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The Science of Climate Change

Climate change is no longer a distant threat or just a possibility, it is now a reality for all of us. In this pathway, Kevin Trenberth, a renowned climatologist, delves into the science behind climate change. He first introduces the climate system, its main components and forces.

Tackling the Plastic Crisis

Plastic pollution is by far the biggest threat to our oceans and this remains an incredibly tough problem to solve. Plastic credits could potentially serve as one of the much needed solutions for this crisis.

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The Scale of the Net Zero Challenge

The price of meeting net zero is estimated to be between $100-150 trillion over the next 30 years. Regardless of this cost, we need to reach net zero before climate change does irreversible damage to the environment and the economy.

ESG, Sustainability and Impact Jargon Buster

ESG, sustainability, impact… they all just mean green, right? Not quite. Despite being used often interchangeably, there are distinct differences between these terms.

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Featured Pathways

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The Science of Climate Change

Climate change is no longer a distant threat or just a possibility, it is now a reality for all of us. In this pathway, Kevin Trenberth, a renowned climatologist, delves into the science behind climate change. He first introduces the climate system, its main components and forces.

Tackling the Plastic Crisis

Plastic pollution is by far the biggest threat to our oceans and this remains an incredibly tough problem to solve. Plastic credits could potentially serve as one of the much needed solutions for this crisis.

More pathways

Ready to get started?

PLANS & MEMBERSHIP

Our Platform

Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Sustainability Unlocked to your current platform

Featured Content

More featured content

The Scale of the Net Zero Challenge

The price of meeting net zero is estimated to be between $100-150 trillion over the next 30 years. Regardless of this cost, we need to reach net zero before climate change does irreversible damage to the environment and the economy.

ESG, Sustainability and Impact Jargon Buster

ESG, sustainability, impact… they all just mean green, right? Not quite. Despite being used often interchangeably, there are distinct differences between these terms.

More featured content

Ready to get started?

Ready to get started?

Social Impact Investment & Social Lending Introduction

Social Impact Investment & Social Lending Introduction

Stuart Sweeney

35 years: Risk management & social finance

Social investment is the use of money to achieve both a social and financial return. In this video, Stuart provides an introduction to social investment, explaining what it is, the difference between loans and grants and how charities sustain loans.

Social investment is the use of money to achieve both a social and financial return. In this video, Stuart provides an introduction to social investment, explaining what it is, the difference between loans and grants and how charities sustain loans.

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Social Impact Investment & Social Lending Introduction

15 mins 25 secs

Key learning objectives:

  • Define some core social investment products

  • Understand the concept of social investment

  • Describe some of the different types of social lending

  • Identify some of the key challenges of lending to charities

Overview:

Social investment seeks to achieve a social and financial return. The financial return is measured using a conventional approach. Social impact is added to that financial return to allow an overall comparison with the risk incurred. Social investment is an attractive source of funding for social organisations that struggle to access finance from banks due to their lack of assets that can be secured. It comes with many standard and bespoke formats.

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Summary

What is social investment?

Social investment looks to achieve a social and financial return instead of just a financial return. The financial return is measured using conventional approaches. A return from the social impact is added to that to allow an overall comparison with the risk incurred.

Impact measurement metrics will vary but funds look at the extent to which the investment is additive in terms of well-being.

Social investment is an attractive source of funding for social organisations that struggle to access bank finance due to a lack of assets that can be secured. Lending can be used for cash flow support, refurbishments, transition to new business models, property and other asset acquisitions and occasionally financial rescues. Terms and conditions will often be more flexible than standard finance. Covenants may well be more forgiving to reflect the social impact and the small size of some of the borrowers

What forms of social lending are there?

Social lenders lend on traditional terms and conditions: interest, some light financial and other covenants and the requirement to repay at the end of the loan. This is more onerous than grant funding but it has advantages:

  • It imposes financial rigour on the charity that may allow it to become more sustainable
  • The charity can use this discipline to identify reliable service-related cash flows
  • This allows them to budget for debt service and principal repayment

Grants will often have debt-like characteristics:

  • When financing an asset purchase e.g. a property, providers will often have a security interest
  • There can be clawbacks e.g. the grant must be repaid if the service is not adequately delivered
  • This would tend to include failure to deliver through insolvency. Grant providers will often sit at the senior creditors’ table

What are some of the challenges of lending to charities?

The damage caused by making poor credit decisions is amplified by the impact on vulnerable people, who may lose their entire support mechanism.

Charities typically have weaker credit profiles than companies and they have no means of raising conventional equity so rely on building up reserves through surpluses or by attracting grant funding. But they are reticent to build substantial reserves as this can inhibit future grant funders from giving. Charities will often maintain property valuations at historical book levels to disguise real reserves.

Charities may have less continuity of cash flows than companies. Contract payments from local authorities are uncertain and commissioners are prone to cancel contracts unexpectedly.

In bidding to provide traditional welfare services from local authorities, some lenders have incurred onerous defined benefit pension obligations in local authority pension schemes.

In small and medium charities where the impact for investors can be greatest, the profile and experience of the CEO and key trustees is indispensable. Continuous financial scrutiny at the board level and the charity’s philanthropic profile can temper worries around leverage and cash flows

Define some core social investment products

  1. Senior debt: a charity can incur senior secured or unsecured debt, from short-term working capital facilities to 40-year mortgages on properties
  2. Subordinated debt: sits below senior debt; repayment only after senior debt has been settled.
  3. Charity bonds: like corporate bearer bonds with annual coupons, standard bond documentation (including generic covenants) and sometimes security.
  4. Social Impact Bonds (SIBs): Returns linked to the success of the project (an arrangement called Payment by Results [PBR]). Commissioners (typically local authorities, government departments or institutions like the Big Lottery Fund) define project outcomes; delivery partners (charities or social enterprises) seek to provide improved outcomes; investors will analyse the lending vehicles in terms of integrity of contracts and deliverability of outcomes.
  5. Development Impact Bonds (DIBs): Similar to SIBs using PBR in the context of development projects. Commissioners might be supranational development banks.
  6. Community Share Issues (CSI): Equity units issued by ‘community benefit societies that allow individuals and institutions to invest in local enterprises, using a crowd-funding platform. Revenue Participation Agreements (RPAs): Loans whose return is based on a performance milestone (typically revenue based).

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Stuart Sweeney

Stuart Sweeney

Stuart spent 23 years working on the fixed income side of finance, in London and New York. He covered bonds, derivatives and leveraged finance. Stuart also worked as a university teacher and researcher publishing books and articles on economic and political history. He moved into social investment two years ago.

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