In a speech in June setting out his priorities for this parliament, Rob Wilson, the Minister for Civil Society, reasserted that the UK had the world's most developed social investment market, having both set up the first social investment bank – Big Society Capital – and introduced social investment tax relief.
Social investment was "at the heart of our plans for social justice", he went on, and meant, for him, "helping more civil society organisations to increase their reach and impact". He was proud, he said, to have recently launched Access, the £100m social investment foundation to help social organisations become investment-ready.
Wilson's speech came in the wake of a Conservative election manifesto that cited the pioneering of social impact bonds and payment by results, and pledged that "we will look to scale these up in the future, focusing on youth unemployment, mental health and homelessness".
Social investment is clearly a political priority, partly because it offers the government the hope of limiting the cost of public services to the taxpayer, and many specialists think it is moving into a crucial new phase. "Now is the stage in social investment where we're going to find out whether it's hype or whether it's real," says Jonathan Jenkins, chief executive of the Social Investment Business, which has so far made more than 1,300 investments in civil society organisations.
The term social investment covers a multitude of activities. Broadly speaking, it is the use of repayable finance to secure a social and a financial return; it consists of products ranging from various kinds of loans to equity or quasi-equity investment, social impact bonds and community shares.
But the financial return from social investment is usually below the market rate, which means that participation so far has come mainly from specialist institutions with philanthropic purposes. Charities remain wary of loans, and many forms of social investment are still in their early stages.
So far, much social investment activity has been focused on outsourced public services, mostly in health and social care but increasingly in education, employability and training. Some of it has used the vehicle of social impact bonds, of which there about 30 in the UK and about half that number in the US. Sibs involve investors financing charities or social enterprises to tackle social problems, such as recidivism or disengaged youth, and the government rewarding the investors if agreed targets are reached.
Those involved in Sibs say some of them have worked reasonably well and started to attract a broader range of investors – two, for example, have been financed by an Australian insurance company. But the weak links are said to be the commissioning process and the tendency of government departments to work in silos.
The difficulty for commissioners lies in demonstrating social return, according to a recent report by Investing for Good, an intermediary organisation that connects charities and social enterprises with investment capital. There is large variance in the way impact is measured and reported, it says, and little consistency on what data is reported and why.
On silo-working, Jeff Dober, head of debt funds at the FSE Group, a social finance community interest company, says: "We need more collaboration across government departments in commissioning and design of services. The benefits and cost savings of social innovation often fall across more than one department, so more departments working together is key."
Overall there is a strong view that that if Sibs are to be a success rather than just a curiosity, the government spending review due in November should commit between £500m and £1.5bn to increasing their size, making them less expensive to structure and ironing out some of the sticking points that are said to have been holding them back.
But Jenkins of the Social Investment Business is among those who say the government puts too much emphasis on social impact bonds. "They get a lot of the airtime, but they're a small part of the payment-by-results agenda," he says. "There needs to be a huge amount of work to keep social investment relevant to organisations to whom social impact bonds are irrelevant."
Nick O'Donohoe, the first chief executive of Big Society Capital, who will be leaving his job at the end of the year, thinks social investment generally has reached an "inflexion point". He agrees that the government should put more money into it and rethink its approach to public service delivery.
"A social outcomes-based spending review could help grow the social investment market and demonstrate to taxpayers that their money is being used efficiently," he says. "The government could top-slice existing budgets to create an early-intervention fund, with the agreed pool of money paying for results when they are delivered.
"In general, it's fair to say that we're moving into the next phase of social investment. We have built up an evidence base of deals and have a better understanding of what works. In order for the market growth to accelerate, we need larger and more standardised transactions."
BSC is currently working on more schemes to take advantage of social interest tax relief and lobbying government to create a social pensions scheme that would allow people to put their pension pots into social investments, along the lines of the solidarity funds scheme in France. Other organisations are pressing for more social investments to be made eligible for Individual Savings Accounts.
Only two social investment initiatives by the government currently exist, however. One is the charities bill currently before parliament, which will give charities themselves an explicit power to make social investments, defined as investments that yield social as well as financial returns. The second is an application to the EU Commission to be allowed to enlarge the social investment tax relief scheme to £5m per organisation per year from its previous limit of approximately £290,000 over three years.
But Vinay Nair, director of business development at the social finance intermediary Social and Sustainable Capital, says he sees less need for social investment-specific legislation than for broader reforms to enable charities and social sector organisations to take on social investment. There should be a greater focus on the potential effects of social investment than on the success of the social investment market itself, he says.
"For me, it's about how we can better enable third sector organisations to compete for public contracts, with a focus around commissioning, the social value act and so on," he says. "I think that is where greater focus should be. Social investment is the means, not the end, and that needs to remain paramount for all of us in the sector. Building the market is not the story."
Phil Caroe, a director at the social finance charity Allia, agrees: "Sometimes we talk too much about how charities should consider taking on social finance, when we should be talking about how we can support charities that want to expand their activities and grow or diversify their income streams, and how finance can be a resource that enables them to do that."
So how is social investment faring outside the realm of outsourcing public services? It is beginning to be used more in housing, including in two retail charity bonds for housing providers arranged through Allia's retail charity bonds scheme. The Real Lettings Property Fund, created by the homelessness charity St Mungo's Broadway, is singled out by O'Donohoe of Big Society Capital as a good example of social investment.
There is also growth in two related niches: community shares, where the Community Shares Unit has just launched a quality mark for future share issues, and community energy: the Community Energy Coalition, led by the sustainability charity Forum for the Future, says it believes that community energy projects might exceed 5 per cent of the UK's total energy production by 2020.
Another segment of the market coming under the microscope is early-stage investment help for smaller organisations, which Access was set up to serve, partly through blended finance – loans and grants in one package. Jonathan Jenkins of the Social Investment Business notes that there was a warning about the pitfalls of this in a report on Futurebuilders, the now closed organisation set up in 2004 to encourage more third sector organisations to take on repayable finance.
"If you are putting grant money in alongside loan money, be clear about what you're doing, about why there is a grant there," he says. "None of us should make the same mistake twice – the pioneering days of having a go at stuff might have gone now."
Caroe of Allia is also keen to see more social investment opportunities for the man in the street: "I predict we will see a growth in social investment that mirrors the trends in ethical consumer behaviour and the career aspirations of millennials - people who are saying 'I'm willing to end up with less money in my pocket because I care about the impact of my choices'."
There are also hopes of getting the business community more involved in social investment. Nigel Kershaw, head of Big Issue Invest, which provides finance to charities and social enterprises, says businesses should be able to make social investment a beneficial and normal part of their activities: "If businesses enforce their core values so that it's not just about corporate social responsibility, and people do business in a different way, social finance might start to look very different."
Jenkins agrees, and says a number of high-potential models for this are to be found in the shortlist for Big Society Capital's Business Impact Challenge, which is offering up to £15m to a business with a social investment. He says he particularly likes the proposal from the construction firm Wates to invest in and scale up social enterprises in its supply chain.
Not everyone in the sector approves of social investment, of course. Some think it inappropriate for charities to take on debt or for investors to make money out work done for the benefit of society. "It's pure Toryism; I detest it," says Laurence DeMarco, co-founder of the Scottish social enterprise body SenScot. He prefers the model of the Scottish Community Reinvestment Trust, launched last year to pool resources from member third sector organisations, invest these and keep the profits in the sector.
Les Huckfield, a researcher and former Labour MP, argues that third sector infrastructure bodies are becoming complicit in dismantling public services for private profit. He cites a proposed Sib for end-of-life care that would have paid out if the number deaths at home rather than in hospital increased. "Private investors making a profit out of people dying at home and not in hospital - have we really come to that?" he says.
In fact, that Sib was shelved, and it seems unlikely that social investment as a government strategy is going to be derailed. The bigger question facing the sector is just how big, sustainable and effective social investment is going to become.