We caught up with Simon Chisholm, Chief Investment Officer at Resonance Limited, to dig a little deeper into the culture of social impact investing.
1 May 2018
Simon Chisholm was kind enough to answer our questions and also to reveal some of the reasons behind his personal motivation to be involved in sustainable investments.
What is impact investing?
Impact investing is simply an approach to investment which intentionally seeks to have a measurable positive social or environmental impact. That distinguishes it from general investment, which (hopefully) has general social benefit but does not actively seek it, or ethical and responsible investment, which tries to screen out “bad things” or minimise harm.
Resonance’s approach to social impact investment is very simple: invest in social enterprise. That usually begs the question “What is social enterprise?”. Similarly, an approach to business which intentionally seeks to have a measurable positive social impact. Feel free to explore our website for lots of examples of what that means in practice.
Is impact investing just for philanthropists?
No, it’s for anyone who believes that money is important, and wants to invest wisely, but who also has a view on the how the world could be better and wants to put their resources behind that. There are many different impact investment products already available with different risk, return and impact profiles. So it’s about investors finding the right match with their preferences.
For example, Resonance now runs a series of regional Social Investment Tax Relief (SITR) Funds. These are very similar to traditional Enterprise Investment Scheme (EIS) Funds which investors are already familiar with using to back growth enterprises and get tax benefits which offset some of the risks and help boost returns. So now there is an impact investing option in that market which allows investors to invest in a portfolio of social enterprises across different regions.
Property developers are often criticized as being greedy. In your view, what makes a development profit fair?
A fair return is one which properly compensates investors for the risk they are taking with their capital. So higher risks can justify higher potential returns. But, in the longer term, fair returns also need to price in both positive and negative environmental and social external factors, otherwise they won’t be sustainable – for example, short term high returns on high value property which don’t properly factor in the importance of an affordable housing element to developments will lead to fractured and divided communities which benefit no one eventually.
As a way of addressing issues like that through impact investment, Resonance has developed some funds which lend to community-led affordable housing through Community Land Trusts. Often that’s an effective way to build an element of affordability and local accountability back into the development equation.
What do you envisage as the future for impact investment?
Well, for one thing, it’s not going away. In the 20th Century, much of the innovation in finance was finding better ways to assess investments in the two dimensions of risk and return. In the 21st Century, the third dimension of impact has been added. So we now have a three dimensional view of investments: risk, return and social/environmental impact.
It’s already becoming clear that taking social/environmental factors into account can lead to better investment outcomes – a significant and fast increasing proportion of institutional investment portfolios are now screened for positive and negative ESG (Environmental, Social & Governance) factors. Impact investment is the sharp end of that trend – actively looking for intentional positive social and environmental impacts – and will be uncovering some of the most interesting and sustainable business models of the future.
What inspired your transition from a role with a global bank to Chief Investment Officer of Resonance?
Many factors, but among them two which jump out. Firstly, one of my colleagues, Keith Palmer, had for many years been pioneering an early form of impact investing in developing markets which needed early stage investment in energy infrastructure and agriculture. Secondly, I was privileged to serve as a trustee of a great homelessness charity for my last 5 years at the bank, which really opened my eyes to the potential for social enterprise (backed by impact investment) to make positive change. When I joined Resonance six years ago it already had a decade of experience in working with UK social enterprises on their investment needs, so there is lots of experience about how to make that work well for both enterprise and investor.
For you, what has been the most significant example of social impact made by Resonance?
One of our most significant initiatives to date has been using property funds to scale up solutions to homelessness. This is a really good example of social investment because at its heart is a brilliant social enterprise.
Real Lettings was established by St Mungo’s, the homelessness charity, over a decade ago, as a social enterprise to overcome the barrier that people with a homeless background face in getting back into private rented accommodation. Basically, thousands of people who are ready for independent living get stuck in hostels and emergency B&B accommodation because private sector landlords cannot assess whether they will make good tenants. But homelessness organisations can, so can address a real market failure, run a profitable lettings agency, and break down this social problem.
Resonance has been able to design residential property funds which allow homelessness charities to scale up this social enterprise model around the country, whilst giving institutional investors a good yield, capital appreciation and diversification on an asset class they are very familiar with. Those funds are already at £155m, across 4 cities, and with a portfolio of 561 properties which are so far helping 1,384 people on their journey out of homelessness. But there is much more to do in scaling and replicating this around the country, so we’re working hard on raising the next rounds of investment for new cities.
What is your most significant life adventure?
Trying to raise 3 children (often badly).
Who has been your most influential role model?
My father (just turned 98 and still curious about how the world works).
What do you think are the three most important human qualities?
Integrity, Humility, Compassion
And finally, who would star as the protagonist in a film about your life?
Simon Chisholm is Chief Investment Officer at Resonance Limited, a social impact investment company (@resonanceltd). Prior to joining Resonance in 2012, Simon was a Director at Rothschild.