Anyone who’s dipped into the exciting selection of recently published reports on the growing social investment market in the UK will know that – contrary to the rhetoric – should you find yourself pitching for some of this cash, the second last thing you need to be thinking about is your social impact, and the very last thing you need to be thinking about is your ability to demonstrate that impact.
As the Big Lottery-backed report noted Investment Readiness in the UK noted: “Investees appear to think that their ability to create social impact will be more significant to investors than seems to be the case on the evidence of those who have received investment. This perception amongst potential investees appears to weaken as they get closer towards securing finance.”
This is partly because there’s currently significant conflation of the connected but potentially divergent concepts of ‘social investment’ and ‘impact investment’. If the two concepts were going to be discussed separately, the term ‘social investment’ would mean investment in social organisations – the Big Lottery report uses the acronym VCSE meaning Voluntary, Community and Social Enterprise – while the term ‘impact investment’ would mean investment that requires the investee to demonstrate specific social outcomes as part of the deal.
This is a neat separation. Unfortunately, it doesn’t work because – to give two examples – while the authors of Investment Readiness in the UK “use the term ‘social investment’ to refer to any form of finance offered to social organisations with the expectation that there will be a financial repayment” that view is not shared by social investment wholesale finance institution, Big Society Capital, who say: “Social investment is the provision and use of capital to generate social as well as financial returns. Social investors weigh the social and financial returns they expect from an investment in different ways. They will often accept lower financial returns in order to generate greater social impact.”
This may seem like semantics but – based on the comment from NCVO’s Head of Research Karl Wilding on this post – it was actually the difference, in 2011, between a minimum of £2.9Billion loaned to voluntary groups (primarily from High Street banks) with the expectation of being repayed and £165million in specified ‘social investments’ from ‘social investors’.
If, at this point, you’ve managed to continue reading without banging your head repeatedly against your desk as your confusion becomes increasingly tinged with despair, it might be helpful to move on, accepting that as a minimum everyone accepts that ‘social investment’ – whatever else it means – means investment where either or both parties to the deal has some social motivation for their participation in it.
What’s clear is that even in the specialist field of social investment by specified social investors, there isn’t necessarily any need for investees to demonstrate social impact. The new £25million fund managed by Nesta subsidiary, Nesta Investment Management, is different. The fund has been set up to invest in early stage ventures focused on:
- the health and wellbeing of an ageing population;
- the educational attainment and employability of children and young people; and
- the social and environmental sustainability of communities.
Sensibly, Nesta have mapped out an approach called Standards of evidence to explain how they’ll judge whether the ventures they’re investing in are making a positive impact. The standards range from Level 1 where: “a potential investee can clearly say what a product or service does and why this may have a positive impact on one of our outcomes in a logical, coherent and convincing way” up to Level 5 where: “it is clear that the product or service can be operated by someone else, somewhere else and on a large scale, whilst continuing to have positive and direct impact on the outcome, and whilst remaining a financially viable proposition.”
This seems like a useful way of looking at things. The fund will hopefully help to tackle the demand for high risk social investment highlighted by the Big Society Capital-backed report The First Billion but should also make a useful contribution to the debates about how organisations’ social impact can most usefully and meaningfully be measured (whether or not that measurement is specifically linked to an investment).
Like social investment, impact measurement is something that’s constantly talked about but rarely practiced – unless you take the view that it represents some combination of a corporate-inspired rebranding of monitoring and reporting back to funders or doing good PR about your products and services. In recent years it’s seemed that the best-known system for impact measurment, Social Return on Investment (SROI) is, ironically, often used a proxy for people’s wider scepticism about the growing demand for impact measurement in a general sense.
As both social investment/impact investment and impact measurement continue to grow in prominence, the challenge for their proponents is to come up with convincing, evidence-based explanations of what they’re for and – most importantly – what positive social impact they deliver compared to other methods of investment and evaluation.