Social investment is the use of repayable finance to help an organisation achieve a social purpose.
Charities and social enterprises can use repayable finance to help them increase their impact on society, for example by growing their business, providing working capital for contract delivery, or buying assets. Please look at Good Finance for more information.
Please look at the Good Finance Jargon Buster for any terms you may not be familiar with.
You can find out more about the following organisations:
Many social investors supported the development of the content for this module. Explore the Good Finance directory of social investors here.
As best practice an investment committee will have a Terms of Reference and an Investment Strategy Policy these are two key documents all investment committee members should have full understanding of and access to. This information which should set out for example:
- The maximum number of people who can sit on that Investment Committee
- How many board or executive members there should be
- How many if any independent members are required
- The relevant terms of all types of IC members (there can be different terms for some categories of members) for example there may be some permanent roles which might be attached to a role rather than an individual for example you would expect a CIO to be a constituent member of an IC
There are many different types of Investment Committees, we have broken the two ‘types’ of ICs into two classes. Those who are ‘asset owners’ and those who are ‘asset managers’.
- Asset Owners - organisations that have direct control of their own capital and are the ‘investors’ e.g. Trusts and Foundations. Trusts and foundations are focused on making a positive impact, and potentially a financial return on their investments. They will typically use a combination of investment and grants. They are accountable to the trustees and the beneficiaries.
- Asset Managers - organisations that manage money on behalf of others and will be delivering a strategy that they have raised funds for, e.g. fund managers. Fund Managers manage money on behalf of investors. They can be sector specific or focused on a particular type of investment such as venture, debt, real estate etc. They are accountable to the investors.
Investment Committees operate differently dependent on the type of investment that the committee is seeking, the organisations they invest in and the size of investments that they manage. In addition the purpose of their investments (e.g. financial return and/or social impact and/or wider system change) will heavily impact how the Investment Committee operates.
Legal requirements of the IC will depend on the regulatory body that the organisation adheres to.
The regulation surrounding an Investment Committee will depend on the type of sector that the Investment Committee is operating in. In addition, it is not the ‘Investment Committee’ itself that is regulated, but the wider organisation that the Investment Committee sits within as the investments that the ICs make are accountable to the senior leadership of the organisation. For example, if an organisation is regulated by the FCA, then the Investment Committee will also need to adhere to those regulations. However, if the Investment Committee sits within a charity then it will have to adhere to the charity commission’s guidance.
A conflict of interest occurs when a person's or entity's vested interests raise a question of whether their actions, judgement, and/or decision-making can be unbiased. For example do you have knowledge of any of the individuals or organisations being considered for investment which might influence your thinking or actions. If you are unsure it is always best to share this with the chair so that a decision can be made whether this:
- Is noted but not considered to be c conflict or
- If you should withdraw from the discussion completely or
- The decision making (i.e. your vote would be withdrawn)
This course aims to increase diversity on existing Investment Committees. If you are a social entrepreneur or an individual trying to raise funding and want to gain exposure to an Investment Committee, you should think carefully about joining an Investment Committee that you may later apply for funding. The reason for this is that you may find that applying for funding and being on the IC will cause a conflict of interest. In addition, you may not be able to participate as an IC member should you receive funding for your social enterprise.
Your value is in the skills you bring. This can range across a wide area of subjects including but not limited to:
- Your subject or issue area specialism e.g. in supported housing, homelessness, working in disadvantaged areas or around Equality, Equity, Diversity and Inclusion.
- Your lived experience of borrowing money or supporting others to do so
- Your commitment or passion for social change and social justice in particular in how raising investment can support this
- Knowledge around social impact, social value and the process of delivering on a theory of change
- Your research and understanding of the ecosystem of social impact investing
- Your understanding of your members, users or networks appetite for finance and any barriers or challenges they face in accessing investment
Some investment committees offer a bursary or remuneration package to support the time required to prepare, read papers and then attend Investment committee meetings.
This is not yet standard practice so it is important to understand the level of time commitment and frequency of meetings you are expected to attend to ensure this is feasible in the context of any other roles and responsibilities you may have. Investment Committees of the Future supports the remuneration of independent committee members in order to recognise the value of their skills and their time.
If this is a barrier to you taking a position we would encourage you to share this with the organisation as part of our challenge to ensure equality of opportunity to bring about more balanced and informed decision making.
Most Investment Committees will have a terms of reference or may have specific governance attached to the committee make up these may include fixed, variable or maximum terms of office. It is good practice in all decision making formats for members to retire, rotate or to be recruited to bring in new skills.