What is the purpose of investing?

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Phil Caroe, Director of Social Finance at Allia, guest blogs about investment’s role in changing the financial system.

What is the purpose of investing? On the face of it the answer seems rather obvious – we invest our money in order to make more money. Take two investment options with the same risk profile and, assuming nothing illegal or morally dubious is involved, the one with the higher return usually comes out as the winner.

Our culture is pervaded by the ideology that more money is always better. Wealth is presented as the key to power, luxury and happiness, so we orient our lives around getting as much of it as we can. And yet the promise never delivers. Every study of wellbeing shows that beyond a certain floor of poverty, more money actually makes little difference to our overall enjoyment of life. Rather, it’s things like our connectedness with others and our sense of purpose and meaning that make life worth living.

Perhaps we’ve got the purpose of investing all wrong. If we could measure returns in the currency of wellbeing, we would discover that there is actually far more potential gain in how our money is used than in how much more money it makes for us.


This culture shift is one of the key objectives of Allia’s social finance programme. Our vision is of a society where people consider how they can use what they have for the good of others and not just for personal gain. We want to see investors allocating their money for the benefit of society, prioritising the consideration of social impact over the comparison of which option offers the greatest financial return. This is partly about ‘responsible’ investing, but for us it’s also specifically the use of capital to support the mission of charities and social enterprises.

The question is, how do we get from here to there?

One option is what I call the ‘come and play in my yard’ strategy. Frequently in the development of the social investment market we’ve taken the approach of building products around the requirements of the investee, then trying to pitch them to investors. We invite investors to step out of their familiar territory, selling them something they didn’t know they wanted on the basis of the social difference that could be made. This approach works for the ‘early adopters’ who are already self-motivated and open to innovation. And, given enough time, we might expect the unfamiliar to slowly become more normal. But the risk is that social investment remains on the fringe and never breaks through to the mainstream.

Another route is to play to the cultural norm by making social investments more financially attractive. Social Investment Tax Relief is designed to do this, sweetening the unfamiliar proposition so that doing good becomes more rewarding. Undoubtedly the tax break will enable more deals to succeed than would happen otherwise, but if our goal is culture change then I can’t help wondering about the extent to which it will have any wider permanent effect. Financial incentives can be effective at motivating specific behaviours, but may not necessarily change underlying attitudes.

The third option is what could be called a ‘nudge’ approach. Rather than trying to persuade people that they want what we’re selling, we sell them what they want but with added social impact. This theory of change was one of the key reasons behind the development of Allia’s Retail Charity Bonds platform. Its primary purpose is patently to raise loan finance for charities, but we also created it with a broader agenda as something of a ‘Trojan Horse’ of social investment. A retail charity bond gives mainstream investors what they’re looking for: a regulated product with a prospectus approved by the UK Listing Authority, listed on London Stock Exchange and tradeable on a formal secondary market. As a financial investment it can stand on its own against any other bond, but these bonds aren’t funding Tesco Bank or National Grid – they are enabling a charity to deliver its mission.

To build a social investment market we need to think beyond individual deals and think strategically about how to change a culture. Developing an alternative finance market is a core component, but for systemic change we need to create more mainstream investment opportunities, meet people where they are and lead them a step at a time.