Seb Elsworth: Covid-19 has accelerated social investment trends that were already in place

While the pandemic has dominated our lives and the work of our sector over the past 10 months, not everything has changed

This time last year I wrote a column looking ahead to the third decade of social investment and the trends that I expected, and hoped, we might see.

On reflection those first couple of months of 2020 were like happily running through a grassy field in the fog, without being able to see the looming cliff edge moving ever closer. 

But while the pandemic has dominated our lives and the work of our sector over the past 10 months, not everything has changed.

Indeed in many ways, both positive and negative, Covid-19 has served to accelerate trends which were already in place. One can view the four trends I predicted a year ago in the same way.

Firstly I argued that, similar to progress made in the first decade of the century around full cost recovery and bidding for public service contracts, the sector needed to transform its understanding of the role of enterprise in its overall business models. 

The pandemic quickly sorted the sector by business model. Organisations that were heavily dependent on income earned from the public, especially where people come together like theatres or community pubs, have been hit hardest in terms of lost income.

Those more reliant on grants from foundations, or public service contracts, generally fared better in 2020. 

But we have also seen organisations make remarkable shifts in the way they operate and how they earn their income to continue to serve their beneficiaries through identifying new enterprise opportunities. 

This greater consciousness about the role of enterprise in the sector’s income mix will be important as we rebuild in the longer term.

Earned income has been the fastest growing segment prior to the pandemic, and social enterprise creates economic activity in places that other industry doesn’t reach. 

The trials of the pandemic have helped charities and social enterprises better understand the role of earned income, both now and as we look to the future. 

My second argument was that the sector needs to better understand its impact on local economies, and position itself to play a key role in place-based strategies to “level up” the country. 

This is more important than ever, given the way in which the pandemic has highlighted inequalities of all kinds.

The work of the Social Economy Data Lab has highlighted the disproportionate impact of lockdowns on the economies of different towns and cities.

With the mechanics of Brexit behind us, the political focus will surely shift to delivering the long-promised levelling up agenda. The sector must be at the heart of these discussions.

Thirdly, I argued that foundations and other grant makers needed to better understand the role they want their grants to play in the way a charity’s business model develops over time.  

Foundations stepped up during the crisis. Huge amounts of additional grant funding were made available and usually bureaucratic processes were abandoned in favour of trust and transparency.

There is no doubt that many organisations in the sector have been saved through the swift deployment of philanthropic resources. 

However, the consequence of this significant rapid action is that many foundations will have less resource to make available to the sector in the coming years.

So the pressure to use these future resources wisely, in the context of what will still be very significant demand from the sector, will be all the more great.

One opportunity for foundations is to explore models of how grants can play a catalytic role through building organisational infrastructure or incentivising other forms of income such as through match trading

My final prediction was that we would see more focus on building the case for smart use of subsidies to increase the range of social investment products available to the sector and widen the scope of organisations who can access capital. Again this trend has been accelerated by the pandemic. 

The Social Investment Business and Big Society Capital quickly created the £25m Resilience and Recovery Loan Fund, accessing the government guarantee through the Coronavirus Business Interruption Loan Scheme.

This not only supported dozens of organisations but demonstrated the important role guarantees can play in meeting the capital needs of the sector. 

A further £30m made available from dormant accounts to provide grants into blended finance models via Access is helping develop a range of more patient and flexible investment products for the recovery. 

The pandemic has cemented the role of blended finance and guarantees in the social investment ecosystem.

The challenge for the coming years will be to ensure the long term supply of this subsidy. Government’s role will be crucial.

Like everyone who isn’t a virologist, I didn’t see the pandemic coming, and I still don’t have a crystal ball.

The coming years will continue to be challenging for the sector but we must seize the opportunities for enterprise to help rebuild the sector’s income base, to be at the heart of rejuvenating communities, and develop the grant making and investment landscape which the sector needs in the long term. 

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

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