Notion that social investment can eradicate poverty is a 'gust in a storm of hyperbole', report warns

The idea that social investment can eradicate poverty is "just another gust in a storm of hyperbole", a new report concludes. 

The place-based funder the Local Trust has produced research that analysed the impact of social investment on “left behind” parts of the UK.

The report, called Levelling the Land, provides a follow-up to the Big Local programme that was backed by the National Lottery Community Fund and awarded £1m for local groups to spend in 150 parts of England that had previously missed out on such funding. 

The report begins by attempting to define social investment as a combination of “financial and social return”, but says the idea “is still fuzzy”. 

The report questions the scale of financial return expected and how social impact is measured.

“After two decades, none of this seems much clearer,” it says. 

It highlights earlier research that found a number of issues around inequality and investment that appear to have persisted.

These included access to risk capital rather than debt, the need for long-term investment and a more direct link between social and economic goals. 

For “left behind” areas, the report says that some have been bypassed by growth completely, while a lack of transport and productivity stagnation are preserving imbalances.

The report acknowledges work by Access, a foundation that helps to widen access to social investment for charities and social enterprises, to get social investment to the 10 per cent most-deprived neighbourhoods in comparison with the wider social investment market, but says that, “in the scheme of capital flows, these are negligible quantities”. 

The report is also critical of investor motivations and risk dimensions, and describes a typically used spectrum of financial return as “misleading”.

The report concludes: “The idea that social investment can eradicate poverty is just another gust in a storm of hyperbole.

“Although social investment alone cannot dismantle poverty, we must surely expect social investment to be part of the solution, rather than part of the problem. 

“Yet, while social investment has promised much over the last 20 years… it is not really reaching those parts of the country understood to be left behind.”

The report recommends that pots of money be invested over 20 and 30 years, calls for new models to create the right incentives and investment to be locally-led at “a very local, human scale”.

Seb Elsworth, chief executive of Access, welcomed the report, but admitted it asked some difficult questions about the role of capitalism in community development. 

“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,” he said. 

“The report recognises the work we have been doing alongside our partners to support investment in the most deprived places.

“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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