This magazine, in its online version of 11 August 2010, published an article entitled “Voluntary groups plan rulebook for social stock exchange”. A few weeks later, on 28 August, Mark Campanale, one of the co-founders of the Social Stock Exchange (SSE), commented at length on one of my blog posts, giving an impassioned plea in support of the SSE.  The Third Sector piece also noted that Campanale, and his colleague Pradeep Jethi, have now raised £500,000 towards their eventual goal of £2 million to launch the exchange. As a personal fan of these two outstanding professionals and their efforts I am delighted. However, as an industry observer I remain sceptical.

Firstly, £2 million seems an awful lot of money to me to be used in this way. I do understand that it is probably good value for something as costly as a stock exchange, but I have always challenged the necessity of a stock exchange to draw in investment for social purposes. The idea that this exchange will open up the market for pension funds to invest in such companies is optimistic at best. Their (pension fund managers and other institutional investors) return criteria will make it nearly impossible for them to consider investment in firms whose primary objective is social or environmental, irrespective of the listing.

My second objection pertains to the idea of this limitation in the first place. Part of the beauty of this new form of business is that entrepreneurs can, for themselves, decide on the precise blend of social and financial objectives that are appropriate for the business model and funding model of the venture. Prescribing in advance that the organisations must be primarily social or environmental will probably prevent a number of leading companies considering the exchange, including such industry pioneers as the Ethical Property Company.  (In the interest of transparency I should make clear that I sit on their Board, but I am speaking in a personal and not a corporate capacity.)

I also feel somewhat uncertain about the idea of third parties, who are not social enterprises, drafting the criteria for such an exchange. My guess is that the most successful exchanges were those whose provisions were drafted by the eventual users.

Just to be clear, I would be delighted if the Social Stock Exchange were successful. It would mean there was an active, transparent and listed market for those shares of companies whose ideals and objectives I so deeply share. From a corporate perspective ClearlySo, the business I run, would also benefit. But despite my hopes and dreams it does not feel as if this SSE project is going on in a direction that will best insure its success.

First Published in Third Sector in September 2010.

The new Chancellor of the Exchequer has spoken. Our fiscal crisis is severe and deep cuts are required to restore our national finances.  Failure to do so, the government claims, will imperil our nation and risks a funding crisis a la Grecque.

Whether or not one shares the assessment of our predicament this is the context against which we must measure our reactions as a sector.  To listen to the comments of my peers it would seem that our present mission is to shout for our share of dwindling government resources.  This approach is seriously flawed for several reasons.

First, there is very little convincing evidence that the myriad of incentives already allocated to this sector have done much good.  The recent report by the Social Investment Task Force laid out progress since it was set up in the early years of the Labour government.  Causality is always difficult to determine, but the report’s claims in this regard are appropriately modest.  Although much has happened since that time the unavoidable observation is that this was merely contemporaneous with government tax incentives, rather than as a result.

In areas was where government has been particularly generous, such as in the area of Community Investment Tax Relief, its take-up has been noticeably disappointing.  This is partly due to the unnecessary complexity and restrictions of the scheme, but not only.  In fact, most of the exciting activity in social investment has happened in the unsubsidised market.

This is not dissimilar to the venture capital arena where tax credits have failed miserably to create an enterprise culture in the UK—generous treatment for VCTs has only served to depress already pathetic UK venture capital returns.

Second, the incentives are too complex, as an excellent report co-sponsored by the CSFI and NeSTA and written by Vince Heaney and Katie Hill has pointed out.  Indeed the cover of the report shows a maze—this is apt.  When structures are this Byzantine they are hard to effectively exploit.

The third and final reason to be opposed is the current environment.  We exist as a sector on the premise that social objectives matter, and are at least as important as financial or corporate goals.  Our mantra is that of the “triple bottom line”, or “people, planet and profit”—society is at least tied for first with our personal and corporate interests.  At a time when across the country the most severe budget cuts are underway, it is callous, if not unseemly to be lobbying for more.

Our sector has been the recipient of extraordinary largesse over the past decade.  Private sector money has begun to come in increasing amounts—with interest accelerating.  Hundreds of millions more are promised via the Big Society Bank or the Green Investment Bank.  In such an environment it strikes me that the socially positive action could be to make a point of asking for no more cash, so that it can be spent on those who really need it.  Perhaps we should consider asking the Government to use the money from unclaimed assets to pay down the national debt as a gesture?

Until we demonstrate that we are truly different from the rest, we can hardly claim to be.

First Published in Third Sector in June 2010.

By the time you read this, the UK general election will have taken place and, if the pundits are to be believed, David Cameron will be the Prime Minister presiding over either a small majority, a coalition with the Liberal Democrats or some smaller third party or parties, or be trying to rule within a minority Government.  In nearly every possible constellation, except for perhaps a coalition with the Liberal Democrats, the Conservatives will be in a relatively weak Parliamentary position, vulnerable to pressure from disaffected members within its own ranks or to bye-election defeats.  Despite his pleas to the contrary it does not look as if the United Kingdom will give David Cameron the electoral mandate he desired and, for so long, looked likely.

Nevertheless, it’s my challenge to try to write before the election results are in about the prospects for the social enterprise, investment and finance director thereafter.  I have written in our ClearlySo Social Business Blog, about the inherent advantages which social businesses and enterprises possess in terms of their ability to raise capital more cheaply and secure talent, products and services more efficiently.  This will make the sector popular in the aftermath of an election as a source of private sector solutions to public sector problems.

For a Conservative party looking to provide momentum to its concept of the Big Society, the sector offers a great deal of opportunity.  In particular this has to do with the areas of community ownership and “re-mutualisation” (including, among other things, perhaps financial institutions like Northern Rock).  There is no doubt the Tories possess conviction concerning local ownership and accountability in public service delivery.  Both social enterprises and community owned organisations, will be able to assume ownership and management of local assets; a likely feature of a Conservative government.  I expect the Tories to move rapidly in this area as they seek to contrast their approach with what they have characterised as “Labour dithering”.  I expect many mistakes along the way, which will undoubtedly be picked up by the appropriate tabloid papers, however I welcome such experimentation–the existing models certainly have not worked.

Where I also expect the Conservative Government will be equally hyperactive is with respect to financial innovation.  The social impact bond, which I have discussed elsewhere, has been has been incubated under Labour government but has been proceeding at a glacial pace, thanks to the Treasury.  I expect the Tories to move quickly to unleash this and other instruments which enable financially innovative solutions to address social problems, such as prison reoffending, which the first social impact bonds seeks to address.  In many areas where traditional practices have made progress impossible I expect the Tories to be radical.

One final area of likely progress involves the long-awaited Social Investment Wholesale Bank (SIWB).  Although proposed years ago and debated endlessly, Nick Hurd MP, the shadow Minister for the Third Sector, has made it abundantly clear that he will move quickly to release the funds from dormant bank accounts to such an SIWB.  There are suggestions that the remit of this institution will be more narrowly focused on facilitating other capital flows.  Although the details on the proposals are still to be released-one welcomes a speedier and more narrowly defined implementation of the broad concept.

Under nearly every possible configuration of the next Government, we can expect accelerated growth in the social finance sector.  The U.K.’s financial crisis compels this.

First Published in Third Sector in May 2010.

What will finally get this social investment industry going?  Many observers seem to believe that the Social Investment Wholesale Bank (SIWB) will help.  In part, they argue that “an institution of scale” is necessary.  Why this is required eludes me.  Also, in the aftermath of the great financial meltdown, I think the arguments against scale are quite compelling.

I have a slightly different view.  What makes markets are deals, NOT structures, and transactions NOT entities.  This is especially true if the entities are just heavily Government subsidised intermediaries.  Fortunately, there are many new deals which either have happened or are happening which will become benchmark transactions and lead by example in creating the social investment space.

One in which we at Catalyst have played a role as advisor is the expected £5 million transaction for the HCT Group.  In this deal, cornerstoned by Bridges Ventures, investors are to purchase fixed rate loans and “social loans” (where interest is tied to HCT’s turnover growth).  The size of HCT within the social enterprise sector, and its long and successful track record, make this a deal other investors may key off of.

Not long before the largest and perhaps most important deal in the sector was announced, the EU 102 million financing for Triodos Bank.  Done at a time when many of the largest banks were relying on government infusions, this Dutch ethical bank was able to announce a transaction that was funded purely by investors without the need for a state subsidy, which is being used to fund Triodos’ rapidly expanding loan book.

In the coming weeks Social Finance will at long last formally launch its widely heralded “Social Impact Bond”, where the Treasury will pay to the investors some of its own savings from the reduction in prison reoffending rates expected to be caused by the programmes undertaken within the scope of the bond.  This is an important and breakthrough benchmark instrument because it connects returns and social benefits—in this case in the form of Governmental cost savings.

Finally, later this year, the Ethical Property Company will raise several million in its sixth financing from the markets (one of which was in Europe to Belgian investors).  The fact that the firm (I must disclose that I am a Non-Executive Director) has been able to routinely tap the market for capital over the past ten years sets a standard that other firms issuing, or thinking of issuing ethical shares, may hope to aspire to.

Such deals are invaluable for the sector.  Others considering similar issues may copy these formulae.  In fact, these four deals are not themselves unique but build on the work of others.  What makes these important is their size and scope within the sector.  That they have all occurred within a year of each other is a great sign of hope.

First Published in Third Sector in March 2014.