What is Social Finance?

Stone King will be blogging regularly on social finance, a growing area which sees social enterprises and public and private bodies working with investors for the benefit of the community. We are aiming to help bridge the gap between commercial and social organisations and help create productive, successful enterprises.

Social finance is the way of managing and investing money to solve challenges in society.

This could be to improve lives and communities, contributing to the environment and/or enhancing good governance.

It sees investors and organisations come together to help to fund the commercially sustainable operations of an enterprise that is determined to have a social, environmental or governance impact.

“The participants in the social economy are wide and diverse,” said Tamsin Eastwood. “The common threads are a shared desire to deliver social, environmental or governance impacts within a sustainable business model using financial investment - as opposed to donations or grants - in enterprises which have a determination to tackle the UN Sustainable Development Goals at their core.”

The UN Sustainable Development Goals aim to achieve a more sustainable and better future for all, including global challenges such as inequality, poverty and climate.

What are the four key categories of social finance?
  • Public bodies who commission services for the community and the social enterprises who deliver those services
  • Asset locked social enterprises who are financially sustainable, whose profits are re-invested in their social or environmental operations.
  • Private sector companies who have a social or environmental mission at their heart
  • Social investors: institutional, individual, governmental and charitable utilising their financial resources to support these enterprises.
How can social finance investments be made?

“Social finance investments can be made in variety of ways although, in addition to the relevant impact, the key element is that there should be a return of the money invested at some stage plus some level of financial return,” says Tamsin.

Investments can be made as:

  • Loans: secured or unsecured; bonds or loan facilities; short or long term; publicly traded on an exchange or non-tradeable; subordinated debt or quasi-equity;
  • Share subscription: equity or preferred shares; redeemable or withdrawable shares
  • Social impact bonds
  • Collaboration: e.g. joint venture; contractual arrangements for a particular project
  • Direct investments or via an investment fund. 

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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