My Lords, I am in favour of these amendments. It is important to ensure that the Bill is drafted as clearly and concisely as possible to enable charities to make the most of social investment in furthering their purposes.
In 2012, the noble Lord, Lord Hodgson of Astley Abbotts—who has, as ever, provided us with an insight into some of the work that led to the Bill before us today—said in his review of the Charities Act 2006 that while charity law did not actively prohibit social investment, it was,
“certainly not set up to support it”.
He went on to advocate a statutory power for charity trustees to engage in social investment and statutory clarification of just what social investment is and involves. That makes it all the more puzzling why the previous Government chose not to include the social investment aspects in the draft Bill that was the subject of pre-legislative scrutiny by a Joint Committee of both Houses. If social investment is suitable for inclusion in this Bill, why was it not suitable for the draft Bill? Is there an answer? Of course, it is not a new idea but we are where we are and it is certainly to be welcomed that we now have this clause in the Bill.
In preparing for this part of the Bill, I tried to answer the question: what is social investment? I am not alone in that. The term is often confusing to many, and a lack of transparency could undermine its potential. As I understand it, this is the first time that social investment has been defined in statute, although neither
the Bill nor its Explanatory Notes are particularly helpful in their attempts to define it. Am I the only one to have read the Explanatory Notes on Clause 13, paragraph 80 in particular, and found myself little more aware of what social investment really is and how it might operate as a result?
According to the Big Society Capital website, social investment is,
“the use of repayable finance to achieve a social as well as a financial return”,
which certainly has the benefit of being both clear and concise. Big Society Capital was the first ever social institution of its kind, established by the coalition Government in 2012 as an independent organisation with an investment fund of some £600 million. However, the concept actually emerged under the Labour Government of 2005 to 2010, who established the Commission on Unclaimed Assets to examine how funds released from dormant bank accounts could be used to generate the maximum public benefit. The creation of a social investment bank was a key recommendation of the commission and, following a consultation, the Labour Government proposed naming it the Social Investment Wholesale Bank. Fast-forward to the arrival of the coalition Government, for whom the title was perhaps a tad too left-sounding, hence the incorporation of what I regard as the largely meaningless big society name—whatever became of that concept, I wonder?
Whether Big Society Capital is now succeeding in supporting the third sector in the way it was intended to do is open to question and there are arguments both for and against within the sector. Certainly, Big Society Capital should have a positive impact on the social investment market by facilitating the provision of funding capital to the third sector. It is also charged with increasing awareness of and confidence in social investment by promoting best practice and sharing information; improving links between the social investment and mainstream financial markets; and working with other investors to embed social impact assessment into the investment decision-making process.
A new social investment market is emerging, developing ways to connect socially motivated investors with social sector organisations that need capital so that they can grow and make a greater impact on society. All this is to be welcomed, and the fact that every organisation that has sent noble Lords a briefing has welcomed the addition of social investment to the Bill demonstrates that it is an idea whose time has come, certainly in the third sector. The key is to make sure that it is as effective as possible in enabling charities to further their stated purposes while achieving a financial return for them.
Clause 13 is, by consensus, necessary. Noble Lords have already referred to the Law Commission consultation, which highlighted that there are differences of opinion regarding the ability of charities to make social investment based on their existing charitable powers. Clause 13 removes any such doubts and will enable charities to undertake social investment more easily and without the need for legal advice, at least as to the principle of the investment.
It is self-evident that social investments should be made only after careful consideration of the risks of the investment and evaluation of the benefit that will
accrue as a result of it. Trustees should also be clear as to how they will evaluate the social investment and how regularly the investment will be reviewed. Such reviews should consider the effect that the social investment may have on the rest of its overall investment portfolio and other activities, such as grant-making. Social investments are not made in isolation and it is surely sensible for trustees to take this into account when making a decision.
We support the amendments in this group. As has been stated, there is a need for clarity on what social investment is and how it will operate. The noble Lord, Lord Hodgson of Astley Abbotts, made the important point that the current wording of new Sections 292A and 292C does not reflect adequately the suggestions made by the Law Commission in its report. It is important for the Bill to be as clear as possible and I hope the Minister will be open-minded on this broad point and that he will not dismiss the amendments but will undertake to look at them in the way they have been brought forward. I hope he will give an undertaking to bring forward his own re-wording to improve this section on Report. We have a singular aim: to make this section of the Bill as effective as possible. It would be in the interests of everybody, not least the charities themselves, for the wording to be tightened up.