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Seven things you need to know about social investment

David Cameron has today called for a major growth in social investment. Here are seven things you need to know about social investment…

  1. Big Society Capital defines social investment as  “the provision and use of capital to generate social as well as financial returns”.
  2. David Cameron thinks it’s a great idea and is throwing his weight behind it ahead of the G8 meeting of world leaders at the end of June. He recently told the Telegraph: “Britain and other developed nations face a shared challenge – sorting out our debt problems and achieving economic growth. We need to do this at the same time as improving public services and tackling our deepest social problems. That’s why this Government has placed such an emphasis on social innovation from charities, social enterprises and other businesses”
  3. Investors are increasingly looking to make ‘social investments’. According to JP Morgan the global market for social impact investment is estimated to be worth $9 billion and expected to grow to between $200 and $650 billion in the next decade.
  4. How is Scope involved? We were the first traditional charity to venture into the social investment bond space, blowing open the space for other charities. We launched our Bond in 2011, which offered investors a return of 2% and the opportunity to support our work making this a better place for disabled people. We raised £2m; and used it to fund new charity shops and seek new regular donors, which in turns provides us with a sustainable income for our network of parents befriending groups and info and advice service. Check out this blog from Tom Hall. The first tranche of the Bond is closed, but Richard Hawkes hopes Scope’s work will inspire others. “Charities can’t just rely on traditional donations. Investors are looking for ways to invest their money that has a social as well as financial return. We need to bring them together.”
  5. Why does a charity do it, it sounds risky?  Charities need a mix of income streams. The social investment bond creates an alternative way for people to support our work alongside the philanthropic loans and traditional donations. Donations are important; they support vital work on the ground. But charities also need to invest in activities that generate long term, sustainable income – such as fundraising or charity shops. Not every donor can fund these activities. But – as they generate income – it is perfect for a social investor, who wants to support a charity, but also wants to see a return on investment.
  6. How is a charity able to pay a loan back with interest? We are investing the money we raise in activities that generate long-term, predictable and sustainable income, such as our fundraising programme and our retail network. That means we can be confident that we can return the investment and also fund our work to make this country a better place for disabled people. Find out more about the impact Scope’s Bond had in this Investing for Good case study.
  7. So, what can be done to grow the market? Scope is also backing the launch of the Social Stock Exchange (SSE), a portal for social enterprises and social purpose businesses seeking to raise capital and for social impact investors wishing to find businesses that reflect their values.  The Government also has a chance to send a strong message with its proposed consultation on tax relief for social

Budget announcement on a new tax relief for social investment

Guest post from Tom Hall who is Scope’s Director of Philanthropy and Corporate Partnerships

As we digested what it meant to be an ‘aspiration nation’, another Budget announcement flew under the radar. The Chancellor has revealed that the Government will be consulting on introducing a new tax relief for social investment.

This is good news for charities and the people they work to support. Especially as so many are finding it increasingly difficult to generate the same level of donations from traditional sources

Scope has pioneered social investment because we think it will help charities and social enterprises like us grow efficiently and become more sustainable in the future.

Scope investment bond

We launched our Bond back in 2011, successfully raising £2 million at 2% repayable after three years.

The money has been invested in expanding our network of shops, with each new shop bringing in about £30,000 a year to support our work with disabled people and their families. We’ve also used it to encourage 10,000 more people to regularly donate to Scope. All this will give us sustainable unrestricted income to fund our key work, supporting disabled people and their families through programmes like our network of parent befriending groups.

We have already paid our first interest payment (these are to be paid twice a year) and were delighted to win the Sustainable City Award for sustainable finance this week.

Having successfully launched the Bond and accessed finance in this way, we are now looking at other enterprising activities that give investors the chance to see their money make a difference to the lives of disabled people.

Whilst our bond was a success we felt that it would have been even more successful if our investors could have received some form of tax relief on their investment. There is currently no tax relief available for investors who choose to lend to charities and social enterprises through products such as the Scope Bond Programme.

We believe tax relief would help charities to overcome the barriers they face around being about to pay fully commercial returns and would incentivise investors who want to see social as well as financial return on their investments.

Tax relief on charitable lending

A tax relief on charitable lending, for example of 5% per annum on the amount invested, could significantly raise the financial return and therefore appeal of social investments, helping encourage more people to invest in delivering social impact.

For example a tax relief of 5% per annum would have turned the a 2% return from Scope’s bond into a 4.5% return for the investor, allowing it to compete more favourably with traditional products on the market, whilst having the additional benefit of supporting families with disabled children.

Whilst we don’t think that charities can become reliant on investments secured through loans or bond issues and that these products can only ever be part of a charity’s financing, we believe that there it is necessary for charities to explore more creative and efficient uses of funding, particularly in the current economic climate. Tax relief will help charities and investors move in this direction, become more sustainable and deliver greater social impact.