a significant percentage of everything that’s been said by anyone since 1963 and there would’ve been nothing to surprise her in the reaction to the B Lab UK launch on the traditional wing of the UK social enterprise establishment.

In a storming blog on the Social Enterprise Mark website, Mark boss Lucy Findlay – who knows a thing or two about trying to sell people kitemarks – was quick to assert the primacy of her niche offering over the one proffered by B Lab UK. She reminded readers that: “The Social Enterprise Mark CIC is the ONLY** UK and international certification authority that independently guarantees that a business operates as a social enterprise, with the central aim of using income and profits to maximise their positive social and/or environmental impact, which takes precedent over more standard business models, which are typically driven by a requirements to maximise personal profits for owners and shareholders.”

As a CIC director, I get those guarantees for £15 per year from the government to enough of an extent to satisfy myself and any of my customers who are interested, so I see no clear need to pay ‘from just £350+VAT’ to have it guaranteed again by the Mark’s independent committee.

Producer interests aside, though, Lucy is making a broader point that many (probably most) in the social enterprise movement would support in asserting the importance of clear limits on profit distribution and the use of some sort of ‘social’ ownership model (however broadly defined).

While B Lab UK have certainly given the matter a lot of thought before coming up with their ‘Legal Test’ for UK B Corps, the whole point of the certification from the point of view of many supporters of ‘Profit with Purpose‘ (PwP), is that it is actively open to businesses that can distribute profits and utilise assets for private gain.

Despite some cordial interactions with Unltd‘s policy team, my general outlook on PwP (have they considered a sponsorship deal with PwC?) are largely unchanged from this post in January.

I’m less worried than others in the movement about the general public being confused by competing labels.  I’m not convinced there’s a big market of consumers who want to buy from a social enterprise but don’t want to buy from a private but ethical and socially-focused business. And, at the point of buying a product or service, I’d generally put myself in that category of ‘socially conscious’ customers who are equally happy to consider buying from either.

In terms of the challenge of actually getting to point of selling stuff, though, most ‘social organisations’ do face distinct, additional challenges and have opportunities to access various forms of funding, investment and other support as a result. For example, charities and social enterprises seeking provide back-to-work services face major barriers to competing with private sector competitors like founding B Corp, Ingeus UK (now owned by the Arizona-based Providence Service Corporation).

If B Corp certification was ultimately used to enable private businesses to take advantage of the relatively small range of benefits – whether grants, tax breaks or ‘social’ procurement# – currently on offer to ‘social organisations’ that would have a significant, negative impact on the existing social economy.

Support for clearly social models ownership and/or either no distribution private profit, or strictly limited private profit distribution, is a baggy set of strong principles with a messy coherence that quite a lot of people strongly believe in. Most of us don’t think it’s the only way to do business (or the best way in all circumstances) but we believe in the social economy as part of a wider civil society as distinct from private business.

Ultimately, that means that if the launch of B Lab UK leads to a battle with the private sector for our limited resources – rather than an attempt to create a broader social pot – then that would be (a) sad and (b) a battle that many of us would be up for.

My investor’s got some money and no clear strong beliefs

And then, after all that, there’s the Pandora’s Cath Kidston bag that is the UK social investment market. Social investment leaders are all over B Lab UK and it’s not just because meetings with US B Corps people are the only chances they get to go to meetings and act smug about their market penetration.

As if transforming the capitalist system wasn’t enough to be getting on with, B Corps have also been lined up for the considerably more implausible task of making UK social investment work based on its current model.

As it is, while some of social investment wholesaler, Big Society Capital‘s (BSC) £600million (ultimately maybe more) pot is being shovelled into chunky property deals (some with a clear social purpose, some appearing to be more in the ‘investment spring water with a twist of social’ category) and some is (rightly, for now) being subsidised by the Big Lottery Fund,  if their furious lobbying on behalf of Social Impact Bond industry doesn’t pay off soon, BSC have a real problem getting rid of their money.

(While the specific analysis of their performance is a different post), I’m not arguing they’re doing catastrophically badly now but I am arguing that we are not seeing the level of growth in demand for the types of finance they offer (at the cost intermediaries investing non-Access-backed funds are able to offer it) for BSC to get all their money out to what most within civil society would regard as ‘social organisations’.

Writing for Pioneers Post, Pauline Hinchion of Scottish Community Re:investment Trust, an organisation with more ‘traditional’ approach to social investment, argues that: “it would appear that the focus for social investment is shifting from the ‘not for profit’ third sector to the hybrid ‘profit with purpose’ business sector.

Before adding that: “if social investment capital is flowing to hybrids, where is the third sector to get money to drive forward its agenda, particularly against a backdrop of austerity and cut backs?

In the PwP corner, Unltd boss Cliff Prior told Third Sector last year that: “if you can make that system work you can get social ventures that need capital investment to grow much more quickly because you can use the investment market.

He added: “There are some areas where that is really important, either because it’s an emergency or because there are fully commercial competitors; if they get to the market first, it’s lost to social benefit. If the social venture gets to market first, it stays social – that’s a good thing.

Exit music for a Social Investment Finance Intermediary (SIFI)

One side fears what the other side hopes for but they’re united by being wrong. The fallacy is embraced by both is that, if UK social investment unequivocally embraced ‘impact investment’ in for-profit businesses there would suddenly (or even over a period of 10 years) be a host of grasping, private profit hungry Companies Limited by Shares (AKA exciting, innovative PwP businesses) queuing up to get their hands on all that lovely money.

On Linked-In, another Scotland-based figure who I respect, Les Huckfield, speculated that the rise of B Corps could see Virgin’s Richard Branson turning up to get a slice of BSC pie. It’s a shame to spray dry powder on the fires of righteous anger but it’s difficult to imagine the circumstances in which a guy who’s got enough spare cash to be racing hot air balloons and trying to fly to space will need a tiny specialist social investment organisations to loan him £250,000 at 8% (bigger loans and mostly higher interest rates are available) or to take an equity stake in his new business along with a seat on his board.

But social investment leaders and PwP supporters are equally convinced by (a variation on) this nightmare/dream scenario.  Their assumption is that a significant increase in numbers of B Corps/PwP businesses etc. that can take on equity investment will make it far easier for them to get their cash out of the door.

Unless, I’m missing something this belief is apparently premised on the notion that having a ‘for-profit’ structure either automatically (or, at least, more likely than not) changes the market situation in which you’re operating.

It may simplistic but, in social investment world simplicity is often necessary: a companies doesn’t go from being a couple of Harvard students rating some girls to a multi-billion dollar empire primarily because it’s structurally possible for them to sell shares to investors. The opposite would definite be a barrier but, as success factors go, that one’s quite a way down the list.

If social investment backed-B Corps are genuinely socially focused, and creating new products and services to tackle social problems by operating in under-developed or non-existent markets (or if they’re competing in mainstream markets carrying additional ‘social’ costs) they’ll struggle to make the sorts of profits that will provide BSC-backed SIFIs with the returns they need.

Having argued ferociously about the connection between structures and principles, we ultimately end up with same old problem that, irrespective of how businesses are structured, successful socially-focused business will not provide the big profits that will offset the losses from the others, and those that have the potential to do so will mostly be able to get cheaper, less demanding money elsewhere.

There definitely is a clearer exit route for a SIFI (or other investor) that buys some shares in a CLS structured B Corp than one than buys a quasi-equity stake in CIC Limited by Guarantee in the hope that at some point someone will invent a Social Stock Exchange where they could sell it. A profitable exit from investment in a B Corp is technically much easier.

But social investor enthusiasm for PwP (and, as part of that, B Corp) seems to be based ‘technically much easier’ and ‘highly likely’ being essentially the same thing.  It seems unlikely that, in terms of social investment by SIFIs (it may be different for individuals) this optimism will survive many encounters with social entrepreneurs seeking investment in their risky, innovative B Corps.

The mostly likely result of the shift towards PwP in social investment is that, at least in terms of SIFI finance, we end up with a range of new, more frustrating approaches to slicing and dicing the wrong money – when what both socially structured and ‘for-profit’ social entrepreneurs need is a bigger change of overall strategy.



*As with social enterprises in the UK, it’s easier to compare numbers against figures for small businesses, while acknowledging that not all B Corps/social enterprises are small

**Lucy’s bolding and capitalisation

#’Social Investment’ is an issue its own


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Great and small

Here we are again. Two year’s on from The People’s Business, the new Social Enterprise UK (SEUK) state of social enterprise survey is called ‘Leading the world in Social Enterprise‘.

While the UK government’s hyper-enthusiasm for its own work on social investment might cause some in the social sectors to raise a weary eyebrow at the mention of ‘leading the world’, the social enterprise movement is hopefully on firmer ground.

Either way, SEUK certainly does lead the world in writing engaging reports about social enterprise and this year’s is definitely worth a look. There’s loads in there but I want to pick up on two recurring questions: ‘are social enterprises *outperforming their mainstream counterparts*?’ and ‘is social investment useful for most social enterprises?’

Social Enterprise vs SMEs

I’m picking up on this issue it’s the hook that’s been used for the promotion of the report.

The opening paragraph announcing the report on SEUK’s website says: “Research from the State of Social Enterprise survey 2015 shows how social enterprises are outperforming their mainstream SME counterparts in nearly every area of business: turnover growth, workforce growth, job creation, innovation, business optimism, and start-up rates.

As the membership body for social enterprises, it’s SEUK’s job to be positive. I’m not suggesting their positivity about the performance of UK social enterprises is unwarranted in a general sense – this is the best data we have about social enterprises in the UK and it shows social enterprises are doing well: increasing turnover, growing their work forces and creating new products and services.

Where it gets problematic is when we attempt to compare the performance of social enterprises and ‘mainstream SMEs‘. What does ‘social enterprises outperforming their mainstream SME counterpartsactually mean?

To take ‘innovation’ as individual example. The report claims: “The number of social enterprises introducing a new product or service in the last 12 months has increased to 59%. Among SMEs it has fallen to 38%.”

How useful is it to attempt to judge whether the social enterprise I manage in my day job, Social Spider CIC, is more innovative than our neighbouring SMEs such as ‘Delight Kebab & Cafe’ or ‘DR Patel Newsagents’?

We created a new mental health blogging platform in 2013-14, if Delight continued to offer similar things with chips and DR Patel streamlined the range of confectionary available in their shop is social enterprise winning?

Even when businesses do similar things, comparisons don’t really work. Another social enterprise I help to run, WFWellComm CIC publishes a community newspaper, Waltham Forest Echo. A similar local SME is Citizen Media Ltd, which publishes Hackney Citizen.

Over the past two years, WFWellComm CIC has grown its turnover, increased the size of its workforce, created new jobs, launched a major new product, believed (correctly) that its income would increase over the next year and been a start-up. Six ticks but that’s happened primarily because we’re a new organisation that’s launched a newspaper.

During that time, Citizen Media Ltd has continued to publish a newspaper.  As their newspaper is published monthly and ours has been bi-monthly, they’ve produced twice as many editions as us but, in the event they’ve done so with a slightly reduced turnover compared to previous years and a stable staff team, while feeling pessimistic, we would’ve ‘outperformed’ them on all six counts.

Our social enterprises have done well and we’re proud of that. It doesn’t tell us anything much about the performance of other businesses operating in different markets or at different stages of development.

The leads into the wider unanswered question of whether social enterprises collectively are outperforming SMEs collectively. The report states, “Government statistics identify around 70,000 social enterprises in the UK, contributing £24 billion (24,000,000,000) to the economy and employing nearly a million people”. By this reckoining the ‘social enterprise pot’  amounts to 1.5% of the £1.6 Trillion (1,600,000,000,000) combined turnover of all SMEs.

The state of social enterprise survey is not designed to produce an overall cumulative figure for social enterprise turnover and doesn’t claim to do so. It tells us that 52% of social enterprises increased their turnover, compared to 40% of SMEs but there’s no way of knowing whether social enterprises’ cumulative turnover is growing or shrinking as proportion of SME turnover – in that ‘battle’ 1 medium enterprise increasing its turnover by a £1million would beat 99 average-sized social enterprises increasing their turnover by £10,000.

Small comfort

What we do know if that the median turnover of survey respondents is down to £151,000 compared to £187,000 in 2013 – which, in itself, was a drop from £240,000 in 2011. Blogging following the previous report launch, I thought that turnover drop was a big worry.

In this report, there’s a breakdown of median turnover by age of enterprise and this suggests a more complex situation. While the median turnover of organisations aged 3 years or younger has dropped from £44k to £36k, all other categories – 4-5 years, 6-10 years and 11 years+ – have seen a median increase.

The report claims that: “the growing proportion of start-ups could explain the drop in median overall turnover. This explanation is made more likely when 2015 data is compared to 2013. This shows that in all age-bands barring that of start-ups, the median turnover has, in fact, increased – and that the high proportion of start-ups arguably masks a success story of older social enterprises increasing their scale.

This seems like broadly good news with a necessary note of caution being that, while it seems that older social enterprises that continue to exist may be ‘increasing their scale’, we don’t know whether there’s been an increase or decrease in social enterprises who’ve gone out of business altogether.

My overall impressions of the current situation are:

  • Large (apparently growing) numbers of people continue to start social enterprises
  • There are thousands – although it’s not clear how many thousands – of ‘established social enterprises’ that have been around a while and have found a ‘sustainable model’ that works for them
  • There is no clear indication of a breakthrough – with significant numbers of social enterprises becoming medium-sized businesses (let alone big businesses)

Social investment – just what we need in 100 years time

In terms of the question ‘is social investment useful for most social enterprises?’, the new report offers a very similar answer to the previous one. The median amount of finance sought by social enterprises has increased slightly £58k in 2013 to £60k this year.

Reflecting on the ongoing, much discussed, gap between demand and supply, the report explains that: “As was noted in the 2013 survey as well, this is out of kilter with much of the social investment market pursuing larger deals. As the proportion of younger, smaller organisations continues to grow, it raises the question of how well aligned some of the financial and investment structures put in place to support social enterprise are with the realities of the sector itself.

The last available average figure for investments offered by the UK social investment market is £264k so, if we temporarily ignore inflation and extrapolate wildly from a £2k change with many possible explanations, the average level of investment demanded by social enterprises is on course to match the every level of investment offered by social investors in approximately 100 years’ time.

Fortunately, while the situation on the demand side of the market hasn’t changed much over the past two years, the supply side of social investment is hopefully in the process of changing considerably. The arrival on the scene of social investment wholesaler, Big Society Capital, in 2012 did not have any direct impact on the availability of the kind of finance most social enterprises were seeking (then and are seeking now) but it did create a climate where the absence of that finance could not easily be ignored for (too) long.

As a result Access: The Foundation for Social Investment, for example, is now poised to have a significant impact, while Power to Change will also play a major role in providing grant finance (along with a smaller one in ‘social investment’).

So, while the answer to that question of whether most social investment is useful to social enterprises remains: ‘not yet, in most cases’ greater relevance is within reach.


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Crunch time

The publication in June of The Social Investment Market Through a Data Lens was a big event. It was the first significant step towards advocates for and sceptics about social investment in the UK bringing down the gavel on their seemingly endless auction of rhetoric on the potential of the market and beginning to discuss some facts.

The picture the initial Engaged X data – of 426 closed deals completed by 3 social investment finance intermediaries (SIFIs) – provides is nowhere near complete but it does, at least, finally tell us something.

On the plus side, most social sector organisations (72%) who were lent money paid it back. This is important because it proves, fairly decisively, that there is a market for finance for ‘unbankable’* social sector organisations that is not grants. This does not mean that social investment is replacing – or is likely to replace – grants but it does mean that the doubters who claimed social organisations ‘just want free money’ were not entirely correct.

At 28%, the default rate for the sample is comparable with small businesses receiving state guaranteed loans through the government’s Enterprise Finance Guarantee (EFG) scheme. While limited data means we have to be cautious, those who argue that a business having social aims does not make an investment inherently more risky than when that business is simply ‘small’ may be on to something.

The total financial return of the sample is negative 9.2%. The clear positive of that is that a substantial amount of capital deployed for social use has been repaid and can be deployed again. It’s also notable that, as Engaged X’s Karl Richter points out in his blog, the sampled market was improving over time. So while the return on investments made from 2002-2008 was negative 17.50%, the return on investments made from 2009-2013 was a more palatable negative 3.37%.

In an asset class of our own 

This suggests that ‘unbankable’ social investment could be (and may already be) an efficient way of recycling some money located in existing social pots. It doesn’t suggest there’s any realistic prospect that direct investments into ‘unbankable’ charities and social enterprises are ever going to be the vehicles for the 7% annual return with limited risk investments that Sir Ronald Cohen and others have been confidently dangling in front of business leaders in Davos for past five years.

This small dataset doesn’t, in itself, prove that ‘social investment as an asset class’ dream is dead but it’s a further the reiteration of the fact that the dream is about something quite different to direct investment into ‘unbankable’ charities and social enterprises.

For those in the social investment market that are interested in mainstream social organisations, the big challenge now is around subsidy. The Engaged X data reinforces the position – now often stated by outgoing BSC chief executive, Nick O’Donohoe – that ‘Most social investment requires subsidy, and subsidy should not be a dirty word‘.

Grants for us, loans for you

On the one hand there’s the subsidy needed to cover the money that funds are losing. In this sample, that’s an apparently quite manageable and, based on EFG figures not untypical, 9.2%.

On the other hand, there’s the costs of running the SIFIs, both in terms of setting up deals and in terms of providing the wide range of ‘additional support’ that most, for better or worse, claim to provide. For most SIFIs, it seems likely that the second hand is the one with the most money in it.

Unfortunately, Engaged X have no data on this so we don’t know how much it cost the SIFIs providing data to lose 9.2% of their capital. They note that: “All returns are gross and are not net of costs. Management costs may appear on face value to be disproportionately high when reviewed against the investment size, but the anecdotal evidence suggests this highly engaged approach is key to being a successful social investor.

As noted in an earlier blog, the 2011 Young Foundation report, Lighting the Touchpaper, reported that: “The vast majority of SIFIs are currently operating at a loss… This operating gap is usually made up by grants. Once portfolio losses are taken into account, the ‘sustainability gap’ for most SIFIs is even larger.

Unfortunately, discussions about subsidy in UK social investment have, so far, mostly been conducted with all participants blushing and covering most of their mouth with their hand. While the presence of subsidy is often acknowledged and passionately justified in the abstract, there are not (to my knowledge) any SIFIs openly saying: “It costs us x to run x fund and, as a result of this subsidy, the social benefit is x”.

It’s a position located half way between bullshit and denial, that serves everyone badly including SIFIs themselves but, it’s important to acknowledge, it’s not a situation that SIFIs are entirely responsible for. Many SIFIs do good work that many social entrepreneurs may agree should be subsidised but the way the market has evolved mean even the clearest subsidy models are currently fairly opaque.

One positive hoped for outcome from the launch of Access – The Foundation Social Investment’s growth fund – where BSC capital is subsidised with BIG Lottery grant – is that SIFIs will be applying for funding through a mechanism where they will have to be clear about how their losses and/or processes are being subsidised and (hopefully) about the social impact they are claiming to deliver as a result.

Only then can we seriously begin to address the question of whether, and in what circumstances, it’s worth it.

*The report states: “The data sample analysed a high-risk portion of the market by definition. Many of the SIFIs implemented a policy for only considering investment applications for organisations that had been refused finance from mainstream or retail providers.”

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You owe me five farthings (and a social impact report)

The February 2015 OECD report Social Impact Investment – Building The Evidence Base described ‘Social Impact Investment’ as:  “the provision of finance to organisations addressing social needs with the explicit expectation of a measurable social, as well as financial, return”.  On that basis, there’s not much ‘Social Impact Investment’ going on in the UK social investment market.

Oranges & Lemons, written by Investing for Good and funded by Big Society Capital and the Esmee Fairbairn Foundation, is an assessment of ‘The State of Play of Impact Measurement among UK Social Investment Finance Intermediaries’ (SIFIs).

The report, published earlier this month, is probably not one that will attract significant numbers of readers working for frontline charities and social enterprises; many face a tough choice about whether to ignore it based on their scepticism about social investment or their scepticism about impact measurement but, nevertheless, it’s a useful and timely contribution to UK social investment’s understanding of itself.

The research is based on interviews with ten leading UK SIFIs. Unfortunately, while interviewees were prepared to talk about their approaches to impact measurement when investing in  social organisations* they were either unwilling or unable to provide any data related to specific deals. This means the research is primarily anecdotal: it’s essentially a report on what SIFIs say about their impact measurement processes.

Five of the key points emerging from the report are:

1. It is not clear what impact measurement is for (in the social investment market)

In the conclusions and recommendations section of the report, the authors pose the question: “If a SIFI were to ask itself, ‘What if I don’t do an impact report?’, ‘What if I don’t include x in my impact report?’… In reality, there is often little by way of consequence.

Instead the assumption is that impact reporting is ‘a noble thing to do, and good practice recommends it‘.

Even before getting into the detail, there is no clear consensus on whether the broad, overall point of impact measurement in social investment is to measure (and hopefully ultimately improve) the social impact of organisations and initiatives funded via social investment or to measure (and improve) the impact of social investment on those organisations. Currently, it seems to be a loosely conceptualised combination of the two.

2. It is not clear who measurement is for 

Most social impact investors# are not, on the evidence of this report, actively interested in social impact measurement. The authors note that: “SIFI’s investors were largely found to be satisified, and not to be actively demanding more information, specific kinds of information, or more standardisation, even though the reports themselves varied considerably.

While not addressed in the report, there is a wider issue of the public accountability of participants in the social investment market. Of the 10 SIFIs interviewed for the report, 8*** have received some public money – either directly or through Big Society Capital – to fund their investments. At least 3, receive or have received the majority of their funding from either UK or devolved government.

It seems strange that as we approach the first £1 billion** of UK government funding for the social investment market, SIFIs (as a group) are not actively seeking to make themselves accountable to the public for the money that supports their industry and have no apparent mechanisms for demonstrating the social impact of the public money they receive. Principles aside, that’s likely to be a practical problem for them if/when social investment becomes less politically popular.

3. Lots of pre-deal work, not much post deal 

The majority of the impact assessment work currently undertaken by SIFIs takes place at the pre-deal stages. The approaches are different, some SIFIs operate general funds, others map particular social sectors and seek investments in those markets. When analysing specific bids, the approaches range from discussion-based ‘social due diligence’ – talking to organisations about what they do – to using a standard impact rating methodology for analysing all deals.

When it comes to deal-making, 2 out of 10 SIFIs don’t request investees set any specific Key Performance Indicators (KPIs) at all while, at the other end of the spectrum, 4 SIFIs ask investees to agree KPIs from a menu based on outcomes they (the SIFI) is seeking to achieve.

There is no evidence that impact is used as a basis for choosing one investment over another. The authors note that: “In the majority of cases, if an opportunity reaches the investment committee but doesn’t win investment, the reasons are predominantly financial.

The overall effect is that: “Pre-deal analysis can more as form of screen or impact hurdle, with financial considerations coming to the fore once it has been cleared.

Tellingly: “There were no cases of ‘impact defaults’, in which funds were withdrawn or investments written down on account either of insufficient impact data being reported, or of the impact data being reported showing that insufficient impact was being generated.

The point is not that ‘impact defaults’ are desirable but if they are not possible that’s in unclear how SIFIs investments can meaningfully be described as ‘impact investments’ when as the authors note, on this basis ‘impact is not an investment concern‘.

4. No connection between impact and price 

The authors note that: “There is little evidence for impact explicitly or directly moving price.” While there’s a sense that: “Investors may be prepared to take an extra risk for high impact” there’s no evidence of: “clear processes by which e.g a high impact organisation can be charged 3% for a loan whereas a lower impact organisation would pay 7%

This point is simultaneously vitally important to our explanation and understanding of ‘impact investment’ but also a potential red herring. Professor Alex Nicholls at Said Business School, in his work on ‘impact risk’, has usefully asked whether it’s correct to assume that organisations with potential for high social impact will necessarily offer a bigger financial risk than those with a lower potential impact.

It’s not necessarily logical or useful for SIFIs to offer ‘impact discounts’ -particularly given the challenges the authors highlight about generating independently audited data- but the rhetoric on social investment from politicians and some social investment leaders, is that they do.

It’s one of many issues where there’s a yawning gap between the social investment hype machine and the reality experienced by charities and social enterprises. On the one hand there’s a theoretical vision of a market where SIFIs demand that organisations achieve (and report on) measurable social outcomes and receive better investment deals as a result of doing so, on the other you have the reality where most SIFIs are using potential social impact as an enhanced screening process and asking for information back so that they can prepare case study-led impact reports for their funders.

The idea that ‘you can get a cheap loan if you can demonstrate your social impact’ is a pernicious, cynicism-inducing myth that SIFIs and social investment leaders can all play their part in squashing at every conceivable opportunity.

5. Everyone has a different system 

Perhaps unsurprisingly: “No off-the-shelf metholodologies are being used by SIFIs to measure their impact, and instead all are individually and unique.

This apparently means both that different SIFIs measure impact in different ways but also that individual SIFIs allow different investees to report their impact in different ways.

This is not necessarily wrong in either case. It doesn’t seem useful, either in terms of the responsibilities placed on the investee or the likely value of the data generated, to use the same model to assess the impact of a £25,000 bridging loan and a £2.5 million quasi-equity investment.

But the fact that all social investments are not usefully comparable does not mean that no social investments are usefully comparable at all. Oranges and Lemons recommends: (i) that more work is done to understand the best ways of measuring the impact of different types of investment and (ii) that SIFIs form a peer group ‘for the reading and reviewing of impact reports’.

These are sensible recommendations. It would be great if they helped SIFIs generate and publish more meaningful data (not necessarily more data). It would be even better if they helped SIFIs develop clearer ideas about who they’re generating data for and why.

*The report does not cover Social Impact Bonds (SIBs) involve a direct specific, relationship between outcomes and returns it isn’t useful to compare them to situation where SIFIs are choosing whether and how to combine impact measurement and finance.

#Investors providing money for SIFIs to invest

**Cumulative total of grants, investment funds and tax breaks since 2003 – mostly spent since 2010.

*** Correction – an earlier version said all 10 organisations had received public funding – CAF Venturesome and Esmee Fairbairn Foundation had not received public funding for social investment at time of writing.


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Retreating to the bunker

If there’s one thing worse the swingeing cuts to public services, it’s the expectation of more swingeing cuts to public services and the evidence so far suggests both local and national battles for resources are going to get messy.

In one recent example, many will sympathise with the desire of health campaigners and GPs in the London Borough of Hackney to campaign for as much funding as possible allocated to frontline health services but some may question whether slagging off council funding for specialist voluntary sector public health initiatives is the most useful way of making that point.

Last week’s Hackney Gazette saw local campaign group, Hackney Coalition To Save the NHS take aim at Hackney Council’s Healthier Hackney Fund – a funding scheme set up by the council as (one, relatively small) part of their new responsibilities for local public health services under the 2012 Health and Social Care Act.

In its first year of operation the fund has awarded £370,000 to 32 projects run by charities and social enterprises with intention of finding: “new ways to tackle some of Hackney’s most complex health challenges such as smoking, mental health, substance misuse and sexual health.

In a storming interview with the Hackney Gazette, Bronwen Handyside from Hackney Coalition To Save the NHS explains that: “These are all good projects but they are niche services, they are quite specialised small projects.

And that: “I would prefer the money was allocated to the NHS which is suffering a haemorrhage of cash funds because of the £22billion cuts which are taking place.

Before adding: “We have a huge problem with the NHS being broken up and sold off to the private sector and the voluntary sector has been used as a stalking horse for the private sector – you might start off commissioning services to the voluntary and charity sector and you will eventually end up with the private sector.

Beyond the (perfectly legitimate) statment of principle, it’s not clear what Hackney Coalition To Save the NHS actually would actually like their council to do in this context.

As of 2013, Public Health is not part of the NHS and councils receive government funding to deliver it. Whether or not it would be desirable for Hackney Council to stop doing public health and send a cheque to the local CCG for general provision of local health services, it’s not an option that’s open to them.

While it might be acceptable for volunteer campaign groups to be unaware of (or uninterested in) the overall funding framework that councils operate within in, the Hackney Gazette article also contains quote from a local GP who, given his job, should know better.

Dr Nick Mann of Well Street Surgery notes that the £370,000 could’ve funded a ‘full clinical team’ for a year before storming: “At a time when basic medical services are under threat, it seems wrong to be further fragmenting the limited health budget.

Adding: “However well-meaning, this diversion of essential health funding will lead to further fragmentation, not integration, of health services in Hackney.

And that: “Voluntary organisations do great work, but cannot substitute for properly planned and funded public health services.

This, like the Coalition’s statement, is wrong on a basic level – the funding in question isn’t being ‘diverted’, it’s being spent for the purposes it’s allocated for, rather than on something else that Dr Mann thinks would be better – but that’s just the tip of his reductive iceberg.

The more important question is whether a £370,000 block of extra ‘properly planned and funded’ basic health services is a useful alternative to 32 community projects looking for new approaches to complex health challenges.

If you take £370,000 and split it between City and Hackney CCG’s 43 GP Practices they’d get just over £8,600 each. It’s £1.43 of extra basic service for each of Hackney’s 257379 residents. It’s 3% of the cost one GP appoitment per person.

None of these figures tell us anything much because you can’t make meaningful comparisons between general healthcare and the kind of projects that Healthier Hackney Fund is supporting. They’re not alternative forms of healthcare but they are projects that – in various different ways – aim to help people to be less dependent on healthcare.

Dr Mann takes the view that: “Voluntary organisations do great work, but cannot substitute for properly planned and funded public health services.

This may be true but it presuppposes: (a) that we’d he’d consider ‘properly planned and funded public health services’ are an option and (b) that they’re the best solution to ‘complex health challenges’.

It’s equally true that GPs and hospitals should not be put in the position of substituting for services that could be better provided by the voluntary sector.

One of the projects funded by the Healthier Hackney Fund is: “Hackney Posh Club – a weekly entertainment and social club for elderly and older people, which will reduce social isolation and prevent the onset of mental ill health.” GPs cannot cure loneliness – and generalist public health information delivered by medical professionals isn’t much help either – but effective voluntary sector projects may be able to reduce it.

It’s understandable that GPs and campaigners feel and embattled, and it’s right that they do defend core services but not expense of being open to new ideas that might ultimatly help them and their patients more than a bit more of what they’re already doing.

Basic medical services are vitally important but arguing that funding for those services should always take precedence over new ideas and projects that might reduce the need for those services – and help people general medical professionals are not best placed to help – is ultimately just an argument for things to get worse more slowly.

The challenge for charities and social enterprises operating in these fields is to develop projects and services that genuinely do make things better.

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Disparate measures

I haven’t been blogging much over the past few months, due to my work on the (now published) report of The Alternative Commission on Social Investment. There’s been lots of reports, events and launches during that time that are worth catching up so, while I’ll also hopefully be responding to new stuff, I’m going to be posting a few delayed responses to February and March’s biggest stories!

Those tracking the rise of ‘big data’ will have been particularly interested in this Civil Society story from early March, which saw Directory of Social Change boss Debra Allcock Tyler take a series of engagingly absurd swipes at the growing popularity of ‘data’ and measurement.

Speaking at an NPC seminar – and apparently shouldering the burden of ensuring the discussion didn’t subside into a slurry of polite agreement – Allcock Tyler warned that: “A great deal of the time data is pointless” before adding: “Very often it is dangerous and can be used against us and sometimes it takes away precious resources from other things that we might more usefully do“. She then offered a further warning that “vast majority of people” analysing data are not: “good people who are sensible and think things through and understand the broader picture.

We are not told whether any of those present asked where that ‘vast majority’ figure came from or what percentage of voluntary sector data analysts Allcok Tyler believes are sensible broad picture types but, while the rhetorical approach is exaggeratedly combative, few would disagree with the underlying point that collecting the wrong data and using it badly is undesirable.

Some of Allcock Tyler’s subsequent points are more contentious and raise, albeit in an overly simplistic way, big questions for the data driven industry of impact measurement.

Too small for stats

One is that: “The vast majority of good work that is done by good people in this country is done at very very small charities or community groups working on a local basis where they know people.

And therefore: “It isn’t the data about Mrs. Jones going to the social centre that matters to that charity – it’s the fact that they know [they are doing a good job] because she smiles. They are not going to count the number of times that she smiles. People at local levels don’t engage in charitable activity because Mrs Jones is going to feel 8 per cent happier.

This is a statement that will intuitively make sense to huge numbers of people working or volunteering for small charities, social enterprises and other community groups –  many of whom feel ground down by years of councils and grant funders demanding they justify their actions by monotonously ticking boxes that seem irrelevant and/or incomprehensible to them and meaningless to the people who use their services.

What it’s not is an argument about the value of data. Data is: ‘Facts and statistics collected together for reference or analysis’. Whether or not Mrs Jones smiles is data but it’s very limited data.

The fact that Mrs Jones has: (a) turned up at/allowed herself to be taken to the centre and (b) is smiling, does tell the people running the social centre something about her feelings about their service but it doesn’t, for example, tell them where she is on the spectrum between ‘delighted by what the centre has to offer’ and ‘too lonely and/or polite to explain that she’d like it more if they offered something completely different’.

It’s true we don’t ‘engage in charitable activity because Mrs Jones is going to feel 8 per cent happier’ but hopefully we do engage charitable activity in order to do something useful. This particular situation may not call for a complex spreadsheet or an SROI report but surely we can accept that there may be some relevant information about whether Mrs Jones is getting the help she wants and needs beyond our own personal opinion?

All you need is love

The implication of the final Allcock Tyler quote in the Civil Society article is that in many situations, for her, the answer to that question may actually be “no”.

She warns that: “As part of a data revolution thing, it can be incredibly dangerous because people say if you can’t measure it, it’s not worth doing – but actually some things you can’t measure. There is something about the nature of charitable endeavour which is about love and trust and faith and not about numbers and data.”

This is, once again, a statement many of us will instinctively sympathise with but equally, it’s a line that can be (and often is) used to explain why a particular organisation is using other people’s money to continue to do the same stuff decade after decade irrespective of whether it’s any use to the people they claim to exist to help.

More than anything, this discussion illustrates the difficulty that our growing impact measurement industry in convincing the voluntary sector (and social enterprises) that it is on their side and can offer them something they either want or need.

In theory, organisations should welcome the growing opportunities to decide for themselves what data – whether or not its focused primarily on numbers – can best help to understand, explain and improve what they do. In practice, not many do and while Allcock Tyler worries about the data revolution, much of the impact measurement activity that is happening – beyond the world of SIBs and other large scale PbR contracts – seems to take place in funder-designated sidings that even funders have forgotten about.

The questions about how local organisations decide what they’re doing, who they’re doing it for and whether it’s succeeding are more important than ever. We need to find more practical and proportionate ways to answer them.


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After the Gold Rush – The Report of the Alternative Commission on Social Investment

Some readers may have noticed that there hasn’t been a blog post here for a while. That’s not because there hasn’t been anything going on in UK social enterprise, it’s because I’ve been working on a project called The Alternative Commission on Social Investment. The press release below explains what it’s all about.

Our report is out now: the full version is here and there’s a shorter version here.

It would be great to hear what you think – either via email or below.

Normal blogging service will be resumed shortly.


Commission proposes more open, social and responsive alternatives to rescue social investment from hype and hubris

In a report After the Gold Rush published today, Friday 27th March, the Alternative Commission on Social Investment called for less hype, greater transparency from investors, changes to Big Society Capital, and a more principled approach to social investment which puts charities and social enterprises at its heart.

The Commission explored, through a series of roundtables, interviews and research, the access to finance needs of social sector organisations and whether social investment, as currently conceived, can meet that need. The report proposes 50 ways to make social investment more successful and more social.

Through its work, the Commission sought to be more inclusive, more diverse and less London-focused than much of the social investment industry. The work of the Commission Team was guided by 14 Commissioners, all of whom have some interest and knowledge of social investment but who offer diverse experiences and perspectives.

  • Commission Secretariat and Managing Director of Social Spider CIC, David Floyd said “We often hear from Ministers, champions of social investment and the G8 that the UK is a world leader in social investment. Yet for charities and social entrepreneurs here in the UK, it doesn’t feel like that. The Alternative Commission on Social Investment was set up to ask why and to make some practical suggestions as to how things could be improved.”
  • Caroline Mason, Chief Executive of Esmée Fairbairn Foundation said “I welcome the publication of this timely and revealing report. Social investment is a wonderful tool but to enable social change we need to improve and develop on its execution. If social investment is to help charities and social enterprises improve the quality of people’s lives across the UK, then their voices need to be central in policy, market and product development.”
  • Professor Alex Nicholls, one of the Commissioners and Professor of Social Entrepreneurship at the Saïd Business School, Oxford University said “Since the financial crisis, we have seen increasing interest in how capital might be harnessed for social good. But the danger here is that we simply recreate models from mainstream financial markets and expect them to work in the social sector, while at the same time letting social values succumb to the power of capital. Instead, we need fairer, more open and inclusive investment models that can help tackle inequality.”


The Commission’s 10 key recommendations are (see report for full wording):

  1. Social investors, including Big Society Capital to go much further in publishing information about the investments they make.
  2. Social investors to be clear about how social aspects are weighed up in their investment approach.
  3. A reconsideration of the role of Big Society Capital, prioritising its impact over its own existence.
  4. Unravelling the mix between ‘the people’s’ Unclaimed Assets and money invested by the Merlin banks to allow Big Society Capital to better meet demand.
  5. Politicians and advocates of social investment to minimise social investment hype.
  6. Government policy to move away from looking to grow the relatively tiny “social investment market” for its own sake and focus instead more on the needs of charities and social enterprises
  7. The development of a set of defining principles for truly social investments
  8. Social investors’ approaches, staff and locations to better reflect and understand the market they are seeking to serve.
  9. A Compare the Market or Trip Advisor type tool which enables charities and social enterprises to rate their experiences of social investors.
  10. Large charities and social enterprises to invest in other social sector organisations through peer-to peer models.



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