London's moves to lead the responsible finance worldApril 2012
Next month, Big Society Capital (BSC) opens its doors for business in London's financial centre. It will be part-funded by and sit alongside some of the banks that Lord Turner, the UK Financial Services Authority chairman, once described as 'socially useless'. BSC's explicit aim is to grow the UK social investment market by acting as a wholesale investor. In so doing, it will boost the ability of social enterprises, voluntary and community organisations to deal with social issues. The expectations of BSC are very high and diverse. It has its work cut out.
Some will look to the BSC to provide patient and sticky capital to grow the social enterprise market by seeking investments which neither expect an immediate return nor fluctuate with the economy. Most immediately affected will be those that receive BSC funding: intermediaries or investors in the social sector, such as the Social Stock Exchange or Private Equity Foundation.
Then there are those that hope the BSC will create a sea change in the social investment market by building up a transparent track record of investments and highlighting models of best practice, with near-to-market financial returns and clearly identifiable social returns. Speaking at an event hosted by think tank New Philanthropy Capital in January, BSC head Nick O'Donohoe acknowledged private investors' interest in social investment, but said specialists were needed to persuade groups to invest.
In addition, some will want the BSC to establish a standardised model of measuring impact investing. Few organisations have been able to put in place appropriate measures for social impact, due to the long-term and subjective nature of each investment. Evaluation of social investment is also resource-intensive – hence the desire to see the BSC test different models and promote best practice.
But the BSC isn't the only institution that will influence this market. The City of London Corporation, the local government body and police authority for the financial heart of Britain, has emerged onto the social investment scene and appears keen to expand it. Bordered by deprived neighbourhoods with nascent social enterprises, this is a natural role for the local authority of one of Europe's wealthiest areas. After the Corporation, City Bridge Trust and Big Lottery launched Investor Perspectives on Social Enterprise Financing last summer. Now the Corporation is funding New Philanthropy Capital to look at best practice for impact measurement. The Corporation and City Bridge Trust are also supporting a social investment consultancy project with the aim of addressing regulatory barriers and putting London ahead of competitor financial centres.
What's clear is that London is positioning itself as a leading financial centre for the social investment market, using it both as a model of responsible financial products and as an engine of economic recovery. Other capital cities could do well to watch our progress.
Carolyn Housman is director of Heart of the City: www.theheartofthecity.com
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