The social investment market needs “comprehensive structural reform” to support social enterprises more effectively, according to research.
The final paper from the Commission on Social Investment, which was published today, argues that social investment has not done enough to help change society because it too often prioritises “generating market returns ahead of meeting the needs of social enterprises”.
The paper, called Reclaiming the Future, is particularly critical of the role of Big Society Capital (BSC), where a focus on financial returns has “increased cost and pressure” across the social enterprise market, the paper says. The voices of social entrepreneurs “are not being heard” at BSC, it warns.
The report also concludes that the social investment sector has “a serious problem with inclusion and equity”, with Black and ethnic minority social entrepreneurs facing “historic barriers of access” to the market.
Investors ‘do not understand’ social enterprise
Reclaiming the Future says that many social entrepreneurs believe investors still “do not understand” their work, and that investment needs to be far more flexible and long-term to support the market effectively.
Looking specifically at BSC, which provides capital to financial intermediaries which then fund social enterprises, the commissioners praised the organisation's overall contribution to the market.
The report said BSC “has done good work in recent years”, but recommends that it “needs to be reformed, as its current structure is holding back its potential to support the growth of the social enterprise sector”.
BSC should be reformed “to align [its] purpose, structure and activities” to the needs of social enterprises, the report says. One idea raised by the commissioners is to withhold further dormant asset funds from BSC unless it is “reformed along the lines that we suggest in this report”.
James Westhead, head of engagement at BSC, told Civil Society News that his organisation agreed with the “big things” in the report concerning the need for greater support of social investment, but stressed that BSC saw its role as “slightly broader” than just focusing on social enterprises.
“We are trying to grow the social investment market, that is our explicit purpose set out in legislation and in our founding articles. That is the mission we are on, and we believe that that is absolutely in the interest of social enterprises today and, crucially, in the future,” Whitehead said. He added that if BSC is “not sustainable then either the support for social enterprises will dissipate in the future or there needs to be a constant supply of subsidy from government”.
A £50m fund to address equality gap
The paper demands that organisations across the sector address the structural barriers facing Black and ethnic minority social enterprises, saying that “existing institutions have had years to look into the problems facing Black entrepreneurs and have not taken the necessary action”.
The social investment sector has “a serious problem with inclusion and equity, particularly, although not exclusively, in relation to race”, it says.
Witnesses giving evidence to the Commission described “the challenges they faced in getting access to social investment, whether in securing support to become more investment ready, in a lack of understanding within the social investment community about their social enterprises, or in the lack of diversity within social investment itself”.
The paper recommends the creation of a £50m social investment fund led by Black social investors and financial intermediaries to start to address these issues. It notes that “there are already advanced plans to create such a body”.
Effective reforms would cost around £800m over the next 10 years, according to the report, and could generate 180,000 new jobs worth £3bn to the economy.
Victor Adebowale, the chair of the Commission, said that the core message of the report “is a short and simple one. We need the social investment market to get back on track by putting the needs of social enterprises at the centre of everything it does.
“This means finding flexible sources of capital which can accelerate the growth of social enterprises and provide workable investment to disadvantaged organisations, such as Black-led social enterprises. It means reforming the institutions of the market so that they are all completely focused on the needs of social enterprises”.
He added: “Our report does not look to assign blame to any particular individual or organisation. We believe that the problems are essentially structural, but we must learn the lessons of what has and has not worked over the past decade. If we can make the structural changes outlined in this report, I believe we can make social investment work for social enterprises and, most importantly, enable them to create the jobs and opportunities which our country desperately needs.”
The other commissioners were Susan Aktemel, Jess Daggers, Chris Murray and Jamie Broderick. The report draws on evidence from more than 70 social enterprises across the UK as well as finance and investment experts.