Cliff Prior, the new chief executive of Big Society Capital, the body set up to help grow social investment in the UK, predicts that the country could soon follow France in having long term savings providers offering scheme members the option to invest in SRI and social investments.
Prior – who before taking over from Nick O’Donohoe at BSC spent nine years as chief executive of UnLtd, a £125m (€146m) endowment to support social start-ups – says Rob Wilson, the UK minister who oversees social investment, has signaled he would like to see something around ‘social pensions’ in a social investment bill next year.
BSC is already in talks with the savings and pension industry on this. It has engaged with master trusts, investment managers, pension providers and company pension schemes.
Prior has also met with some of the leading lights in the French system, dubbed ‘fonds solidaires’, where larger companies are required to offer employees a choice of long-term savings schemes including a social product. He says: “These are additional savings on top of the basic pension – and in the UK we might look at social investments for additional voluntary contributions or ISAs (individual savings accounts).”
He says it could be a substantial way to boost social benefit in the UK. “A million people voluntarily chose the 90/10 in France. That’s way beyond original expectations, bringing billions into socially screened investments and hundreds of millions into specifically social projects.
“The possibility in the UK could be even greater. We’ve been engaging key folk in the industry where they might be the first mover.”
Prior, who also chaired the mission alignment group for the G8 Social Impact Investment Taskforce, says the organisation is engaging with big corporates, who are “trying to get a deeper sense of purpose and social ethic in their company and their workforce”.
But Prior says a number of strands will need to be developed to ease the process. This includes removing any perceived barriers around fiduciary duty, and behavioural insights. “The French system is individual choice, to go into an institutional social framework. There’s a question about cultural difference. To what extent would that be people’s preference in the UK? Would they prefer to do something more like crowdfunding and choosing for themselves where they want to put the money – we won’t know until we try.”
Looking further ahead, Prior says long-term social savings could invest in social infrastructure or social housing. “It is not necessarily spectacular returns but it is steady returns, which is what people often need.“It could be very important given the really serious social housing crisis we have and the difficulties which housing associations are currently facing in building new homes.”
Other asset classes that could suit institutional investors seeking opportunities in the social investment space include clean tech and microfinance, says Prior. But he adds caveats, noting that in the UK clean energy has been a difficult story with constant changes around regulation and subsidies and that the country has had less interest in microfinance than internationally, but he suggests this could change.
“My hunch is that microfinance and reducing the poverty premium on access to finance is really an important piece of the picture for the future. It is apparent that we have long-term, enduring, deep poverty in the UK, and the poor pay a premium for all kinds of things including financial products – can we do something on that which is at sufficient scale and with the right set of partners to make that possible?”
Prior also says social impact bonds, where investors are paid for successful outcomes such as reducing reoffending, and other sorts of payment-by-results models could in the future be good investments. “Public service contracts are the right size and sometimes the right length for institutional investors,” he says.
But to date, SIBs in the UK have been small, the largest has been around £11m.
He says it is now getting to the stage where UK Treasury could be convinced to do larger SIBs. “I am convinced we have enough evidence to satisfy Treasury that it is worth trying larger, alongside a control group to provide credible evidence.”
Shortly after we spoke, the UK government formally announced an £80m fund to support the development of SIBs. The news attracted some skepticism; in general there has been criticism of the social investment market which some argue has not delivered what was promised.
Prior says: “There was a lot of hype in the early days. Would I criticize people for doing that? To be honest Big Society Capital would not have been created without it. You have to shout loud, and the saying is “to talk future truth”.
“Now we’ve got the job of achieving solid value and the job of getting more realistic expectations out there, as well as eating a bit of humble pie.”
This will include engaging closely with other countries and sharing learning. “In the UK we certainly have the most diverse and complex ecosystem for social enterprise and social investment anywhere in the world. But that is not to say we are the best at everything. We should be looking outwards, as well as inviting people to look at us to make sure we are learning from the very best models around the world.”
To date BSC has attracted £311m in co-investment from the institutional space. In total it has £495 in committed co-investment.