My Lords, before we start to debate the matters related to social investment in Clause 13, I should declare an interest. I am one of the vice-chairs of the All-Party Parliamentary Group on Social Enterprise. The Committee will not be surprised to learn that many of the amendments that stand in my name have been put forward by Social Enterprise UK. It did so because it is the national body for social enterprise and has a direct interest in social investment.
It conducts research on policy and Bill campaigns over the whole field of social enterprise, and social investment is very much at the heart of that. Social Enterprise UK chairs the Social Investment Forum, which is a network of social investment and finance intermediaries designed to keep money flowing around the social enterprise market. It therefore has a direct interest in the first ever legal definition of social investment. Perhaps because it is the first ever legal definition of social investment, there is considerable concern that the law should be right. That is not easy, because by its very nature social investment, as opposed to straight financial investment, is not easy to define.
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People in the world of social enterprise often talk about social finance in terms of social enterprises being entities that have triple bottom lines. In business, you have a single bottom line: you are either making a profit or you are not, and that is the basis on which all your activities are judged. In a social enterprise, that is not the case. Whether or not you are achieving the social or environmental purposes for which you have been established, the extent to which you have been doing that and how you measure whether you have been doing that are matters on which some of the greatest minds in the world have been exercising themselves in the past decade.
When we come to the matter of what is a social investment, as opposed to an ordinary financial investment that any charitable trustee might make, we are in similar territory of having to argue about definitions. The definition of social investment on which the Government alighted and put into the Bill—it was not in the draft Bill but, as noble Lords said on Second Reading, we are all delighted to see it here—was put forward by the Law Commission.
That is welcome, but there are some oddities within it that would at the very least benefit from debate in your Lordships’ House, if not some tidying and clarification. The first is a change under Clause 13 to Part 14A of the Charities Act 2011 in new Section 292A, which covers the “Meaning of ‘social investment’”. We on these Benches and the noble Lord, Lord Hodgson of Astley Abbots, have focused on subsection (2), which states:
“A social investment is made when a relevant act of a charity is carried out with a view to both—
(a) directly furthering the charity’s purposes; and
(b) achieving a financial return for the charity”.
There we are straight into the matter of judgment, because a trustee must show that they have pursued both those things, when in fact they may not follow one from another.
Social Enterprise UK has expressed concern that the clause as written would catch within it investments that the charity may make which are not social investments and that they would end up having to report to different types of investments together, when that may not be appropriate. It is entirely appropriate to report on one’s financial investments purely in terms of the amount of interest or return on investment. Social investment may be different and, as we know, may involve the charity making a loss, at least in the first stages of its investment. That is why we have tabled
Amendments 16 and 18, which enable a social investment to be defined as an act where the purpose is not only directly to further the charity’s purpose. That may be primarily what it is about and there may well be an intention to achieve a financial return, but there could be an interplay between those two. This is in the nature of an amendment in Committee trying to probe exactly what we mean by the new definition of social investment. I beg to move.