The UK can be proud of its efforts to develop a social impact investment market. Building a Social Impact Investment Market: The UK Experiencecatalogued the constant activity by Government and industry stakeholders over the past 15 (and more) years to develop the market that exists today.
Guest blog post by Simon Rowell and David Tinnion, Big Society Capital.
To help that development continue, the UK Advisory Board to the G8 Social Impact Investment Taskforce thought it would be valuable to review other countries’ experiences to see what the UK could learn. It found many interesting ideas, particularly from Europe.
Different countries have evolved markets with very different emphases.France has been successful in engaging retail investors through their solidarity funds, Italy has evolved with a strong role for banking foundations, whilst the US has a strong history of funding community development finance. But as we reviewed the National Advisory Board reports from each country, important themes for the future development of the UK market began to emerge. Our full analysis is available here, but three themes in particular seemed important.
- Talent. The UK has tended to think about social investment in terms of supply and demand, with intermediaries knitting the two together. But for the market to flourish, people with the right skills and motivations need to be working in social investment. To help this happen, the US suggested placement programmes to give venture capital professionals time working in impact investing, while Australia proposed copying the legal profession and establishing an exchange service to match pro-bono support from financial services professionals to impact investors’ requirements. How should the UK approach this challenge?
- Mandatory action. The UK has generally taken a permissive approach to building the social investment market. Other countries have adopted a more mandatory approach. French laws requiring social savings options are the obvious example, but Canada recommended altering charity law to require trustees to consider social impact when investing, and theAsset Allocation Working Group felt social pensions should be the default option for savers – not quite mandatory perhaps, but a very strong nudge! Where could a more mandatory approach benefit the UK?
- Thinking for the long-term. Many countries’ reports recognised that a long-term perspective will be needed to achieve social investment’s goals. Could setting long-term goals for the market help develop this long-term outlook? France, for example, aspires to have 1% of financial wealth in solidarity savings by 2025 – does the UK need to be setting similar explicit long-term goals to keep pushing the social investment market forward?
Our review also threw up some more specific ideas that may (or may not!) be relevant and adaptable to the UK market. There’s a flavour of a few of the ideas below, and a full list here.
- Handing down social investments. The USA identified that $41 trillion of wealth will be passed down a generation in the coming decades. £75 billion was inherited in the UK between 2008 and 2010. How could social investment tap into this? If inheritance tax relief was structured to put social investments on a par with charitable donations, it could encourage the relatively well-off to put their capital to use doing social good. The USA took that thinking a step further in proposing a review of tax law to allow social investment losses to be treated as donations. It would be nice to be able to reach for a Gift Aid form when your social investments took a hit…
- Or how about a UK visa linked to making social investments? The US issues green cards to investors generating jobs in disadvantaged communities, and the UK already offers visas to people willing to invest £2m in the UK. Could a new visa offer a similar benefit based on making social investments that benefit the UK? A slice of any funds raised could even be used to give a helping hand to less well-off people coming to the UK. The Immigrant Access Fund in Alberta, Canada provides loans of up to $10,000 to immigrants to finance licensing and training, helping immigrants to enter the workforce. Could something similar work in the UK?
- The 2011 Tsunami was a huge spur to charitable giving and the development of social enterprise in Japan. 77% of the Japanese population made donations totalling $6bn for earthquake relief. Could social investment have a role to play in the UK, albeit on a much smaller scale than in Japan’s experience, helping communities recover from natural disasters like the 2014 winter flooding? Once initial disaster relief efforts have finished, patient social investment could aid the long-term recovery of communities and businesses, locking in improved social and community outcomes in the process.
- And finally, back again to
talent. An exchange programme could allow professionals from mainstream financial services companies, social investment intermediaries and social sector organisations to work in each other’s organisations. That could be one step towards ensuring the right people are working in the sector to make ideas like the above reality.
Clearly not all of these ideas will make sense for the UK when it comes down to the details, but they do highlight the breadth of ideas and activities going on around the world. Other countries may be interested in doing a similar exercise, as it helps you explore not only what you have to learn but also greater sense of understanding your own country’s approach. This experience has highlighted to us the value of international sharing and that there’s clearly a lot to learn from other countries. The challenge is how?
As ever, personal relationships will remain vital. But a more structured approach could yield greater results – the Global Social Impact Investment Steering Group could have an important role to play as it picks up the baton from the G8 Taskforce, and welcomes its newly expanded membership. Or can the market provide an answer? Rocket Internet replicates successful internet businesses in new geographies – 30,000 employees in 110 countries focused on sharing lessons learned elsewhere. Could someone do the same for social investment? Membership bodies, such as EVPA, could also play a key role in fostering a spirit of enlightened cooperation through connecting individual active investors who want to change their local landscapes, and even deploying an exchange programme across Europe.
A fully global market for social investment remains a long term aspiration – to help get there the UK should keep learning from innovations in other countries, and at the same time be generous with sharing its own insights
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