“Give It Some More Welly, Gromit” – Does Social Impact Investing Have Legs in the UK?

By 25th February 2016

This article was originally published on Quadrant Group’s website. Quadrant Group was acquired by Progeny in March 2017.

To write a blog, I need a proper cup of tea. As I was waiting for the kettle to boil, I read the Yorkshire Tea box. It wasn’t promoting the quality of its tea or offering a coupon on my next purchase. It was advertising sponsorship of the Wallace and Gromit Children’s charity. Across the UK, people have been skydiving (very scary), shaving their heads (yes really) and wearing wacky trousers (OK, this sounds fun) to help provide hospital care for children across the UK. I checked the cupboards again and realised that several products were endorsing charitable causes. This phenomenon of pairing purchasing with social impact is referred to as ‘cause-related marketing’. If good causes have become a marketing tool, does this indicate that British society has become more cynical, or is giving becoming mainstream?

If good causes have become a marketing tool, does this indicate that British society has become more cynical, or is giving becoming mainstream?

In my post last year, “How to Buy Happiness – Invest in Generosity”, I cited the latest figures published by the Charities Aid Foundation (CAF) which ranked the UK 4th in the world in giving per person, with 74% of the population donating regularly to good causes. What was even more surprising was that the UK ranks higher per person than the US and only Myanmar, Malta and Thailand rank higher. Prosperity does not automatically equal a rise in generosity.

But what about high-net-worth individuals? Initiatives like the widely publicised Giving Pledge have significantly contributed to the growth of philanthropy. Spearheaded by Bill and Melinda Gates and enthusiastically promoted by Warren Buffett, it has informally signed up 138 billionaires from 16 countries to donate at least half of their fortunes to charity. Mark Zuckerberg and his wife Priscilla Chan recently announced at the birth of their daughter that they will give away 99 percent of their wealth (currently about $45 billion) over the course of their lifetimes. It seems that is no longer fashionable to simply give your wealth away through charity balls and society events. Even the ultra-rich are rolling up their sleeves through investment vehicles that allow them to contribute their business experience and resources to ensure their giving goes further.

What I find most uplifting is that whatever our financial resources, we seem to care deeply about how we spend our money. Our purchasing choices are being influenced through social engagement. We are interested in whether a tea brand is supporting a good cause. People are getting involved through their social recommendations, time and skills. The lines between charity and society are being transformed. Can this re-thinking of philanthropy impact the way we invest?

Like VCTs and EIS schemes, investors can now choose Social Impact Investments to expand their financial planning options. These are either stocks, bonds or funds where a provision of finance is given to organisations addressing social needs with the explicit expectation of a measurable social (as well as financial) return. The money has to be invested in a product that supports a ‘community interest’ or ‘social need’ and is a registered charity. The investment into these can either be by way of debt or equity. It is important to understand that the returns on these investments may not always match the returns with similar but non-socially conscious investments. Nevertheless, the risks for some investors may be worth the trade-off of making a positive social difference.

In certain financial circumstances, social impact schemes can offer tax efficiencies for investments up to £1million:

  1. Up to 30% income tax relief.
  2. The ability to defer Capital Gains Tax lends itself to those who have recently benefited from a liquidity event, triggering a significant Capital Gain.
  3. All Capital Gains from the Social Investment scheme are free of Capital Gains Tax.

The investment in the scheme has to run for a minimum of 3 years.

Taking the above into account may be of particular relevance where a lifetime cash flow model has demonstrated that clients already have their core financial planning needs met and may be seeking other ways to deploy their wealth.

An example of this is the Bristol Together scheme. This project works with ex-offenders, trains them up, and then places them on construction and renovation projects. Two million pounds was invested by investors, who received 3% per annum and a return of capital after 3 years. The social element is that reoffending rates were reduced from 25% to just 2% for people in the project.

Another is the Hoxton Hotel, located in one of the poorest neighbourhoods in London. This scheme created about 40 entry-level jobs with 73% of the wages going to those living in low-income neighbourhoods.

Whether it’s a fund set-up to invent a new solution or improve the practices of existing businesses, there are many different social impact classes to consider.

If you are looking for a shorter term commitment but want to make an impact investment then consider the Social Stock Exchange. This is a segment-enabling listing and trading of social impact companies. The ISDX Market Segment and Social Stock Exchange launched in 2013 has grown by over 150% in the past year, to 30 organisations, with a total value of over £2 billion.

Like the 22.9 million of us in the UK that give monthly to our heartfelt causes, every investor will have their own ideas about the social good they are trying to achieve. This might be a geographic focus or purpose such as improved healthcare, educational reform, financial inclusion or climate change. Whether it’s a fund set-up to invent a new solution or improve the practices of existing businesses, there are many different social impact classes to consider. As with any financial planning, what matters most is identifying your individual attitude to risk and matching this with your investment preferences.

Quadrant Group works with high-net-worth clients to create life and financial plans that include philanthropic gifting and socially-conscious investing. If you would like to consider how to improve the cost-effectiveness of your charitable giving or want to consider becoming a more socially-active investor, please get in touch.

Are you a Director or Trustee of a charitable cause that may benefit from setting up an impact scheme? Leave a comment below or send me an email and I will put you in touch with a specialist adviser.

This article does not constitute financial advice. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner to take into account your particular investment objectives, financial situation and individual needs. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections.

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Andrew Pereira

Director, Wealth

Andrew has been working with families, high-net-worth clients and business owners for well over 20 years.

Learn more about Andrew Pereira