Dan Gregory peers into his crystal ball and sees the future of social investment.

As Niels Bohr, the Danish physicist, once pointed out: “Prediction is very difficult, especially about the future.” If a Nobel Prize-winner struggles to even grasp what prediction is, then taking a stab at what the next 12 months holds for social investment is likely to be pretty futile. So instead, here are 12 ‘scenarios’ rather than predictions. Let’s call them scenarios partly as a pathetic defence mechanism - so I can look back in a year and say “Ah, but I never really meant it” - but also to keep us alert and honest about what might happen. As someone else once said: “The best way to predict the future is to create it.”

1.    Just before lunchtime at the 213th social investment event of the year, a remarkable outbreak of clarity on terminology will suddenly crystallise, finally bringing sense to previously confusing territory. A new language will emerge with clear and appropriate terms for distinguishing between different parts of the market, some tidy definitions and a neat consensus. For example, we will have one expression which sums up how investors look for social as well as financial return (“impact investment?”) and another for how a charity or social enterprise just wants capital on as generous terms as possible (“access to finance for the social sector”?). This will be incredibly helpful and save a lot of wasted time.  

2.    Big Society Capital (BSC) will become a lightning rod for increasingly fierce and open criticism of the government’s social investment policies (or is that impact investment?) which aren’t really making a huge amount of difference to the majority of social enterprise and voluntary sector organisations. While BSC is staffed by some clever and dedicated people doing their best with the mandate they’ve been given, and even if the market grows significantly as a result of their efforts, frustration will boil over in some quarters that this this isn’t doing much good for the frontlines. Social enterprises and their representatives will break cover and start to admit their scepticism - that they actually aren’t really very excited about the prospect of a social ISA, they never really knew what OEIC was anyway, and they don’t really get what the Social Stock Exchange is all about.  What does liquidity actually mean again? Some cash would be nice though… While ministers should earn plaudits for slowly learning to begin every speech with “Social investment isn’t for everyone”, they will understand if everyone doesn’t stick around to listen to the rest of the speech. As an election nears, the opposition may start to get to grips with these policies and suggest how they might improve upon them for the benefit of the sector. What would One Nation Capital do differently?

3.    People will also start pointing the finger at each other a little more. Compared to, say, the architectural profession, most people in social investment are extremely nice to each other, at least in public. But the policy narrative that holds these characters together may start to fall apart. The story began that the problem for social enterprise was on the supply side - a lack of capital. Then that the problem was on the demand side – a lack of investment-readiness. Subsequently, as things haven’t quite taken off at the speed that some suggested, the issue is now data and market infrastructure, which are now being addressed. Tax and regulation are also getting sorted as we speak. So when the market is still only slightly bigger than the cost of producing Spiderman 3, people may start to turn and ask each other some difficult questions. When a market works in theory but not in practice, economists call it ‘behavioural failure’. It should be fascinating watching this behaviour.

4.    Research will emerge which proves that sadly, the entire market is based on earlier flawed research. When various influential reports identified ‘access to finance’ as a key issue for the social sector, what people really meant was not loans but free cash. Sorry about that, we probably should have cleared that up earlier. So new reports will emerge with less bombastic fanfares, more muted speechmaking and poorer quality canapés, entitled, for instance, The Last Billion, The Still Half-Built House, Returning to a Previously Lit Firework or I’m Really Sorry, That Isn’t Quite What We Meant. On the covers of these reports, instead of green shoots emerging from cupped hands, we will see a few wilted plants and a cracked piggy bank. Of course there will always be place for pictures of cut-out paper men holding hands - and research which calls for further research.

5.    Meanwhile out in the real world, genuine risk capital in relatively small amounts will remain scarce, or costly. This could be avoided if a social investment intermediary engages meaningfully with social sector organisations, creates the right products on appropriate terms and channels capital into providing them. But on current form, this seems unlikely. As someone once said: “The future, according to some scientists, will be exactly like the past, only far more expensive.”  Extrapolating current trends, risk capital will be down to only a few million pounds by this time next year in a market dominated by the ‘boring’ lending of Triodos, Charity Bank and Unity Trust Bank, who will just get on with providing a useful service to many charities. As NCVO point out, 82 per cent of charity debt is actually provided by commercial banks, not by specialist social investors.

6.    More encouragingly, the stage could be set for some big and positive moves in the wider financial markets, as long as they survive. The Archbishop of Canterbury might own a bank this time next year. Or the co-operative movement will have got it together to buy the vulture funds out of the Co-operative Bank and bring it back into mutual ownership. High net worth individuals may save the day – the irony – and gradually start piling into social investment. The logic at least of doing good with your investments is hard to refute and will appeal to the latest generation of billionaires. While it may take decades to turn on certain institutional investors – the church, trusts, foundations, councils and others – some of these individual investors will just get it and will crack on.

7.    The hype around social impact bonds may turn to a backlash. More alternative – and more social? – versions of SIBs, such as in Scotland, may emerge. At least, more rigorous questions about the model will be asked, including those along the lines of Martin Brookes’ recent comments about the moral, ethical and underlying implications of SIBs, however cleverly constructed they are. Am I more or less likely to donate to a charity involved in a SIB, for instance, if I think that this money could ultimately flow back to a wealthy investor? Yes, I prefer rich people making unfeasibly large profits from doing good rather than doing bad. But am I really comfortable with them making unfeasibly large profits at all, given the scale of rising inequality?

8.    At some point, scandals and failures will hit the market. This could be a high-profile default, someone getting on the wrong side of the regulator, or hard questions asked about the level of remuneration in intermediaries on the back of relatively little activity. The Financial Conduct Authority has already intervened in the market to police the activities of an emerging intermediary called ReGive, a story which kept a remarkably low prolife and stayed off the pages of the sector press.

9.    There will be a growing place for community shares to finance social enterprise. Until now, that place has often been seen as a lovely little Cotswold village with rich inhabitants happy to throw in a few hundred pounds to save the Dog and Gilet. But perhaps the movement might grow in scale and confidence, experimenting at the next level, moving from pubs and shops in villages to the high street, to cinemas and leisure centres, libraries and soft-play centres. Maybe even into financing community-based trams and arenas, football clubs and train franchises? As William Gibson said: “The future is here. It’s just not very evenly distributed.” Other ‘disintermediated’ models will thrive. One charity - Manchester University – recently issued bonds for one and a half times the size of the entire social investment market at £300m. Housing associations and now leisure trusts are increasingly exploring this space. Perhaps in a year’s time, we will see bonds from some other big charities and social enterprises with assets, like the Eden Project, the Tate, social care providers, Turning Point, and more.

10.    After a decade of lobbying, shouting and fist-banging from sector campaigners, the Treasury will introduce its new tax incentive for investment in social enterprise, which will have a take-up rate of around zero.  A combination of an incentive which is too tightly drawn on one hand, and far too much bombast from the sector on the other, will give us a shiny new policy with almost no practical application.
Among the extreme scenarios, I am happy to actually make one bold prediction. I am convinced that in a year’s time, we will definitely have more social enterprise incubators than ever before. We may even have reached ‘peak incubator’ where the human population can no longer sustain so many incubators. These include tech incubators, incubators for homeless people and incubators for people with incubators, not to mention accelerator labs, launchpad hubs and catapult accelerator incubator colliders. As Andrew Strauss, former England cricket captain, once said when looking into the future: “I may be surprised. But I don't think I will be.”

Dan Gregory is an independent policy adviser currently working for Social Enterprise UK, the cdfa, the Third Sector Research Centre and the Social Economy Alliance, among others.

• Dan Gregory wrote this article for the Charity Finance Yearbook 2014.  Click here to order your copy.