The affordable housing project taking shape in the London Borough of Lewisham may in coming years be seen as a model for social-impact investments that demonstrably do nothing but good.
Equity-funded by Big Issue Invest (BII) to the tune of £10m with support from the Greater London Authority, the project will start with 11 homes for residents of Lewisham who otherwise have little hope of acquiring their own property.
Priced at about half that of comparable homes in the neighbourhood, the properties will be permanently affordable, meaning their resale value will be linked to local incomes in what BII’s Head of Fund Management Lars Hagelmann sees as an indisputably positive investment with no downside.
“We challenge, innovate and create sustainable business solutions that dismantle poverty,” he said down the phone. “That’s our mission statement, now and for future generations.”
Although the precise measurement of social impact is a work in progress, with regulators expressing concerns about ‘greenwashing,’ Hagelmann is in no doubt that the provision of affordable housing meets all the important criteria, albeit while acknowledging the difficulty of proving it.
“We’re still far away from how to properly measure social impact,” he says, citing competing methodologies. “Everybody’s currently counting social impact but not necessarily measuring social impact. For a normal investment it’s still very difficult to distinguish between the two.”
The challenge of measurement
As he explains, BII faces the same challenges: “We can tell you, down to each individual person, how we’ve changed their lives, what we’ve actually done for them. But it’s very difficult putting that data into quantifiable numbers.”
What the fund management executive does however know for certain is that, as a social investor of twenty years standing, BII approaches projects differently from some equity houses. “Our behaviour is completely different,” he summarises. “We treat people differently, we interact much more with them, and we believe there is no negative social impact.”
Given its dual humanitarian and profit-making role, it is important there is no downside to the projects BII funds, unlike some big e-commerce businesses. “They create lots of jobs,” he acknowledges. “But on the other hand there is the negative social impact of all those vans on the road and waste in packaging, for example.”
That’s why BII takes a long hard look at its projects to identify whether there may be an inflection point between negative and positive results. “With the organisations we fund, the positive social impact completely outweighs any negative social impact,” he insists, citing on the other side of the equation industries such as Big Oil that may produce sustainable fuels while continuing to pollute the atmosphere.
The group’s entire approach is calibrated to meet its mission statement. Although registered as a charity, BII operates as investor, shareholder and mentor. The funded businesses must be financially sustainable and the personnel must stand on their own feet – “you need to help yourself because we were established as a hand-up not a handout.”
Done right, a virtuous circle develops with BII-funded enterprises. For instance, the Lewisham project is looking to provide apprenticeships and related job opportunities in construction, including for the particularly challenging sector of the long-term unemployed, veterans from the forces, and out-of-work young people.
Beyond capital provision
Funds are raised from a variety of sources such as high net-worth individuals, trusts, foundations, institutional investors and banks, with the largest current individual loan at £3.4m. Along the way these organisations are nurtured by highly skilled professionals who take a close interest under a corporate social venturing programme that has so far supported more than fifty organisations and businesses. The latest such launch is Power Up Scotland, with more to come across the UK.
Many of the mentors are employed by organisations that typically provide early-stage finance. If the business prospers and the lenders see a return, they often recycle the funds into a second generation of ventures.
Hagelmann is extremely enthusiastic about this programme. “We’re not only helping them with funding, we’re also helping them with corporate mentors from larger banks like Barclays and Aberdeen, also Edinburgh University,” he explains. “So we’re not just providers of capital but providers of additional support in the form of knowledge. We probably act much more as shareholders than anything else, helping them with their questions and guiding them when they need assistance.”
When definitions of social impact investment are refined to the point that they can precisely measure the pros and cons, it seems highly likely that the BII-funded projects will sit on the right side of the ledger.
Jack Hird
Director, CFO Practice
jh@draxexecutive.com
