Seb Elsworth: Charities need to shape the impact investing agenda

Our columnist reflects on what the latest manifesto for the development of impact investing means for charities

Seb Elsworth (photograph: Claudia Leisinger)
Seb Elsworth (photograph: Claudia Leisinger)

I was impressed by the launch of the latest report from the UK National Advisory Board on Impact Investing a couple of weeks ago.

It’s easy to be cynical about these sorts of reports and their launches with talk of eye-watering sums of money and claims that tackling the most complex challenges in society can appear to actually make you richer.

However, there is undeniable momentum behind this agenda, and it is exciting. There were several hundred people in the room, many having walked across the Square Mile from their offices in the City of London, eager to learn more and understand the practical role they can play in growing the impact economy. A few years ago this agenda would have been dismissed as a nice pet project. Now it is being widely considered by key players in business, finance and government as central to the future of our economy and a genuine opportunity to change the face of capitalism.

The report outlines the scale of the social challenges we face and the role of capital in addressing that. It talks of the evolving role of business in society and the rise of responsible business, the opportunities for investors to "increase risk-adjusted financial returns" while also achieving impact, and the key role of government as a commissioner, regulator, participant and facilitator. It makes a series of recommendations for business leaders, investors and government. It adds up to a powerful manifesto, behind which many can mobilise.

What strikes me most, though, is the absence of charities and social enterprises from this discussion, with charities mentioned just seven times in the 71-page report. Some of the case studies outline the role that our sector has played in the delivery of services, where finance has been provided by investors, but our strategic role in the impact economy, our unique track record and evidence base in delivering social impact, and an outline of how we can make the greatest contribution to this agenda are largely ignored.

That might be a pragmatic point from the authors. Charity and social enterprise leaders hardly need convincing that our economy is broken and that things need to be done differently.

But it is also dangerous, because it creates the impression that complex social challenges can be addressed without having to engage with the messy, small-scale and sometimes irrational world of charities and social enterprises.
Instead of talking about the role of our sector, the report focuses on the rise of purposeful business as the primary route for delivering impact.

In focusing on growing the sources of investment, the report also offers limited solutions to developing the underlying enterprise models that tackle social challenges. If huge sums of capital are looking for a home to help grow organisations that are delivering social impact, who will the "customers" of those organisations be? Who is going to provide the revenue? Business might be better placed to address this challenge and adapt to it than the charity and social enterprise sector.

The risks for our sector in this agenda are that we are not considered the necessary vehicles for achieving impact and cannot respond quickly enough to develop new enterprise models that can support the influx of this new capital.

But in every challenge there are opportunities, and the quickest way for these risks to materialise would be for our sector to turn its back on the impact investing agenda. Rather we need to play our role in shaping it.

There are some recommendations I have for the charity and social enterprise sector. It should accelerate building capability around impact management to be able to more clearly show, with robust evidence, the impact charities and social enterprises can make.

There should also be recognition of the distinctive role social investors have played and are playing in specifically supporting charities and social enterprises, and it should help advocate for that distinctive role in the broader impact investing landscape.

Charities should work with those social investment partners to identify the underlying enterprise models for our sector that can help address the most complex social challenges, and separate out those that might offer market-rate returns from the many that are likely to need some form of subsidy.

We also need to recognise that the world of mainstream finance needs scale beyond what most individual charities can offer, and to identify more ways to aggregate investment opportunities so that mainstream finance can engage.
My penultimate recommendation is to consider the wider economic impact of the sector’s work, especially in regions that have fallen behind, to contribute to an agenda of inclusive growth.

And finally, charities should not walk away from this debate or think it is something for others. Our sector has the unique opportunity to shape this agenda because we are closest to the solutions. Be open to building partnerships across sectors and finding the advocates who can amplify our message.

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

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