6 Jun 2014
Social investment opportunities growing
Together with Charities Aid Foundation (CAF) we have funded a range of successful social enterprises - including ethical supermarket Hisbe. Like regular investment, social investment involves a financial return, but the social impact involved is considered upfront, instead of as a by-product.
In a world of increasing resource depletion and growing inequality, businesses are under more and more pressure to consider the social and environmental impact of their activities, as well as the financial.
One of the more obvious ways in which the public can support this shifting paradigm is by investing money in goods and services that have been produced in a socially responsible way, such as Fairtrade. But an increasingly popular alternative for doing so is social investment.
How Does This Differ From Conventional Investment?
Graham Precey, our Head of Corporate & Social Responsibility and Ethics, and co-author of a recent report on the sector produced in conjunction with Charities Aid Foundation (CAF), says it's mostly about making the social impact "more visible."
"Social investment is about securing financial return, plus a tangible social or environmental outcome. The main difference between it and conventional investment is that the social impact is considered upfront, whereas with conventional investment it's considered as a by-product. It's about making the impact of where you place your money much more visible.
As a concept, social investment can be difficult to understand. A common concern is whether it's always possible to reconcile financial considerations with social ones. Graham accepts that there is "a lot of debate about whether it has to involve a trade off", but says "the sector has shown strong growth in recent years, helped by low interest rates creating a temporary level playing field for investors."
"I think much of this is because, as a customer, you can see the sorts of businesses that are being funded with your own money. There is a more conscious consumer out there, and while we're in a low interest rate environment we have a chance to really establish the social investment market."
Consider the Difference
Graham Precey says it can be helpful to consider the difference between investment and reinvestment, when trying to understand social investment and its unique strengths.
"With the SE-Assist model, which is a joint venture with CAF and the Coast to Capital LEP, you can put money in and recycle it. Lots of people talk about social investment as if it's risky, but our risk assumption model estimates a 10% - 20% default rate.
"For most companies spending money on corporate responsibility, they spend it, typically expense it, it's written off and they start all over again next year, essentially a 100% default rate. Why not invest it into social enterprise [instead]? One of the things we want to promote with this model is an understanding of how important community re-investment is.
Working with CAF
Graham Precey also says that, together with CAF, we have funded a range of successful social enterprises, and that these are already seeing a return on that investment.
"We've funded hiSbe, which is an ethical supermarket in Brighton. We've also funded an organisation called Parentskool, an organisation that offers support to new parents. Another one is the Sussex community internet partnership. All of these organisations get an interest free loan from CAF and a mentor from Legal & General. We're now starting to get that money paid back, which allows us to invest in other enterprises."
Ultimately, he argues it is the capacity of individuals and businesses to take a more holistic, long-term view of their activities that is crucial to the future success of social investment. There is a growing realisation of this, but it remains relatively early days, and that means there are plenty of opportunities in the social investment space.
"We believe that companies must start to see social investment as a way of hedging business outcomes. Every company has environmental or social issues that underpin its performance in the marketplace.
"At Legal & General we have eight million customers, so we worry about people having housing, maintaining a healthy lifestyle and receiving an income in later life. There are an ever increasing number of social impact bonds that directly reduce the likelihood of consumers having to seek additional financial support.
"I don't think there are enough products out there currently for companies like us, but the market is growing and there is significant opportunity for more bonds and other innovative fiscal tools."