Ideas behind social investment market still unclear after 20 years, report says

30 Nov 2021 News

The ideas behind social investment are “still fuzzy” even after 20 years’ work to develop the market, a report has warned.

Local Trust published Levelling the Land today, which reviews the impact of social investment on so-called left behind parts of the UK.

The report argues that, while most experts agree that social investment involves a blend of social impact and financial returns, more complex questions about types of investment and the need to measure impact have still not been resolved. “After two decades, none of this seems to be much clearer,” it says.

Limited social investment through Big Local

Levelling the Land was commissioned to follow up findings from the Big Local programme, which was backed by the National Lottery Community Fund and allocated £1m for local groups to spend in 150 parts of England which had previously missed out on such funding. 

There was “little take up” of social investment as part of the scheme, the report notes, and “only a handful of Big Local areas have accessed or provided social finance”.

Avoid hyperbole

The report said that future social investment models “must look quite different” if they are to benefit left behind areas. 

It also cautioned civil society experts not to overpromise what the market can achieve. The report said: “Frankly, social investment is just a drop in the ocean in terms of the wider financial dynamics faced by ‘left behind’ areas. Often, they are fighting against more powerful tides.

“The idea that social investment can dismantle poverty is just another gust in a storm of hyperbole.”

The report said that people designing social investments should reflect on who benefits the most from the deals, arguing: “If we are concerned about inequality and ‘left behind’ areas, then we cannot ignore the financial flows that arise from such investments. If investors are the principle beneficiary of their investments, then this movement of money is not helping create a fairer society.

“Indeed, on this basis, many social investment models have been exacerbating economic inequality in the UK.”

More patient capital, more creative finance

To address these issues, the report recommended that more investments are made over 20 or 30 years, with no financial returns sought in the short- or even medium-term.

It also said that deals should focus much more on what local communities need rather than the financial returns an investor may receive, as well as suggesting more creative, locally-driven ideas such as neighbourhood bonds and shares.

Access: 'It’s important we are open to challenge and can debate on both the opportunities and challenges faced by social investment'

Access – the Foundation for Social Investment welcomed the report and highlighted efforts that were under way to grow blended finance approaches.

Seb Elsworth, chief executive of Access – the Foundation for Social Investment, said: “Ideas for accelerating the impact that social investment can have in disadvantaged communities are very welcome. The social investment market has grown and evolved over time, and we know a huge amount about how to target investment to the places and communities where it is needed most.
“The report recognises the work we have been doing alongside our partners to support investment in the most deprived places – one-quarter of our Growth Fund investments are in the most deprived 10% of neighbourhoods and one-half are in the most deprived 30% of neighbourhoods. It would have been good to see more recognition of the growing support for blended finance approaches – allowing fund managers to make smaller loans and absorb more risk and target investment to smaller organisations based in disadvantaged places.
“The report certainly asks a number of searching questions about the role of capitalism in building communities. Not everyone will recognise the picture it paints and more may disagree with its conclusions, but it’s important we are open to challenge and can debate on both the opportunities and challenges faced by social investment.”

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