Read more on ethical and sustainable investing in Morningstar's Ethical Investing Week 2013.
This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here Nick O’Donohoe, Chief Executive of Big Society Capital, says the social investment market is increasinly appealing to all investors.
Last week the Global Impact Investing Network (GIIN) conference took place in London, bringing together over 300 international delegates to discuss impact investing. It was heartening to see the extent to which investors are seriously considering the role of impact investing in their portfolios. And it’s easy to see why. Beyond the need to respond to demand from savers, the (still relatively small) social investment market is displaying growth in a range of areas that will make it increasingly appealing to all investor classes.
At Big Society Capital alongside general and targeted social investment funds, we’ve invested in seven Social Impact Bonds in a range of social areas including adoption, children in care and youth unemployment. For institutional investors, Social Impact Bonds are being developed which allow foundations and others to invest in vehicles which get right to the heart of some of our biggest social problems. For example, ThinkForward is an early intervention programme delivered by the charity Tomorrow’s People to address youth unemployment in East London. Big Society Capital invested £450,000 alongside Impetus-PEF to provide the early finance, with the expectation that our investment, if successful, will be paid back by the Department for Work and Pensions out of future taxpayer savings. Although only in its first year, the programme is already showing positive outcomes: this summer it exceeded its target for young people achieving 5 A*-C GCSEs, with 55% achieving the grades against a target of 30%.
For retail investors, the most important product initiatives in the next six months will be straight forward bond funds that channel money to social organisations through the bond market. They will only invest in social causes but will provide a market yield and be available for ISAs, and it will be brought to you by brand names you recognise partnered with leading social investment firms. When you lift the cover what you will see is investments in charities, housing associations, schools, hospitals. It is not going to solve every social issue but it is going to enable the process of providing an easily accessible social investment product to a wider mainstream audience.
Announced in the 2013 budget, the promised Social Investment Tax Relief could fundamentally change how attractive social investment is to high net worth individuals. Expected to be launched in spring 2014, the current design builds very much on the Enterprise Investment Scheme (EIS). Although still in development by the Treasury, the relief currently looks set to allow individuals to invest up to £1 million a year in charities, Community Interest Companies and Community Benefit Societies, and claim back a significant percentage of their investment against their income tax or capital gains tax liabilities in line with tax incentives for private sector business start-ups.
The social investment market is still in its infancy, and there is no simple fast track to success. We need to be patient and everybody in the market needs to be realistic on what returns are achievable, what risks they are taking, and what social value they are trying to create. But the opportunities for investors are emerging, and there will be real gains for early movers.
