Amusing tales from the mainstream

At ClearlySo we perceive ourselves as being at the outer edge of the social impact investment marketplace. We are focused, in particular, on the place where mainstream investment and social impact investment connect. So we will speak regularly to the foundations and impact investment funds that have been pioneers in the sector, but we spend a relatively high proportion of our time working with traditional mainstream investment organisations. The reason is simple, that’s where most of the money is.

Similarly, and certainly a related point, is that the social entrepreneurs we assist exist along a very broad spectrum. Most would meet the investment criteria of Big Society Capital or other impact investment intermediaries, but in addition we work with companies which would be excluded from such lists, but we judge to deliver substantial social impact. A good example of this could be Weedingtech, a firm which uses foam bubbles of extremely hot water to kill weeds. We recently assisted them in a £750k round of investment capital, but many might judge the environmental impact of this firm as merely a by-product of their main focus, which is to create a successful business, and thus they would not be deemed worthy of engagement.

Recently we have had a series of amusing encounters with mainstream investors which underscore what real life is like in the trenches for social impact investment intermediaries like us. The first comes from a series of discussions I had with Nordic fund managers about impact investment. It was clear that they were seeing a number of clients were focusing on impact investing solely as part of what could be described as a “box ticking” ESG exercise. One of the executives I spoke with was a bit irritated by such practices as he felt they were not particularly genuine. My view is that if box ticking was required to get people interested in considering social impact investments it was certainly worth the price. Such a view could be seen as cynical, but to my mind is eminently practical.

Another series of recent meetings concerned funds that delivered high returns but also notable social impact. We noticed that in marketing such funds that the very notion that a fund might deliver social returns to any extent makes prospective investors suspicious about the fund’s ability to offer superior financial performance. This can be the case even be despite an impressive track record of successful financial performance, as if the very words “social impact” required an obligatory sacrifice. We do not believe this to be the case and a respected professional from the European Investment Fund, Uli Grabenwarter, has written a terrific paper on the subject suggesting that social impact and investment performance are positively correlated. We concur with his view.

Nevertheless when it comes to marketing, perceptions can be even more important than reality. Thus glossing over the fact that a fund delivers important social impacts perversely makes it more likely for those social impacts to be realised, as it increases the fund’s chances of raising capital. Conversations we have had recently with leading fundraisers in the mainstream suggest that this is the case. At a recent lunch such an expert shared with us that when marketing a client’s funds they will not even raise the point about social impact for fear of scaring off investor prospects. Of course, if investors are interested, they will engage in this discussion.

So engaging with the mainstream is tricky and an awareness of perceptions is critical. Nevertheless, in the long run we think the effort is eminently worthwhile, even if we leave some piece of the story “off to the side”. And if in the meantime limited partners of funds inadvertently achieve social impact that they weren’t even aware of, there is certainly no harm done! Quite the contrary.

First Published in Third Sector in July 2014.