Ethical/SRI  

Understanding CSR, impact investing and social enterprises

This article is part of
How to benefit from CSR

In fact, according to Social Finance, the UK is the world leader in social impact investing. By mid-2016, the UK had issued 31 social impact bonds (SIBs), out of a global total of 61 (and rising).

These impact investment projects have raised £35.3m in capital and investors putting money into these products have helped to improve the lives of 46,090 people in the UK.

But not all SIBs have been successful in achieving their intended target; the 2015 SIB created by Goldman Sachs and Bloomberg Philanthropies in association with the City of New York to prevent recidivism - tackling the likelihood of offenders re-offending when they are released from jail - failed to achieve its social objective. 

Social enterprises

These have been hitting the headlines recently and appear to be worthy causes. Think of The Big Issue, for example, or Divine Chocolate. 

But while these sound like good companies to help support, investors should be aware these are not, essentially, an investment in the conventional sense. They are primarily set up to provide a social benefit.

As John Ditchfield, co-founder of Castlefield Advisory Partners, explains: "A social enterprise is a business set up with a social purpose as its primary objective, and these are frequently not-for-profit ventures, which do not seek to distribute profits to shareholders.

"Very few people regard social enterprises as 'investible assets'."

This is an important distinction to make, not least because there is a large green line drawn between that which is primarily philanthropic, and that which is purporting to provide some form of return on investment.

Sandra Crowl, member of the investment committee for Carmingac, comments: "As with philanthropic investments, social enterprises have one main goal: that is to do good, targeting either societal or environmental projects, without too much concern for investment returns."

If a client has already maximised their pension and tax-efficient investments in a given tax year, and wish to explore more philanthropic endeavours, social enterprises can be a way for them to back a good cause financially, without expecting much - or anything - in return.

John David, head of Rathbone Greenbank Investments, comments: "Social enterprise investments seek to make a positive contribution to society through their products/services or how they operate, but are outside the more traditional areas of investment.

"They represent a growing and very interesting sector, and include social businesses in areas such as renewable energy, sustainable property, organic and Fairtrade goods, public transport and sustainable finance."

Mr David says while there may be conventional investment opportunities in these areas, what distinguishes social enterprise investments is that they typically seek to generate both social and financial returns.