Knowledge Centre Blogs

Academic research shows how power dynamics between social investors and social enterprises can shift in the face of major economic and social shocks, such as COVID. Dr Julia Morley from the London School of Economics explains the key findings of her recent paper Talking Across Purposes. Social investing has become a transformative force, directing private capital towards social enterprises to achieve financial returns and social good. In the UK alone, the sector saw investments totalling £830 million in 2021, highlighting its significant growth and impact. However, the diverse backgrounds of stakeholders, including investors, social enterprises, and policymakers, often lead to communication challenges, particularly regarding the terminology used within the sector. Language and misunderstandings: The ambiguous nature of key terms is at the core of many misunderstandings in social investing. For instance, the definition of "social impact" can vary widely among stakeholders. For some, it might mean quantifiable outcomes like employment rates, while for others, it refers to more nebulous benefits, such as improvements in well-being. While initially beneficial in allowing varied parties to find common ground, this ambiguity can also lead to significant challenges as projects develop. Can ambiguity be useful? Ambiguity does have its advantages. It enables a broad range of stakeholders to engage with the idea of social impact without being bogged down by rigid definitions. This can foster collaboration across different sectors and viewpoints, facilitating initial agreements and partnerships that might not otherwise be possible. The Downside: Over time, however, the benefits of this ambiguity diminish. Different interpretations of the same terms can lead to misunderstandings and misalignments between investors and social enterprises. These miscommunications can create friction and inefficiencies, hindering the sector's overall effectiveness. Push for Precision: In response to these challenges, there has been a move towards standardisation and clarity in the language used in social investing. Investors, often holding greater power in these discussions, have led the push for defining terms and setting standards. This has included the creation of glossaries and training programs aimed at aligning the sector's language with investor expectations. Shifting Power Dynamics: The COVID-19 pandemic shifted power dynamics within the social investment sector. The crisis underscored the importance of knowledge of the operational realities of delivering services to beneficiaries and shifted the balance of authority over knowledge to social enterprises. During this period of instability and change, their local knowledge of beneficiaries’ needs and frontline operational issues gave their views more weight relative to the traditional financial expertise that investors had previously leveraged. This shift in the balance of power was short-lived, however. As the status quo returned, so did the perceived relevance and value of investors’ financial expertise in social investing. Conclusion: The experiences during the pandemic have provided valuable insights into the importance of language in social investing and how significant disruptions can shift the authority of knowledge, alter power dynamics, and shape how the meanings of terms – and hence practices within the sector - evolve. As the sector continues to grow, both investors and social enterprises must remain aware of these dynamics to foster an inclusive and effective social investing environment. Key Takeaways: While initially helpful, the ambiguity in social investing terminology can lead to challenges as misunderstandings become apparent. Standardisation efforts are crucial but do not reflect all stakeholders’ interests equally. Significant destabilising events, like the pandemic, can reshape power structures, offering lessons on how to manage and negotiate terms in social investing more equitably. The full paper which this piece summarises can be found here.  This article is part of SEUK’s Social Enterprise Knowledge Centre University Network – to find out more please contact research@socialenterprise.org.uk