Rodney Schwartz: Arrogance can stand in the way of learning

The social investment sector in the UK should not blow its advances by being complacent, writes our columnist

Rodney Schwartz
Rodney Schwartz

The other night I had a drink with my old friend James - not his real name. He is very familiar with impact investment, but spent most of last year working in India.

We eventually came on to the subject of impact investment more generally. James had been working on quite a few investment transactions in India and was raving about some of the innovations there. When I asked him to compare developments in India with those in the UK, he said: "The problem with the UK is that professionals in this market have become bloody arrogant." He felt it could put the leading position of the UK at risk.

James noted how many of the Brits he met in India were so full of themselves and their purported leadership that they were unwilling to learn lessons from some of the very interesting experiments elsewhere. He said he suspected this was probably happening in other markets too. His contention was that British impact investment experts and glitterati were so busy lecturing others about how wonderfully we do it in the UK that they were not doing enough learning and listening.

This conversation made me rather uncomfortable. For decades, the UK has appeared to be a thought leader, and has developed some exciting models, practices and instruments. The advent of Big Society Capital, the first of its kind anywhere to bring substantial funding (£600m) into the marketplace, has been catalytic. Both this Conservative government and its predecessors have thrown substantial resources into impact investment. Tax credits, conferences, new legal structures and a host of subsidies have come rapidly. This creates at least two risks.

First, it has in some ways created a comfortable bubble in the UK market. The influx of funding from BSC hyper-charges the market, encouraging entry by non-UK players and discouraging involvement by UK parties in other markets. The sense that things are happening creates goodwill domestically, but little incentive to get involved in and learn from experiments elsewhere. I have previously expressed my surprise at the lack of meaningful involvement by large UK banks and insurance companies in impact investing compared with those in Europe.

This bubble also runs the risk of encouraging artificial behaviour in the UK. Some of this was evident in the government-funded Investment and Contract Readiness Fund; some entrepreneurs cheekily saw this subsidy as a way to generate a bit of extra income instead of paying advisers for contract and investment readiness, which was the main intention of the programme. The availability of funding from BSC has indeed catalysed the market, but runs the risk of allowing entrepreneurs to get too comfortable with sub-market-rate capital. And because of legislated restrictions on BSC investments, the market might be skewed to favour those impact investment opportunities that meet BSC's criteria as opposed to those with a greater profit-with-purpose orientation.

On balance, James and I agreed that the UK still had many positive things going for it. However, arrogance is a risk of which all global leaders need to be mindful.

Rodney Schwartz is chief executive of ClearlySo, which helps bring impact to investment

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