Date: 2025-08-21 Page is: DBtxt003.php txt00006119
SOCIAL INVESTMENT
AN ARTICLE FROM THE FINANCIAL TIMES
Making good and doing good
AN ARTICLE FROM THE FINANCIAL TIMES
Making good and doing good
Susan Biegel and Rodney Schwartz, of ClearlySo.com
photographed at their offices in Old Street for Money ... FT©Charlie Bibby
Peter Burgess COMMENTARY (added October 2023)
This article from the Financial Times 10 years ago in 2013 has a very optimistic tone even though it also describes social investing as a mere trickle compared to conventional investment.
I have been concerned about the mix of 'for profit' and 'social' investing for most of my professional life and what it will take to get the most desirable balance between the two. I have concluded that the modern practice of 'financialization' that has dominated the global economy for the past 40+ years effectively diminishes the possibility of social incestment growth. My solution to this problem is to modernise business accounting so that it incorporates the three dimensions of the Triple Bottom Line (People/Planet/Profit ... or ... Social/Environment/Economic) rather than a singular focus on profit. The damage done by the likes of Professor Milton Friedman who taught that the ONLY duty of a company was to maximise return to investors needs to be understood and pro-active remediation undertaken as a matter of considerable urgency.
There are many elements of the socio-enviro-economic system that need to be better understood. These include among others: the tax system for government revenues; government expenditures; business transparency and accountability; systematic avoidance of responsbility and many others.
Peter Burgess
Written by Norma Cohen, Demography Correspondent Financial Times
More than a decade before David Cameron unveiled his plans for a “Big Society” in which for-profit firms and activities would contribute to the common good, investors were already hard at work. Today, what is known as social impact investment is attracting – with and without government support – a flood of money in the form of equity, debt and outright grants, mostly from wealthy people who want a return on their money through ventures that also help to make the world a better place.
And while the success or failure of Cameron’s initiative, unveiled in the early days of his government in 2010, is the subject of heated debate, interest from private investors continues to grow.
“All of the philanthropy and grants are not going to solve all of the problems we face in the world today,” says Suzanne Biegel, a director of Clearly Social Angels, a group of active investors providing equity capital and hands-on support to fledgling enterprises that promote social ends. “We need business, too.”To be sure, the flood of money, when compared to that flowing into conventional investments, is more like a trickle. But a report from Boston Consulting Group last September found that investment is likely to rise from £286m in 2012 to as much as £1bn by 2016.
“And whether you’re talking climate change or access to clean water, it is obvious that companies need access to capital.”
Rod Schwartz, founder of ClearlySo – a body which aims to introduce potential investors to businesses with social goals and which is the body that launched Biegel’s group – said he probably fits the prototype of the average investor. A former investment banker, he got involved in charitable work after leaving the City.
But he became disenchanted with the charitable model, discovering, as he puts it, “that governance was really problematic.” He then sought another avenue. “I wanted to use my skills in ways that I and my children would feel proud of,” he said.
Investors in action ... ‘Angels’ with cash to spend
Suzanne Biegel’s story is probably typical of that of most active social investors. She started her career at IBM in the late 1980s and 1990s. The business she built and sold, IEC, was an e-learning business that she ultimately sold to a larger company. In 2000, she found herself living in California and wealthy, but looking for new challenges.
She devoted herself to organisations focusing on her passions; the environment, social and economic justice and the status of women and girls. She actively campaigned for ‘change not charity’ after selling her business.
But, like many who find themselves drawn to social investment, she grew dissatisfied. “Fundamentally, I’m a business person,” she says.
In the US, what is known as “impact investing” has been around for 20 years and is modelled on what are known as Theatre Angels; wealthy private individuals who are prepared to take a risk on stage productions. As in the UK, it is most likely not to pay off, but when it does, the returns can be spectacular. But most importantly, the investors gain close engagement with the production and earn their rewards in part by promoting theatre to the world at large.
So it is for social impact “angels” who often are often successful entrepreneurs themselves and offer their particular skills to fledgling businesses. Biegel said she is seeking returns “in double digit returns” but often finds that she does better than that.
Peter Wilson, a director of Omnia, a legal firm, had a background in diplomacy and international development and established himself as a post-conflict stabilisation specialist, overseeing projects in countries such as Iraq. After leaving public service, he set up his own consulting firm.
“It grew from a bunch of guys working out of my bedroom to a growing business,” he says. When it was sold to a larger firm, Wilson had money to invest.
While most of his investments are “arm’s length” – held purely to deliver returns – he has also made social investments. Currently, he holds stakes in five social enterprise companies. “I’d be looking for a rate of return similar to that on conventional companies,” says Wilson.
But for those companies he becomes engaged with, there is another form of payback; intellectual challenge. “I am not at the stage where I can just give away money. But when I set up my first company, we watched things that were intellectual things.” Keeping that up, he says, is important to him.
Jonathan Adams, a fund manager at Investec, had been an investor in “angel” companies for years, although none had social objectives. But three years ago, his employer offered him a chance to mentor a company, JuJu films, supported by the Bromley-by-Bow Centre, a charity founded by renowned social entrepreneur Lord Mawson.
That opened his eyes to the possibilty of social impact investment. “I do have a target rate of return,” Adams says. “I just haven’t quantified it. You’re willing to bear a lower target return across the portfolio.
“If you’re looking for zero return, you are right at the charitable end of things,” he adds.
The company was helped by a £1m convertible loan from Big Society Capital, a government-formed body that distributes “orphan assets” to organisations with socially valuable goals.
Schwartz is not alone in turning to impact investment after spotting the failings within the charitable sector. Peter Wilson, a director of legal firm Omnia and an impact investor, says that charities do many important things that businesses cannot do. “But when you look at them, there’s a lack of market discipline. You never see charities go out of business or merge to be more effective.”
That leaves gaps. Social investment really took off in the UK in the late 1990s, coinciding with the peak in the technology shares boom. Before it burst, that bubble created a number of young, wealthy entrepreneurs and it is this group, like Biegel, that forms the bedrock of the activity.
“The UK is a global leader in this,” Schwartz says. “There is no market in the world that has the number and types of investment that we have here. People are coming from all over the world to study these models.”
Clearly So’s website lists roughly 3,600 social impact enterprises in every business sector “except defence,” he says. It does not thoroughly vet these, but so far has had to scrub “a few dozen” obviously unsuitable companies and ventures from the directory.
Investments can be made as equity, quasi-equity, and seed money grants that lead to new business creation.
Various studies have concluded that the investors who back social enterprises are a diverse group. In 2011, Nesta, a body funded by the National Lottery, looked at likely equity investors and concluded that those seeking social impact are generally those with £100,000 to £1m to invest, and those with sums below that may buy products such as social impact bonds. These are bonds offering higher returns if the issuer achieves key social objectives, such as lowering recidivism rates for a post-prison programme.
Those prepared to invest equity are most likely to be over 55, generally satisfied with their finances and most likely to identify with sentiments such as: “When investing, I would like my money to do some good as well as provide me with a return.”
The numbers of these investors are growing. Jonathan Jenkins, chief executive of the Social Investment Business, a group that tries to link mostly debt investors with enterprises, says that wealth managers are now also seeking investments for their clients. “I don’t doubt that there is interest from the high-net worth community,” Jenkins says. “I just don’t think there is enough product.”
Among the businesses to which SIB has provided loans is BikeWorks, based in east London. It hires long-term unemployed and ex-offenders, teaching them bicycle mechanics skills and offering their services to large cycling retailers among others.
From the US, there are some high-profile successes, most notably ZipCar – the rent-a-car model aimed at reducing car usage. “Somebody had to fund it and it wasn’t going to be the car companies,” Biegel said. Other companies initially funded in this way include Ben & Jerry’s ice cream, devoted to the use of environmentally sustainable products and now part of global foods group Unilever.
But the sector can be very high-risk. And for each spectacular success, there are probably many more losses and marginal performers. Biegel says she lost all of her substantial first-ever investment in a community healthcare business. And Jenkins says the default rate on the loans his business extends is about 10 per cent, high by banking standards. In fact, he said, one criteria for businesses seeking an SIB loan is that they must have already been turned down by a conventional bank.
Jamie Hartzell, an early entrant to social impact investment, got a leg up from an early inheritance. Just out of university, Hartzell first formed a film company with social objectives and in 1998, formed the Ethical Property Company. “It sounds like an oxymoron,” Hartzell says, explaining that the company buys buildings and rents space on flexible leases at below-market rents to charities. He is also a shareholder in Café Direct, one of the first Fairtrade coffee companies.
But Hartzell says that he, too, sees a need for intermediaries to make it easier for investors to get into and out of their investments.
To that end, he formed Ethex, a not-for-profit exchange that has a regulatory exemption, which launched this year. Currently, eight businesses are listed. Shares or bonds are transferred on a “matched bargain” basis, which does not pass fees to an intermediary. The securities include the Charity Bank and bonds issued by Golden Lane Housing, which is backed by Mencap.
“People are very interested in using their money to invest in things they really believe in,” Hartzell says.
Five ‘social impact businesses’
They are five very different businesses – with one thing in common: all have benefited through social impact investment.
- Loowatt produces a special toilet that does not require water or electricity and it seals waste into a biodegradeable wrapper that can be linked to anaerobic digestion systems. That means it can be used as a source of biogas for cooking, electricity and other applications.
- Meanwhile, Small World Films makes movies and documentaries about environmental issues. The Ecology Building Society is a mutually owned lender that extends credit to people and businesses for eco-friendly repair or new building.
- JustGiving, launched over a decade ago, designed an application to make it simple for people to make charitable donations through a single mouse-click, sponsoring friends and acquaintances running marathons and climbing mountains to raise money for worthy causes.
- And Golden Lane is a charity that works with MenCap to build housing for people with learning difficulties and which is issuing 5-year bonds paying annual interest of 4 per cent.
- Similarly, the Bootstrap Company, based in one of London’s poorest neighbourhoods, rents space at affordable rates to local businesses.
Of course, not all social objectives carry the same impact in either defeating poverty, saving the planet or improving lives of the disadvantaged.
Critics may point out that making films about endangered species helps far fewer of those who need help most than, say, offering job training to ex-offenders.
And the spread of social impact investment is not simply a function of good will. Government has helped, too. In particular, the Seed Enterprise Investment Scheme (SEIS) offsets some of the risk investors take when providing equity in that up to 50 per cent of that investment up to certain limits can be offset against tax. And those holding on to their investments for three years will not have to pay capital gains tax. In this week’s Budget, SEIS was extended for another year.
Cash is also circulated to businesses of this sort through Community Development Finance Institutions that specialise in providing credit to micro- and small businesses, or to the charitable sector and occasionally to individuals. Generally, these groups that would otherwise be unable to arrange finance.
In the 12 months to April 2011, the latest year for which full data have been collected, CDFIs lent £190m to 23,000 customers. Of this, £23m was lent to 1,500 businesses, generating £171m turnover and creating or safeguarding more than 5,700 jobs, according to an association of such bodies. It noted that £13m was loaned to to households, “saving over 12,000 people from predatory lenders and loan sharks”.
But the single biggest share of its budget, £145m, was lent to 390 social enterprises and charities.
Copyright The Financial Times Limited 2013.