Last year, Bridges Ventures, the UK-based social investment group founded by Sir Ronald Cohen, celebrated its 10th birthday. And to commemorate this milestone, in February this year it released a report looking back at how the firm – and the sector in which it operates – has changed over the course of the last decade.
When Bridges started raising its first fund, in 2002, the idea was a tough sell, admits co-founder Michele Giddens. “When we started talking about investing for positive social impact as well as financial returns, the honest truth is there was a lot of scepticism,” she tells PEI. “It’s a reflection of the era – back then there was very little talk about the environmental or social aspects of investment. Those that were bold enough to come in were really bucking the trend; it was almost a leap of faith.”
As Giddens freely admits, the fund probably wouldn’t have got away had it not been for a £20 million cornerstone investment from the UK government – which reduced the risk and enhanced the potential upside for other investors.
These days, however, Bridges doesn’t need to be propped up by public money: the bulk of the money in its latest Sustainable Growth fund (its third) comes from institutional investors. So what’s changed, exactly?
Three things, according to Giddens. “First, Bridges has a track record; it’s no longer a leap of faith.” As such, she argues, it’s now clear that there doesn’t have to be a trade-off between social and financial returns; in fact, if a business is solving a big social problem, the reverse may be true. “By Fund III, we realised that if you select a business that has part of the solution to a difficult social challenge, you can find some really special growth opportunities. And these days, in this economy, growth opportunities are what investors are looking for.”
The third key point is that investors have started to take social, environmental and governance risks far more seriously. “Today many investors agree that at the very least you need to be aware of these factors to mitigate risk,” says Giddens. “And the more enlightened are interested in how it might create opportunities.”
Politicians are also increasingly interested in this area, particularly in the UK: the government recently launched the first social investment bank (Big Society Capital) and is experimenting with social impact bonds.
So what’s next? Giddens believes social investment is still capital-constrained. How do firms like Bridges persuade investors to commit more capital to this space in the next decade?
Time will help, says Giddens. “There are a huge number of impact-orientated fund managers now, but Bridges is one of the oldest. It takes time to build up a track record.”
But it’s also about education. One complication is that ‘impact investing’ is also used to refer to funds that do actually make a trade-off between impact and financial returns (like Bridges’ own Social Entrepreneurs Fund). “That creates the danger that people misunderstand the term impact as [implying] a trade-off – which is definitely not the case for most of our investments. We have been able to show that social impact and financial returns can go hand in hand.”
One thing’s for sure: in the current economic climate, with deficits ballooning, governments are going to need all the help they can get.