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Investment for social value –overcoming challenges for measuring

Professor Fergus LyonMiddlesex University

Social Investment for the 21st Century 5th November 2012

Strathclyde Business School

Current loan finance• What does ‘access to finance’ mean?

– Confusion of loan finance, grant finance and income• Demand for grants, £50-£250K long term capital• 18% of Social enterprises get bank loans

– but 60% of those over £1m (SEC- State of SE 2009)• 25% social enterprises seek loan finance, half

successful ( SEUK, 2011)• 26% of SMEs seek finance and half unsuccessful

or get less than requested

Is there demand?• Willingness to take on debt by some charities• 8% of National Survey of Charities and SE were

dissatisfied with access to loan finance• Investment readiness?

– Strength of business propositions– Presentation and pilot testing of propositions

• Capacity building, confidence, networking and relationships especially in early stages

• The debt burden on those that ‘inherit’ from investment friendly social entrepreneurs

Supply of social investment• Who are the suppliers?

– Charitable, Private, Public funds• £192m ‘social investment’ compared to

£3.8bn loans to charities, £13bn giving and £55bn of small business lending

• Most investors unwilling to finance innovation • Innovations in investment?

– Equity investment– Community investment– Social impact bonds

Social Impact Bonds

• Organisations raise finance from private or charitable investors.

• They have contracts from the state to deliver services and get Payment by Results from which they repay investors

• But how to set payment, when to pay, how to avoid cream skimming and can the government borrow more cheaply

Measuring the impact• Measuring the impact of an organisation is

hard • How can social investment use social impact

metrics- can you compare project versus project

• Measuring the impact of many investments within a fund is harder

• So how can the Big Society Capital measure the impact of many different funds?

•Socially inclusive fee structure

•Flexible, innovative and responsive to filling gaps

•Strong community roots

•Intergenerational programmes

•Focus on quality of provision

•Training and qualification offer

•Consideration of environmental impact (e.g. procurement)

London Early Years Foundation

Knowing your impact• External pressure from investors,

commissioners and funders ( reactive)• For learning• Proactive decision to sustain or grow activity

– To attract investment or funding– To win contracts– To break an image – To create a new image– As a sign of change of character of organisation– To be ‘professional’ and ‘businesslike’

Challenges for social investors• Setting measurable outcome indicators• What data required and which method• The cost of measurement in applications• Balancing setting indicators with innovation• Allowing SEs to use discretion in measurement• Interpreting (and trusting) the results• Dangers of comparing the uncomparable• Encouraging the reporting of smart failure

Ensuring trust in approaches to social accounting

• Search for a common approach but still competition between approaches

• Use of trusted professionals for social accounting

• Under- reporting to ensure no loss of legitimacy and trust

• Auditing procedures – but these are open to interpretation

Six questions you should ask about any impact measurement1. What indicators?2. Who was asked?3. How many people asked or what data used?4. How has the value been measured? How

monetised?5. Has it looked at what would have happened

without activity?6. What reported (and what left out)?

Conclusions• Social investment can provide finance for

delivering social benefit • However it is not a substitute for other forms

of support and capacity building• Is it filling a gap or a cure in search of a disease• Questions of how to measure the ‘social’ and

why organisations measure• Do we need different approaches to measuring

for different purposes?