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Social Investment - A Good Investment?

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In my last blog I outlined what Social Investment is, and how third sector charities could avail of social investment as perhaps a more suitable alternative to loans from mainstream banks. I also outlined how social investment might be an appropriate replacement for grants.

However, there is another role that third sector organisations can have in the world of social investment and that is as 'social investors'. Most social investment funds require investment to distribute back into the third sector. So the more investors they have, the more investment money there is available for charities.

Whilst appreciating that a lot of third sector organisations operate a very tight financial existence and as such will never be in a position to be a 'social investor', for those organisations that have got free reserves, social investment is a realistic option.

Often the reason given by charities for not investing socially is the belief that it is the fiduciary responsibility of charity directors and trustees to maximise financial return for the charity. There is a presumption that social and ethical investing will produce less of a return than other forms of investment. Perhaps in some cases the returns will be less, but for those organisations that just keep their money in a bank, in the current low interest rate environment, they are likely to receive a greater return on their investment than they get in interest from a bank.

Even if organisations do get a lesser financial return for their money by investing socially, charities are not prohibited from doing so provided they are ALSO getting a social return on their investment. Last year a new Charities Act was introduced in England and Wales which states that 'An incorporated charity has, and the charity trustees of an unincorporated charity have, power to make social investments'. In Scotland OSCR's view is that the law does not explicitly prohibit charities from undertaking social investment. Rightly, both OSCR and the Charity Commission do advise charities to seek advice before engaging in social investment activity.

Charities have a moral imperative to demonstrate very ethical behaviour about how they use their money and where they put their money. Placing money in a social investment fund creates a virtuous circle of ethical and social finance where the main beneficiaries are organisations and the communities they seek to support. This in turn maximises the overall impact of the sector.

This is what the Scottish Community Re: Investment Trust is seeking to do. To use the financial resources of the third sector community to reinvest it back into third sector charities that work in communities all across Scotland.

Pauline Hinchion is the Director of the Scottish Community Re: Investment Trust (SCRT)