“I have seen first-hand that social investment works. It has worked and continues to work in Scotland and it will work in the North East.”

As the Chief Executive of Social Investment Scotland, Alastair Davis brings a wealth experience and learned lessons to the board table at NESIC.

In 2019 the North East Social Investment Company (NESIC) enters the fourth year of its mission to provide investment to organisations that are passionate about making a positive social impact in the Region.

It has overseen the creation of one of the first regional social investment funds in England, but as it prepares to develop from a precocious new opportunity to a fully-fledged force for social betterment there are lessons to be learned from Social Investment Scotland (SIS), its older cousin from North of the border. 

As the Chief Executive of SIS and a board member of NESIC, Alastair Davis is uniquely placed to make sure the North East can benefit from the progress he’s seen first-hand in Scotland.

Backed by Northern Rock Foundation, Big Society Capital, Esmee Fairbairn Foundation, Joseph Rowntree Foundation, and Northstar Foundation, with its fund managed by Northstar Ventures, NESIC is a Community Interest Company. It created the £10m North East Social Investment Fund (NESIF) in 2015.  Since then the fund has made investments ranging from £100k to £1.0m.

Although the NESIF is the first regional fund of its kind in England, it aims to follow in the footsteps of a similar venture in Scotland that dates back to 2001 and was launched under what was then the Scottish Executive.  Putting its newfound devolved powers to good use, Scottish ministers created SIS to provide loan investment for other charities and social enterprises looking to make a positive impact on people’s lives, society or the environment.

Alastair Davis joined SIS in 2009 to head up the investment team and in 2011 he became Chief Executive.  When NESIC was set up he was happy to contribute his experience and expertise as a board member, saying at the time: “I have seen first-hand that social investment works. It has worked and continues to work in Scotland and it will work in the North East.”

Fast forward to 2019 and Alastair has a better appreciation of the similarities and differences between social investment in the two regions, but remains enthusiastically optimistic that the principle can be successful on both sides of the border.

In both areas one of the first hurdles Alastair and his colleagues had to overcome was to instil a more commercial approach in organisations that had previously been dependent on grants, or were nervous about scaling up. 

As he recalls “When I arrived it was still relatively hard to convince people to accept external funding and even now it is still hard to persuade some organizations to take on social investment.

“A lot of the work we’ve done in partnership with others, has been to help build up the investment readiness of social organisations right across Scotland. We’ve done that in a range of different ways, but mainly focused on taking the fear out of the process. There’s no point in trying to push ahead with the business when there are people who are scared to engage with you.

“What we often find - and it’s the same in the North East - is that it is the trustees who are most risk averse about some of the finance options which exist for social sector organisations, because traditionally this sector has been funded using grants rather than investment. Having to put the investment hat on rather than the grant hat can be a big challenge.

“It can absolutely be a positive one, but it nevertheless needs a change in mindset to become confident that the organisation can benefit from social investment - and also understanding the obligations that come along with that.”

Over the best part of a decade, Alastair has been able to determine which engagement methods are most successful at educating potential borrowers in Scotland, which could be successfully replicated in the North East.

 “We’ve produced a range of factsheets - mythbusters would be one example - which go through all the questions we know people have: what are the interest rates; how are they calculated; what happens if things go wrong?

“Also, in partnership with other organisations, we go out and we run workshops right across Scotland. They can be really small groups - literally six people in a village hall in Orkney with local organisations - helping them to understand what social investment is in a very unpressurised and neutral space.

“We’re not there with the forms at the end of the table. It’s very much about making the information and the idea of social investment, accessible.

“If they come away from that and say ‘I really enjoyed that and I’d like to have another conversation about my organisation and what difference social investment can make then that’s great. But similarly, if they come away thinking ‘that’s not for me’ - then that’s positive in another way because it means they’ve made an educated decision after looking at all the information available to them.”

Coming from a standing start, the social enterprises in the North East have taken a bit of time to fully engage with the principles of social investment, something that has not come as a surprise to Alastair and the other board members at NESIC.

“I would say that we’re starting to see some progress in the fund. There’s positivity round about it. Everyone in the North East who was involved in the setting up of NESIC knew it was going to be a slow burn. They always had the expectation that it was going to take some time to get to know there were other options.

“Now, after three years or so, you can start to see the change happening. So that’s positive and gives us many reasons to be cheerful. We’re seeing more interest and more money being invested. These role models should build the confidence in decision makers in other organisations who see social investment happening around them and start asking questions as to whether it could work for them too.

“Peer support within the social enterprise community is important and really helps deepen the impact of the fund.”

“There’s also more grassroots engagement work going on than there was at the start,” he continues. “Going out to communities all over the North East and trying to engage with the local anchor bodies to help them understand what social investment is… so you then start building up a network of advocates.”

However, one area where engagement has failed to penetrate as effectively has been within the wider public sector.  As Alastair says: “There is a challenge is to engage the public sector and what this is and the opportunities this could bring for the delivery of public services.

“The social enterprises in the North East have struggled to engage with the city councils, or the metro mayors or the different constructs that exist or the NHS, to sell their services or develop services on the back of what the local authorities need.

“That just seems to be a really complex picture where the engagement is currently quite low. Understandably resources in local government are stretched and there are many competing priorities; however, if that sector was able to engage with us, then we believe that could unleash quite a significant amount of potential.”

In Scotland, the Scottish Government are one of SIS’s closest partners, something Alastair suggests NESIC is not able to replicate at the moment, due to the relative current fragmentation of the political structures in the North East.

“What has been different in contrast with England is that the whole movement tends to get a lot of support from the Scottish Government, which has a clear 10-year social enterprise strategy under which a number of things are supported in terms funding and building an infrastructure and ecosystem of support.

“Some of that did exist previously in England and the North East, but after the crash and the period of austerity which followed a lot of that has disappeared. There are some infrastructure bodies, but not linked into government policy in the same way as we have in Scotland.”

“For example, there’s an organisation called Firstport in Scotland which delivers a government social entrepreneurs’ fund. So, if you have an idea for a social enterprise, you can be given financial and business support to get it up and running. 

“They have supported thousands of Social Enterprises to get off the ground. Of course they don’t all work out, but some of them have gone on to big things. That kind of support doesn’t currently exist in England.”

Alastair is hopeful that the involvement of the North East Local Enterprise Partnership (NELEP) and potentially devolved government at the regional level can go some way towards improving the collaboration between social enterprises and the public sector, based on similar experience in Scotland.

He also believes that there are some opportunities available to NESIC that don’t exist in Scotland.  “In England there’s a greater acknowledgement of the potential of the third sector to be delivering public services whereas because of different political ideologies, you don’t see quite as much of that north of the Border.

“What NESIC is trying to do is to raise the profile and the credibility of different ways of doing things to help decision makers, in local authorities in particular, to understand there are alternative ways to better deliver public services.”

Alastair’s enthusiasm for social enterprise is as strong as it was when he first joined SIS, and he is optimistic that NESIC will be a genuine force for good in the North East.

“There’s undoubtedly a growing mistrust of big business and big institutions,” he says. “There is a sense that people are challenging that conventional business behaviour. People are setting up real businesses up with a clear social purpose, which is very exciting and something we obviously want to encourage and support.”

'These days charity trustees must think like businesses'

When it comes to being successful, charities and their trustees need to leverage all their assets as LUCY ARMSTRONG, deputy chair of the North East Social Investment Company (NESIC) explained in The Journal’s Top 200 supplement 2018.

Lucy Armstrong is deputy chair of the North East Social Investment Company

To a private sector company needing to achieve its business plan goals, the solution would be clear; raise capital – and borrowing would be high on the list, but for many third sector organisations and charities, raising repayable capital still feels like it comes with significant risk.

The reality should be very different. For organisations with a clear view of where they are going and what they want to deliver, repayable capital - as a route for funding those ideas - comes with a freedom not enjoyed through the old routes of grants, where prescriptive approaches were outlined, and organisations were tied up with days of reporting to satisfy the grant makers.

“The Third Sector can and does provide innovative ways of delivering crucial services to society. It generates economic benefits, creates employment and makes profit, but it also delivers social impact and outcomes.”

— Lucy Armstrong

Repayable capital through organisations such as the North East Social Investment Fund (NESIF), require a clear business plan and a strategy for delivery, but then it is up to the trustees, non-executives and boards to deliver the numbers and social outcomes in that business plan; and that is the sole criteria – how it is achieved and whether the organisation has to flex that plan at times, is up to them.

Today being worthy is not enough however well-meaning the organisation is. To do their job properly, trustees and boards must leverage all the assets at their disposal, from raising capital for new projects, to using existing resources for delivery to create something more and greater for the organisation. No one underestimates that it can be difficult at times to juggle and balance the needs of capital, beneficiaries and people, but funders like NESIF can provide support in doing this.

The Third Sector can and does provide innovative ways of delivering crucial services to society. It generates economic benefits, creates employment and makes profit, but it also delivers social impact and outcomes.

This article first appeared in The Journal’s Top 200 Supplement 2018

Key to this is social investment, which is simply a repayable loan given to a charity or social enterprise, formed to benefit the community in some way.

Of course, social investment isn’t appropriate for every organisation but, as a business model, there is no doubt that it works.

Trustees need to think like business people. They need to ask themselves if borrowing money will enable their organisation to do its job better, safeguard its future and enable it to meet its aims and objectives.

And, if the answer is yes, then they absolutely should think about borrowing and talking to The North East Social Investment Fund. This is a £10.2m fund set up to support charities and social enterprises across the North East of England. Investments range from £100k to £1m and can be used for a wide range of purposes, including operational costs, working capital, asset purchases, or a combination of purposes. The fund’s aim is to increase or protect an organisation’s ability to deliver social impact.

The fund was set up through The North East Social Investment Company which provides an innovative, regional, strategic solution to developing the market for social investment. It was originally established with funds from Northern Rock Foundation, Big Society Capital, Esmee Fairbairn and the Joseph Rowntree Trust. The Community Foundation have now taken over the role of Northern Rock Foundation

For further information about North East Social Investment Fund please visit www.northstarventures.co.uk/funds/social-investment-fund

NESIC seeking three non-executive directors to join board

We are currently seeking up to three non-executive directors to join our Board. The people we appoint will help shape and steer the continuing work of the first regional social investment company in England.

About NESIC

NESIC was set up in 2014 to promote the development and expansion of voluntary and community organisations and social enterprises in the North East of England.  An investment fund was established for the purpose of investing in social enterprises. 

The total fund value at inception was £9m and the initial investors were Northern Rock Foundation, Big Society Capital and the Esmee Fairburn Foundation.  In 2016, the Joseph Rowntree Foundation and the Northstar Foundation also invested in the fund and the current fund value is £10.2m. 

There is an agreed 10-year fund strategy and fund management is out-sourced to a professional fund manager.  NESIC continues to ensure that investments are made into “asset locked” entities which develop the capacity and sustainability of regional voluntary, community and social sector organisations. 

All investments are required to demonstrate progress against pre-agreed social impact measures such as the relief of poverty or homelessness.

Overview of the role

We will be recruiting up to three non-executive directors, who will also be members, to fill vacancies arising from the departure of two of the founding member-directors as well as increasing the number of members to up to seven. 

The directors are individually and collectively responsible for ensuring we promote social investment in the region, deliver our strategy and that we are solvent, well run and meet our legal and regulatory requirements.

The board currently comprises six elected/nominated members and normally meets four times a year.  In addition, there is an Annual General Meeting and dinner hosted by the fund manager, an annual presentation to the public and the potential for a small amount of further time to be spent on strategy, reflection and planning. Directors are not remunerated but reasonable expenses are covered.

The people we are looking for

We are looking for people who can demonstrate a passion for social investment together with a strong desire to develop the social investment capacity of the North East region. 

It is essential that they can show a commitment to the aims and values of NESIC.  We welcome applications from (adult) candidates who believe that they can contribute to our work regardless of age, background and previous experience of this kind of role and/or organisation. 

However, some other areas of experience which may be considered desirable, but not essential, include:

·         Sitting on committees or groups

·         Contributing to the development of shared project strategy

·         Ability to participate in debate in an informed manner

·         Good, independent judgement and the ability to constructively challenge advisors

·         Ability to work in a non-executive capacity supporting senior executive staff

·         Previous trustee or non-executive experience

·         Understanding of the workings of a community interest company

·         Engagement in social investment or philanthropy in a personal or professional capacity

·         Strong networks in Tyne & Wear and Northumberland

·         Project management experience

 Expressions of interest

In the first instance, we are inviting expressions of interest by email to our administrator Catherine Young at catherine.young@wettonyoung.co.uk or by letter to her at our registered office: NESIC, Sandgate House, 102 Quayside, Newcastle upon Tyne NE1 3DX.

You should briefly explain why you are interested in the role, and how your skills, knowledge and experience may meet our requirements. It would be helpful to include an outline of your current paid and voluntary interests, and any significant previous roles.

Please send your expression of interest by 12 noon on 15 October 2018. Shortlisted candidates will then be invited to meet with the Board later in October 2018, after which an appointment(s) will be made.

What social investment can do for you

Defining social within impact

Evita Zanuso, Financial Sector and Investor Engagement Director at Big Society Capital, discusses the growth of impact investment. 

Like many others, I often use anniversaries as an opportunity to celebrate, reflect and recalibrate. I will soon be entering my fourth year at Big Society Capital so it seemed timely to think back to how my work has changed and developed during this period. One area I would like to focus on is the growth of impact investment.

My role within Big Society Capital is to engage with financial institutions and investors who might become or already are social investors. When I joined, it was unusual that any of the asset owners or investment advisers that I met had heard of social investment or investing with a dual purpose; to deliver measurable social outcomes and get a financial return.

It’s heartening to see that in less than 5 years, the idea of investing for impact is no longer alien. In fact, some of the largest investment firms in both listed and private markets have either launched impact funds or are planning to. More intentional capital is looking to invest in enterprises that also care about impact. Much of this is positive progress, with mainstream investment firms raising the profile of impact investing amongst a greater number of investors who have never heard of impact and attracting investors beyond those who are “innovators” and “early adopters”.  There is of course scepticism, many expressed by early impact investors concerned about the re-labelling of Environmental Social Governance (ESG), ethical or sustainable funds as impact funds or even more seriously, the claim that some funds are “impact-washing” to attract new investors.

Personally, I think the growth of ESG is a positive development for impact investing because investors who are used to purely profit maximising from their investments are unlikely to allocate capital into impact without the journey of thinking about using ESG to mitigate risk, how their investments affect different stakeholders, to whether they want to play a role in investing to tackle a particular problem.

How does all this affect our work? In particular, the investments we have made into intermediaries who then invest in social enterprises and charities that tackle social issues in the UK. As someone whose day to day job is to engage with investors and explain what social investment is, I think it is hugely important for us, and our intermediaries to define what makes social investment unique within the impact investment universe because of course, social investing is a subset of impact investment.

A small group of us have embarked on a project to re-vision and re-position social investment and we believe what might differentiate social from impact is:

• Intention to deliver high or deep impact, not only scalable investments
• Willingness to consider really tough and entrenched social issues
• A long-term commitment to impact
• Willingness to invest where there is persistent market failure or to a desire to break market failure if possible
• “Investing for impact” rather than “investing with impact”

One of the most hotly debated topics in any impact investing conference is always around financial returns. Can you get risk-adjusted returns and impact? Do you have to trade off financial return or something else (duration/liquidity) for impact? These are important and extremely valid questions for any investors but what you don’t often hear is what kind of impact is investors hoping to achieve? What problem might they want to solve? Who do they want their investment to impact? As impact investors, surely the type of impact is as pertinent as the financial returns we are trying to achieve. Positioning social within impact might help us focus more on the impact side of the equation.  

Article originally posted on the Big Society Capital website.

Supporting local businesses to improve lives

Big Society Capital is launching a programme of initiatives around community investment to support local businesses to improve lives and the communities where they operate.

Rebecca McCartney, investment associate at Big Society Capital, writes:

"As we move into our new strategic focus areas, we have been exploring the role that small businesses can play in supporting communities to improve lives. And these small businesses can be vital in disadvantaged communities across the UK, employing local people and supporting the local economy. We believe that this can help address inequality in the UK by building more prosperous communities, and improve the life chances of individuals through employment and business ownership opportunities.

Yet many small businesses in disadvantaged communities are held back from realising their potential in their communities sustaining and growing their businesses. This is partly because they can struggle to access mainstream finance, even if they are creditworthy.

But there are alternative lenders that are partly meeting this need, ones that are socially motivated and deeply rooted in the communities that they serve.  The leading example are Community Development Finance Institutions (CDFIs)[1]. Responsible Finance, the membership body for CDFIs, reported in its Annual Industry Report that in 2016-17, CDFI lent £67 million to 5,072 small businesses, creating 4,270 new businesses, and creating or saving 8,053 jobs. We want to celebrate this achievement but we also believe that the CDFI sector has even greater potential to meet the need from underserved small businesses. This potential has played out in the US CDFI sector over the past 20 plus years showing what is possible in the UK.

Together with partners, we believe there is an opportunity to support the CDFI sector in the UK to reach a ‘tipping point’ where socially motivated lenders in disadvantaged areas can leverage in significant capital to better meet the needs of small businesses, and strive to become a more sustainable and growing sector. We will do this by providing socially motivated capital, building knowledge and convening stakeholders.

Providing socially motivated capital

Big Society Capital is a social investor so we believe our primary role is through the use of our capital. To that end, we are establishing a national £30 million Community Investment Enterprise Facility, managed by Social Investment Scotland (SIS). As well providing capital to CDFIs to meet the demand they are seeing from underserved small businesses, the intention is for this to be a proof of concept facility. It will build a better understanding of the financial and social impact performance of CDFI lending, and test new models of funding for CDFIs that could attract other socially motivated investors and be replicated.

CDFI lending is largely funded from publically backed programmes, such as the British Business Bank’s Northern Powerhouse Investment Fund which is reaching communities across the North of England. But as we move closer to Brexit and European funding falls away with no sight of other publically funded programmes, there is an opportunity for the CDFI sector to consider more sustainable sources of capital. This will enable them to smooth their lending activities and meet the demand they are seeing from clients in-between and alongside programmes of funding.

The Community Investment Enterprise Facility will act as a match facility, providing some initial unmatched capital to the CDFIs to meet the immediate demand they’re currently unable to fulfil, and providing further capital at a later stage to match co-investment the CDFIs secure. We believe that at least a further £30 million could be leveraged into the sector alongside the facility, with the CDFIs and investors benefiting from the use of available initiatives such as the Enterprise Finance Guarantee and Community Investment Tax Relief.

To support CDFIs to secure co-investment now and in the future, Big Society Capital and Social Investment Scotland are introducing Aeris Insights to the UK which is a CDFI rating that is already widely used in the US to provide an independent assessment of a CDFI’s financial and social impact position. If successful in the UK, Aeris offers the opportunity to increase sophistication and standardisation in the CDFI sector to better attract investment.

The facility will invest in up to five CDFIs across the UK to lend to underserved small businesses that have a positive impact in the communities where they operate. It is anticipated the first round of investment will be into partners who helped develop the facility, with the intention to expand the reach over time either through this facility or by future initiatives.

Building knowledge

Alongside the provision of capital, we believe for community investment to develop further in the UK and best practices to emerge, there needs to be a robust and meaningful evidence base. For example, what the key characteristics of CDFI lending are compared to mainstream lenders, and the best way to demonstrate the causal link between CDFI lending and social impact in disadvantaged communities. This will support CDFI lending practices, better investment decisions into CDFIs and policy making to support the sector. Therefore, we are committed to supporting learning and in particular promoting increased transparency of data and lending performance.

To help us achieve these aims, we’ve commissioned the Centre for Regional Economic and Social Research at Sheffield Hallam University to undertake an evaluation over the life of the facility with a focus on financial, social and economic performance, and any shifts in the CDFI sector. The evaluation will focus on regular data outputs, case studies and reports. These will be posted in an online Knowledge Centre alongside other relevant research and reports.

Convening stakeholders

We recognise we are not alone in wanting to support the CDFI sector reach the ‘tipping point’ described above. In response, Citi and ourselves are convening the Community Investment Steering Group to bring together these interested parties, representing the CDFI sector, small business, banks, investors, foundations and thought leaders. The group will set a clear, collective vision for capitalising CDFIs to meet the needs of underserved small businesses across the UK, and the ways to achieve this vision to drive more social and economic impact in disadvantaged communities.

The Community Investment Steering Group will formally launch in Spring 2018 for one year, with a report outlining the group’s conclusions after it has come to a close. More information about its members can be found here.

We believe this programme of activities will support a shift in the CDFI sector, alongside our partner’s existing and developing initiatives, to ultimately support more social and economic impact for local communities. Keep track of these activities at www.communityinvestment.co.uk which will be periodically updated."

This article was originally posted on the Big Society Capital website. 

Get SITR with Big Society Capital

Big Society Capital is pleased to announce the return of its GET SITR campaign, offering a free package of support to help charities and social enterprises learn more about Social Investment Tax Relief (SITR).

SITR is the government's tax relief for social investment which encourages individuals to invest into charities and social enterprises and help them access new sources of repayable finance. Individuals receive a 30% tax break when investing into an eligible organisation.

In 2016, the GET SITR campaign was able to reach over 280 organisations and Big Society Captial is keen to support even more.

The new GET SITR campaign will offer:

• Resources providing information on the new rules and regulations on SITR to download and customise
• Free “SITR Made Simple” workshops for social enterprises, charities, investors and professional advisors across the UK – with the opportunity to ask questions of our peer speakers and SITR experts
• Free 1:1 SITR surgeries with our leading SITR tax expert, Neil Pearson, Partner at Mills & Reeve
• Free webinars sharing experience of raising SITR from peers
• New case studies sharing the stories of those who have ‘GOT IT’ and helpful advice for charities and social enterprises considering raising investment with SITR

Organisations can benefit from all of these resources by signing up here - www.bigsocietycapital.com/get-sitr

It will be kicking off with the first webinar on 21st February with leading tax expert, Neil Pearson. Neil will discuss how organisations can apply for Advanced Assurance with HMRC, what to consider during the process and will offer expert advice on making a successful application. Register here for “All you need to know on Advanced Assurance.”

What is Social Investment?

Social investment is the use of repayable finance to help an organisation achieve a social purpose.

Charities and social enterprise can use repayable finance to help them increase their impact on society, for example by growing their organisation, using it for cash flow, or buying assets like a new building.

Find out more in this short video from Good Finance.

What is the biggest lesson you've learned by taking on social investment?

Taking on social investment can be challenging but rewarding - Big Society Capital hears from the peers on their biggest lessons from their social investment journeys.

For more information on social investment and the North East Social Investment Fund contact our fund managers, Northstar Ventures, on 0191 229 2770.