New report highlights risks and benefits of social investment to charities
‘Charities and Social Investment’, a report commissioned by the Charity Commission for England and Wales from the Institute for Voluntary Action Research provides an insight into the issues facing charities receiving social investment.
The report’s authors Leila Baker and Niamh Goggin say they found that: “Advice and support for charities considering social investment is unevenly distributed across England and Wales and that its quality is variable and questionable.”
They say that many of the charities in their study said that they did not envisage going through the social investment process again. In some cases, the investment was a one-off for purchasing a building. However, they also found that some charities would not want to repeat the method of attracting money. The authors say: “There was a perceived lack of clarity and transparency about some investors’ assessment, due diligence and reporting requirements along with a feeling that these processes were not tailored enough to individual organisations.”
However, once an organisation had secured investment, participants were enthusiastic about the annual review conducted by their lender. They said that the combination of “a hard headed business approach and a sympathetic ear” was welcome and useful. Unexpected benefits of the annual review also included having someone to talk to about the challenges involved in managing property or business contacts.
The study found that there were several factors contributing to success in securing and managing social investment. These included having an engaged board, confident and skilled management, effective business planning, a reliable revenue stream and a strong asset base. Strong relationships between investors and investees, based on mutual trust and a shared vision and strategy for what the investment would achieve, were also seen as crucial.
Benefits cited in the report included loans being more efficient and cost effective than grants. This was particularly the case if large sums were needed. Some participants also felt that the loan enabled them to retain their independence and focus on their mission and strategy.
The study calls for simple social investment products that are presented to charities clearly and in accessible language, with neutral advice from organisations. It also says that charity investors should lead the process of learning and sharing knowledge to ensure that social investment does not undermine public confidence in charities.
In its analysis of the report, the Charity Commission “welcomes the research findings, and provides this initial analysis as part of our on-going work to protect the public's interest in the integrity of charity, and to ensure that charities focus on the charitable purposes for which they were established.”
It warns trustees to make every effort to seek advice before engaging with social investment as a form of funding.
The Commission concludes: “The research found that charities themselves are often unaccustomed to approaches that link social outcomes with financial returns. In that sense, social investment represents something of a culture shift for those involved with the charity sector, as well as the wider public. As regulator, we ask trustees to be alive to public perception and think about their charity's reputation when making investment decisions.”
The Commission’s response: