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1、Impact Investing in the Cultural and Creative Sectors Insights from an emerging field ISBN:978-0-7017-0278-6Francesca Sanderson,Seva Phillips and David MaggsNovember 2023The Creative Industries Policy and Evidence Centre(Creative PEC)works to support the inclusive and sustainable growth of the UKs C
2、reative Industries through the production of independent and authoritative evidence and policy advice.Led by Newcastle University with the Royal Society of Arts and funded by the Arts and Humanities Research Francesca Sanderson is currently Director of Arts&Culture Programmes and Investments at Nest
3、a,where she has worked since 2015.Her projects at Nesta have included Arts&Culture Finance;Digital R&D fund,accelerator and research;and Creativity,Culture&Capital.She has also worked at Big Society Capital and JPMorgan.She chairs the UK Social Investment Forum;sits on Investment Committees for UnLt
4、ds impact investment funds;and is a member of the Royal Shakespeare Companys Development Advisory Council.The reports authors would like to thank the team at the Creative Industries Policy and Evidence Centre,including but not limited to Professor Hasan Bakhshi,Dr Tom Cahill-Jones,Professor Giorgio
5、Fazio and Bernard Hay,as well as International Council members including John Newbigin and Laura Callanan,for commissioning the report and editorial feedback.We would also like to thank the Arts&Culture Finance team for their cooperation and insights,particularly Nick Wilsdon and Rachel Green for sh
6、aring their experience around social impact financial resilience respectively;as well as the generous time given to us by the many sector experts we have interviewed for this report:Sean Geobey Associate Professor,School of Environment,Enterprise,and Development;Jamie Bennett Cultural Consultant;Mic
7、hael Murray CEO,Ontario Arts Council;Karim Harji Programme Director,Oxford Impact Measurement Programme,Said Business School,University of Oxford;Patti Pon CEO,Calgary Arts Development;Ted Witzel Artistic Director,Buddies in Bad Times Theatre;Robin Sokoloski Director of Organisational Development,Ma
8、ss Culture;Mauricio Preciado-Awad Director of Innovative Finance and Ventures;Save the Children(formerly Investment Director,Big Society Capital);Marcel Baettig Chief Executive,Bow Arts Trust;Georgie McClean Executive Director,Development and Strategic Partnerships at Creative Australia;Diane Ragsda
9、le Minneapolis College of Art and Design;Wakiuru Njuguna Managing Partner,Heva Fund;Lisa Alberti Chief Executive,Pinc College.We are grateful to Sarah East for incisive and insightful copyediting and to Mike Green for the beautiful design.We would also like to express our gratitude to Metcalf Founda
10、tion for their interest in and support for the development of this field for over a decade and Camber Arts and the Canada Council for the Arts for their efforts in extending these findings into new opportunities overseas.Seva Phillips is Head of Arts&Culture Investments at Nesta where he leads the A
11、rts&Culture Finance initiative.Prior to joining Nesta in 2015,Seva held roles at The Young Foundation,the Charities Aid Foundation and EY.He is an experienced strategic advisor to social enterprises and is a Winston Churchill Memorial Trust Fellow(2017).The origin of this research collaboration was
12、ongoing dialogue between Maggs and Sanderson on the health of CCS organisations in post-pandemic economies and the need for more confident and creative approaches to resourcing creativity and cultural production and registering its value as a social benefit sector more broadly.David Maggs is Inaugur
13、al Fellow on Arts and Society at the Metcalf Foundation,where his activity has included developing Art and the World After This,delivering an ongoing essay and interview series with Canadian cultural sector leaders,and speaking internationally on issues pressing cultural sectors worldwide,climate ch
14、ange,digital creativity,cultural R&D,etc.About the authorsAcknowledgementsCouncil,the Centre comprises a core consortium of;Newcastle University,Work Advance,Sussex University and the University of Sheffield.The PEC works with a diverse range of industry partners.For more details visit www.pec.ac.uk
15、 and CreativePECExecutive summary 4Introduction 6The social impact of the cultural and creative sectors 8 Social impact developing an evidence base 9Local,regional,national and international economic growth 10Capturing the value 10Impact investing 11 The impact investment market 13Intermediation 23F
16、und structuring and blended capital 14The opportunity for impact investing in the cultural 15 and creative sectorsThe need for transformative models 15Assets to invest in 16New venture models 16The opportunity for system change 17What does impact investment offer the cultural and creative sectors?17
17、Extending the pool of available capital:Blended finance,leverage and recycling 18 Impact investing or just investing?18The investment relationship 19Impact leverage 19How impact investment can work in the cultural 20 and creative sectorsInternational examples 20UK:Arts&Culture Finance 22Creating the
18、 conditions 30International 30Local/national 31Conclusion 34Appendix 35Bibliography 35Endnotes 37Contents234514Impact Investing in the Cultural and Creative Sectors:Insights from an emerging fieldExecutive summaryThis report explores how the emerging field of impact investment presents a valuable to
19、ol for realising the potential of the cultural and creative sectors(CCS).It is aimed at a broad and diverse group of stakeholders including cultural and creative sector organisations and practitioners,private and public cultural funders,investors and policy makers illustrating their overlapping inte
20、rests and the opportunities for collaboration.We define impact investing as the provision of capital,typically to incorporated enterprises,with the aim of achieving both a financial and social return.Impact investors proactively seek investment opportunities that will make an intentional positive di
21、fference.CCS organisations bring diverse and rich social benefits.Social impact in the cultural and creative sectors can cut across many different kinds of activity from the core artistic or creative form to ancillary community outreach projects and across many different policy areas,such as health&
22、wellbeing,education,criminal justice,placemaking and economic growth.A growing number of working groups and an increasing evidence base are supporting policymakers and funders to incorporate the CCS into decision-making.At the same time,caution needs to be exercised regarding the potential for outco
23、me measurements to be reductive,with recognition that the systems of value of the arts are complex and interdependent.Impact investment is a growing market,with the Global Impact Investing Network estimating the market size as US$1.164 trillion in 2022.In the UK alone,the market has seen more than t
24、enfold growth over the past 11 years,increasing from 830m in 2011 to almost 9.4 billion in 2022 according to data from Big Society Capital,the UKs provider of wholesale impact capital.At the moment,impact investment predominantly comes from charitable trusts and foundations,government agencies,and h
25、igh net worth individuals and family offices,often through intermediaries such as fund managers that can help bridge the gap between investors and frontline social enterprises.Interest in impact from institutional investors is growing rapidly,and allocations towards impact investments reflect this.I
26、n order to attract more constrained or tentative investors with different risk tolerances and less direct experience of investing in the CCS,blended capital structures use concessionary funds to derisk the market for new entrants.These may take the form of grants or first loss equity,and often repre
27、sent a superior return profile to a standard grant(because some of the funds will be returned to the provider),even before considering the additional benefit of growing the market,attracting a more diverse investor pool and building the universe of case studies.The availability of such concessionary
28、 capital is therefore significantly catalytic to market development,including making sure more flexible and risk-tolerant investment products can be extended to organisations in need of finance.New funder and investor relationships in support of CCS organisations will help them to develop new busine
29、ss and impact models and new creative and cultural assets;to 5Impact Investing in the Cultural and Creative Sectors:Insights from an emerging fieldattract and retain audiences while adapting to changing audience behaviours;to navigate risks and opportunities brought about by new technologies,and ena
30、ble artists to participate equitably in the success of their work.At the same time,a diverse array of assets,both tangible and intangible,as well as an appetite to develop new venture models,mean the sectors offer serious investment potential.For CCS organisations,impact investment has the potential
31、 to introduce new,affordable,patient and flexible capital,through capital leverage and recycling,while also stimulating new mindsets and behaviours around innovation and long-term thinking.Impact investment in the CCS is an emerging field with a diverse range of initiatives around the world.The inte
32、rnational Creativity,Culture&Capital project1 has made a start at identifying and highlighting impact initiatives in the global creative economy and the funding models used to support them,including New York-based Upstart Co-Lab,researching the potential of and connecting impact investment to the cr
33、eative economy in the United States;and HEVA in Kenya,building the creative economy innovation and funding ecosystem across East Africa.A comprehensive mapping of global initiatives in this space would be a welcome addition to the literature.The report provides an in-depth case study of the Arts&Cul
34、ture Finance initiative in the UK,which was incubated by the innovation agency Nesta between 2015 and 2023.Arts&Culture raise awareness of impact investment and the possibilities it presents to invest in and develop CCS assets;illustrate how impact investment can work in practice for both investors
35、and investees;undertake stakeholder mapping and convening exercises;In order to create the conditions for a flourishing impact investment infrastructure for the CCS at the national level,policymakers and other national stakeholders need to:Finance manages three impact investment funds that have supp
36、orted 51 CCS organisations in the UK,majority non-profit,with 14.6 million of investment since 2015.The case study illustrates a broad range of impact delivered by investees as well as their significant ambitions to grow and develop new activities.Preliminary findings from the Arts&Culture Finance c
37、ase study indicate that a blended capital model of debt-based impact investment in the CCS can succeed in delivering expected returns to investors.The case study,which spans the Covid-19 pandemic,also illustrates the need for funders and intermediaries to take a flexible and long-term view of the un
38、derlying portfolios,in response to the challenges both the macro environment and idiosyncratic organisation-level issues can pose.While a formal evaluation of the ongoing ACF programme has not yet taken place,evidence suggests that investments from Arts&Culture Finance have helped portfolio CCS orga
39、nisations to achieve their business,financial and impact-related objectives,while also contributing to improved financial resilience.In its Global Agenda,the Creative Industries Policy&Evidence Centre highlighted the need for a coordinated approach for the development of alternative finance models,a
40、nd impact investing in particular2.An international coalition should work towards making the case for the establishment of a global fund,or pooled capital vehicle,focused exclusively on the CCS,or the broader creative economy.explore possibilities for fund structuring and the role for possible inter
41、mediaries;understand demand side factors(pipeline of eligible CCS organisations,their capital needs and degree of investment readiness);map the possible impact of the investment approach;understand what policy measures can be supportive.Impact Investing in the Cultural and Creative Sectors:Insights
42、from an emerging field6IntroductionIn this report,we aim to introduce the emergent practice of social impact investment(henceforth referred to as impact investing/ment)in the cultural and creative sectors(CCS).We will outline the opportunity this growing field of investment presents to redouble the
43、potential of cultural and creative assets3 in the UK and internationally.The report follows the 2014 Nesta report The New Art of Finance4,which identified resource challenges facing the cultural sectors,and also highlighted opportunities for action,including the development of an arts impact fund,an
44、d public facing R&D programmes supporting structured experimentation and shared learning.A decade later,the challenges not only persist but are exacerbated by more recent events such as the Covid-19 pandemic,cost-of-living crisis,persistent declines in available grant funding,and continued shifts in
45、 audience behaviour.The broader impact investing landscape,in contrast,has developed significantly since 2014,with the UK continuing to be an international leader.Indeed,in such a rapidly evolving field,there is some urgency to establishing the cultural and creative sectors as a natural and producti
46、ve home for the rising tide of capital actively seeking positive social impact.In 2015,Nesta,on behalf of a founding partnership5,launched the arts impact fund initiative outlined in The New Art of Finance.Significant levels of international interest in and engagement with the funds development have
47、 highlighted a burgeoning global interest in how impact investing can support the cultural and creative sectors in particular.With this document,we propose that impact investment is a valuable tool for realising the full impact potential of the cultural and creative sectors.We support this view with
48、 research,field interviews and proprietary data from Arts&Culture Finance,a specialist creative and cultural sector investment intermediary incubated by Nesta since 2015.We see the relationship between impact investing and cultural and creative sectors(CCS we are using cultural and creative to captu
49、re the broad spread of industries and sectors to capture the broad spread of organisation types,i.e.,including non-profits and social enterprises as well as commercial entities)as relevant to a very broad international audience,including(but not limited to):CCS organisations and practitioners.Public
50、 arts and culture funders.Policymakers.Trusts and foundations.High net worth individuals.Institutional investors making or thinking about impact.Impact investment intermediaries,either already operating in or considering the CCS.Impact investment wholesalers and advocacy bodies,with a remit to suppo
51、rt the development of a vibrant impact investment market/ecosystem/infrastructure.Social/cultural innovation specialists looking for capital to scale successful interventions outside a commercial funding framework.We illustrate the overlapping interests of these stakeholders,and the exciting opportu
52、nities for collaboration and innovation to ensure a vibrant future for the CCS and the powerful positive impacts they deliver.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field7We also believe that impact investment as a tool has the potential to strengthen the con
53、nective tissue between subsidised culture and the commercial creative industries by encouraging adoption of different legal forms,prototyping new investment tools,and supporting the development of new partnership and collaboration models.There is growing interest in the intersection of these fields,
54、with significant high-profile impact investment events and gatherings now featuring sessions focused on the CCS,such as the European Venture Philanthropy Association(EVPA)Impact Week 2022,Global Impact Investing Network(GIIN)Investor Council,Big Society Capital(BSC)and the European Bank for Reconstr
55、uction and Developments(EBRD)Blended Finance event in March 20236,and the Global Steering Group for Impact Investment Summits7 in 2021-2023.At the same time,CCS events globally are featuring sessions on impact investment,such as the World Conference on the Creative Economy in Dubai in 2021,the Briti
56、sh Councils International Policy Forum in Istanbul in 2022,the International Society for the Performing This report is structured as follows:Arts Congress in New York in 2022,and the Arts and Humanities Research Councils Beyond Conference in London in 2023.The Creative Industries Policy and Evidence
57、 Centre highlighted impact investment as one of eleven key actions in its Global Agenda for Cultural and Creative Industries in 2021 8.This report hopes to continue and support this momentum,serving as a catalyst to the establishment of national and international interest groups and communities of p
58、ractice with representation from the broad range of interested parties listed above.These communities will provide a necessary supportive foundation for a mutually beneficial intersection between the impact investment and cultural and creative sectors.Success in this regard will be measured by:accel
59、erating capital flows into the cultural and creative sectors.a strong and growing impact investment infrastructure/ecosystem.and a growing evidence base around positive social impact.1 The social impact of the cultural and creative sectors An introduction to the possibilities for social impact in th
60、e cultural and creative sectors.2 Impact investing An introduction to the growing impact investment industry and developing practice.3 The opportunity for impact investing in the cultural and creative sectors A discussion of the advantages to the cultural and creative sectors of having this growing
61、source of socially conscious capital.4 How impact investment can work in the cultural and creative sectors Some examples of how impact investment capital is being connected to the cultural and creative sector globally,with a particular focus on Arts&Culture Finance9,an initiative in the UK originate
62、d within innovation foundation Nesta10,in partnership with Arts Council England,Esmee Fairbairn Foundation and Bank of America11.5 Creating the conditions A set of recommendations for how to create the conditions for a functioning impact investment initiative in the cultural and creative sectors.Imp
63、act Investing in the Cultural and Creative Sectors:Insights from an emerging field8 1The social impact of the cultural and creative sectors There is huge diversity and richness to the benefits brought about by CCS organisations and therefore many different ways to think about their social impact.Art
64、s,culture and creativity are broad concepts incorporating many ideas and activities;they are complex by definition.This presents both challenges and opportunities.Challenges can arise,for example,when discussions of value and impact in CCS struggle to find a common language.On the other hand,this pl
65、urality means that the benefits of culture can be seen and felt in many different ways and by many different beneficiary groups.Social impact in the CCS can,and often does,cut across different kinds of activity:music programmes in prisons;drama groups for victims of domestic violence;a riot sparked
66、by innovation in musical composition;12 a novel transforming an individuals outlook on life and in order to account for it fully,interested parties need to look more deeply at the work organisations deliver.The cultural and creative sectors deliver positive impact in a vast array of areas,from clima
67、te to conflict,and migration to criminal justice;a comprehensive representation is beyond the scope of this report.The range of organisation types represented in the CCS is also important:while some organisations may naturally be more social impact inclined and accountable due to their constitutiona
68、l objectives,legal structure,regulatory requirements or funding mix,every organisation has the potential to create value beyond the purely commercial sphere.It is common to use the terms intrinsic and instrumental to talk about the value of the arts,broader culture,and creative pursuits having intri
69、nsic value meaning something is desirable in and of itself,while things are deemed to be of instrumental value if they help achieve a particular end(e.g.,reduced falls through dancing classes13;relief of post-natal depression symptoms through singing14).This is appealing as a dichotomy,but it can be
70、 hard to know where to draw the line;indeed,it isnt obvious that the intrinsic and instrumental values of a particular artistic endeavour are either mutually exclusive(implying they dont overlap)or collectively exhaustive(implying they capture between them the entirety of value),and they could be ar
71、gued to be causally linked,i.e.,the instrumental value occurs as a result of the intrinsic value,and often,for example in the case of artistic social practice,vice versa15.Considering the challenges of this framework for understanding value helps us understand why we need to be cautious about reduct
72、ive outcome measurements,and careful to consider systems of value of the arts as complex and interdependent.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field9Using existing outcomes metricsNotwithstanding the challenges and limitations of measurement,the CCS have
73、increasingly needed to make a case for themselves beyond the intangible common good.Over the last few years,significant and successful efforts have been made to establish and evidence the positive impact of flourishing,accessible and inclusive cultural and creative sectors,mapping it onto accepted m
74、easures of recognised positive social outcomes such as improved health and wellbeing or educational performance,or a reduction in recidivism.This has resulted in a growing evidence base and a nascent understanding of the hugely powerful contribution the sector can make to the experience of individua
75、ls,communities,society and the planet.For example,in arts and health,the evidence on and interest in positive impact has developed significantly,from the 2017 publication of the All-Party Parliamentary Group on Arts for Health and Wellbeing enquiry report16 to the Social BioBehavioural team at UCLs
76、2023 investigation of the impact of arts engagement on population health17.R&D in this area has seen increased interest from funding and research bodies18,and in the UK organisations such as the Culture,Health and Wellbeing Alliance and the National Academy for Social Prescribing,launched in 2019.A
77、review of the evidence base for arts and health is provided by the team at University College London,led by Dr Daisy Fancourt19.In terms of representing the full value of assets in cultural and creative sectors and organisations,there are ongoing efforts to recognise and measure these in economic te
78、rms(e.g.,the UK Department for Culture,Media and Sports Culture and Heritage Capital20 framework),thereby allowing comparison with the value of other public assets.The case study bank of the Calouste Gulbenkian Foundations Inquiry into the Civic Social impact developing an evidence baseRole of Arts
79、Organisations21 provides powerful examples of the vital social role performed by arts and culture organisations,both nationally and within their local communities.The notion that the intersection between arts and social impact is an area deserving of rigorous interrogation and specialised,intentiona
80、l investment is thus gathering momentum,and reaping rewards.The Centre for Cultural Value,launched in the wake of the UKs Arts and Humanities Research Councils 2012 Cultural Value Project22,is a national research centre based at the University of Leeds,working alongside cultural practitioners,organi
81、sations,academics,funders and policymakers to:summarise existing evidence to make relevant research more accessible;convene discussions around questions of cultural value;shape policy development,and offer funding for research partnerships.Sustainable development:Mapping onto the goalsThe contributi
82、on that culture and creativity can make to the United Nations Sustainable Development Goals(SDGs),perhaps the most commonly recognised international framework for understanding social impact,is illustrated in the 2020 report The Missing Pillar23.This was commissioned by the British Council,and uses
83、their funded projects to highlight how cultural and creative organisations have generated progress towards the SDGs.In 2019,in recognition of the power the CCS have to contribute to the achievement of the goals,the UN General Assembly declared 2021 the International Year of the Creative Economy for
84、Sustainable Development24.For the purposes of this report,the creative economy comprises the whole creative industries workforce(creative and non-creative occupations),as well as those working in creative occupations in other sectors25.Impact Investing in the Cultural and Creative Sectors:Insights f
85、rom an emerging field10The creative industries are a global success story for Great Britain,growing at more than 1.5 times the rate of the wider economy over the past decade and contributing 108 billion in gross value added(GVA)annually.Employment in these industries has grown at five times the rate
86、 of the rest of the economy since 201126.In June 2023,the UK government released a Creative Industries Sector Vision27,developed with industry via the Creative Industries Council,setting out shared ambitions to build on that success and maximise the growth of the creative industries by 50 billion by
87、 2030,creating one million extra jobs and delivering a creative careers promise that builds a pipeline of future talent.The potential of these sectors to lead through innovation and contribute meaningfully to economic growth is reflected in the establishment of EIT Culture&Creativity28,a Knowledge a
88、nd Innovation Community designed to strengthen and transform Europes CCS by connecting creatives and organisations to Europes largest innovation network.The Creative Industries Clusters programme in the UK,launched by the Arts and Humanities Research Council in 2018,has delivered a 4:1 return on inv
89、estment for the government29 and boosted local economic growth,employment prospects and skills development opportunities.The generative effect of co-located or proximate development of creative Funders who take as axiomatic the intrinsic benefits to society of a thriving arts,culture and creative se
90、ctor,such as public arts funders or trusts and foundations with support of the arts as one of their charitable objectives,may have found it easier to make early impact investments in the arts than investors accustomed to sectors with more generally accepted outcome metrics,such as health or educatio
91、n,or key development outcome metrics such as local and national economic growth and job creation.Local,regional,national and international economic growthCapturing the valueindustries initiatives is also recognised by the recently announced Connecting Creative Corridors enquiry,a national partnershi
92、p between Arts Council England,the RSA and the Creative Industries PEC30.The power of arts and culture to deliver local economic growth via increased tourism and footfall is reflected in the City of Culture phenomenon.Other large-scale cultural events regularly demonstrate the power of arts and cult
93、ure to deliver at least short-term economic growth via increased tourism and footfall,and regular events such as Adelaide Fringe31 are delivering structural growth in local economies.Internationally,the cultural and creative sectors are among the fastest growing in the world.According to UNESCO,with
94、 an estimated aggregate worth of US$4.3 trillion per year32,the CCS now account for 3.1%of the global GDP,and 6.2%of all employment33,generating annual revenues of US$2,250 billion and nearly 30 million jobs worldwide,and employing more people aged 15 to 29 than any other sector.The CCS has become e
95、ssential for inclusive economic growth,reducing inequalities and achieving the goals set out in the 2030 Sustainable Development Agenda.The cultural sector and the commercial creative sector have deep symbioses,from inspiration to skills development,and the existence of a vibrant cultural infrastruc
96、ture and creative education are vital for this continued growth.A challenge arises in trying to strike a balance between top-down imposition of outcome metrics that may not fit a CCS initiative or intervention exactly(either because they are imported from a different sector or because an interventio
97、n is bespoke and/or delivers diffuse benefits across multiple outcome areas)and/or may capture only one aspect of value,and using bottom-up,bespoke measures,which can complicate the task of aggregating impact across a portfolio of investments in a meaningful way.Impact Investing in the Cultural and
98、Creative Sectors:Insights from an emerging field11 2Impact investing As an emergent field,there are many overlapping definitions and explanations of impact investing across the expanding literature.We intend simply to provide a coherent overview sufficient to develop a basic understanding.“Impact in
99、vesting is not a thing its a lot of things.Whether you are talking equity in early-stage social ventures where you are willing to take risk in anticipation of reward,or something more like venture philanthropy,where the spirit remains philanthropic while the approaches borrow from the private sector
100、,ultimately there are a lot of very different tools inside the impact investing toolbox.You need to know what you want to do before you pick one of them up.”Karim Harji,Programme Director,Oxford Impact Measurement Programme,Said Business School,University of Oxford34 Impact investing is the provisio
101、n of capital,typically to incorporated enterprises,with the aim of achieving both a financial and social return.The intention to achieve demonstrable positive change alongside the aim of generating a financial return is the defining feature of impact investment:impact investors proactively seek inve
102、stment opportunities that will make a positive difference.This positive change can be referenced in terms of measurable outcomes this is a key distinction between financial return and social return,as the financial return is its own evidence35.However,given an increased focus on the potential negati
103、ve outcomes associated with investments in the broader investment market,social and financial risks and returns are becoming more interlinked,as,for example,the campaign to move towards impact-weighted accounting standards36 gathers momentum.Impact Investing in the Cultural and Creative Sectors:Insi
104、ghts from an emerging field12InvestmentapproachFinancialgoalsImpactgoalsTraditionalResponsibleSustainableImpact-drivenPhilanthropyDeliver competitive risk-adjusted financial returnsToleratehigher riskToleratebelow marketreturnsPartialcapitalpreservationAccept fullloss ofcapitalAvoid harm and mitigat
105、e ESG risksBenefit all stakeholdersContribute to solutionsDont considerMay have significant negative outcomes forpeople and the planetAvoid harmTry to preventsignificanteffects onimportantnegativeoutcomes forpeople andplanetBenefitEffectimportantpositiveoutcomes forvariouspeople andthe planetContrib
106、ute to solutionsHave a material effect onimportant positive outcome(s)for underserved peopleor the planetThe impact economyThe spectrum of capital37 As the impact investment market and its players grow in sophistication,breadth,diversity and imagination,we envisage that the appetite for experimentat
107、ion and risk-taking around social impact delivery will grow,enabling the market itself to contribute both to the impact delivered by the sector and the evidence base around that impact.Impact investors who overlook the cultural and creative sectors in their investment universe could begin to observe
108、 that their portfolios are missing an element that can deliver impact in its own right(e.g.,social cohesion,overall population wellbeing)and can also contribute to outcomes typically measured separately(e.g.,educational attainment,mental health,physical health,economic growth and development).Impact
109、 Investing in the Cultural and Creative Sectors:Insights from an emerging field13The impact investment marketThe field of impact investing is emerging through an exciting range of experimentation across numerous sectors concerned with social benefit health,education,technology,sustainability,equity,
110、accessibility and social justice.As with any emergent field,there are live debates around definitions.By any definition,though,the growth in the impact investment market over the last ten years outpaces that of the vast majority of other asset classes38.In 2022,the Global Impact Investing Network es
111、timated the market size as US$1.164 trillion39,up from US$715 billion in 2020.The International Finance Corporations 2020 global estimate40 was even higher US$2.3 trillion,of which US$636 billion clearly has an impact management system in place.In the UK alone,Big Society Capitals market sizing exer
112、cise for 2022 revealed more than tenfold growth over the past 11 years,increasing from 830 million in 2011 to almost 9.4 billion41.Impact investment typically comes from high-net-worth individuals(HNWI)/family offices,charitable trusts and foundations,and government agencies,often through intermedia
113、ries such as fund managers(see below)42,43.Investments are typically made through debt or equity instruments;the UK market is largely debt-dominated,with equity or impact venture investment making up only 7%of the market in 202244.Crucially,the assessment of investee impact(impact returns)usually fo
114、rms a key part of the deal-making process,in addition to traditional financial analysis,while reporting to investors and intermediaries includes information on both financial and social performance.IntermediationImpact investments can be made directly by capital owners or,more commonly,via intermedi
115、aries.Typical advantages of using investment intermediaries can include:For investors:Specialist sector knowledge Networks and expertise Access to investment opportunities Portfolio management Risk management/diversification Economies of scale resulting in lower overall transaction costs Improved li
116、quidity due to capital pooling vehiclesFor investees:Efficient access to investment capital More standardised terms and processes Specialised support on financial management Access to technical assistanceOn top of these,impact investment intermediaries will typically provide:Skills in pre-investment
117、 impact assessment Skills in post-investment impact monitoring and evaluation Knowledge of good impact practice Impact management and reporting advice and support to investeesImpact Investing in the Cultural and Creative Sectors:Insights from an emerging field14Another critical role of the intermedi
118、ary is to distribute and mitigate the fundamental power imbalance between funder and funded organisation,particularly when the intermediary represents a collective of underlying investors.The intermediary adds another cost into the ecosystem,usually in the form of fees.This will tend to increase the
119、 cost of capital to the recipient of investment.Fund structuring and blended capitalWhere impact investment is intermediated,the responsibility for pipeline development,deal origination,due diligence and portfolio management typically sits with the intermediary,which may be a standalone entity or pa
120、rt of another organisation.Intermediaries may be impact investment firms,banks,charitable trusts and foundations,or entities set up for the specific purpose of deploying funds on behalf of investors.Funds may be held on the balance sheets of intermediaries or within fund structures managed by the in
121、termediary.The details of how a fund may be structured are subject to a number of variables,including:The type of investment(i.e.,debt or equity)that the fund intends to deploy to social impact enterprises.How investors intend to invest their capital into the fund(e.g.,debt,equity or grant);Investor
122、 governance and regulatory requirements,for instance whether investors have a decision-making role in fund investments to be made or whether they have management responsibilities.Investor terms and requirements;for example,how long their capital is outstanding,return requirements and liquidity prefe
123、rences.The costs associated with deploying the investments/management fee.Blended capital structures,which combine concessionary capital(for example,from philanthropic sources)with non-concessionary capital can attract more conventional investors to impact funds and support the development of more f
124、lexible and risk-tolerant investment products(see page 23 for a discussion of how blended capital structures can leverage new capital for the CCS)45.In some cases,concessionary capital can be used to subsidise the operating costs of a fund,which can reduce the cost of capital to investees.Impact Inv
125、esting in the Cultural and Creative Sectors:Insights from an emerging field15 3The opportunity for impact investing in the cultural and creative sectors The need for transformative modelsThe CCS are at a critical juncture,in the UK and globally.Audience behaviours are being disrupted across the gamu
126、t of the industries,from the upending of entertainment consumption models by streaming services46,to shifts in attendance patterns after the pandemic47,to broader changes in preferences across demographics,at least in part driven by rising inequality/changes in wealth and income distribution48.Artis
127、ts rights are in the news at the point of publication,from the Hollywood strikes to the issues surrounding the ownership of Taylor Swifts masters49,and debate rages over the wider threats and opportunities posed by rapid evolution of artificial intelligence,while blockchain developments may hint at
128、more equitable rights models for the future.Enabling artists to participate equitably in the success of their work is not only fair,but is vital to ensuring a healthy forward pipeline of talent and skills,work and content.At the same time,public and philanthropic funding mechanisms for the cultural
129、sector are undergoing a comprehensive interrogation in terms of where the funding comes from,where/whom it goes to,and how it gets there;with a particular lens on whether these structures are upholding legacy inequities50,51,52,53.These uncertainties occurring in conjunction could conceivably engend
130、er a retreat of capital from risk,which carries the potential to stifle innovation,removing incentives to create,programme or produce groundbreaking work.At the creator/content level,worrying trends are emerging around the increasing challenge for new artists to break through,as streaming services d
131、ominate content consumption54 and recommendation algorithms cement preferences,and the age and profile of festival headliners55 make headlines56.In this environment,new approaches to investment,and particularly those with the ability to unite funders around common social outcomes,could be transforma
132、tive to the sector.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field16Assets to invest inCCS organisations have a diverse array of assets,both tangible and intangible.While there are obviously physical assets in many cases,such as buildings and collections,there i
133、s also a generally underexploited intangible asset base in the form of content,intellectual property and organisational networks.The value of these assets has arguably been underexploited,particularly in the context of strong international demand for cultural content,due to a lack of proprietary cap
134、ital to invest.Organisations with access to investment capital have incentives to explore how these assets could be developed to generate revenue.Funding these projects through grants can diminish the focus on return on capital calculations,as the budgets will normally be developed and assessed with
135、 more attention on immediate cashflows,and longer-term forecasts may be subject to less rigorous evaluation without the requirement of generating investment returns.The availability of capital to invest may thus inspire a reimagining of the revenue-generating potential of assets,and allow organisati
136、ons to participate in the future successes of their originated projects.This ability to generate cash,internal capital,can in turn support development of new ideas and initiatives.Example:In 2016,with the help of a loan from Arts Impact Fund,Soho Theatre Company launched its own video-on-demand stre
137、aming service,Soho Theatre Player57,for which the initial content was a collection of ten self-produced episodes of stand-up comedy that leveraged its extensive nestwork of acclaimed comedians.The content is available to stream directly from the service for a fee,while licensing arrangements were en
138、tered into with broadcasters and streaming services such as Amazon Prime to maximise value and drive new audiences.New venture modelsWhile legal forms can be constraining,with non-profits usually unable to take equity investment,new models are also emerging that occupy the space between charity/subs
139、idy and commercial/purely for profit,opening up the possibility of a greater diversity of investment models.Legal forms able to take equity,such as community interest companies(CICs),or certifications such as B Corp that reassure investors that the social mission and integrity of an organisation is
140、protected,are broadening the options for investors seeking impact.Hybrid models such as trading subsidiaries/joint ventures are also a possibility for cultural organisations with potential growth assets but without the immediate cashflows to service a debt investment.Example:In The Room58 is a conve
141、rsational AI start-up founded as an R&D project within the National Holocaust Museum and Centre,which remains its majority stakeholder,part-funded by an impact loan into the museum.The project,initially a 3D holographic projection using natural language processing models,was developed as a technolog
142、y-driven response to the challenge of preserving the experience of direct interaction with a Holocaust survivor,which was a fundamental element to the visitor experience offer.In The Rooms founder,Sarah Coward,has observed that having a cultural organisation as majority shareholder lends credibility
143、 and integrity to the organisation when dealing with partners and customers,while the museums stake gives it access to the exciting growth potential of the venture.In The Room is part of Innovate UKs Global Incubator Programme,recently travelling to Toronto in partnership with MaRS,as one of the UKs
144、 most promising start-ups59.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field17The opportunity for system changeIn countries such as the UK,Canada and Australia,where the existence of significant public funders has traditionally supported a dichotomy between subsi
145、dised and commercial activity,impact capital provides an opportunity to explore the space in between,expanding the options for equity investment.Some activities,such as outreach programmes and work with disadvantaged communities,cannot attract revenues without undermining their impact;and some new w
146、ork or artistic practice will not be predictable enough for investment and therefore requires grant funding,at least for proof-of-concept,so grant capital will always be vital for the sector.However,there are also opportunities to invest in assets or ideas that will not be suitable or eligible for g
147、rant funding.Impact investment can use a cross-subsidy lens to look at the impact at the organisational level:the investment can develop an asset,and the associated revenue stream can be reinvested in the impact-delivering activities of the broader organisation.Public funders are also keen to expand
148、 the range of funding tools available to them.Georgie McClean,Executive Director,Development and Partnerships at Creative Australia,tells us“.we are now operating under new legislation that enables us to take an equity position,which under our previous legislation we couldnt.We have traditionally be
149、en a grant maker,but we now talk about ourselves as an investment and development agency.So newer approaches like impact investing are increasingly part of our narrative and are likely to feature in the way we think about our role.”60What does impact investment offer the cultural and creative sector
150、s?For CCS organisations,impact investment has the potential to bring in much needed new and affordable capital while also helping them develop their capabilities in monitoring,evaluating and communicating their impact.The mindset generated by taking on impact investment can also be markedly differen
151、t from a grant-funded mindset,with organisations being supported by the former to encourage both innovation and long-term thinking.Prevalent availability of grant subsidy over investment capital can incline organisations towards scoping activity in accordance with available grant revenues,rather tha
152、n developing more sustainable,less grant-dependent business models and investable business units.Predicating project development by default on grant funding might portend a version of the downward spiral illustrated by American cultural theorist Michael Kaiser,in Curtains?The Future of the Arts in A
153、merica:less capital,less activity;less activity,less growth;less growth,less viability61.Wakiuru Njuguna of Heva Fund agrees:“.for these businesses,I believe sometimes grants can really make businesses restrict their own growth.And so I dont particularly believe in one way of investing or one way of
154、 working within the creative sector.I think a combined approach to investing is what is needed to grow and sustain the creative economy.”62 Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field18traditional risk-return dynamic,which expects higher returns for higher r
155、isk investments.This layer within a blended capital structure is often referred to as catalytic or concessionary capital.Recent reports for the UKs Department for Culture,Media and Sport by New Philanthropy Capital63 and for Big Society Capital by Change Coefficient64 discuss this in greater detail.
156、Interest in these models is also evidenced by recent events at the European Bank for Reconstruction and Development and a series for the Global Impact Investing Network Investors Council focused on blended finance.Finally,in terms of the capacity to expand capital available,the repayable aspect of i
157、nvestment can allow funds to be redeployed to the sector often referred to as recycling.This is particularly true of debt,while equity investors may wait years for an exit.In practice,the same capital can be used multiple times over compared to non-repayable funding.In this way,for example,Arts&Cult
158、ure Finances Arts Impact Fund was able to make loan commitments 1.3x the size of its original investable capital.Extending the pool of available capital:Blended finance,leverage and recyclingThe possibility of financial return suggests that impact investment has the potential to grow capital flows i
159、nto the arts through the addition of capital holders for whom financial return/capital preservation is a priority and who would be unable to make purely philanthropic transfers of funds.Moreover,the focus on impact evidence implicit in this form of investing has the potential to draw in funders driv
160、en by evidence underpinning the credibility of an intervention,rather than by the cultural or creative practice inherent in it.The power of leverage,achieved through the structuring of impact investment funds is also key to expanding investable capital.The participation of lower return-or higher ris
161、k-inclined capital within a fund from a philanthropic or public sector funder,for example can catalyse the participation of higher return-or lower risk-inclined capital,such as from banks or private capital.This is often done by providing a first loss or credit protection layer within a fund structu
162、re,or by providing a guarantee.Funders primarily motivated by sector or impact objectives can play a unique,catalytic role in this respect because of their capacity to invert the Impact investing or just investing?It might be argued that investment without the impact lens could achieve many of the s
163、ame outcomes for the CCS,and would have fewer constraints on its deployment,while requiring less of investees.However,the primary concern for many organisations looking for capital may be economic factors such as the affordability and flexibility of loan repayments,or the overall cost of capital65.P
164、articularly for debt investments,investors seeking impact may be prepared to take a lower financial return when significant impact will be delivered,so this in practice is likely to have a positive effect on affordability.This impact may not need to be social in the sense generally accepted within i
165、mpact investment an investor motivated purely by the intrinsic benefits of the arts may well forgo reporting around instrumental social outcomes.In addition,for organisations looking in any case to understand better or to boost their social impact,working with an impact investor can be beneficial.In
166、 terms of growth or higher-return investment opportunities which may be suitable for equity capital now or in the future,there are also instances of financial innovation in the CCS66.There are,for example,initiatives in the creative industries specifically aiming to use investment capital to support
167、 economic growth and local development,such as Creative UKs Creative Growth Finance67,68 in the UK which recently launched a 35 million fund in partnership with Triodos Bank,which is forging the way for creative industries-focused investment strategies.Impact Investing in the Cultural and Creative S
168、ectors:Insights from an emerging field19The investment relationshipThe value of impact investment in arts and culture goes beyond the purely monetary considerations of leverage,new capital and recycling.There is something to be said about the investor-investee relationship relative to the relationsh
169、ip between grantmaker and grantee.Firstly,the former is typically a longer-term relationship:while its uncommon to see a grant award being made over a period greater than three years,investment realisation timeframes frequently exceed even five years.Secondly,the investor aims,by definition,to get t
170、heir money back,which means that they are incentivised to closely monitor,understand and support the investee to affect this outcome.Finally,and depending on the investment mechanism,the possibility of legal recourse for investors can sometimes create stronger incentives for investees engagement;whi
171、le there may be the possibility of grant claw-back in some grant agreements,a grantmaker is rarely a creditor and therefore lacks the protections offered to creditors by law in most jurisdictions,such as the ability to petition for the wind up of a business should repeated demands for payment in the
172、 event of default be unforthcoming.For an existing CCS funder aiming to bring about some kind of behaviour change in funded organisations,which is generally accepted to be a challenging and long-term process,there are advantages to embracing an investment relationship.Behaviour change can be incenti
173、vised by building relevant indicators and milestones into the terms of the investment,for example,as ongoing reporting conditions.Impact leverageThe Cultural Impact Development Fund(CIDF),another fund within the Arts&Culture Finance initiative(see p.24),used the investment relationship to drive impr
174、ovements in cultural organisations capabilities for delivering,monitoring and articulating greater impact.Each underlying loan agreement included:A covenant requiring compliance with an impact development plan,which set targets related to outcomes,outputs and monitoring and evaluation.Information co
175、venants requiring social impact reporting on a quarterly basis,as well as a more in-depth annual report.Provisions for annual reductions to the underlying interest rate of the loan,should certain impact targets be achieved;effectively this was an experiment in providing a financial incentive for the
176、 achievement of social impact.While it remains too early to say definitively whether these features brought about positive changes to the impact capabilities of CIDFs borrowers the fund allocated its investment funds over the period 2018-2021 there are encouraging early signs,including a high level
177、of engagement with the process as well as the achievement of impact targets qualifying for reductions in the interest rate.Through the use of similar covenants and incentives as part of the investment agreement,the investment relationship could complement efforts to bring about changes in other sphe
178、res,for example to encourage more environmentally sustainable behaviours and outcomes or greater compliance with equality,diversity and inclusion-related goals.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field20 4How impact investment can work in the cultural and
179、creative sectors International examplesOur research has surfaced some interesting examples of impact investing in the cultural and creative sectors from around the world.Before diving into an in-depth case study of the Arts&Culture Finance initiative,we highlight the key projects working at this int
180、ersection at both the cross-border and in-country level.The Creativity,Culture&Capital(CCC)69 initiative,a partnership between Arts&Culture Finance,US-based Upstart Co-Lab and Argentinas Fundacion Compromiso,with support from the British Councils Developing Inclusive Creative Economies programme,SOC
181、AP Global,United Nations Conference on Trade And Development and the Global Steering Group for Impact Investment,launched in 2021 to coincide with the UNs International Year of the Creative Economy for Sustainable Development.This project highlights one hundred impact initiatives in the global creat
182、ive economy and innovative funding models used to support them.A European Community of Practice is emerging in impact investment for the cultural and creative sectors,loosely managed by MitOst in Berlin adjacent to its Tandem for Culture70 network,and impact investment bodies and gatherings(such as
183、European Venture Philanthropy Association71,Asia Venture Philanthropy Network72 and Global Steering Group for Impact Investment73)are increasingly featuring culture and creativity in their event programming,which is also helping to highlight new developments and emergent practice.Some illustrative g
184、lobal initiatives in this space are highlighted on the following page.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field21Upstart Co-Lab Upstart Co-Lab74,a US not for profit organisation founded in 2016 in New York,connects impact investment to fashion,food,film an
185、d TV,video games and other creative industries to drive deep social impact.Since inception,Upstart has mobilized$45 million towards its mission and is currently raising the first impact investment vehicle for the US creative economy75.HEVA HEVA76,launched in Nairobi in 2013,has generated insights,ro
186、lled out more than 100 investments in creative businesses and projects,and innovated financial models specifically for the growth of the creative economy in East Africa.DOEN Participaties The main objective of DOEN Participaties77 is to achieve a positive impact on society by supporting new sustaina
187、ble or socially inclusive entrepreneurs.Impact is central to all the organisations investments.Over the past 25 years,DOEN Participaties has become the biggest impact investor for sustainable and socially inclusive start-ups in the Netherlands.Currently,the portfolio consists of 50 equity investment
188、s and convertible loans,and 18 fund investments.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field22UK:Arts&Culture FinanceGiven the authors greater access to the workings of Arts&Culture Finance(ACF)in the UK,we present a fuller case study of this initiative below
189、.This section is not intended to serve as a formal evaluation of the funds or the ACF project as a whole since repayments to all funds are ongoing.ACF,which was incubated by the innovation agency Nesta between 2015 and 2023,has been the most active impact investment intermediary in the cultural sect
190、or in the UK during this period and,most probably,in the world.ACF started as a single project,the Arts Impact Fund,which was designed to explore arts organisations willingness to take on loans,and their ability to repay and persuasively account for their impact.The portfolio of investees grew over
191、time and,after the launch of the CIDF in 2018,the funds were collectively positioned to the CCS as ACF in 2018.The purpose of ACF as the intermediary is to:Raise awareness and understanding of impact investment as a source of capital in the CCS;Develop a pipeline of investment enquiries to its funds
192、;Carry out due diligence and develop investment applications to the relevant funds;Administer and manage the portfolio,ensuring that investee reporting is carried out and deal and fund-level performance is communicated to investors.With the launch of each successive fund under the ACF banner,there w
193、as an opportunity to expand the market testing hypothesis,iterate and expand the product,and,ultimately,build the sectors capacity to deliver more work through affordable risk capital.All funds managed by ACF are examples of structured blended finance,where grant funding leverages in significant qua
194、ntities of tiered repayable capital,all of which is united around a set of core outcomes for the ACF initiative:Increasing access to affordable sources of repayable finance for CCS organisations;Increasing awareness of impact investment as well as repayable finance more broadly in CCS;Improving the
195、financial resilience of organisations taking on finance;Leveraging additional funding for CCS organisations,both at the individual deal level and at the portfolio level;Building capacity to better monitor,evaluate and articulate social impact in the sector;Growing the social impact of investees.A ca
196、utionary note is that the focus on ACF necessarily limits this sections scope to debt investments.ACFs impact investment practice represents what some impact investment taxonomies call social investment or concessionary capital,where the impact and financial risk are not offset by unlimited upside a
197、s in an equity or venture investment.The broader universe of impact investment opportunities in the CCS encompasses a wider range,including equity investment into creative enterprises delivering positive social outcomes.ACFs investment universe is predominantly,though not exclusively,asset-locked no
198、t-for-profit organisations unable to take equity investment.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field23Fund structuringAcross the three funds,the grant capital has come from both public and philanthropic sources(Arts Council England,National Lottery Herita
199、ge Fund and The National Lottery Community Fund),while the repayable capital,made by way of loans into the funds,has come from philanthropic and private sources(Esmee Fairbairn Foundation,Freelands Foundation,Nesta,Big Society Capital and Bank of America).With each new fund,there has been an increas
200、e in the grant to loan leverage(from 1.33 in the Arts Impact Fund to 3.00 in the Arts&Culture Impact Fund),demonstrating the potential of the model to crowd in new money.The following table provides an overview of the funds and their performance.*Grant to loan leverage shows how much of private or p
201、hilanthropic loan capital was leveraged for every 1 of public grant funding.*Funds were launched in ultra-low interest rate environments.*Information correct at the time of publication,November 2023.Each fund model was built by solving for a manageable cost of capital for the end investees;projected
202、 investor returns were ultimately determined by this,operating costs,projected credit costs and their relative impact and return prerogatives.The building of a functional piece of market infrastructure was an explicit aim,and duly prioritised by the investor group.As Karim Harji observes,if“.there i
203、s disproportionate focus on the supply side of capital having the tool lead the conversation can get you into a kind of trouble.”Harji recommends the opposite,asking what tools“are most valued in helping organisations navigate some of the complexity or variability around income streams”78.FundInvest
204、ment period SizeInvestorsGrant to loan leverage*Investor returns*Product offerNo.deals made and forecast capital losses*Arts Impact Fund2015 20197m initiallyArts Council England,Esmee Fairbairn Foundation,Nesta,Bank of America1.33Investor loan capital 1%-3%Unsecured loans,150k-600k3%-8.5%interest Re
205、payments over 3-5 years27 deals;live portfolio of 11Forecast losses:13%Cultural Impact Development Fund2018 20218.6m loans made due to recyclingNational Lottery Community Fund,Big Society Capital1.93Initially 5%,revised to 2%following the pandemicUnsecured loans initially,25k-150k coupled with grant
206、s following the Covid-19 pandemic5.5%-8.5%interest;interest discount possible on achievement of impact targetsRepayments over 3-5 years10 deals;live portfolio of 7Forecast losses:20%Arts&Culture Impact Fund2020 2023/4840kArts Council England,Esmee Fairbairn Foundation,Nesta,Bank of America,Heritage
207、Fund,Big Society Capital,Freelands Foundation 3.00Investor loan capital 1%-3%Secured and unsecured loans,150k-1m3%-8.5%interest Repayments over up to 10 years14;live portfolio of 10Forecast losses:7%Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field24ACF approach t
208、o impact ACF has developed its own framework for assessing social impact in the course of developing its investment applications.This has been an iterative process,balancing investor requirements,sector capabilities and the teams own internal capacities.It also took as a starting point the work of N
209、esta Impact Investments in its 2017 impact strategy79.It is worth noting that impact measurement across investors varies widely and the ACF framework may not be representative across the industry.ACFs investors have,to date,not been prescriptive as to the positive outcomes they seek;instead,this is
210、left for applicant organisations to define and articulate.Applicants are required to provide an overview of their work,after which the investment team identifies a core programme for deeper analysis as part of the due diligence process.The impact assessment aims to develop an understanding of the pr
211、ojected impact over the lifetime of the proposed investment by looking at both impact returns and risks of the core programme.Impact returns are defined as the difference that the applicant aims to help bring about in individuals,groups,communities,organisations,or systems.The team is specifically i
212、nterested in the outcomes that are within the organisations accountability line that is,the outcomes that the organisation aims to influence directly and holds itself accountable for as opposed to the longer-term outcomes and impact that depend on a wide variety of conditions and factors that are be
213、yond its accountability or control.Impact returns are assessed through a review of the documents and evidence relating to the applicants impact aims,such as its theory of change,programming plans,and internal and external evidence of need among service users.This assessment has three dimensions:Need
214、:the measure of the gap between the current conditions of the interventions target group and the desired outcomes.Depth:the level of outcomes experienced by the target group,or the measurable or observable changes in attitudes,behaviours,knowledge,skills,or circumstances that the organisation aims t
215、o help bring about in individuals,families,communities,organisations,or systems.Scale:the number of users reached in each year of the investment period who meet both the organisations and the funds target group criteria.Impact risks are defined as the factors,both internal and external to the organi
216、sation,that affect ACFs confidence that the organisation will be able to achieve its projected impact returns.The risks are assessed against three areas:The appropriateness of the impact model to the needs of the target group,the extent to which it is evidence based and credible in relation to the d
217、esired outcomes.The extent to which the organisation is able to deliver the impact model to a high standard;whether it has the appropriate resources,frameworks,and experience across its personnel.The extent to which the organisation has the appropriate frameworks,processes,and capacity to measure an
218、d manage the outcomes within its accountability line.If the above two impact risks relate to capability to affect positive outcomes,this risk concerns the capability to provide evidence for these outcomes having taken place.The impact assessment forms a core part of the investment application that i
219、s submitted to the relevant funds decision-making committee.On entry to the portfolio,an impact development plan and evaluation framework is developed collaboratively with the investee,centred on the core programme,which is the basis for establishing potential impact returns.The development plan and
220、 framework identifies key outcomes targets and corresponding indicators for the programme and is used as the basis for impact reporting for the duration of the investment.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field25While all ACF investment officers contribu
221、te to the impact assessment,the work is largely led by the teams impact manager,a role that was introduced to ACF with the launch of its CIDF.This role has been crucial to developing ACFs impact framework and to supporting applicants and portfolio organisations to develop their impact management cap
222、abilities.A key part of the role is to bridge the divide between the sometimes esoteric,technical language common to the field of impact management and the day-to-day work of the organisation.Understanding the portfolioBetween 2015 and 2023,ACF was able to make 51 loans across its three funds,repres
223、enting investment commitments of 14.6 million80.At the time of writing,nearly half of all capital deployed to cultural organisations has been repaid,with the outstanding balances distributed across 28 organisations.Of all the loans made across all funds,four have been terminated due to borrower inso
224、lvency;across these four cases,383,000 has been written off to date,representing a current write-off rate of 3.4%on deployed capital.The 51 investments made by ACF span most major art forms music,literature,theatre,dance,painting as well as museums,creative education institutes,heritage organisation
225、s and workspace providers.On average,organisations in the portfolio work with at least three different beneficiary groups;just under three-quarters of organisations have activities aimed at reaching children and young people,and 31%of organisations have provisions reaching or targeting those from th
226、e global majority.In terms of the impact,as well as contributing to a wide range of outcomes specific to the CCS,it is estimated that the work of each investee contributes to 2.7 UN-SDG outcome areas,on average.Nearly three-quarters of investees are delivering work that is aimed at reducing inequali
227、ties.66%are working towards quality education and 59%in providing opportunities for decent work and economic growth.To give specific examples of what social impact delivery may look like in practice:Royal Shakespeare Company:a renowned theatre company that also delivers an education programme in sch
228、ools based in areas of structural disadvantage to improve young peoples literacy as well as their self-belief in their capacity to learn.Future Yard:a music venue that runs a programme for young people aged 14-24 to develop the skills,understanding and confidence required to pursue careers in the li
229、ve music industry.InHouse Records:a record label that uses music production activities to effect positive behaviour change in the prison population,including reducing the rate of re-offending and creating pathways to further education and training.While a fuller discussion of income models in the po
230、rtfolios is outside the scope of this report,fundraised income(either through public funders such as Arts Council England,trusts and foundations or individual giving)is a key part of the income mix for most portfolio organisations.The level of so-called unearned income varies from 0 to around 80%in
231、some cases,but aspirations to greater self-reliance and increased diversification of income sources have underpinned the majority of investment cases in ACFs funds.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field26The specific uses of borrowed funds vary widely e
232、.g.,buying property,paying for staff,paying for services,upgrading fixed assets.Spending on buildings and premises either to acquire or refurbish was a core component of 58%of deals.In terms of a more meaningful taxonomy of end use cases,the following table shows three broad categorisations and the
233、proportion of cases across the portfolios in which they appear.For this analysis,we have In just over half(54%)of all cases,ACFs investment sits alongside other money,either grant or other investment.This funding might come from local government,trusts and foundations,individuals,and other investmen
234、t intermediaries.In these co-funded cases,ACFs funds contribute to 38%of the project cost relied on the judgement of ACF investment officers closest to each investment.We should also note that for many deals,there is more than one use case for example,a loan might ultimately be used to grow existing
235、 activities and try out some new ones.The appetite for developing new income-generating activities(essentially a form of corporate venturing)is both striking and encouraging.on average.How essential is ACFs funding to a particular project going ahead?ACFs investment officers estimate that in 21 of t
236、he 51 deals(40%),its funding was essential.Of these,nine were co-funding/investment structures where ACFs investors effectively unlocked 1.80 with every 1 of their own capital.Proportion of dealsSustaining existing activities(e.g.,loans to manage cashflows from existing activities)25%Growing existin
237、g activities 63%Developing new activities 54%Case Study:Village Underground A live music venue in the London borough of Hackney,took on a 600,000 loan from AIF that,alongside funding from other investors,allowed it to take on multiple leases representing different venues in one large building,a form
238、er art-deco cinema,also in the borough81.After extensive refurbishment works at the property,the site was reopened as the EartH arts centre,which included a new hospitality and catering offer,a new venture for the company.A new music education and production suite has also been built into the site w
239、here,in partnership with local arts charities,young people from the borough have the opportunity to gain key workplace skills.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field27Beyond this,some borrowers have commented that going through the due diligence process
240、with an investor is an endorsement in itself,which has positively impacted their ability to raise further funding:“If Arts&Culture Finance has lent you money,then other financial organisations know you have gone through strong due diligence and that gives them more comfort.”82 Nichole Herbert Wood,C
241、EO,Second Floor Studios&Arts Explanation of table column headings Modelled:The write-off rate estimated at the fund design stage.Variance across funds reflects the expected risk profile of each fund,which is a factor of the expected resilience of the typical borrower in the fund and whether the fund
242、 will undertake collateral-backed lending.To date:Actual write-offs of deployed capital at the time of writing.To date and current provisions:In addition to actual write-offs,ACF makes a provision for Impact investment in the cultural sector is typically collaborative and,if deployed appropriately,c
243、an be catalytic to organisations and their projects,with significant leverage potential.Fund performanceThe current average write-off rate83 across all funds of 3.4%is considerably lower than the equivalent figure estimated at the fund design stage.However,given that each fund is at a different stag
244、e in its lifecycle and there is a tendency for losses to be back-loaded(i.e.,companies are less likely to run into difficulties at the outset of an investment),it is likely that the final level of write-offs across all funds will be much higher although still lower than what was modelled at the outs
245、et,as the following table indicates.capital that is at risk of being written-off within the year.The percentage of capital provided for may go up or down depending on borrower circumstances,with risks regularly reviewed;as such,this metric should be seen as a prudent current snapshot of possible tot
246、al losses.Teams current estimate:Given that there remains a significant period of time before all deployed funds are due to be repaid(2025 for AIF,2026 for CIDF,2032 for ACIF),this metric gives the teams current best guess of the total write-off rate for each fund,taking into account their understan
247、ding of all current borrowers.Modelled To dateTo date and current provisionsTeams current estimateProjected fund life%000%000%000%000AIF15.41,0324.633517.11,23813.09432015-2025ACIF7.71,3860.0-0.0-7.01,2602020-2032CIDF25.02105.64717.114320.01682018-2026Average163.411.413.33Total2,6823831,3812,371Impa
248、ct Investing in the Cultural and Creative Sectors:Insights from an emerging field28After taking into account these loss rate estimates,it is expected that all capital and interest payments will be realised within the agreed timeframes,something that is made possible by the grant layer in these funds
249、,which is designed to absorb loan write-offs across the portfolios.A further indicator of positive performance is that Bank of Americas senior facility in the Arts Impact Fund was repaid in 2021,one year ahead of schedule.Keeping loss rates low has been possible only through the flexibility that ACF
250、 and its investors are prepared to exercise towards borrowers,where it is clear that borrowers are a viable going concern84.In addition to the blanket forbearance on capital and interest payment offered to portfolio companies in 2020 as a result of the Covid-19 pandemic,loan repayment profiles have
251、had to be restructured at some point in nearly all cases,sometimes multiple times.Restructurings may typically involve capital repayment holidays and extensions of the loan term and are often instrumental in supporting the borrower through challenging trading conditions.Loan variation proposals are
252、developed following reviews of borrowers financial performance and operating conditions and submitted to the relevant fund investment committee for approval.The ACF data leads us to a preliminary conclusion that a blended model of debt-based impact investment in the CCS can succeed in delivering exp
253、ected returns to investors,provided that funders and intermediaries are able to commit to the project over a time horizon85 that allows for the overcoming of challenges in the operating environments of the underlying borrowers.A significant caveat is the fact that all of these funds were structured
254、in a low interest rate environment and,even then,lenders into the funds were committing to discounted sub-market returns in exchange for a mission-related investment.This is a modest but encouraging conclusion.Modesty pertains to the fact that no claims are being made around the economic potential o
255、f the CCS as a whole;ACF uses debt-based investments that were designed to be affordable to the sector.A separate discussion would be required to assess the viability of the sector to achieve the higher financial returns in a higher interest rate environment or a returns profile more usually associa
256、ted with equity investment.Also,while it is ACFs aspiration to have portfolios representative of the sector as a whole,applicants are ultimately self-selecting.We cannot infer from these organisations general conclusions about the universe of opportunities that could benefit the most from impact inv
257、estment.There may,for example,be organisations who could benefit tremendously but do not have the awareness or capacity to apply successfully for it86.Nonetheless,the encouragement lies in the fact that the leverage-based impact investment model can work for many organisations in the CCS.Impact Inve
258、sting in the Cultural and Creative Sectors:Insights from an emerging field29Impact on investeesIn order to monitor and evaluate the impact of ACFs lending on its borrowers,the team undertakes annual portfolio surveys and encourages recently repaid borrowers to complete an exit survey.Annual surveys
259、indicate that the majority of investees believe taking on investment has helped their organisation to achieve its business,financial and impact-related objectives:81%of investees think guidance from the team improved their approach to measuring and evaluating their impact at least moderately,with 38
260、%stating they had improved a great deal.These findings are also replicated in exit surveys(albeit with a smaller sample size).“Working with Arts&Culture Finance not only helps us to understand our social impact with greater depth but also how we can develop it.Social impact has become integral to ou
261、r business model and our future aspirations for our work.”87Tara Cranswick,Director,V22Three out of every four respondents agree that they have been supported to both use their impact findings to improve the way their organisation works and improve the way they communicate their impact to stakeholde
262、rs.There is also some evidence to suggest that taking on investment has led to improved financial resilience in the Arts Impact Fund portfolio88.Over 50%of borrowers experienced increases in eight out of nine resilience metrics89 in the period after taking on their loan,compared with the period befo
263、re.In follow-up interviews only 13%responded by saying that the loan had not improved financial resilience90.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field30 5Creating the conditions InternationalThe hypothesis is that a dedicated and intentional international
264、pool of capital/wholesaler could:Whilst ACF has invested exclusively in UK CCS organisations during its incubation period,it has also been active in field-building for impact investment in the CCS at a global level,through the Creativity,Culture&Capital initiative and through active dialogue with in
265、terested parties internationally.The Creative Industries Policy and Evidence Centre highlighted the need for a 1.Catalyse the development of local intermediaries by making available seed capital to cornerstone local funds.2.Build a powerful,extensive and diverse evidence base and illustration compen
266、dium for the financial and social returns generated by the cultural and creative sector.3.Advocate in the broader impact investment community for the positive impact generated by the creative and cultural sectors,growing both the pool of impact capital and the access of the sector to that pool.4.Sha
267、re learning across geographies and develop models of best practice for intermediaries,including stakeholder management,operating systems and processes,impact evaluation,management,measurement and evaluation.coordinated approach for the development of alternative finance models,and impact investing i
268、n particular,in its Global Agenda.Part of the rationale for creating an international coalition is to make the case for and work towards the establishment of a global fund,or pooled capital vehicle,focused exclusively on the CCS,or the broader creative economy.5.Share skills and experience to expedi
269、te the development of functional local and international CCS funding infrastructures,including skills development,training and qualifications,with a focus on inclusive talent pipeline development.6.Drive understanding of the potential of impact investment for the CCS by making capital available at s
270、cale.7.Facilitate international collaboration on the development of a shared impact language for the CCS.8.Support and enable international scaling and cross-border partnerships and collaborations between CCS/creative economy organisations.9.Facilitate international trade of cultural and creative pr
271、oducts and services.Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field31Local/nationalOver and above the creation of a global CCS impact investment fund/wholesaler,policymakers or other national stakeholders can investigate the following questions and take steps to
272、 create the conditions for a flourishing impact investment infrastructure for the CCS:Education Raising awareness in the CCS of impact investment and the possibilities it can present to invest in and develop their assets.Outlining the process of taking on impact investment and managing an impact inv
273、estor,including but not limited to business planning,impact planning and management(including developing a theory of change/outcome metrics),modelling and managing cashflow projections,expectations of the due diligence process,governance and management expectations.Stakeholder mapping and convening
274、Investigate to what extent there is an obvious provider of catalytic capital(such as a public or philanthropic arts/impact investment/creative industries/research funder;high net worth individual or trust/foundation motivated by the sector and by innovation in funding models).Explore the range of st
275、akeholders involved in a strong cultural and creative sector and their appetite for participation in impact investment.Determine the appetite of policymakers for involvement to ensure a supportive policy environment.Fund structuring Mapping investors motivations,constraints,tolerances and target out
276、comes(e.g.,a public arts funder may be accustomed to forfeiting all or most of their investment,and interested primarily in leveraging new money/engaging new participants or new mechanisms of participation in the funding paradigm;a new entrant may be focused on capital preservation).Costing the prov
277、ision of the investment/intermediary function,taking care to ensure an ethical supply chain,and ensuring adequate provision for marketing of the opportunity to pipeline organisations/deal origination.Developing blended finance models that represent and optimise different financial and impact goals a
278、nd constraints.Understanding the minimum level of subsidy required to run a successful pilot that can scale economically,ensuring e.g.standards expected of organisations such as environmental sustainability and living wages are considered.Intermediary mapping Explore existing intermediaries operatin
279、g in this space.Examine what support these intermediaries might need to scale;identify mechanisms for providing this support.Investigate the need for/advantage to developing a bespoke new intermediary focusing primarily on the sector;determine whether appropriate market experiments could instead be
280、run through existing generalist impact investors.Map out the important stakeholders and critical pathways towards the creation of any new intermediary,taking into account existing and potential power imbalances,equity,diversity and inclusion.Impact Investing in the Cultural and Creative Sectors:Insi
281、ghts from an emerging field32Pipeline/investment universe mapping Investigate how many and what types of organisations could/would/can take on an impact investment,and how this might evolve over time.Establish a sense of the overall market size;commission a primary research tool intended to support
282、the data above(and,as a second order effect,generate interest).Collect examples of what types of projects would be funded,what cashflows they might generate over what time period,what other exit/payback models(e.g.,refinancing/sale)might look like;where possible investigate the prevalence and distri
283、bution of these examples to inform a sense of the overall market.Collect further information about the likely investable universe e.g.size(employees,revenue),geography,asset base?Explore what quantum of investment might be required and how this is distributed Establish what kind of return expectatio
284、ns/cost of capital the investment universe can support/tolerate?This is critical to building a feasible model and ensuring the developing market isnt stifled by an excessive cost of capital.Map out the dominant legal forms of sector organisations and what kind of capital they can take.Are there any
285、implicit biases in the proposed investment offer(e.g.,some types of organisations may be culturally debt-averse)?Support requirements How much support and technical assistance is required to get organisations to comply with eligibility and investability requirements,considering both impact and finan
286、cial standards?Is there additional support required for organisations to meet standards around e.g.,ethical employment,environmental compliance,supply chain compliance,EDI targets?Are there sufficient de-risking initiatives such as grant funds,structured R&D support and incubators/accelerators to en
287、sure that portfolios fully represent the potential of the sector?A diverse and exciting pilot portfolio will be critical to raising additional funds at scale.Impact/outcomes How developed is impact practice within the investable universe?How compatible are the impact requirements of investors with t
288、his e.g.,could an initial prototype fund introduce the sector to investment ahead of bringing in an impact hurdle?What is needed to support impact measurement and evaluation capacity within the investable universe?Impact Investing in the Cultural and Creative Sectors:Insights from an emerging field3
289、3The authors of the report collaborated with Canada Council for the Arts,Camber Arts,and the Metcalf Foundation on an exploratory summit,held in person in Toronto in July 2023,aimed at examining the feasibility of impact investing in the cultural and creative sectors in Canada.The summit assembled p
290、ublic funders(both national and international),impact investors,philanthropic grant funders,academics and cultural and creative practitioners to establish 1.whether the environment in Canada was conducive to such an initiative;and 2.if so,what it would take to build a constructive pilot.As a result
291、of this,further exploratory design work is in the process of being commissioned.All attendees noted the vital importance of having the full range of stakeholders in the room from the outset,in line with our earlier points about market testing and product design being key to establishing a functional
292、 and long-lasting piece of funding infrastructure,as this quote from Karim Harji reflects:“There are important implications for those in the nonprofit sector seeking to engage in impact investing.The first consideration is the importance of having sector voices heard within industry-building efforts
293、 in order to credibly situate the role of nonprofits beyond simply the recipients of impact investments.The second is to develop the capacity and skills within the sector to comfortably engage with the private sector and government in negotiating new structures,policies,and terms for impact investme
294、nt.The third is to organise collectively through existing industry associations or new sectoral or regional collectives and engage proactively with investors to build shared agendas and common principles around how to use impact investing more effectively.”91 Case Study:CanadaImpact Investing in the
295、 Cultural and Creative Sectors:Insights from an emerging field34Conclusion Investors are increasingly keen to use their capital in ways that do not just avoid harm,and benefit stakeholders,but also contribute to solutions.Holders of a significant and growing proportion of global investment capital w
296、ant to use it to deliver positive outcomes,and are becoming more inventive about exploring different tools,strategies,and means to effect this.CCS worldwide are effective at delivering positive social outcomes for individuals,communities and society.The competencies central to cultural and creative
297、activity experimenting,embracing complexity,collaborating across disciplines,applying imagination and ingenuity,venturing into the unknown are key to addressing many of the challenges faced by communities the world over.While essential,these factors can,as a corollary,mean that the impact delivered
298、by CCS is more diffuse,presenting a challenge of measurement,representation and aggregation.At the same time,CCS offer exciting investment opportunities,with digital technology in particular bringing potential to:Scale audiences dramatically,such as through performances in games92.Reach and engage n
299、ew and underserved members of society,such as through VR experiences93.Develop new artforms and skills.However,CCS have traditionally been understood and embraced only selectively by private investors,and therefore had limited access to development capital and support.A new source of patient capital
300、 could enable a step change in productive development of the sectors broad and compelling range of assets.More traditional funders,such as public and philanthropic bodies,can play a critical role in developing new funding models which bring private capital to CCS in appropriate and constructive form
301、s.An emerging network of impact investment practitioners are demonstrating models for understanding CCS and investing successfully,and these can be scaled and replicated.New endeavours are best designed as experimental discovery exercises rather than attempts to arrive at perfect interventions.The k
302、ey to successful impact investing and blended finance initiatives is collaboration.The priority is to build a coalition of motivated parties around the opportunity to develop a transformative tool for investing in initiatives delivering impact via the cultural and creative sectors.This shared goal i
303、s crucial it enables the different parties to benefit from each others skills,experience and perspectives;helps to overcome challenges an investor working alone may find prohibitive;and creates scale,critical mass and momentum.We hope this report will help to inspire more experiments in this excitin
304、g area,and to assemble an international community of practice,so local and national efforts can learn from each others experimentation.This will build impact investing in cultural and creative sectors into a powerful force for optimism and lasting change.35Impact Investing in the Cultural and Creati
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324、ation,Bank of America,Nesta,Calouste Gulbenkian Foundation.6.https:/ of the authors,Francesca Sanderson and Seva Phillips,are on the management team of Arts&Culture Finance.10.Arts&Culture Finance will spin out from Nesta in 2024 into an independent charity,Figurative,which aims to transform the cul
325、tural and creative sectors through structured innovation support and impact-led repayable finance.ACF will comprise the impact investment arm of Figurative.11.We also draw attention to Creativity,Culture&Capital,an international collaboration between Arts&Culture Finance,Upstart CoLab in New York an
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