Rodney Schwartz: How mainstream investors react to talk of social impact

The notion that a fund might deliver social returns can lead to suspicion about its financial performance - so sometimes it pays to keep quiet about them, writes our columnist

Rodney Schwartz
Rodney Schwartz

At ClearlySo, we perceive ourselves as being at the outer edge of social impact investment. We are focused on the place where mainstream investment and social impact investment connect; we speak regularly to the foundations and impact investment funds that have been pioneers in the sector, but we spend a large proportion of our time working with traditional mainstream investment organisations. The reason is simple: that's where most of the money is.

Similarly, the enterprises that we assist exist along a very broad spectrum. Most of them would meet the investment criteria of Big Society Capital or other impact investment intermediaries, but we also work with companies that would be excluded from such lists.

A good example of this might be Weedingtech, a firm that uses foam bubbles of extremely hot water to kill weeds, offering a viable alternative to environmentally damaging herbicides. We assisted it with a £750,000 round of investment capital; some might judge the environmental impact of this firm as a mere by-product of their main focus, which is to create a successful business, and consider it not to be worthy of engagement.

We have recently had a series of amusing encounters with mainstream investors, including one with some Nordic fund managers about impact investment. It was clear that they were seeing a number of clients focusing on impact investment solely as part of what could be described as a box-ticking exercise. One of the executives I spoke to said he was slightly irritated by such practices; he felt they were not genuine. My view, however, is that if box-ticking gets people interested in considering social impact investments, then it is worth the price.

Another series of meetings concerned funds that delivered high returns but also notable social impact. We noticed when marketing such funds that the very notion that a fund might deliver social returns to any extent makes prospective investors suspicious about the fund's ability to offer superior financial performance. This can be the case even when there is a track record of successful financial performance.

When it comes to marketing, perceptions can be even more important than reality. Perversely, glossing over the fact that a fund delivers social impact makes it more likely that such social impact will be realised, because it increases the fund's chances of raising capital. Conversations we have had with leading mainstream fund managers suggest that this is the case. At a recent lunch, one expert told us that, when marketing a client's funds, they would not even raise the point about social impact for fear of scaring off investors. Of course, if investors are interested, they will discuss this later on.

So engaging with the mainstream is tricky and an awareness of perceptions is critical. Nevertheless, we think the effort is eminently worthwhile in the long run, even if we leave some piece of the story off to the side. And if, in the meantime, limited partners of funds inadvertently achieve a social impact that they weren't even aware of, there is certainly no harm done – quite the opposite, in fact.

Rodney Schwartz is chief executive of ClearlySo, which helps social entrepreneurs raise capital

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