Seb Elsworth: The Adebowale Commission kicks off a big year for the future of social investment

A flourishing financial ecosystem social enterprises and charities needs an increasing flow of capital that comes from a variety of sources

Seb Elsworth

The new year opens with the significant news that the Commission on Social Investment, led by Lord Victor Adebowale, has published its report. 

The report’s launch kicks off a pivotal year for the future of social investment, with decisions about how the new wave of dormant assets will be spent and a big opportunity for the findings in the report to be realised.

The commission has worked for two years on the question of how social investment can best support the social enterprise sector going forwards, and heard evidence from a range of organisations including 300 social enterprises themselves. 

It concluded that there remain challenges for social enterprises in accessing the finance they need. One such challenge is a lack of supply of the sort of patient and flexible capital that would best suit many social enterprises, termed “enterprise-centric” finance.

The report also highlights challenges for social enterprises led by protected groups, in particular black-led social enterprises, in accessing finance.  

The report is spot on that the most important factor that influences the products offered by social investors is the way they themselves are financed.

When they are borrowing money, either from banks or from specialist wholesalers like Big Society Capital, the terms on which money is made available have to be cascaded down to the social enterprises that are invested in.

For Lord Adebowale and his commissioners, the answer to this is for BSC to change the terms on which it invests and become, in their words, more concessional. BSC’s model since launching nearly 10 years ago, is to invest so that its capital base is at least preserved.

This both ensures that the resource can be recycled again and again, and demonstrates to other investors that social investment is a viable place for them to put their money. 

Under the commission’s recommendations, removing this target would allow for the funds in which BSC invests to provide more enterprise-centric finance. 

The recommendation makes sense. But a flourishing ecosystem for financing social enterprises and charities needs more than just the right products.

It also needs an increasing flow of capital that comes from a variety of sources. Stimulating this co-investment has been a significant achievement of BSC to date, and has helped to grow the social investment market to more than £6bn.

Fortunately, we don’t have to choose between these things. The commission’s recommendations can be achieved without BSC’s mandate needing to change.

Social investment providers need concessionary capital, but it doesn’t all have to come from one place. It can be created through blending fully repayable finance with grants.  

This model of “blended” finance has already transformed the provision of small scale lending to charities and social enterprises.

The Growth Fund (a £50m partnership between The National Lottery Community Fund and Big Society Capital, delivered by Access through a range of social investors) comprises up to a third of the market in terms of deals done.

Further initiatives such as Access’s Flexible Finance programme will have a similar impact on the provision of patient and flexible finance over the coming years. 

Boosting the supply of blended finance for the long term is the best way to support the financing needs that Lord Adebowale and colleagues have identified. 

And the opportunity for this to happen will play out during this year when the government consults on the uses of the expanded dormant assets scheme in England. 

Up to £800m will flow over the next few years. Continuing to channel some of this money into social investment in the form of grants for blended finance will have the biggest impact on further increasing the sector’s access to capital. 

This would enable growth in supply of small scale loans, patient and flexible finance products, and the support that needs to go alongside organisations taking on investment and growing their enterprise models. 

As the commission recommends, it could also support a new dedicated body to invest in black-led social enterprises. 

A long-term commitment to the supply of blended finance will also help the social investment providers themselves to plan for the future, invest in their teams, and further develop their offer to charities and social enterprises. 

And it would complement other potential uses of dormant assets being touted, such as the community wealth fund model; together helping to build the full funding ecology that the sector needs. 

The commission has fired the starting gun on a big year for social investment and identified the major issues we need to address. The funding is there to meet the need.

The sector should rally around the opportunity when the government consultation launches. 

Seb Elsworth is chief executive of Access, a foundation that helps to widen access to social investment for charities and social enterprises

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