Investors could move away from social investment if voluntary sector organisations do not start to take up the opportunities they offer, a new report warns.
The report, Social Investment as a New Charity Finance Tool, published today by the Centre for Charity Effectiveness at Cass Business School, says social investment is approaching a tipping point at which it will move away from being seen as a niche product.
But it says that many charities have ethical and cultural concerns about using investment tools and are "stuck in a grants and donations mindset", with concerns about how they would pay back capital.
"Investors believe that money will flow like water," the report says, "and if eventually social-purpose organisations don’t make use of social investment then investors will go elsewhere in the long term."
The report is based on research carried out over a year in 2015 and 2016, including a survey of 190 charities, funders and advisers, more than 120 face-to-face interviews and a symposium that gathered the views of more than 100 social investment experts.
"Addressing trustees’ risk-aversion towards social investment will be critical if social investment is to be successful," it says. "We also need to empower trustees to explore different business models, and to have a risk appetite for innovation and change."
The report says the market for social investment grows at a rate of between 20 and 30 per cent a year and has reached about £1.5bn, according to figures from Big Society Capital.
The average value of individual investments and loans is reducing to meet the demand for smaller loans within the sector, it says.
It adds that social investment is not a silver bullet to ease all funding issues and there is a danger that some charities might embrace social investment as a panacea for the reduction in grant funding in recent years without proper consideration.
The report identifies nine components that charities should consider when using social investment, such as the alignment of investment motivation between the investor and the charity, the culture and mindset of the organisation, and the measurement of social impact.