Use of subsidy in social investment: Reflections from the flexible finance report
Neil Berry is Director of Programmes at Access and Josh Robinson is the Programme Manager for the Flexible Finance programme at Access.
At our September event, Access - The Foundation for Social Investment introduced the Use of Subsidy in Social Investment report for the Flexible Finance programme, sparking insightful discussions on the role of subsidies in social investment. The report itself offers a deep dive into the technical construction of investment funds supported by grants, highlighting both challenges and opportunities. By actively sharing these findings, Access aim to encourage transparency and elevate collective understanding within the social investment space.
Key Takeaways from the Report
The report sheds light on the complexity of designing investment funds supported by subsidies. The intent is not only to offer insights but to provoke further discussions on how subsidies can be effectively applied to further meaningful social investment. As we continue to refine our approach, our goal is to contribute to the broader conversation around subsidy use in the sector.
Q&A from the Audience
The event saw robust engagement, with attendees keen to explore various facets of the programme. Some of the questions posed included:
Does social impact affect pricing of investments? In our experience, pricing is typically more influenced by risk and affordability issues. However, it was noted that investments with a higher social impact are more likely to gain approval if they also carry higher risk. An intriguing point raised by an attendee was the possibility of increasing pricing mid-loan if agreed-upon impact targets are not being met.
Are there trends in the scale of social investment funds? While Access primarily examines trends within programmes, not between them, we noted that fund size is often driven by the availability of our grant funding. The experience of the fund manager and the nature of the product also play a role, with more experimental funds often starting small but growing over time.
What excites us most about the Flexible Finance programme? We are particularly excited about the programme's commitment to diversity, equity, and the early successes seen so far in extending the reach of social investment to markets often excluded.
Any surprises so far? The programme was designed to be a balance of (quasi) equity and debt, but the product flow has been skewed more towards debt. This raises important questions about whether debt is more easily deployed due to it being a more standard and simpler to deliver product.
What was the objective behind leveraging different sources of investment? Our goal has been to enable capital to flow from varied sources in innovative ways, supporting the diverse needs of social investors.
Breakout Discussions
Attendees then participated in breakout groups, reflecting on various aspects of the programme. The group focusing on social impact shared several thought-provoking insights on impact measurement:
There’s no single approach to impact management, and it’s crucial to recognise that investees are experts in their own fields.
Some favour using organisational practices, such as being a living-wage employer, as a proxy for impact, while others prefer tailored impact metrics for each investee.
The consensus was that social impact tracking should not be siloed but integrated with financial metrics during both assessment and monitoring stages.
Looking Ahead
As we wrapped up, a few final thoughts emerged from the room. While the median two-year fund setup timeframe was longer than expected, there was an understanding that this timeline might not be as lengthy as it seems in the context of broader expectations. It’s clear that as we move forward, expectation management for all stakeholders will be key.
The alignment of social impact and financial metrics in due diligence and reporting is a point that will continue to shape the way we approach social investment. It’s through discussions like these that we not only refine our understanding but also drive meaningful action within the sector.
Stay tuned as we continue to explore the evolving role of subsidies and other innovative approaches in social investment.