Nigel Kershaw, Chair, The Big Issue Group
Please give us a bit of background on yourself, and how your organisation plays a leadership role in the impact investing space.
The mission of The Big Issue Group is to dismantle poverty by creating opportunity through self-help, social trading and business solutions. We started out by launching The Big Issue magazine in 1991, which gave people the opportunity to earn a legitimate income by selling a magazine to the public. Vendors buy The Big Issue for £1.25 and sell it for £2.50, meaning each seller is a micro-entrepreneur who is working, not begging. In 2005, we started Big Issue Invest to extend this mission through financing the growth of sustainable social enterprises.
Big Issue Invest is a “social merchant bank” - by social entrepreneurs, for social entrepreneurs and we currently manage or advise on over £150 million of social funds. We offer social enterprises, charities and profit-with-purpose businesses, investment of £20,000 to £3 million. Since 2005, we have invested in approximately 300 social enterprises and charities and last year alone, the work of our investee organisations benefitted more than one million people across the UK.
At Big Issue Invest, we do everything from early stage investing via our Corporate Social Venturing Programme which offers social businesses corporate mentoring and investment through to loan book lending, private equity style investment funds and partnering with organisations on large public retail funds. I should say, none of the money we invest has come from sales of the magazine; any profit from the magazine side of the business is reinvested back into that side of the business.
Currently we are just active in the UK. Ultimately, we would like to roll out globally but we need to make sure that we've got it right here first and that we are mindful to not tell others how to do things.
How well do you think companies are adapting to the mainstreaming of purpose driven finance?
I've got a very different take. I really think it's not about bringing impact investing to the mainstream, rather, it's about bringing the mainstream to impact and social investing.
The reason I say that is that many of us that are social entrepreneurs have actually set up businesses and are trying to address problems that emanate from the mainstream. I think that's a very different idea and comes from a different direction. We take a very bottom-up approach to what we do which is different from other impact investing initiatives.
The impact investment institutions themselves don't provide social impact directly. The people creating the impact are those on the ground; those who are fighting poverty, creating opportunity or addressing other social or environmental problems. The finance is just a tool, rather than an end.
We take a more direct and active approach. Take The Rental Exchange for example. We started working on this because we were seeing people living in social housing who found it difficult to get any credit - they were forced to go to the doorstep lenders and pay higher rates of interest if they wanted to get a mobile phone or a fridge. So we started to look at how people access credit. If you take out a mortgage and make your repayments on time, you get a better credit score than those in social housing who pay their rent on time and don't see that same improvement.
By working with Experian to tackle the digital and financial exclusion faced by social housing tenants, The Rental Exchange has the potential to enhance the credit scores of 3.4 million social housing tenants in the UK. We now have 1.5 million records and are looking to grow the programme which all started by looking at ex-homeless people who were moving into social housing. It’s not necessarily impact investment but it has a huge, positive impact for people.
We’re also trying to democratise capital. For example, in partnership with Columbia Threadneedle Investments, we created the Threadneedle UK Social Bond Fund. At present it's the only retail impact investment fund in the UK and enables ordinary individuals to invest in an impact product. One of the biggest milestones in impact investment in the UK was when Scottish Widows added the Threadneedle UK Social Bond Fund to its pension platform as that opened impact investment up to a whole new audience.
What’s next for Big Issue Invest?
We want to continue breaking down the barriers between impact investment and the mainstream. We believe that creating and safeguarding good jobs is important to our society so we are currently working with Standard Life on a project that will address this. We're also looking at a new retail infrastructure fund with social outcomes. We want to create an environment where there's not just one fund but a lot more funds or a regulatory change that allows retail investors to put small amounts into limited partnership funds.
We are also focused on growing our existing business and will be launching two new Corporate Social Venturing programmes shortly and seeking to close off fundraising for our Social Enterprise Investment Fund ll, an FCA regulated fund.
What ways is impact investing making headway, and where is it lagging?
I think one area for improvement is breaking down the silos between investment capital and charitable giving for institutions, family offices and high-net worth individuals. It’s something we’ve often come up against. We’ve had trouble explaining that, rather than simply having a charitable giving component, on which they get their 30% tax relief, they could use that capital and invest it through our vehicles and create a demonstrable social impact and - if we get it right - hopefully return their money plus a bit more to reinvest. We often see with these types of investors that they view making money on one side and giving money on another side.
It needs something of an attitudinal shift for investors to fully realise there’s a new way of subscribing capital where it’s possible to get a financial return and create a social impact at the same time.
What challenges do you see for the future of purpose-driven finance?
We spend a lot of time trying to fundraise, which has an element of educating people about what we’re trying to do but this can suck effort away from going out there and actually demonstrating what we can do. I think this will change in time as investors become more exposed to social impact investing but I think there's a leadership role that institutional leaders and government can take that would help to advance that.
What are the challenges associated with measuring impact investing?
This is a young and developing sector and quite often the impact measurement is put on as a layer to make it easier for investors to invest, which is fine and understandable, but you can end up trying to compare apples with pears. There’s a drive to find a panacea or some universal metrics to make it easy for investors to invest but I'm not sure that actually you can achieve that.
Particularly at the smaller end of the spectrum, a lot of social enterprises are really small, really lean, and sometimes we put enormous onus on the small and growing enterprises to provide metrics. This can become a burden and a distraction from getting on with running the enterprise and achieving their social mission.
We need to measure, there's no doubt about it, and of course social enterprises want to measure themselves because they want to know what impact they're having. For our limited partnership funds, we’ve developed a framework which we discuss with social enterprises to identify the measurements that help them and also help our investors understand. We work with them to see if we can get that verified and reliably reportable, so this really comes from the perspective of helping the social enterprises with their delivery.
With the Threadneedle UK Social Bond Fund, it's more of an assessment-based approach. If you're going into a bond fund and a utility company because it employs people in areas of multiple deprivation or has really good policies around fuel poverty, you'll never be able to fully quantify the impact at an individual level so you have to assess it. I've spoken with The Global Impact Investing Network (GIIN) - an organisation I really like - and I completely agree with them that some outline measurements are required to show investors that there is a social return on what they're doing. But most of all, it’s important for the social enterprise to know what they're doing is working and it’s important for us to be fulfilling our mission to dismantle poverty and create opportunity for people and communities across the UK.