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What is social investing, what is social impact investing, and what is impact investing?

by Clare Jones

Just as we are often asked “what is a social enterprise?”, we are frequently also answering the question “what is social investing?”. Sometimes the phrase is social impact investing; sometimes it’s just impact investing.

Impact investing means considering risk, return and impact when making investment decisions, and choosing to invest in companies that are actively creating positive social or environmental impacts. It is a step further than divesting from negative impacts (for example, moving your investment portfolio away from fossil fuels or armament investments); it means using your money to consciously tackle society’s challenges – and to make a financial return.

This can mean investing in a fund – like Impact Ventures UK, which only invests in UK-based businesses tackling social impacts (such as youth unemployment or mental health support).  It might mean an institution or an individual investing debt into a charity that has created a business model (like the London Early Years Foundation, which raised £1.25m debt in 2014). Or it may see angel investors like those in our Clearly Social Angels group putting capital into businesses and charities who are only a few years into their journey; this includes tech-for-good startups like Insane Logic (which offers children with learning difficulties the chance to communicate through their iPad app). It also includes investments focused on creating an environmental impact – our investor network has backed environmental businesses, including organic, eco-friendly weedkilling products from early-stage growth company Weedingtech.

It is known by the G8 Social Impact Investment Taskforce as social impact investing, and Social Investment Tax Relief in the UK helps to de-risk some impact investments for individual investors.

Investors sometimes ask us how much return they will have to trade off in order to make impact investments. Firstly, we say, there is no “impact see-saw”. Just because a business is creating more positive impact, that does not mean they are creating less financial return. Indeed, in many cases, because impact is at the heart of the business model, the more impact they create, the more profit they make – and vice versa. Research has even suggested that impact-focused businesses are more sustainable in the long-term than equivalent SMEs without a focus on impact, while Morgan Stanley’s own research suggests sustainable investing matches and even out-performs more traditional investing.

In any investment, there are varying levels of risk and return – and there are also varying levels of impact. An impact investment may be riskier, with high returns and high impact – or it may be less risky, with market-rate returns and significant social or environmental impact. As with any investment, it depends on the business, or the fund. In 2014, JP Morgan found that 89% of investors making impact investments find these are meeting their return expectations, and 54% of investors are targeting market-rate or above market-rate returns. There are many ways to get involved in impact investing – crowdfunding has even helped retail investors, who have less risk capital, to get involved in this space.

We work with many institutional investors to help them make impact investments – including banks, pension funds, housing associations and local authorities. Institutions usually look at deals ranging from £2m up to £50m, while individual investors are usually looking to invest between £20k and £1m in each deal.

Investors in our individual investor network come from a range of different backgrounds. Some are cashed-out entrepreneurs who want to support start-ups that are tackling challenges such as education inequality or sustainable development; some are philanthropists who want to be able to “recycle” their capital by having a return on their investment, which allows them to do good again and again.  Some are City refugees, looking for something to do with their capital that can help to create a positive system where businesses that do good are encouraged to thrive. Many of our individual investors represent family offices or family wealth and want to make impact investing part of their investment or philanthropy portfolios; some will invest along a particular theme (they might only want to support environmental impact, or businesses supporting women and girls, for example). Some will want to learn more about angel investing, and our Clearly Social Angels network offers opportunities to receive training. For new angels, some may find making small investments of between £10-20k into four or five companies helps them better understand investing in early-stage companies. Other members of Clearly Social Angels are seasoned investors, who are looking for deals into which they can put significant capital – our early stage growth companies are usually raising between £200k and £1.5m. Ideal risk, return and impact profiles differ for every individual; there are enough seed-stage, growth-stage and scaling opportunities for individuals, and those who want to focus on philanthropy can make early-stage grants that help to de-risk investments further down the road.

If you would like to join our investor network, hear more about making impact investments, or find out about joining Clearly Social Angels, please do get in touch, or contact Katrina Cruz for more information.

 

Image: Flickr / Takasuii / Creative Commons License

 

This blog has been prepared for informational purposes only by ClearlySo Ltd which is an appointed representative (592808) of Catalyst Fund Management & Research Ltd which is authorised and regulated by the Financial Conduct Authority (No.185678). The document is not intended for or to be relied on by retail investors. If you are uncertain with regards to your eligibility or any other matter contained within the document or associated links you should seek professional advice. Nothing in this document constitutes an offer or solicitation to invest. It is intended to help people understand what is social investment and what is impact investment and see examples of social investment / impact investment as well as social enterprise. It does not provide advice on how to make impact investments, how to invest as social angel investors or how to make social investments and should not be taken as such. Past performance is not a guide to future performance; investments go up as well as down. Whilst all reasonable care has been taken in preparing this document, the information contained herein has been obtained from several sources that we consider reliable but we do not represent that it is complete or accurate and it should not be relied upon as such. The opportunities listed may not be suitable or appropriate for your personal circumstances. The levels and basis of taxation may change and depends on your individual circumstances. The marketability of this type of investment is often restricted and you may have difficulty selling at any price. It is the responsibility of all Users to be informed and to observe all applicable laws and regulations of any relevant jurisdiction, and to satisfy themselves that their use of this information is permissible under the applicable laws, rules and regulations of any applicable government, governmental agency, or regulatory organisation where they reside. Unless otherwise stated, the source of all information contained herein is ClearlySo.