Risk & Economy » Regulation » Give and Take: charitable bonds are here

We were approached earlier this month to give CFDG’s view on the use of charitable bonds, a new version of which were launched this week by Citylife. (For the record, CFDG supports new ways of bringing money into the sector.) It got me thinking about the wide variety of ways entities are considering ethical and socially responsible investment products, as well as the new breed of bonds which promise both financial and social return. 

When I attended the launch of ACEVO and the Social Investment Business’ Understanding Social Investment publication in the summer I was taken by the comments made during the presentations – particularly by a gentleman from a charity who shared his experience of social investment. It was clear from these presentations that charities are not universally prepared for, or able to immediately adapt to, the different demands of an investment into their charity as opposed to a simple grant.  For example, one speaker spoke of the investor, in his case, challenging his calculations of likely return from a planned café. In the case of a grant, such challenge might not have been as robust. The result in his view was a better approach to the “business” activity and a better return.

What also struck me was the freedom afforded by the investment that might have not come from a similar sized grant. Social investment provides a route for a charity to receive funding for what they believe to be a good initiative delivered on their terms.  However, often when applying for grant funding, a charity has to shape the offering to the grant funding available.  This ability to deliver what beneficiaries need rather than what funders will fund is an increasingly important movement.

An excellent article by Huw Davies, CFO of Wates Group in Financial Director magazine a few months back also demonstrated the changing views of business towards their support of the sector. Whereas in the past a simple placement of funding or a donation to a cause may have been the preferred engagement, we are increasingly seeing business invest in charities through a variety of methods. 

In his article Huw focused on the Citylife charitable bonds – which he describes as “a unique and clever way of applying cash on deposit to release funds for social causes.”  In the case of these new bonds, about 20 percent of the bond value is released immediately as grant funding with the remainder being extended as a loan facility to a social housing provider. The loan is then repaid with interest over a period –  meaning the investor not only gets their initial cash back, but they also contribute to the social good and release much needed capital for social housing.

At a recent CFDG members’ meeting Martin Rich of Social Finance described their pilot scheme for social impact bonds. These are government backed bonds which receive government funds dependent on the results of social programmes (in this case, a pilot with the Peterborough probationary services aimed at reducing recidivism). The basic element being that crime costs taxpayers significant sums and that reducing the reoffending rate could generate savings for the public purse. The simple principle for the social impact bonds being that success will generate savings, and a proportion of the savings made can be released to investors as dividends on their investment.

There are some exciting opportunities emerging – So my message to senior finance professionals in charities is to seek out interesting and innovative new ways to get your hands on much needed cash. There is an appetite to try new things and the relationship with supporters and funders is evolving. Ensure you are ready to capitalise on these opportunities.  For FDs and CFOs who might be reading this from the private sector – start impressing upon your companies that there is a place in their investment portfolio for such support – social investment can give you both financial return (with less risk than you might expect) and provide you with an opportunity to be socially responsible too.

Caron Bradshaw is CEO of the Charity Finance Directors Group. Her blog on the sector, “Give And Take”, can be found by visiting Extraordinary Items on the first week of every month



Download our Whitepapers
Read more
Corporate Finance
Business Regulation
Corporate Finance

European mid-caps hungry for Asia growth

By Frank-Oliver Wolf & Martin Keller