Thomas Gillan, director, SIS Ventures, argues the case for “sustainable, responsible and ethical” finance amid a changing investment landscape north of the Border...
Over the past ten years we have witnessed some truly game-changing developments in the world of finance. On the back of one of the worst financial crises in living memory, distrust of large institutions has grown, consumers have become increasingly empowered, and a new generation of socially-conscious business leaders and investors have emerged.
That crisis, in part, paved the way for initiatives such as Good Money Week – a campaign to raise awareness of sustainable, responsible and ethical finance to help people make good money choices. Kicking off in 2008, the campaign this week enters its 11th year, and never has sustainable investment been so important. While the idea of ethical investing (or avoiding exposure to certain industries based on moral or ethical principles) has existed for many years, only recently have we witnessed the growth of investing in companies on the basis of their social or environmental impact.
Worldwide, according to the Global Impact Investing Network, impact investing is at least a $228 billion (£175bn) industry. Given our economic size as a nation, Scotland clearly contributes a tiny proportion of that investment. However, I’m firmly of the belief that Scotland is well placed to take a leading role in the development and evolution of sustainable finance. Not only do we boast one of Europe’s largest financial centres, with a long and proud tradition of finance and a large workforce of skilled financiers, but we also have built and developed an entrepreneurial ecosystem that is now the envy of many cities and countries around the world.
With the broader socio-economic conditions providing a good match for sustainable finance, the tide does indeed seem to be turning. Traditional investors who were once only interested in financial return, are more receptive to the concept, and investment potential, of “mission driven” businesses (businesses that focus on the achievement of both conventional business aims alongside a clear and definable social mission). These new mission driven businesses require investment that is aligned with these dual business objectives, something that is not yet widely acknowledged by more conventional forms of investment.
Traditional wisdom would have it that investing to generate positive environmental and social impact means sacrificing financial gains. At SIS Ventures, we are trying to challenge this binary assumption: previous reports have shown that companies that perform well on material environmental, social and governance factors can outperform peers. Impact investing continues to gain traction because investors shouldn’t always expect inferior returns. We believe in creating stakeholder value and not just shareholder value, we can help shape a more symbiotic and impactful society. That is why we are attempting to provide both the tools and mission-aligned investment required to help early stage businesses and social enterprises grow and deliver social impact at scale.
Over the next three years, SIS Ventures is looking to raise up to £5 million of new funding – utilising both Social Investment Tax Relief (SITR) and the Enterprise Investment Scheme (EIS). The first of these funds, Impact First, is currently open to prospective investors. Benefiting from both Enterprise Investment Scheme (EIS) relief and Social Investment Tax Relief (SITR), Impact First will offer investors a portfolio of between six and 12 high-growth potential, high-impact enterprises which aim to tackle a clearly identifiable social problem with a scalable and disruptive business solution. The first close seeks to raise £2m from UK-based private investors, with the capital targeted for deployment over 12-18 months. Investments will target EIS (equity) or SITR (debt) qualifying companies.
While interest, to date, from investors has been good, demand from early stage entrepreneurs has been even better. The range and depth of business ideas that we’ve already seen from mission-based businesses within Scotland has been nothing short of awesome. However, we need to ensure that the supply of capital is capable of meeting this demand. A healthy impact investment industry is crucial in ensuring that Scotland’s entrepreneurial ecosystem continues to evolve and flourish. In short, Scotland needs more impact investors.
As one of the UK’s leading financial hubs outside of London, Scotland can play a leading role in marrying its expertise within investment to its experience in social enterprise. The prospect of developing a mission-driven sector with global scale is one that truly excites us. The launch of Impact First now provides us, and Scotland, with a mechanism to help turn this prospect into reality, by supporting and investing in entrepreneurs who are passionate about making a difference.
For more information about SIS Ventures, visit www.sisventures.com