making regeneration part of social responsibilityJanuary 2001
A new report, from a taskforce first announced by Gordon Brown, the chancellor, in February 2000, is likely to prompt businesses of all sizes and sectors to consider a review of their giving strategies.
The Social Investment Taskforce has recommended five financial mechanisms and incentives it believes would encourage companies, charities and foundations to move from donating money for community investment to providing funding on a more commercial basis.
They include tax credits, matched funding, new intermediaries to collect funds for distribution to social businesses and private enterprises in deprived areas, and ‘greater latitude’ for charities and foundations to take a more entrepreneurial approach when making community investments.
The report, submitted last autumn, states: ‘Social investment, intended to achieve both social objectives and financial returns, can work alongside conventional commercial finance and business, to the benefit of the whole community’.
The taskforce estimates that its tax credit proposals alone would bring £1billion of investment to deprived areas within five years. At present only £169million is invested in the UK by social finance organizations, according to the New Economics Foundation – much of it outside deprived communities.
Steve Walker, chief executive of social finance organization the Aston Reinvestment Trust (ART), who previously spent 29 years working for Barclays, highlights the plan to bolster community development finance institutions (CDFIs) as a key recommendation. CDFIs would act as intermediaries between government, banks and investors on one side and firms and social enterprises on the other. ‘Corporates may get the opportunity to invest in wholesaling intermediaries which can collect the tax credit on investors’ behalf and arrange matched funding’, he says. ‘This would complement companies giving grants to people. In the US, small sums of money from the private sector have leveraged in large sums from government bodies and foundations’.
The private sector, including individual investors, has provided most of the £1m loaned by ART at commercial rates to small firms and social enterprises in Birmingham which cannot access finance from conventional sources like banks.
The best way of generating a ‘significant flow of capital’ to CDFIs, the taskforce says, would be to give lenders and equity investors a guaranteed minimum return, in the form of a 5 per cent credit against their annual tax liability for five years.
Andrew Brenan, a director of the British Bankers’ Association, says this proposal would put loans on a more commercial footing. ‘From a banking perspective, you don’t just want to be pushing money out to organizations and getting no return on it,’ he says.
Many companies make community investments via foundations and charitable trusts. Simon Hebditch, policy director of the Charities Aid Foundation, says that ‘if a foundation is fulfilling charitable purposes and recognised as such by the Inland Revenue, it would probably get [the tax credit], which would provide a more reliable stream of funding.’
But for taskforce member David Carrington, the chief executive of PPP Healthcare Medical Trust and a former director of the Baring Foundation, ‘a key question is whether companies will look to invest outside their charity budget. For companies, the motivations are reputational gain, and, if the proposals go forward, financial gain too. They could get a return and do their reputation no harm.’
Some companies are already active community investors. The community investment strategy of the food and drink company Diageo, for example, involves a mix of direct grants, secondments and leveraged funding. Geoffrey Bush, the company’s director of corporate citizenship, says: ‘If these proposals mean we can do more, more effectively and that we are better leveraged, that has to be a good thing.’
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