Communicating about their impact, a new challenge for social enterprises

Communicating about their impact, a new challenge for social enterprises

An essential message of the Frankfurt School ESG & Impact Investing course[1] is: as we need scale to tackle the pressing social and environmental challenges of our times, we also need to adopt an impact screening methodology that can be used to check the soundness of any actor claiming to contribute to a given social and/or environmental effect. This methodology needs to be agnostic (without any preconceived idea of what impact is) and rigorous (based on the design of internal processes to back impact claims). This naturally concerns impact investors when they screen their investment opportunities but also when they communicate about the impact they promise.

In this article, I am reflecting on the implications of this approach on actors genuinely committed to social or environmental objectives and how they can sustain their activities in a context of exponential growth of impact investing opportunities. I take as an example the case of a French Association fighting against poor housing, first by presenting their approach and then reflecting on their challenges, including in their relationships with impact investors.

A Roof for All[2] is an association created more than 30 years ago to help people with weak resources to access and remain in a decent housing. A Roof for All is working in Isère, a department located in the French Alps, and is specialized in very social housing[3]: it brings back in decent homes, people who have no more decent personal home. They may live in unhealthy homes, temporarily benefit from a shelter provided by friend or family or from public or charitable institutions or even live in the street. The social challenge is important and increasing: in France in 2020, there were about 300 000 people without a home (it doubled when compared to 2012 and tripled when compared to 2002), while the creation of social housing has been on a decreasing trend over the past 15 years.[4]

To tackle this challenge, a Roof for All provides a modest but essential contribution: it manages 751 very social homes (46 newly created in 2022) that benefit to 2159 people for a median monthly rent of € 5.87 per square meter, in line with the French very social housing threshold definition. A smaller portion (10%) benefits to very vulnerable people for an average monthly rent of 4.9 € per square meter.

A Roof for All relies on a hybrid and sophisticated social business model.

Hybrid because it strives to break even (+24 k € in 2022) thanks to a mix of revenues from rents (41%), invoiced services (14%) and subsidies (45%).

Sophisticated as it implements its social mission through the management of four organizations, each one bringing a specific value added to the model:

1. An association in charge of the overall coordination and administration, the awareness-raising of the public and the mobilization of volunteers;
2. An observatory that provides insights on poor housing in order to precisely identify the issues, be thought-provoking and propose solutions;
3. Another association made up of two structures: a socially oriented real estate agent that provides non-financial support to tenants in addition to the traditional role of a real estate agent; and a service dedicated to acquiring and renovating the real estates, including in terms of energy efficiency.
4. A cooperative mostly owned by Pluralis (social housing property owner) and the association a Roof for All. It buys (or leases), renovates and owns the real estates.

Homes acquired by the cooperative are located in well-connected neighborhoods, fostering the social mix and providing tenants conducting environments to find jobs, integrate in the society and improve their socio-economic conditions. By transforming housing into social housing, it helps cities reach their objectives set in the SRU law.[5] The association intentionally reaches out to the most vulnerable because they are not easily eligible even to public social housing offers, because of debts or administrative issues. In order to reach them, a Roof for All signals to the French State or local authorities when a home is free so that they can indicate to the association where to find the most vulnerable people. In order to attend to the need of its beneficiaries, the association dedicates a significant part of its human resources to help them successfully find a way out of their difficult situation (social care, customized debt restructuring, psychological care, etc.).

This ambitious social business model relies on the long-term increase of the value of the renovated real estates and on the long-term beneficial effects of giving poor people the necessary means to break the vicious circle of poverty. This requires… long term cheap funding. In a context of decreasing public subsidies, increasing recourse to constraining call for proposals and increasing cost of debt (CDC funding to the association is indexed)[6], adequate funding is one of the major challenges of a Roof for All. In this context, a Roof for All ambitions to attract additional shareholders able to provide patient capital.

What impact claim will attract new shareholders? Which internal processes should a Roof for All develop to back these impact claims? Given the deep impact profile of the association, an investor could expect a Roof for All to provide precise impact data on its ouputs, such as the number of beneficiaries (tenants), their revenue level, and the rent they pay (amount and timeliness), and where they are located. The improvement brought to the building in terms of energy efficiency is also a relevant output. A Roof for All already provides this information. For example, as a Roof for All is labeled ESUS[7] and SIEG[8] by public authorities, the level of rent is a key indicator to attract investors: the difference with the average rent level in the same city allows a Roof for All to offer retail investors the opportunity to benefit from a fiscal benefit.

Beyond outputs, investors may request to get verified data related to targeted effects on the beneficiaries: how many got a job? what type, for how long? if not, why? Have their revenues increased thanks to their access to decent housing? Have beneficiaries gained in confidence? Or even on other potential positive or negative unintended effects: what effects on their nuclear family? On co-owners of the property? On the neighborhood? Collecting this information is costly and should not be done in vain.

Investors looking for deep impact should specify their expectations and be ready to provide well-designed funding that allows such initiatives to remain true to their social mission. Actors genuinely committed to their mission need to be able to provide the impact data that will illustrate their unique value proposition. Other actors claiming for impact should not have claims that exceed the actual impact that they have contributed to. This is the objective of the 2021 European Sustainable Finance Disclosure Regulation (SFDR) that aims at increasing the transparency in the market for sustainable investment products and of the 2022 European Corporate Sustainability Reporting Directive (CSRD) targeting big and/or listed companies. In this context where the impact narrative is used by so many, essential actors such as a Roof for All may need to enhance their way to communicate and manage their impact.

This article was written by Edouard Sers, Head of Risk, Compliance and Impact at Fondation GCA – Grameen Crédit Agricole.

[1] The content of this article build on lessons learned in Frankfurt School materials (2023). Certified Expert in ESG & Impact Investing.

[2] In French, un Toit pour Tous. The information shared below is drawn from its website and an interview conducted with Arthur Lhuissier, managing director of un Toit pour Tous.

[3] In France, very social housing is accessible for rent to people with very low revenues, below ceilings updated every year.

[4] Source : Fondation Abbé Pierre, L’état du Mal Logement en France, 2022.

[5] https://www.ecologie.gouv.fr/loi-solidarite-et-renouvellement-urbain-sru

[6] In France, social housing benefits from resources pooled in savings accounts (Livret A) and then granted by French Caisse des Dépôts (CDC). These savings accounts have been remunerated 3% since February 2023 instead of 0.5% a couple of years ago, which increases the cost of funding of social housing projects.

[7]  The ESUS label was launched in 2014 by the French government to develop the social economy. It is granted to organizations of public interest.

[8] The services of general economic interest (SIEG) are economic services that have to comply with public services obligations and be economically viable. They may in turn benefit from a financial compensation.