Social investment could provide the best return of all - changing society for the better | The Telegraph

By Harvey McGrath

05 May 2014

They only give a financial return if they deliver on their social targets. But because changing these individuals lives for the better also delivers financial benefits – by reducing crime and prison costs or reducing the costs of a council looking after children in their care – there are sufficient savings if the social targets are met to repay the investors in the SIB.

This is potentially a very powerful way of tacking some of our most difficult social issues and there are now 15 operating in the UK. So when I was approached to become the chairman of Big Society Capital, it felt like a great fit with my background and interests.

Britain’s first social investment bank was set up just over two years ago with the aim of developing the UK market for social investment.

It would do this by investing money received from dormant bank accounts and from four of the major UK banks; and by encouraging others to invest alongside, by acting as a “market champion”, promoting social investment and creating conditions for the market to thrive.

Under the chairmanship of my predecessor, Sir Ronald Cohen, and chief executive, Nick O’Donohoe, Big Society Capital has made real headway on delivering these objectives.

Our Annual Report, published this week, shows that as at 31 December we had made commitments of £149.1m, with matched funding of 116pc for our signed deals from third party investors.

The projects we’ve supported range from helping homeless people find a route back into independent living, supporting vulnerable young people at risk of dropping out of education and employment and transforming older people’s health and quality of life, to backing the expansion of a bank lending to small and medium-sized charities.

Beyond our investment role, Big Society Capital has supported the development of this nascent market in many ways, publishing leading research, developing a social outcomes framework and engaging with HM Treasury to develop a new social investment tax credit.

Internationally, interest and engagement in social investment has grown. The take-up of the Social Impact Bond initiative is impressive. In the United States there are now four SIBs addressing issues as varied as reoffending and early years’ education, with 20 states working on ideas.

There are two SIBs in Australia and one in the Netherlands, with additional proposals being developed in Canada, Israel, India, Pakistan, Colombia, Uganda, Mozambique, South Africa and Swaziland.

Yet, this is only the beginning. Our aim is to develop the market to a level where it is making a discernible difference and to achieve this we have set out a four pillar strategy. The first objective is to improve access to finance for small and medium-sized charities, highlighting good examples of successful programmes and providing the necessary support and tools that will help even the smallest organisations to access social investment.

The second pillar is to support the most innovative approaches to tackling social problems. We want to be an ideas hub, where the new generation of social entrepreneurs can be supported as they find new ways of supporting the most vulnerable in our society.

Our third objective is to build mass participation in social investment.

What we want is a suite of products for anybody to invest in – be it directly, though ISAs or through their pensions. Recently Threadneedle launched its UK Social Bond Fund which provides such a product. We expect many, many more to follow.

Finally we want to bring greater scale to bear in financing social issues. While not appropriate for all social sector organisations, social investment offers opportunities to finance at scale, particularly in areas such as education and health, social housing and residential care.

Social investment is a largely unfamiliar concept for both the social sector and the investment community. However, Big Society Capital has started the ball rolling and the momentum is building. I am confident we will succeed in our objectives.

Harvey McGrath is the chairman of Big Society Capital