People-Powered Social Investment: Helping Everyone...
Camilla Parke

Camilla Parke Strategy & Market Development Associate, Big Society Capital

May 16, 2016

People-Powered Social Investment: Helping Everyone Invest in Impact

Camilla Parke

Camilla Parke Strategy & Market Development Associate, Big Society Capital

May 16, 2016

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As it becomes evident that the future of business and environmental and social sustainability are intrinsically tied together, both the public and philanthropic sectors have been focused on mobilizing private capital to address society’s most entrenched social issues.

Impact investing for social good is a solution that has gained prominence over the last few years, and as it grows into a more nuanced strategy for sustainable development, proponents of social investing are increasingly asking the question: who should be a social investor?

“Should impact investing be reserved only for big financial institutions, foundations, large companies, and high net-worth individuals? Or should anyone who identifies with a social issue be able to make these investments, too?”

Should social impact investing—the practice of making strategic investments in nonprofits or social enterprises that accrue both financial and sustainable social returns—be reserved only for big financial institutions, charitable foundations, large companies, and high net-worth individuals? Or should anyone who identifies with a social issue or community be able to make these investments, too?

A growing number of products and channels are emerging to allow individuals to build a more resilient and inclusive world through their everyday financial choices. Through their savings and investment choices, millions of ordinary people are collectively providing the capital that philanthropic and social sector organizations need to scale interventions.

This people-powered movement is also attracting substantial governmental interest. The UK, for example, has already made significant progress in engaging the general public in making social investments: Around 55,000 English nationals have opted for a social savings account, an account where an individual’s savings are loaned to people and organizations creating positive impact, while also offering a financial return. And, since 2009, nearly 100,000 people have invested over £100m in community shares—a form of equity issued by organizations run for the benefit of their members or the wider community that often  reinvest profits back into the local area.

Yet, according to recent reports, as people-powered social investing is picking up—especially among millennials—the demand for socially impactful financial mechanisms currently outweighs the supply of products in which to invest.

“According to recent reports, as people-powered social investing is picking up, the demand for socially impactful financial mechanisms currently outweighs the supply of products in which to invest.”

At Big Society Capital, an independent social investment wholesale bank based in the UK, we set out to understand how we could address this gap. A scan of several markets focused on assessing models that allow individuals to invest in causes they care about, led us to the overwhelming conclusion that the success of this field relies on innovation.

Organizations such as The Calvert Foundation have raised billions of dollars from several thousands of individuals by realizing that the barrier to entry into this market for ordinary individuals was too high. They came up with an innovative solution to lower the cost of  investments into Community Investment Notes, a bond-style product with fixed returns, where individuals’ investments are pooled into multiple funds that invest in nonprofits, social enterprises, and micro-finance institutions in the around the world. By allowing people to invest in the Note for as little as $20USD, The Calvert Foundation has made impact investing more inclusive.

Similarly, in France, the growing solidarity finance movement that provides finance to projects creating sustainable economic development and social integration, has mobilized over 7.4 billion USD of investment from ordinary people into a range of products designed for retail investors. This has come about through government, financial institutions, and social sector organizations working closely together.

Banca Prossima, the social bank subsidiary of Gruppo Intesa Sanpaolo based in Italy, allows individuals to invest in local community-based organizations through a crowdfunding platform. The bank commits to fund up to 100 percent of the loans organizations require, but projects can reduce the amount borrowed from the bank by raising investment from the general public through crowdfunding. The crowd often provides cheaper capital, and the relationship can strengthen the link that organizations have with their local communities.

In the Netherlands, ‘Green’ Banks—or banks with designated ‘green’ funds that lend to organizations and businesses with social and environmental objectives—offer retail customers green savings products, low-risk investments including fixed value and interest rate bonds, and shares in ‘green’ investment funds. This capital is used to channels affordable finance to early stage environmental projects (typically supporting innovative technologies).

People-powered social investment not only helps to provide capital to addresses our most pressing social concerns, it also makes our economies more inclusive. It gives citizens the chance to be more directly involved, conscious, and intentional about their own futures, as well as the sustainable future of our communities and our planet.

The time is now ripe to think about how this movement and strategy can achieve global scale.

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