UK social investment making ‘slow and disappointing progress’ in meeting social entrepreneurs’ needs – Adebowale
UK social investment industry still ‘designed to favour social bankers, not social businesses’, concludes Social Enterprise UK’s ‘report card’, published today, three years after the Adebowale Commission on Social Investment called for structural reform.
Little progress has been made in transforming UK social investment to meet the real needs of social entrepreneurs, particularly those from black and minority ethnic communities, in the three years since the Adebowale Commission on Social Investment condemned the state of the market.
That’s the verdict of Adebowale Commission Three Years On: A Report Card, written by Social Enterprise UK and published today.
In January 2022, the Commission on Social Investment, led by Lord Victor Adebowale, chair of Social Enterprise UK, said that the social investment industry had lost its focus, had a serious problem with inclusion and equity, and needed comprehensive structural reform.
Social Enterprise UK compiled the report card in its role as secretariat to the Commission. Joanne Anderson, former Mayor of Liverpool and founder of BlaST, a network of Black-led social entrepreneurs (pictured), was invited to write the foreword.
This makes it hard to ignore questions of whether the social investment industry – with Better Society Capital at its heart – puts the people it’s meant to serve at the centre of decision-making
She wrote: “The results of this review are not encouraging. There have been some signs of progress but, overall, this is still a system designed to favour social bankers, not social businesses.”
She added: “This reality makes it hard to ignore questions of whether the social investment industry – with the freshly renamed Better Society Capital at its heart – puts the people it’s meant to serve at the centre of decision-making.”
Speaking to Pioneers Post yesterday, Lord Victor Adebowale said he concurred with the report’s findings. He remained concerned that social investment wasn’t reaching enough Black-led social enterprises, that interest rates were too high and that Better Society Capital still needed to change. He emphasised that some progress had been made, but it wasn’t fast enough.
“I agree with the frustration in Joanne’s foreword because I think it’s justified. I’m not known for being particularly patient when it comes to things like discrimination and inequity, which is what we found in the first report,” he said.
“The focus needs to be on social enterprises front and centre.”
As the report was launched, Peter Holbrook, CEO of Social Enterprise UK, said: “Over the past decade, the social investment sector has made slow and disappointing progress in reaching its true potential to support social enterprises and charities in very turbulent times. Despite clear recommendations for transformative change, this report suggests not enough has been done to capitalise on the opportunity created through dormant assets, too often mirroring the status quo of investor-first finance. The lack of imagination, from both the previous government and institutions within the sector, has been frustrating.”
Better Society Capital highlights ‘significant progress’
In response, Stephen Muers, CEO of Better Society Capital (pictured), hit back, saying that “significant progress” had been made.
“We welcome efforts to highlight the exciting potential and critical need for more social impact investment. We believe that significant progress has been made in the sector and to make further progress, we need to focus our efforts on working to support each other,” he told Pioneers Post in an emailed statement last night.
He added: “It is natural for social entrepreneurs to be frustrated, after all, we are all impatient for change. We too would like equity and fairness in the social investment market to improve even faster.”
Social investment ‘lost its focus’
The Adebowale Commission on Social Investment was launched in February 2020 to investigate the state of the UK’s social investment market and how it could better serve the growth of social enterprise.
The commission was chaired by Adebowale (pictured), and its four commissioners were Jess Daggers, a researcher on impact investing and social investment; Jamie Broderick, former CEO of UBS Wealth Management UK and director of the Impact Investing Institute; Susan Aktemel, executive director at social enterprise Homes for Good; and Chris Murray, director of Core Cities Group and chair of Fusion21.
After engaging with at least 300 social enterprises, running ‘witness sessions’ and workshops during its 23 months of work, the commission laid out a series of proposals to build the social investment market “around the needs of social enterprises”.
In the original report’s foreword, Adebowale said: “In our view, social investment has lost its focus – supporting the growth of social enterprise…An urgent course correction is needed. Without reform, we will not realise the full potential of social investment. This report is an attempt to reclaim that future, before it slips away.”
The root of the problems was the structure of the social investment market, said the report, particularly the lack of patient, concessionary capital, and the lack of flexibility in the structure of key institutions within the market including Better Society Capital.
The report card scores: five red; three amber; one green
The report card published today examines progress against each of the Adebowale Commission’s nine recommendations. The only recommendation that has been given a ‘green’ rating is number five, which recognises that Access – the Foundation for Social Investment had received and made more funding available to social enterprises in the country’s most deprived communities as grants and small, flexible unsecured loans.
In the past three years, several initiatives have aimed to direct more social investment to black and minoritised ethnic communities and tackle the inequity that the Adebowale Commission identified. As a result, several of the recommendations are rated amber on the report card. The initiatives include the creation of The Pathway Fund, a social investment wholesaler dedicated to Black and ethnically minoritised communities in the UK; The Flexible Finance Fund, led by Social Investment Business, The Ubele Initiative and Create Equity, which this week reopened after receiving new funding to direct £4m to 15 to 25 black or racially minoritised social enterprises or charities in England; and the Growth Impact Fund, run by Big Issue Invest and UnLtd, which supports organisations focused on tackling inequity, and have diverse representation at board and leadership level.
- Read more: Growth Impact Fund opens with £10m committed to tackling inequality and promoting racial justice
In response to the initial Adebowale Commission report, Stephen Muers, CEO of Better Society Capital, announced a range of commitments to change, including signing the Diversity Manifesto from the Diversity Forum for social investors, reducing the target rate of return from 4% - 6% to 1%, and taking forward its equity, diversity and inclusion action plan.
In last night’s statement, Muers said: “We welcome the report highlighting some of the efforts to improve investment into Black-led social enterprises. The report points out key initiatives like Pathway and the Growth Impact Fund, both of which were backed by BSC and are enabling investors to support diverse social entrepreneurs and invest in organisations tackling inequality. Market data shows strong growth of social investment into disadvantaged communities.”
Does Better Society Capital need to change with the times?
However, the report card gives a red rating to the second recommendation – reform of Big (now renamed Better) Society Capital. It points out that Better Society Capital was created more than a decade ago under a Conservative administration, in a low interest environment. It says Better Society Capital “has not undergone any significant reform, beyond a recent rebrand. In fact, BSC follows more or less the same model as it did when it was created over a decade ago, continuing to operate in a landscape with very little external pressure to consider the course it follows.”
Speaking to Pioneers Post, Adebowale said: “It needs to change with the times…There’s a very strong argument for reform of Better Society Capital. If we’re just doing things the way we’ve always done them, how are things going to change? This fund was set up to be different…If social investment isn’t a better quality than you could get at [a high street bank], then why are you seeking social investment? It is supposed to be long term and flexible.”
Better Society Capital should review what it did in the light of the changing economic environment since it was established, as well as the change in government from Conservative to Labour, Adebowale said.
“The argument I’m making is that if the government is looking for growth, it should be looking at all forms of achieving that growth,” said Adebowale. “One of the fastest growing forms of business is social enterprise. So it would make sense to ensure that there are sources of investment for social enterprises that can enhance their ability to grow and deliver for Britain PLC.”
We believe that BSC plays its own unique role in the mission to have real and measurable positive societal impact
Muers responded: “Yes, [BSC] is fit for the purpose it was set up for. We were given a clear mandate to both grow the market and to be sustainable, recycling our funds to support more organisations in the future. By working in partnership with other organisations, such as Access, we have grown the social investment market by 12x and we have channelled £2.6bn from over 200 co-investors into more than 3,500 enterprises across the UK. We believe that BSC plays its own unique role in the mission to have real and measurable positive societal impact, alongside many other organisations.”
He added that BSC had helped grow both the total amount of investment available and the reach of that finance to a wider range of enterprises and communities, despite the challenging economic circumstances.
Seeking ‘open, healthy dialogue’
Adebowale expressed frustration about what he felt was defensiveness from Better Society Capital in response to criticism. “In social investment, I think we should be open to critique,” he said. “We should be learning and co-producing.”
He emphasised that he didn’t want what he was saying to be seen as an attack on the UK social investment market. “I would just like a less defensive conversation and that’s what I would hope would happen as a result of this report card being published. We can bring Muhammad to the mountain, but they need to be open to a transparent conversation as opposed to defending their position.”
Muers told Pioneers Post: “The challenges highlighted in this report help us, as a cohesive market, focus on what needs to be done…We would like to create an open, healthy dialogue which is grounded in a full understanding of the issues and an appreciation of the contribution which different players make and look forward to engaging with SEUK and anyone else who wants to help grow the impact economy.”
Header photo: Social investor Kindred funds socially-trading organisations in the Liverpool region. It was highlighted in the Report Card as a positive example of an investor working with social enterprises to co-design funds and channeling support to Black-led enterprises.
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