Maximpact Blog

Another new definition for social investing—and why we should pay attention to this one

green shoot with ladybug growing from a sack of coins

By Marta Maretich @maximpactdotcom

Definitions—we are so over them in the social investing sector.

I mean, we wrangled over those darn meanings for years: ethical investing, responsible investing, socially responsible investing, triple- and double-bottom-line investing, green investing, sustainable investing and finally—boom!—impact investing.

We split hairs, we waved banners, we made colorful infographics to settle the matter once and for all—and then, worn out with all the talking, we got on with the work of building the social investing sector and tried to forget about definitions for awhile.

Definitions are to social investing what balance and reaction time are to surfing: You need them, but if you think about them too hard, you just can’t stand up on the board.

On the other hand…
Once in a while a new definition comes along and we really need to pay attention.

That’s the case with the definition for social investing proposed by a new report, After the Gold Rush, from the Alternative Commission on Social Investment (ACSI). Rather than splitting yet more definitional hairs, this report highlights telling developments in the practice of social investing and yields a new, clarifying meaning for the term.

handsome doctor cares for healthy green plant

The patient seems to be doing well—but is it really?

The green shoot is wilting!

Before we get down to what that meaning is, let’s take a look at the source of this report.
The ACSI describes itself as initiative established “to investigate what’s wrong with the UK social investment market and to make practical suggestions for how the market can be made more accessible and relevant to a wider range of charities, social enterprises and citizens working to bring about positive social change”.

One look at this group’s spare website and signature image—a cupped hand, full of dirt, supporting a dead seedling—tells us that the ACSI are working in a very different key to, say, the G8 Social Impact Investment Taskforce. We’re not going to get cheerleading from these people, their branding suggests; they’re going to make us face facts.

The ACSI shuns the international glamor that has recently surrounded social investing. Its focus is national, not global. Its approach is practical, not theoretical or political. ACSI intends to cut through the hype. It wants to know, specifically and categorically, whether the UK social enterprise sector, especially its largest player, state-bankrolled Big Society Capital, has delivered all that it promised for social investing.

Keeping it real

What they demonstrate in this report, with dead plant images on several pages, is that it hasn’t. The reasons behind this failure, which fill out the body of the paper, make sobering reading for anyone who wants to see the practice of social investment flourish for real.

Problems range from basic errors—such as the assumption that social sector organizations don’t have access to finance from mainstream lenders (they do) — to more subtle but potentially damaging issues, such as a mismatch between the support social sector organisations actually need and the kind of finance social investors are currently offering.

Confusion around definitions is part of the trouble. The report rounds up a range of definitions from various authorities including the OECD, the Charity Commission and the UK Cabinet Office—all strikingly different. Then it offers a new one.

Just one more definition, please

The ACSI suggestion is really less of a definition than a set of characteristics that helps us tell whether an investment really counts as “social” or not. A social investment, in their eyes:

•    pursues and accountable social or environmental purpose;
•    is autonomous of the state;
•    has the mission of the investee as the principle beneficiary of any investment;
•    is transparent about measuring and reporting the social value it seeks to create;
•    is structured to create financial value or organisational capacity over time, for example, by helping the investee invest in growth, acquire an asset, strengthen management, generate income and or make savings.

Like all definitions of social investing, this one is up for discussion—it seems we’ll never lose our taste for arguing about terms.

At the same time, a couple of things stand out about this particular definition. One is the statement that a social investment should be “autonomous of the state”, which is to say, not politically motivated or subject to state control.

That’s an interesting stipulation to come out of the UK, whose early leadership in social investing was based on the involvement of a series of governments who saw it, at least in part, as a way of shrinking the state benefits burden. It may also shine a light on why the UK seems now to have lost its position as a leader in social investing.  Perhaps state control and authentic social investing are incompatible?

The second remarkable point about ACSI’s definition is the focus on “the mission of the investee as the principle beneficiary of the investment.”

This emphasis has the effect of directing attention away from the motives of investors and the mechanisms of investment, subjects that so often, in this sector, preoccupy us. It focuses instead on the impacts and outcomes of the investment, on the mission ends, rather than the means. This has a clarifying effect, reminding us of the real reason we are doing any of this investing at all, and keeping the focus of the argument practical and close to home.

Lessons—and satire

At a time when the idea of social investing is gaining mainstream traction—with more national governments as well as mainstream finance organizations getting involved—this report holds lessons about the realities of making social investing work in practice.

One of them is that hype has the power to hijack even good ideas and prevent them from delivering results on the ground. Another is that there’s a danger of loss of focus in our sector, with the emphasis shifting away from social benefit and the organizations that can, with support, deliver it. A third is that more attention needs to be paid to the fact that, despite claims, most social investing is still subsidized in one way or the other—and that is fine, so long as it creates real benefit for real people.

But the biggest lesson of the ACSI report is probably that the presence of a dissenting voice in our sector is a very good thing. With its focus on the practical, and its satirical bent (“Social investing is dead!” reads one subhead, and another, “Long live social investing!”) it makes refreshing reading and should encourage others to pitch in and provide alternative points of view.

Now go and water your plants!

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