Over the last year, the FCA has been researching the obstacles to growth in the social investment market in the UK, calling for input from the industry on the regulatory barriers that may exist.
On Monday, the regulator concluded that regulation is not preventing the social investment market from developing and that social investors should not receive less protection than other types of investors.
While it may seem counterintuitive, this decision will be the foundation of a future robust and dynamic social investment market in the UK: social investments need to be considered as mainstream before they will take off.
The very fact that the FCA called for input created debate within the sector. Some made the case that social sector organisations raising less than a certain amount (say £250k) should be exempt from financial promotion rules.
Others suggested that social sector organisations should be taken out of the financial promotion rules altogether and operate under a new regime with minimum standards. The underlying assumption of these proposals is that the financial promotion regime is too complicated to understand and too costly to follow for social sector organisations. While these concerns may be valid, they miss the big picture.
If the FCA had listened to these arguments and created a parallel regulatory regime, social investment would have been side-lined, not supported. The growth of this market is dependent on communicating to investors and their advisors that social investment is normal. Therefore, it is important that the sector abides by the same financial promotion rules as others—rules that are there to ensure that consumers are adequately protected. Otherwise, there is a real possibility that the perception that social investment is marginal and risky becomes self-fulfilling.
Thankfully, the FCA has rightly determined that social investors should not receive less protection than other types of investors.
Rather than regulation, barriers to growth in this sector are the result of an immature and fragmented marketplace, which can make it uneconomical for advisers and financial planners to advise their clients on social investments.
But we are optimistic that the market will continue to grow. In a recent survey, Triodos Bank discovered that 62 per cent of UK investors would like their money to support companies which are both profitable and make a positive contribution to society and the environment.
Of the £80m capital that the corporate finance team at Triodos Bank has raised for its clients since 2011, half was raised directly from individuals. We expect that supply will meet this demand as the market matures and new opportunities arise, such as our next two offers launching shortly: one for Thrive Renewables and one for the Southville Community Development Association in Bristol.
We want to make it normal and easy for someone to consider the impact of his or her money on a day-to-day basis and – for those who wish – to invest in social and environmental organisations. In jargon speak, we want to ‘mainstream social investment’. The sector does not need special treatment. Social investment will stand up to scrutiny from potential investors and their advisors as we work within the existing regulatory framework.
Whitni Thomas is senior investment relations manager at Triodos Bank.