Eric Hodges, Placemaking & Partnerships Manager at Orbit, explores why Housing Associations have advantages when it comes to impact investing and how their business and community investment activities offer significant measurable additionality to the impact investing scene.
Those involved in impact investing appreciate the difficulty associated with the endeavour. Fundamentally, this is associated with the difficulty of optimisating investments that can simultaneously turn a profit and achieve impact. Finding the right investment that makes an impact is not as simple as it appears: social impact investing works in a competitive space with lots of potential investors seeking opportunities with the best expected returns. If a business has the best expected returns, then they are likely to attract investment from traditional investors, thereby squeezing the investment market we operate in. Thankfully CIP is optimised around being profitable, not profit maximising. This does present CIP with a distinct opportunity in getting non-concessionary capital into markets that could have potentially large social benefits and are largely underserved by capital investment. Housing associations occupy a unique space, one that presents frictions and imperfections not usually encountered by perfect markets. Aligning CIP to our core business activities gives the partnership specific insights to particular risks, potential financial and social benefits within a community or organisation that others would ordinarily overlook and therefore pass up. This gives our partnership a significant USP in the social investment market, one that is reinforced by our blended finance model.
This exposure to communities that are not being served by mainstream finance usually gives us the role of market maker, especially where this activity takes place in distressed areas. Our community investment activity is largely focused on facilitating communities whose needs are not being fulfilled by a particular product or service. We are often at the centre of projects that create tailored resources addressing that need. Our ability to act as a catalyst between various stakeholders within an area often means that we play a central role in articulating a vision, aggregating capital and aligning multiple partners and stakeholders to a common purpose. CIP is unique in that it is anchored in individual organisations who have social impact written into their DNA. The partnership brings together businesses who, at their core, are focused on profit for a purpose. In many ways what we are as businesses represents (albeit on a larger scale) our vision of what enterprise can do to deliver social impact; after all it is our stock and trade.
This gives our businesses a distinct profile and infrastructure to support enterprises to grow. Our integration into the fabric of communities gives us a unique form of additionality in the impact investment market. A significant issue at the core of impact investing is the ability to prove additionality. That ‘but for’ our investments, the social impact is greater than what would have happened anyway. This is where housing associations come to the fore; our influence in our investment areas enables us to ensure investments are meeting social objectives. Given the centrality within communities and stakeholders, we have the potential to influence a matrix of solutions and approaches. Additionality is inherently built into the way our community investment activity already works. Most of Orbit’s grant provision is focused on three unique perspectives of impact. To a large degree all housing associations in the partnership in differing ways approach impact investing in the same way. We look to understand or shape programmes and organisations through entrepreneurism, non-financial support and investment. Orbit has a robust history of supporting enterprise, individuals and groups to achieve a path to scale and sustainability. Orbit often has a central role in helping to develop and incubate niche businesses that address social issues that would find it hard to seek traditional risk capital on open markets. This patience is based on our ability to understand gaps in service provision, appreciating that these routes are oblique and often financial input represents just one rung of what it takes to overcome barriers to reach the tipping point of success.
Entrepreneurialism or entrepreneurial impact directly looks at the investee and measures the social value of the goods, services and valued added provided by the enterprise. Orbit’s support of InCommon is a great example of entrepreneurial impact. InCommon approached Orbit with an idea for a pilot programme to develop a toolkit for our +55 customers within general needs and sheltered housing. During this pilot InCommon was able to test and develop their intergenerational programme Helping Hands. Their programmes social value is linked to the experiences that builds on children’s emotional and social learning. It simultaneously reduces social isolation whilst growing older people’s independence. Though based on a deep desire to achieve a social impact, InCommon illustrates how a products and services can achieve both commercial and social returns.
InCommon also underpins the non-financial impact housing associations can make. Non-financial impact considers the various other contributions that investors make other than the input of capital. In the case of InCommon this includes mentoring, access to our customers, support around approaching commissioners as well as focusing on developing a product with universal appeal beyond Orbit. We actively try to ensure that an Orbit partnership is based on a foundation that can deliver scale and growth. We are pleased to see that this has borne out in the expansion of the programme outside of Orbit’s funding ecosystem. InCommon’s journey reflects the broader, non-financial impact that Orbit and housing associations have within the social enterprise market. Orbit’s introduction to InCommon came about through their work with YearHere, whom Orbit commissioned in March 2018 to find ways of increasing procurement of social enterprises within housing associations. This work would lead to the creation of Supply Change whose digital platform aims to unblock the barriers social enterprises face in getting into supply chains. Orbit now partners with Supply Change through direct investment and ongoing support through access to our procurement and community investment team. This non-financial impact traverses through our programmes such as with the elderly cinema club who rely on our assets and reach, and expertise more than finances. Similarly, the award winning special needs day care Little Day Dreams was born on an enterprise course Orbit hosted. Orbit’s support ranged from business plan preparation, access to our financial and legal services but most of all in letting them have access to an asset at a peppercorn rate. This in-kind support aided their liquidity and allowed them to reach a sustainable revenue stream that ensured they succeeded. The sum total of our non-financial support being equal to or more than the actual grants that they considered applying for.
Investment impact focuses on the investor’s specific financial contribution to the social value created by the enterprise. Some of this is as clear as our seed capital founding InCommon, the commissioning of work that spawned Supply Change or the first investment made by CIP in supporting Hastings Works in their next phase growth and development. However a largely overlooked part of our investment impact is about what we do in addition to CIP. The investments we make outside of CIP directly feed into CIP’s goals. Specifically, the value added around social impact measuring is an area we excel at. Traditional forms of investment have universally accepted tools and methods of evaluating or estimating potential profits and yields. Yet, when it comes to measuring social returns, forecasting gains can be ambiguous and often a matter of guesswork. Though many methods of evaluating social impact exist these are applied erratically with the exception of within housing where social landlords tend to have synthesised methods of monitoring and evaluation. Our partnerships with the Housing Associations Charitable Trust (HACT) and the founding of Centre for Excellence in Community Investment (CECI) give us increasingly uniform and robust models of assessing impact. As our fund matures this represents an opportunity to develop ever more accurate methodologies and processes around assessing the tenacity of impact investing. There are long established metrics around evaluating performance on financial returns. Our entry into this space ensures that we contribute towards a cogent dialogue around evaluating social returns alongside financial returns. The ultimate aim being removing much of the guesswork around SROI across the impact investment market.
Moreover, our permanence gives us a long term approach to investing. It shapes our decision making in ways that allow us to balance profitability, sustainability and impact. As our capability and expertise in this area grows, our potential to create and support the infrastructure around impact investing is significant. CIP is an industry first and it is something we are proud to add to our generous and expanding service offer. Significantly an indelible part of housing association DNA is our ability to bring things together and work with partners. Perhaps one of the most significant elements of additionality we bring is the potential to expand impact investing to the grass roots underserved markets we have deep roots in, and in so doing add to an already impressive and expanding investment space.