Researchers mapping out the different types of organisations that make up the impact economy have said that some charities are and should remain funded wholly or mainly by grants.
Published today, New Philanthropy Capital (NPC) and Social Investment Business’s report splits the impact economy into five segments, with most charities falling into the first two “regulated” sections.
It follows an earlier report by NPC, which valued the UK’s impact economy at £428bn, with £323bn of the total attributed to “self-regulated” impact-led businesses, but drew some concerns over its definitions.
The new report divides the “regulated” part of the impact economy into “grant-sustained” organisations, for whom repayable finance is unsuitable, and those that are “investable”, meaning they have enough reliable trading income to repay a loan.
It says: “The most consequential conflation in current conversations about the impact economy discourse is between the investment market and the grant economy.
“A significant part of what people loosely call the impact economy is made up of organisations that are, and should remain, funded wholly or mainly by grants.
“Treating them as if they are simply at the early stage of a journey toward repayable finance gets their economics wrong and leads to the wrong policy responses.
“Grant-sustained organisations are not investment-ready organisations that lack technical assistance.
“They are organisations for whom a positive financial return is structurally impossible given their mission, their service population, and the nature of their work.
“A peer support group for people with severe mental health conditions, a foodbank, a refugee welcome project or a village hall committee may create huge social value, but they are not set up to generate trading surpluses.
“That value is created through voluntary effort, public grant and philanthropic giving, not through a market model.”
Another segment detailed in the report comprises “member benefit” organisations, which are those with structural ownership arrangements such as cooperatives that distribute surplus to members.
It also notes “self-regulated” purposeful businesses like B Corps and the “commercial economy”, which encompasses impact-aligned organisations operating for profit with no structural mission constraint.
Outside of the impact economy, the report also describes a “participation economy”, which refers to people or communities wanting to “take part in economic life” but who are not part of formal organisations.
Report author David Neaum said: “The impact economy needs clearer language if we want better decisions about policy, funding, finance and infrastructure. This framework is about matching different types of support to different organisational realities.”
SEUK: ‘Cooperatives inclusion welcome’
Social Enterprise UK (SEUK) chief executive Peter Holbrook, who challenged the definitions made in NPC’s previous report, said it was pleased to see the inclusion of cooperatives, mutuals and employee-owned businesses in the new research.
“A clear distinction between mission-locked organisations, member-owned businesses and purpose-led commercial firms is also very welcome,” a spokesperson said.
“Ownership, accountability and profit distribution are more important than financing characteristics in determining how an organisation contributes to a more equitable and sustainable economy.
“NPC self-identifies as existing to help organisations maximise social impact. Instead of just finance, it might consider where the power that influences the economy lies and if that has served the UK well.
“This kind of focus could help uncover how communities can see a healthy return; not in pounds sterling, but in a positive, tangible difference made to people’s lives.”
The government launched its Office for the Impact Economy last November as part of the Cabinet Office before moving it to the Department for Digital, Culture, Media and Sport after Andy Burnham became prime minister last month.
It recently invited representatives from the voluntary sector to join a new external advisory group on the impact economy.
