How to get community investment in green projects
11th November, 2009
Many a good idea has floundered for lack of funds, but with today's models for community finance this need no longer be so...
Have you recently used a local railway branch-line, switched to a green-energy provider or bought a Fairtrade tea or coffee?
If so, the chances are that you may have unwittingly reaped the benefits of a remarkable, and increasingly popular, example of community-funded enterprise.
While the private sector has long been dependent upon the venture capitalist, willing to invest in projects regardless of their ethical credentials, 'green' initiatives have traditionally struggled to.
As a result the majority of those organisations who choose to place people or the environment above profits have been forced to adopt charitable status in order to attract public sympathy, and in return - finance.
According to Jim Brown, an independent enterprise consultant, however, there is a 'third-way': Community Investment.
'A common problem faced by many social enterprises is that of under-capitalisation,' Brown explains. 'As the majority of ethical business account for their social and environmental costs they tend not to be profit maximising.
'As a result, they are simply not attractive to single large-scale backers looking for a quick and easy investment.'
Brown argues that over recent years we have seen a noticeable return to civil society values, inspired by growing environmental awareness, and more recently as a reaction to the global financial crisis.
'If you have a good social cause, people are willing to give,' he says. 'There is however a fundamental difference between asking for a donation and asking for an investment.
'In order to secure investment, the business model must add-up and must be fully accountable,' said Brown.
An Act for change
Enter the Industrial and Provident Societies Act (IPS), passed into law 150-years ago to provide a legal framework for the fledgling consumer co-operative movement. The Act ensures that a social enterprise must conduct itself for the benefit of the wider community, and many consider it to be the best vehicle for community finance initiatives due to the level of protection it gives shareholders.
Under an IPS structure, customers either invest in Bonds, providing a loan for a specific period, or Withdrawable-Share-Capital, a semi-permanent investment for which the shareholder becomes a member and part-time owner of the business.
Brown has discovered that shareholders investing in social enterprises take a much greater degree of satisfaction and interest in the welfare of the business. Likewise the business benefits as members can afford to invest a much higher level of capital than they could afford to donate.
History of co-ops
Community enterprise has a long history in the UK. Emerging from the social reforms of the mid 19th century, the Co-operative movement was inspired by the Rochdale Pioneers who set-up a general store to provide basic food items to destitute mill workers.
Over the next century the movement steadily expanded to include enterprises in banking, insurance, healthcare and travel. Today the Co-op group holds an estimated £185m investments on behalf of 5.8m shareholders.
The past decade has seen the biggest resurgence of interest in IPSs since the late 1800s, with more than more than 41 new cases of community funded social enterprises. The investment in these new initiatives alone amounts to £44m with a combined membership of over 31,500 individuals.
While these initiatives cover a wide variety of trade activities from retail marketing to renewable energy, community finance and regeneration, one sector in particular is showing great promise for future investment: farming.
Community involvement in agriculture has been demonstrated most recently by the enthusiastic uptake of Community Supported Agriculture initiatives across the UK.
This model of subscription farming, in which consumers become members and are actively involved in both the risks and rewards of food production, has doubled in size from just 25 projects to over 50 in the last 12-months.
The majority of these schemes have been established by community volunteers with little or no initial investment but have instead found innovative solutions to securing capital.
One example is Wester Lawrenceton Farm in Perthshire, where a successful Ayrshire dairy herd was financed through the sale of shares to members, who then received interest on their investments in the form of cheese.
Amanda Daniel, information and marketing co-ordinator at the Soil Association believes that the IPS model ideally compliments CSA.
'The CSA approach is based on building strong, mutual relationships between farmers, growers and their local communities,' she says. 'Becoming an investor member of a CSA is a powerful way for people to engage in its future. They have a vested interest in its success, and are more likely to become committed customers, volunteers, supporters and promoters of the venture.'
But there's nothing to say that community investment in agriculture should be restricted to the small-scale. In 2004 the plight of Fordhall Farm captured the public imagination when the tenanted family farm in Shropshire was threatened by development from its neighbours; Muller Dairy UK.
Following an 18-month legal battle and grassroots campaign, the farm's tenants, the Hollins' family, managed to raise the £800,000 required to purchase the 140-acre holding by selling 8,000 £100 shares to the public.
'The Fordhall story is remarkable as it demonstrates the sheer breadth of community who sympathise with the problems of capitalising small scale farms,' argues Brown. 'The big question is: Is it replicable? We would argue that it is but we need a further shift in the public's perception of farming from simply a financial endeavour to one for the good of people and environment.'
And on that Jim certainly has a point. While CSAs spring-up like mushrooms from the grassroots, at the same time the EU's reform of the Common Agricultural Policy (CAP) is moving towards valuing the environmental and social services provided by a healthy farming community.
Local communities, which sit in between these two driving forces, can help catalyse new sustainable ways of farming through a commitment to social, and ultimately financial, investment.
Ed Hamer is a freelance journalist specialising in agriculture and globalisation issues
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