Social impact investment is doubling every couple of years, yet many small-to-medium enterprises (SMEs) have yet to find a way to become involved.
Mention social impact investment and SMEs in the same sentence and there is usually a perception among industry experts that the money flows one way – from charitable foundations and high net worth individuals into small, socially minded businesses.
Surprisingly, many of the industry’s leaders are confounded by the concept of funds going in the other direction – from SMEs into social enterprises.
“It is certainly not common today – that form of impact investment,” says Alex Oppes, associate director of impact investing at Social Ventures Australia (SVA), a not-for-profit organisation established in 2002 by The Benevolent Society, The Smith Family, WorkVentures and AMP Foundation.
SVA typically receives funds from philanthropists, trusts and foundations and government.
A rapidly growing industry
One reason that social impact investment is yet to spread to SMEs is that the industry is still relatively new. “It is not as big as it will be in five years or 10 years,” says Krystian Seibert, policy and research manager at Philanthropy Australia.
“Overall, it is still small.”
Industry body Impact Investing Australia estimates the market will grow to A$32 billion in Australia and US$500 billion to US$1 trillion globally over the next decade.
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But there remains some confusion over what social impact investment actually means. While simply giving products, funds or pro bono skills would be considered socially responsible, Seibert says social impact investment is actually committing funds to organisations – either directly or through an investment intermediary – that provide a social and economic return.
“Often, social enterprises are based around people with disadvantaged backgrounds that impact on their job prospects,” says Seibert, pointing to the example of the STREAT organisation in Melbourne, whose five cafes, catering and coffee roasting businesses provide training for disadvantaged and homeless youth.
“They give them a break that they wouldn’t otherwise get from another employer.”
Along with a potential financial return on investing in a profit-making social enterprise, there is a broad range of other benefits, including links to other businesses and the potential for a successful investment to reflect positively on an SME’s reputation and culture.
Michael Moran, a lecturer at the Centre for Social Impact at Melbourne’s Swinburne University of Technology, says social impact investment is not the same as applying what he refers to as “negative screens” to filter out investments in organisations seen as bad for society, such as tobacco companies.
“Impact investing is actually looking for opportunities – creating deals that deliver both social and financial return,” explains Moran.
The opportunity for SMEs
Social Ventures Australia’s Oppes says the early signs are positive for the industry. “It’s a relatively new asset class, so the industry is still building its track record, but you could say there is an opportunity there for returns that are in line with mainstream financial opportunities,” he says.
“A number of funds have been launched to date, but many of them are only open to investment by wholesale investors – any business would need to determine whether it met that definition,” says Oppes.
Another investment intermediary – Social Enterprise Finance Australia (SEFA) – enables investors to make an impact by committing $50,000 or more to the organisation.
These funds, in turn, are invested into “organisations that have an ethical mission but also make money”, including affordable retirement homes and sustainable food producers, says SEFA chief executive Ben Gales.
Gales is quick to point out, however, that he cannot make a general offer of investment to members of the public, because investors are legally required to be certified as sophisticated or wholesale investors.
While SEFA itself has investors who have taken a slice of equity in its own enterprise, Gales says the individuals and organisations who have committed funds to be reinvested into other businesses via SEFA have done so under a debt arrangement.
“For sophisticated investors, at the moment we’re offering terms of three, four or five-year debt and we’re giving a return that is linked to the RBA cash rate,” he says.
How your business can get involved in social impact investment
Small-to-medium businesses wanting to direct funds to social impact investment can invest directly or seek out an intermediary who is willing to work with them. Any interested SME might need to be somewhat of a trailblazer, though, as intermediaries don’t yet have a track record of dealing with SMEs in this field.
There can also be “all sorts of challenges around direct investing that any interested SME would certainly need to get their head around”, says Oppes.
He advises that businesses can also be creative in how they support social enterprises. That could be through organic growth themselves into an area that is socially beneficial (which could make them eligible to seek social impact investment themselves) or through directing their procurement spend to social enterprises.
While not strictly defined as social impact investing, Oppes says buying products or services from social enterprises is “a potentially high-impact source of opportunity”.
What charities and social enterprises within Australia specialise in assisting businesses with social impact investment?
There are a growing number of social impact investment intermediaries, including Social Ventures Australia (socialventures.com.au), Foresters Community Finance (foresters.org.au) and Social Enterprise Finance Australia (sefa.com.au).
For SMEs that want to have a social impact but are not in a position to direct funds, Swinburne’s Moran also recommends considering options such as workplace giving through the Charities Aid Foundation (cafaustralia.org.au).
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