Known knowns in social investment

It’s always been a little bit difficult to work out what is really meant by social investment

Ged Devlin

Programmes Manager, North West

and

Gen Maitland Hudson

Head of Evaluation and Impact Assessment

Social investment has never been a shy and retiring animal.

At the launch of Big Society Capital, Francis Maude declared that “there are few moments like this when something happens that can really change the world”. And in December last year the ante was raised further by the Rise Fund and its starry cast of the very rich (and life partners of the very rich). They vowed to show the rest of us how impact investing should be done. There’ll be no deals “where there’s less than a two and a half times multiple of impact”, they told us.

Beyond the rhetoric, and getting back nearer to home, it’s always been a little bit difficult to work out what is really meant by social investment, and what effects it may or may not be having.

For example, how do we categorise what social investors want from their investments, and how does what they want affect their decision to invest? Of particular interest here at Power to Change, how does all this allow money to flow through the UK social sector, helping community businesses to grow?

In a blog post published this week, David Floyd points out that varied definitions leave us in a curious place in which apparently contradictory views of the effects of social investment co-exist.  In response to those contradictions, he suggests we need more data, and clear analysis of what that data means (or doesn’t mean).

Both of his points are important.

Data…

There are all sorts of interesting problems when it comes to publishing data on relatively new things where definitions have yet to settle down or aren’t yet well enough understood. This isn’t primarily a question of transparency – although of course that matters – but an issue about what to collect and how to present it.

It’s quite easy to collect and publish bad data that at best tells you nothing at all, and at worst is actively misleading.

When it comes to the definitions of social investment, the products categorised –  community shares, equity investments, quasi-equity investments, social impact bonds and investments made by banks, funds and individuals into ‘profit-with-purpose’ organisations – are very different. Analysing them as an indeterminate whole tends to create a confusing picture.

And that’s before we even start to look at the important thing – the types of organisations making use of this cash.

Most of those involved with social investment have good intentions when it comes to data collection, but there isn’t yet a shared understanding of what they should record and how.

This shouldn’t be all that surprising. The history of measurement is full of examples of the time and effort that goes into circulating the concepts, mechanisms and tools that allow us to account for the value of things. Valuing equity has always been an imprecise art. We shouldn’t make the mistake of thinking that the magic of digital is going to accelerate and simplify something that owes more to custom and practice than it does to science.

A good place to start, though, is with what does exist, is well understood, and can be improved. Community businesses, and the wider social sector, will benefit from a process of valuation that is as transparent, and as fair, as is practicable.

We’re taking this pragmatic approach in partnership with the Community Shares Unit and Key Fund, creating data standards that ‘talk’ to the 360Giving and Open Contracting Data standards . This will allow us to tell data stories about how a community business can raise equity, leverage repayable finance, and perhaps go on to secure a government contract. It’ll also tell us about the amount raised at each one of these stages.

This approach is far from the ‘innovative’ – though currently obscure – ‘methodology’ of the Rise Fund and others like it, with their ambitious universal metrics for all the good, but it should get us a bit nearer to seeing how money flows through the UK social sector, helping community businesses to grow.

We’re also going to do some slow, but ultimately rewarding, work on the annual reports lodged with the FCA by community benefit societies issuing shares. These contain a lot of useful data, but they aren’t in machine readable formats, so a retrospective trawl means a lot of manual data entry. What we hope to have, though, when we’ve done the trawl, is several years’ worth of cleaned, machine readable data formatted in a way that makes for simple linkage with other datasets.

This may all seem unexciting compared to the grand ambitions of many in the social impact community, but we think it’s feasible, clear and likely to be informative.

… and how to use it

Which brings us to the second part of David Floyd’s call for better information on social investment. At the moment the data that is published needs a good deal of interpretation.  Making sense of what was covered by the definitions of a report in 2012, for instance, and what is now being covered by a brand new publication, is not straightforward. So as well as funding retrospective data entry, cleansing and formatting, and improvement in the sector’s data infrastructure, we are committed to fostering critical engagement with the data that we collect and publish.

It will, hopefully, allow us to focus not only on why community businesses might want to develop their relationships with social investors and social investment, but on the practical arrangements for enabling that development.