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A better investment all round

by wrich
gawdo

By Paul Styler, Director of Infrastructure Solutions, ETL

Paul Styler, Director of Infrastructure Solutions, ETL

It was simple in the old days. People had ideas and initiatives and needed money. Others had money and wanted to make to make more out of it. The marriage of investor and investee worked well in a symbiotic manner. Investment opportunities were identified and appraised; those projecting above threshold return were invested in, the underlying assets were managed, financial returns generated and shared back amongst the investor group. 

Pension funds expanded, the economy grew, and everybody was happy. Inadequate propositions were left to wither, or were re-evaluated and re-appraised; costs cut, business models changed, assets stripped, start again. Survival of the fittest, dog eat dog and capitalism continues.

Something has changed recently. 

The soft and fluffy public sector doesn’t work by the same rules as hard-nosed capitalists. They aren’t driven by profit but by different outcomes such as, better health, less carbon, more education, and better services. But over the years this change of perspective has started to rub off on the private sector. Corporate social responsibilities, the triple bottom line, the ESG agenda and public and consumer perception have meant organisations have started to look at and learn from the investment decisions and processes of others. It is not purely financially motivated. We are now finding that the once un-investable do have value and are sensible propositions. 

Over the last decade many in the public sector will have got used to the phrase “social value” encapsulating everything at the heart of the outcomes that the public sector is trying to achieve. The concept is supporting a number of public sector initiatives to allow better understanding of what can be achieved from the respective investment of time, resource, and all funds.

Public sector is seen by many as the solution to market failure. Nobody else will build a new school or hospital or waste treatment centre using taxpayers’ funds on the presumption that there is no return on investment. But now, social value methodology can be applied to the outcomes of public sector decision-making processes to determine the return on the investment made – be it the annual cohort of A grade students, better quality of life following hospitalisation, or a cleaner environment.

Economists supporting the public sector can now compute the value of public sector interventions compared to the investments of public funds – comparing apples with apples. Across the sector there are many initiatives to deploy principles to the justification and quantification of outcomes. Building a hospital, for example, is today not seen as a funding burden to the state rather it can be demonstrated: –

  • How longer lives create better value for society, 
  • How better working environments make people happier and therefore more efficient,
  • How better locations improve accessibility and therefore improve take up of early intention which has lower cost and better results, 
  • How better infrastructure improves the environments in which it sits and supports regenerative initiatives, and socio-economic improvements. 

Taken together a £1bn price tag of a new hospital is dwarfed but the quantification of the improvements to society across a range of themes, as well as a range of improved tax revenues back to the exchequer. Taken further the methodology also offers rationale for investment by one public sector body, when benefit or return is received by unrelated parties. 

To give you an example a local council may invest millions in waste recycling and the return on that investment may be captured by;

  • Homeowners as house values increase due to a pleasant outlook and cleaner air, 
  • Reduced burden on the health system air quality related illnesses, and 
  • The global population as CO2 and other related emissions add to the marginal impact toward achieving “Net Zero.”

So how does this impact upon the private sector? 

Investment decisions will always be driven by financial returns. Today however, the global and the local pension funds along with SMEs have a methodology plus currency by which they can see how they impact the world, and how changes in behaviours and decisions improve that impact.

The impact is twofold. 

Firstly, making more rounded decisions with an understanding of impact and benefits to a wider audience but still under the profit motivation. It provides a rationale for employing apprentices or converting to green energy solutions or process re-engineering to employ different technologies, all of which may return no value in the short or medium term. 

And secondly, as many cross jurisdictional themes and initiatives have done so before, this methodology will eventually find a standardised way in reporting and governance standards which will raise socio-economic indicators within the shareholders agenda and in turn may change motivations as well as behaviours of those shareholders away from pure financial gain. 

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