Social Investment: Writing the Rules of a New Game

Recently, the Government has been consulting far and wide on social investment. Ministers are keen to tackle the legal, regulatory, and tax barriers that get in the way of people investing in – not just donating to – charities. This seems like a good thing, so why have NCVO and other charities been in a bit of a quandary about how to respond?

I imagine it’s rather like asking a sports team to write the official rulebook for a game they have not played before. Take, for example, Lord Hodgson’s review of the Charities Act 2006 – the report of which is published today. Earlier this year, he asked how the Charities Act should take account of social investment. The Government’s ongoing ‘red tape’ consultation is even wider. Essentially, the sector has been asked for its comments on a blank sheet of paper.

The problem is that few voluntary organisations – at this point – have much experience with social investment to draw on. Even those with some experience may not be well placed to redesign legal and regulatory systems. I am occasionally asked for my own views as a non-exec at Enabling Enterprise, a CIC that has benefitted from a small investment already. But moving from the anecdotal, to anticipating the future financing needs of a whole sector, is a very different ball game.

For this reason, we need to proceed carefully. The truth is, the first draft of these new rules will inevitably be prepared by investment experts, civil servants and lawyers. NCVO is looking in great detail at their proposals, and will represent the sector’s interests as faithfully as we can at this stage. But we have no doubt that when more voluntary organisations begin accessing social investment, we will find out more about what they find helpful and what they don’t.  So, even now, as we offer our contributions, it is clear that this is the first draft of a rulebook that will almost certainly need further revision in the future.

Lord Hodgson recognises this, taking a facilitative approach in his social investment recommendations. He calls for a ‘more permissive legal environment, where trustees are confident of their ability to take the action they consider to be in the best interests of their charity’. If adopted, his recommendations mean that trustees will be able to consider the ‘totality of benefit’ that an investment would make – both in terms of financial return and furthering their charitable aims. This is a good approach.

We will be echoing many of Lord Hodgson’s recommendations when we submit our joint response to the Government’s ‘red tape’ consultation shortly.

We have also lent our backing to amendments to the Financial Services Bill, that Lord Hodgson endorses in his report, asking for financial regulators to ‘take account’ of social investment and be proportionate in their regulation of this new market.

To an extent, we are all still learning the rules of the game as we go along. This makes sense while social investment is still a minority sport. Once the first iteration of rules is in place, our hope is that more players will get involved and we can keep updating as we go along.

We welcome your comments. See also Elizabeth Chamberlain’s blog about main recommendations in Lord Hodgson’s report: Unshackling Good Regulation?

Charlotte Gardiner

NCVO Policy Team’s blog

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Charlotte Ravenscroft was NCVO’s head of policy and public services. Charlotte’s wrote about funding, public service delivery, and strengthening the evidence base for voluntary action. She has also worked at The National Lottery Community Fund and the Department for Education.

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