The term ‘social investment’ refers to the range of products that provide a benefit to society, as well as an investment return. By their very nature many of these products are risky and a return of capital is not guaranteed – as they invest in social enterprise. The products themselves cannot be classified as investments, nor can they be categorised as philanthropy.
The market for social investments is extremely niche; products are currently owned only by Very High Net Worth Individuals (VHNWIs) with investable assets running into millions – and the products themselves are focussed on delivering positive social outcomes.
Social investments are not currently understood by mass affluent investors; and as they can’t be easily categorised into either an investment ‘pot’ or a charitable giving ‘pot’ (consumers find making financial decisions easier when they can think of their money in terms of ‘pots’), the products do not neatly fit into their existing investment portfolios.
This makes investor engagement a challenge. The need to encourage behaviour change (given that investors will be presented with a new asset class) is critical to the development of the market. This is a significant challenge – but not an insurmountable one. Once the features and benefits of social products are explained, engagement and interest is relatively strong; particularly among the segment of individuals who were more likely to take an active interest in social outcomes. An appropriate ‘messenger’ (the individual or channel delivering product information) is required to generate the required behavioural and attitudinal change.
Incentives to stimulate this market from the Government would be welcomed, but recent expenditure cuts mean that there would be a high level of cynicism about their motives for doing so. For the majority of investors, these products are consequently a difficult concept to be positive about – as they do not feel it is the role of individuals to deliver positive social change. Many are experiencing a squeeze in discretionary expenditure, and are sceptical about the Government’s motivations for promoting social investments at this time.
It has been announced that the Government is moving ahead with its plans to launch the Big Society Bank, which will be jointly funded from the banks and orphan assets. According to Francis Maude, it will be “the first institution of its kind anywhere in the world dedicated to growing the market for investments that blend financial and social returns,”
The success or otherwise of the social investment marketplace will largely depend on how it chooses to market itself and its products. It is clear that there is a demand from investors who are ‘ethically or socially aligned’. The challenge will be in educating this group, who do not currently engage with products that provide a positive social outcome.
These ‘ethically and socially aligned’ investors understand the need for social enterprises to have access to capital in order to exist – and they have no problem with the Government / Big Society Bank playing a role in developing the market – but they need investment intermediaries and other influencers to explain the features and benefits of the products. Once these are understood (including details of the types of social enterprise that will benefit, how they will lead to positive social outcomes, and how these outcomes will be measured) there will be interest.
Given the complex nature of the social investments, the Big Society Bank (and the Government) has a key role to play in the development of the market. It has already stated its desire to work with organisations involved in retail investment distribution. If it is to be successful, it will also need to work with existing social investors and ‘ethically and socially aligned investors’ to build a network of advocates who (as messengers) will promote the market within the wider investment community. Gaining the support of these ‘early adopters’ is the only way to give the social investment market the momentum to attract mass market investors.
Charles Adriaenssens – Head of Financial Services at Ipsos MORI