Practical and Legal Guidance for Assessing Capacity
Jul 20 2023
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Social investment, where investors are seeking both a positive social and / or environmental return and a financial return, has been with us for a number of years. There have been various pockets of activity such as the increased interest in community shares and social enterprises offering social investment tax relief (SITR) compliant bonds to investors, but social investing has been a minority interest and, with the exception of community shares, has been relatively difficult for the public to access.
The Government now aims to change this by growing social investment and to bring it into the mainstream so that individuals can more easily invest and save in a way which is aligned to their values.
In its response to an industrial-led report entitled 'Growing a culture of social investment in the UK', the Government recently set out commitments and proposals to increase the amount of social impact investing in the UK. Most of the initiatives and proposals are aimed at institutional investors, pension funds, and large companies, in part to increase the amounts of funds available for social investment but also to encourage good governance and the adoption by large businesses of social and environmental good practice such as the 17 United National Sustainable Development Goals.
The more relevant proposals include:
Government interest in social investment is clearly good news for all forms of social business, and should social investment become mainstream it should bring unquantifiable social, environmental and community benefits. However, while increased availability of funds must be a good thing, at this stage there are no proposals on how to bridge the gap between the relatively small amounts of capital that social businesses require and the significant amounts of capital that institutional investors and pensions funds will be seeking to deploy.
The proposals could go further. If the Government really wanted to encourage social business, it would seek to implement other measures such as continuing its investment readiness support, creating a social business challenge fund to enable social business to trial innovative impactful business ideas and by enhancing the requirement for social value and social impact in central and local government contracts, to give social businesses a greater chance of winning such contracts which in turn would make them more investible.
Of course such social investment will not become mainstream overnight. The Government's initial plans are unlikely to make much difference to social businesses in the short to medium term, particularly as the Government will be relying on others, such as the FCA, to help implement some of its proposals. The likely outcome of the proposals in the medium term is that some larger businesses at the most commercial end of the social business spectrum, being businesses which can take on significant amounts of social investment, will follow Unilever's lead and will become B-Corps - the business equivalent to Fair Trade in which businesses adopt and are independently assessed on rigorous standards of social and environmental performance, accountability, and transparency.