Lindsay Wake, head of impact for Social Investment Scotland, talks about how the organisation is driving mission-aligned investment across Scotland and their vision for an impact economy
- SIS was created in 2001 to provide loan finance to charities and social enterprises in Scotland
- In 2007, SIS was appointed to manage the £30m Scottish Investment Fund
- The £16m Social Growth Fund was launched in 2015 partnership with Big Society Capital and the Scottish Government, followed by the launch of SIS Ventures three years later
- Last year, the organisation marked its 20th anniversary reaching a £100m investment milestone. Its current strategy is focused on building what it calls ‘an impact economy’ by 2030
More than £110m (€130m) has been invested in over 450 social enterprises, community organisations and mission-driven businesses across Scotland since Social Investment Scotland (SIS) first opened its doors in 2001.
Over more than two decades, SIS has spearheaded a range of funds, launching its own impact investment arm SIS Ventures in 2018.
In an interview with Impact Investor, Lindsay Wake, who joined SIS in 2018 and was appointed head of impact in 2019, explains the decision to launch SIS following a fact-finding visit to the US by a Scottish parliamentary group who were introduced to the US Department of Treasury’s Community Development Capital Initiative.
The initiative provided investment capital to community development finance institutions (CDFIs) and the communities they served, in recognition of the fact that many communities were being ignored by traditional banks and financial institutions and struggled to obtain credit. The parliamentary group returned to Scotland wanting to create something similar.
“SIS was established off the back of that initial piece of work to start looking at how greater capital flow could reach the third sector and social enterprises in Scotland, who were at that point an underserved group and arguably, still are today,” she says.
SIS was launched with funding from the Scottish government and four mainstream banks to provide affordable loan funding to social enterprises, charities and community groups through a wide range of funds, such as the £16m Social Growth Fund launched in partnership with the Scottish government and Big Society Capital, and its successor the £17m Scottish Social Growth Fund, which added Edinburgh University as a fourth investor.
Up to 98% of the beneficiaries of SIS funds are based in Scotland, the remaining 2% can be found across the rest of the UK and are targeted primarily through the Community Investment Enterprise Facility (CIEF), a £30m facility which invests in CDFIs across the UK, who in turn lend to small businesses creating a positive social impact.
“The CIEF is a really exciting fund. It reached full deployment at the end of June and works with CDFIs who seek to reach underrepresented micro, small and medium sized enterprises working in communities that are often left behind,” says Wake. “What we’re building is a picture of how these CDFIs, when given a long-term runway of investment of three years plus, are actually able to increase their own activity, their own sustainability, and reach, develop and grow these underrepresented communities.”
“Throughout our history working directly with social enterprises, we have been encouraging growth and ambition in order to build an impact economy. But to do that, these enterprises need to be on a gradient scale, they need to be growing,” says Wake who explains that although the ‘third sector’ had some avenues of opportunity to scale, especially through public procurement, it became apparent that early-stage companies in the for-profit sector in Scotland were struggling to get the investment they needed to do the same.
Launch of SIS Ventures
“For-profit businesses coming through our entrepreneurial ecosystem focusing on creating positive impact weren’t able to find impact-aligned investors to support them in the right way,” says Wake. “That’s where SIS Ventures came in, bringing its learning and track record from operating in the social enterprise space with responsible and ethical business practices, and applying that knowledge to the early investment space, so that it could be embedded in early company development.”
SIS Ventures raised £1.3m in a first fundraising round for its Impact First Fund, primarily from high-net-worth individuals, and a further £5m from the Scottish government in a second round, and has invested in 11 mission-led businesses to date.
The fund, Wake explains, is sector agnostic and can target businesses with both societal and environmental outcomes. She gives the example of portfolio business Cyacomb, a tech spin-off from Edinburgh Napier University that helps to block online content related to child sexual exploitation and terrorist activities. Another example is Trojan Energy, an Aberdeen-based green tech startup, making electric vehicle (EV) charging more accessible in busy urban areas with its ‘Flat and Flush’ charging points, which it says take up less pavement space than other alternatives.
Investee companies who qualify for the fund need to contribute to the achievement of at least one of the UN’s SDGs and the investment team also tries to focus on businesses which are founded or led by women, people of minority ethnic backgrounds, LGBTQ+, have reported a disability, and those under 30 or over 50 years of age.
Wake adds: “With SIS Ventures we’re trying to make an impact at a societal level, to people, place and planet, at an enterprise level, giving enterprises that are scaling and growing access to mission-aligned investment and support to help them build an impactful practice. We are also interested in directing capital to underrepresented founder groups. The third level is the field level, and this is about influencing others to come on the journey with us, bringing new investors into the space and increasing how much is invested.”
Closing the skills gap in impact governance
Wake, who joined SIS from a housing association in Edinburgh, previously spent 10 years with the Hyde Group, one of the largest housing associations in England. Today, she is responsible for impact governance across both SIS and SIS Ventures.
“My appointment as head of impact, was the first time this role was created at SIS and there weren’t many of us across Scotland at that time. Impact has always been front and centre with what SIS does but occupying a dedicated role means I can make sure that we’re working with the most up-to-date frameworks, principles and concepts and bringing that into our practice.”
She adds that SIS shares its expertise of impact due diligence with other stakeholders in the sector such as academic institutions and public sector bodies, but says that when it comes to impact governance, there remains a skills gap that needed to be closed for the sector to continue to evolve.
“Impact governance is a growing skills area. It’s multi-dimensional and complex. Some people I speak to are very used to understanding financial metrics but less used to understanding impact. They want the black and white figures they get with finance but that’s not always possible with impact, so there’s a really important education piece around that as well,” she says. “If people are concerned about ’impact washing’ and ‘greenwashing’, we need more specialists in the sector with the skills and understanding to apply impact frameworks in the right way, and organisations need to be committed to taking on the right level of resources to do that properly.”
SIS’s most recent 10-year strategy, launched in 2020, is focused on building what it calls ‘an impact economy’ by 2030, with the aim of providing 10,000 enterprises with the tools and support to generate greater social impact and connecting 500 social entrepreneurs, enterprises and third sector organisations with mission-aligned investment and support.
According to the latest figures, it is making progress to reaching those goals. Over the 12 months to March 2021, SIS says that through its funding and business support it has either directly or indirectly benefited 1.9 million people in communities across all 32 local authorities in Scotland, as well as communities in South Yorkshire, West Yorkshire, Wolverhampton and Nottinghamshire.
SIS is currently auditing its first 2 year-action plan within the 10-year strategy and Wake says initial results are encouraging. “We are in the process of looking at key indicators such as number of investors, value of investment and impact and have conducted a review with our key stakeholders, and we can see that there’s absolute movement in terms of growing an impact economy in Scotland,” says Wake. “We’re not doing this on our own but SIS’s role within that movement is identified as very significant by those key stakeholders.”
According to Wake, SIS Ventures is the first and still the only investor in Scotland to be a signatory to the Operating Principles for Impact Investment, which she is particularly proud of: “I think the Operating Principles go a long way to providing transparency, robustness, best-practice and progress. They have given us confidence as an organisation in our approach to impact, and allowed us to be more visible as the leading impact investors in Scotland and to talk with confidence when we’re influencing others. I would like more organisations in the impact space starting to consider these.”
Wake says that SIS applies a “mission-lock” at point of investment with all its investee companies. This is essentially a legal clause within the founding articles of association, which ensures that the impact mission is locked in and founding teams need the investors’ agreement to change it. SIS also works with companies at point of investment on a 100-day plan, which Wake thinks is “quite unique” to develop their theory of change and their impact measurement tools, and takes an active management approach through board representation to develop companies’ impact practice.
“Our whole reason for getting involved at the early stages of a business, is because we want to make sure that we can influence the principles and impact practice throughout the growth of that business. At the point of exit, we want to have left a legacy of impact practice and ways of working that will stay with the company forever.”