Investment in social enterprises is still very much a fledgling agenda in the mind-set of the investment community. This is probably not surprising as the criteria for being designated a social enterprise (as used by the Cabinet Office in its 2012 Social Enterprise Market Trends) suggested the following five criteria:
- The enterprise must consider itself to be a social enterprise
- It should not pay more than 50 per cent of profit or surplus to owners or shareholders
- It should not generate more than 75 per cent of income from grants and donations
- It should not generate less than 25 per cent of income from trading
- It should agree that it is ‘a business with primarily social/environmental objectives, whose surpluses are principally reinvested for that purpose in the business or community rather than mainly being paid to shareholders and owners’.
Not the most attractive proposition for hard-headed investors looking to generate a return and not change the world.
Some more visionary funds are investing significant amounts with over £200 million invested in 2011/12 and the trend is a growing one. However, lack of investment is still cited by almost 40% of social enterprises as the biggest obstacle to growth.
Perhaps a potential source of future funding could be the CSR agendas of the larger UK companies who want to deliver social and environmental gain, support communities and deliver real added value. It could be an attractive option to many if they are prepared to review current practices, and evaluate the ways in which social investment capital could not only help them achieve their CSR goals but potentially also deliver a return.
Retailers investing in fair trade or organic manufacturers who may deliver the next big selling product line, health care companies investing in community organisations delivering community and corporate wellbeing, technology firms investing in hard to reach groups of young people who are often entrepreneurial in nature (albeit often to the wrong end product!) all hold great CSR partnership potential.
Social investment is a distinct area, it isn’t charitable giving and neither is it community engagement, however, it holds elements of both. It offers greater risk, but potentially greater opportunity as well. A £100,000 donated to charity will only ever be a £100,000 donation; a £100,000 social capital investment may deliver benefit far outweighing £100,000 and furthermore, may generate benefit for a generation. Any return on the investment could also be re-invested. It is a different model offering a different way to make a real impact.
Want to understand this agenda further, or discuss how it may become a reality? Contact us today for an informal discussion.