Over the last nine months we have been exploring the role of local authorities in the social investment market, based on our early experience with AGMA and then the research work by BDO late last year. A number of insights have emerged from that work.
We have identified four main observations that inform our thinking on how to build local markets:
1) “Local” operates at different scales. Villages are quite good at local social investment and the community shares programme is building nicely; there are plenty of examples of local shops, pubs and micro-renewable projects funded by local investors. The key enabling factor for such projects is that all local people know about the project and expect to benefit directly from it.
This is why it is much harder to generate local support for in larger cities where there are too many projects competing for attention from a more diverse population, and the visibility of a single project is consequently lower. And for the major conurbations it is even harder, where there is a multiplicity of public sector agencies pushing their own agendas.
We are particularly interested in the opportunities in mid-sized cities where in some cases these barriers could be overcome by creating local social investment intermediaries that can support a market which matches investors with projects.
2) Not all Local Authorities are equal. It is quite clear that the vast bulk of work in social investment is concentrated among a limited number of authorities, characterised by strong individual or corporate leadership. This is certainly true for Greater Manchester, our partners for FranchisingWorks – they are innovative, big and confident. At a recent conference, speakers were unequivocal on the need for leadership in order to do something that hadn’t been done before and to overcome the barriers between silos.
Similarly we can all quickly find examples of public sector agencies that risk-averse, face significant capacity constraints, or have a strong silo culture – all of which hinder their ability to support innovation and social enterprises. Some are downright suspicious of change and concentrate their energy on protecting existing interests and power bases.
3) There are critical factors which are independent of the Local Authority. A strong sense of identity is important to motivate investors, a culture of innovation will stimulate the first movers and early adopters; a robust third sector is needed to provide suitable investees; and private sector wealth is needed to create a diverse investor base. All these are found in Bristol, which explains why that city is such a pioneer in social investment: its work was highlighted in the BDO report; the recent Bristol Together investment is highly regarded. It is also the homeland of Triodos Bank, and the Ethical Property Company originated there.
As we looked at similar mid-sized cities we noted they tended to host dynamic universities – with hindsight it should be no coincidence that at the Shaftesbury Partnership we work in Cambridge, Oxford and Manchester as well as Bristol; and we recognise that cities such as Brighton (Sussex Uni) and Sheffield are also home to major clusters of social enterprise and innovation.
4) However, even in these cities, we couldn’t find any evidence of local social finance intermediaries (with the notable exception of KeyFund’s work based in Yorkshire). At present the flow of funds is essentially national and it’s rare to see a social investment deal that isn’t routed through London at some point. This is in contrast with the rich diversity of local commercial intermediaries, especially formal and informal local business angel networks. These are all based on a well recognised premise – that local knowledge is valuable and helped de-risk investment, especially smaller or higher risk investments. The same phenomenon is found grant making, whether moderated by Local authorities or other public sector agencies; or by local trusts and community foundations.
By contrast, Government sponsored networks have either lost their funding (e.g. RISE in the South West) or are not yet engaged in this space (e.g. LEPs) – possibly because of that government sponsorship! It will be interesting to see whether Big Society Capital will enable a more stable eco-system.
We know that change happens when the key individuals that habitually drive change come together. For them the challenge, and opportunity, is to convene the types of stakeholders identified above, creating a diversity of skills and interests which are united by shared concern for the place where they live. In doing so they can draw some learning and encouragement from the development of the national social investment market where pioneers such as John Kingston and Sir Ronnie Cohen worked patiently to bring investors and investees together, did demonstration deals to show it could work, and then gradually built the networks and institutions that are necessary to make a market. As we embark on the localism journey, local pioneers can draw on those examples and experiences.
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