Tag: social impact investors

I attended an interesting breakfast seminar organised by my business school, IESE, yesterday entitled “The Challenge of Sustainable Social Investment” with panelists Prof. Heinrich Liechtenstein,  Deirdre Davies of Deutsche Asset Management Group, Oliver Karius of LGT Venture Philanthropy, and Nick O’Donohue of Big Society Capital.

Interestingly, the Dormant Accounts Act defines quite carefully what social impact means for Big Society Capital by laying down what organisations its co-funded intermediary investment managers can put money to work with.  These are defined as third sector organisations that are delivering a “social gain”.  As a result, BSC has identified Community Development Finance Institutions (CDFIs), charities, social enterprises and organisations addressing financial inclusion as fitting this criteria.

For others, social impact is defined by the outcome sought and it matters not whether the organisation delivering the outcome is for profit, a social enterprise or a charity.  A good example backed by LGT is a for profit private education business filling a gap in the market in Kenya based on a business model that charges $4 per child per month.  Another example given was of a branded leather goods company that was bought out by private equity backers who then invested heavily in both ensuring that its supply chain eliminated any use of child labour and that its tanning processes were clean.  It did this to create value for itself on exit by creating a sound organisation that could, therefore, be bought by others.

Clearly, an investor can decide what social impact it wants to support and also how it will measure the outcome to its satisfaction. Similarly, an organisation can decide how to include and measure social impact in its own mission statement and values no matter what its financing structure i.e. for profit or not for profit.

One other point emerged clearly for all those attending, which is that whatever the social impact arguments and story, social investors are just that – investors and they will always be looking for a return on their capital.  Any organisation seeking social investment will need to understand this fully.  Many social enterprises are expressly established as not-for-profit which is a decision that can be taken and is fine in and of itself.  What it means though, is that only a more narrow and smaller set of potential funding is available and without “equity” risk capital, the ability to grow and deliver greater social impact will be constrained.

In my view, if social impact ends up being defined as only being delivered by not-for-profit organisations, then this will slow the growth in the social impact investment market and improved social outcomes.  I, for one, believe that any investor and organisation can define for itself what social impact means and then go about delivering it.