Social Investment & Sustainability – A Critique of the Normative Paradigm

‘Social Investment’, sometimes also called ‘Impact Investment’, ultimately seeks to provide finance to social ventures (either debt or equity finance) with an expectation that a social as well as financial return will be generated (Brown and Norman, 2011). Social finance has been defined as ‘…the deployment of financial resources primarily for social and environmental returns, as well as in some cases, a financial return’ (Moore, Westley and Brodhead, 2012:116). Social investment is distinct from other types of funding (e.g. grants), as the finance provided needs to be repaid with a rate of return built-in to the repayments. Social investment therefore normally involves the provision of loans (debt finance), capital investments (equity finance) or repayable grants that account for inflation in the repayments (philanthropic finance). This requirement to repay the investment can drive social innovation as it requires the investee to challenge their institutional logics (Nicholls, 2010a).

The social investment market in the UK is often held up as a world leading sector due to its depth of social-purpose organisations, its strong financial sector (Evenett and Richter, 2011) and the strong political support for the ‘social investment market’ that has come from successive UK governments (Nicholls, 2010b). Indeed, Robinson (March 2016) estimated that the social investment market in the UK is worth approximately £1.5 billion and involves over 3,500 individual investment deals. This scale and scope, when combined with the significant policy support that has existed for the social investment market (Nicholls, 2010b), has created a momentum within the UK towards a focus on investment as the main means to drive scale and growth in the third sector. This can be viewed as part of the wider ‘marketisation’ of the third sector that academic research has identified as the normative policy narrative (McKay et al., 2015). These policies have included: the creation of Big Society Capital (Cabinet Office, March 2012); the introduction of social investment tax relief (HM Treasury, November 2016); and the revisions to the state-aid ‘de minimis’ European rules that the UK government engaged in (DfBIS, July 2015).

This rapid growth has left academic research behind, as practitioners have accelerated their development of new products and extended the scope and number of investment deals in the UK third sector (Dagger and Nicholls, 2016). This has led to a paucity of (much needed) academic critique within the field of social investment, particularly in relation to the UK model. Indeed, whilst some academic papers are now seeking to explore alternatives to the Anglo-Saxon model of social investment [see: Michelucci (2016) for a good exploration of the alternatives to the Anglo-Saxon paradigm here] there remains an acute need for further research that seeks to theoretically critique the social investment market and also provide empirical data on the impact that social investment has upon the sustainability and growth of the third sector in the UK. This chapter seeks to provide such a critique, through the analysis of data collected as part of a national investment readiness grant support programme. In doing so, the authors aim to identify that sustainability should be the main focus of government