New Charity Bond Schemes and Developments in the Social Investment Market

Non-Profit Organisations, Social Enterprises, Social Investors

Last week, TSIC attended The Social Investors Breakfast Club hosted by Canaccord Genuity to listen to presentations about the future of funding for charities and social enterprises.

One of the strongest messages we took from the meeting is that charities are increasingly looking for innovative solutions, such as trialling social enterprise models, as a means of financing their organisation at a time when budgets are being tightened and government cuts are imminent. Social enterprise and social investment are strong buzz-words, however charities don’t always understand how these models actually work, and they are, in fact, not the best financing option for every charity. There therefore needs to be greater education available for charities so they can assess whether trialling social enterprise and investment models are actually viable options for their organisation.

Chief among the recent innovations in the social investment market discussed was the recent success of Scope’s pilot bond scheme. Scope, who work with disabled people and their families, recently launched a bond scheme which in financial terms is comparable to other capital market bond schemes—offering a fixed rate of return over a set period, though with the added benefit of generating social good. The £20 million bond programme was set up with the help of Investing for Good and pro-bono legal services from Linklaters and Weil, Gotshal and Manges. A clear benefit of this pioneering model will be that—now that the legal and financial templates for a social impact bond model have been drawn up—setting up similar bond schemes will be more cost effective as the model can be replicated. The Scope bonds will be listed on the Euro MTF market, although it was suggested that the long-term the ambition is to get the bonds listed in London. Investing for Good’s Chief Executive, Geoff Burnand said of the project:

“Until now, investors who wanted their money to do social or environmental good have found themselves in a difficult position. For the most part, they have had to choose between investments that are essentially philanthropy – offering little or no financial return – and those that may offer high returns, but are also high risk. The Charity Bond programme has been designed to strike a balance and also to satisfy both the ethical and financial aspects of social investment.”

Following the speakers’ presentations there was a lively discussion about what investors and philanthropists are looking to invest in, and how charities can market themselves. On the one hand, it was suggested that it was necessary to distinguish between individuals looking for an investment that provided a fixed income, had liquidity and was also socially responsible, and more traditional philanthropists who still are not looking for a financial return on their gifts. Others felt that this distinction was not so clear and that traditional philanthropists could in fact become involved in social investment. Another stumbling block within the social investment market that attendees raised was that investors and philanthropists often find the concept of there being ‘trade off’ between social and financial returns confusing.  Social investment funds should instead plainly state the financial return they can offer within a given market alongside the potential risks and the social returns involved, and let investors weigh that opportunity against other, more strictly commercial opportunities rather than ‘muddying the waters’ through speaking about trade-offs.

Our own experience working with philanthropists and HNWIs at TSIC has shown us that many individuals still prefer to keep their investment and philanthropic portfolios separate, and hence there is still need for a thought-shift before more will be attracted to put money into the social investment market. Scope’s new charity bond programme, however, is a positive development which should allow more individuals to trial this option. In fact, priced as they are (starting from around £5,000) the bonds look to be a good place for those looking to secure their retirement or something similar, or for retail investors looking to invest in a socially responsible way. 

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