Today has seen the launch of the first report of the G8’s Social Impact Investment Taskforce. This was set up a year ago when the UK hosted the G8 leaders’ meeting, and has held meetings and conducted research over the last year that has resulted in this final report.
Entirely without coincidence, CAF also has a report out on social investment today – Returns Policy: what the nest decade holds for social investment. In this, we echo many of the positive sentiments of the G8 Report, but also offer a note of caution about the danger of charities getting left behind by the pace of development of social investment.
Our report argues that whilst a lot of the rhetoric around social investment is about grand vision of a future in which investors are faced with numerous opportunities to make investments that deliver both significant financial and social returns, the reality for most charities right now is far more prosaic. What most of them really need is not exotic financial products, but simple, affordable repayable finance. There is a danger of this fact being lost in the gold rush of impact investment, as people trample over one another to get to the next social impact bond.
In fairness to the G8 report, it clearly acknowledges that charities have an important role to play. And it is hugely encouraging that among its recommendations are that the fiduciary duty of charity trustees should be clarified to enable them to take social considerations into account and also that government grant funding should be used to develop the capacity of charities to take on investment in the future. These are both recommendations that we also make in our report.
Where the G8 report is perhaps a bit more worrying is in its analysis of the relationship between social investment and philanthropy. It commends the use of philanthropic money to provide guarantees or underwriting for social investment opportunities so that they can be made more appealing to investors. This is something we highlight in our report as a possible concern: whilst guarantees are a powerful tool in some instances, there is a real question about whether it is appropriate to leverage the social motivations of some investors in order to artificially alter the risk profile and returns of an investment for the commercial benefit of other investors. This may also be unsustainable in the longer-term, if it raises unreasonable expectations about the sorts of social investments that are possible.
The G8 report is a landmark in the ongoing development of the social market, and contains many good ideas and positive recommendations. We absolutely share its enthusiasm about the potential of social investment as an idea. However, from the point of view of charities, a lot of what is said seems a million miles away. Given that charities are potentially a huge source of both investment opportunities (through the work they do) and investment money (through the way they use their assets), it is vital that we ensure they are brought along on the journey and able to share in the opportunities that social investment has to offer.