The UK’s social investment movement is gathering pace and the launch of the Impact Investing Institute this week has the potential to add booster fuel to this engine for building a better society. At a time of political and economic uncertainty, there is no doubt about the need for impact capital to help solve social problems. The question is how can we put our foot on the accelerator?
Social investment is emerging as a distinct and important subset within the much broader spectrum of impact investing. While investors in impact will expect positive outcomes for people or planet alongside a financial return, the social investor is actively seeking solutions to the tougher social challenges and will use their capital to grow enterprises and charities with the potential to solve those deep problems, while also making positive financial returns. The impact of this kind of investing has already been significant. Examples range from housing vulnerable people to prevention of harm, tackling poverty, improving lives in disadvantaged places, building resilience in the social sector, to growing ambitious tech for good enterprises.
The latest analysis published last week by Big Society Capital – the UK’s leading social impact investor – shows the total social investment market is now worth more than £3.5 billion. This is the total amount currently being loaned to or invested in social enterprises and charities. Since 2015 this volume has been growing steadily and is now more than double the amount just three years ago – a growth rate few dreamed possible even that recently. Yet social investment is now helping more than 3,500 organisations, many of whom require smaller loans or are unable to access mainstream finance, such as loans from high street banks.
The growth is driven in part by increasing awareness of and confidence in taking on investment by social enterprises and charities. The membership group for social enterprises SEUK found in a recent survey that 60% of social enterprises felt able to access external finance if they needed it. At the same time we have also seen growing interest in investing with purpose, which has prompted mainstream fund managers to create new and innovative products. This increase in products and capital has created more options for both investees and investors – helping capital to flow where it is most needed. But what would help open the tap so that the capital flowed at an even faster rate for even greater impact?
We know that many of the issues social enterprises and charities are aiming to tackle, such as homelessness and financial exclusion, require significantly greater amounts of capital than is currently available to them. At Big Society Capital we connect this demand with interested investors. We have played a key role in growing the market through various initiatives including helping create the Access Growth Fund, a blended finance initiative aiming to increase the availability of smaller (less than £150,000) unsecured loans to social enterprises and charities – funded by the National Lottery Community Fund and Big Society Capital. We developed the Charity Bond Support Fund to provide both issuers and investors with the confidence to see sustainable growth. It has helped the charity bond market grow from £30 million in 2014 to over £300 million in 2019. As a cornerstone investor in the social property market we have invested in fund managers such as Resonance which has grown from almost nothing to managing seven funds worth over £200 million.
As the Impact Investing Institute launches with a mandate to grow impact investing within mainstream finance, solution-led social investment can be counted on to deliver the deep impact as well as the returns investors increasingly want to see. We have already seen social investors pave the way for the mainstream, for instance through investing in affordable housing and clean energy for communities. Yet despite the growth we’ve seen, social investment remains a niche sport. It will be vital for social investors to show leadership by investing innovatively in other areas of social challenges, while the Impact Investing Institute will play an important wider role in raising awareness of these impact opportunities with mainstream investors. This could be the moment when social investment makes a quantum leap to engage mainstream finance.
We already know that the demand is there from the public to put more of their savings and investments into social purpose, a demand that is not yet being met. This was recently confirmed by the Department for International Development’s survey, “Investing in a Better World,” the largest and most comprehensive study of the demand for sustainable investment opportunities in the U.K. It found that 68% of U.K. savers want their investments to consider impact on people and planet alongside financial performance. So not only is there strong need but now increasingly also strong demand for social investment to grow even more quickly than we have managed so far. We are likely to see this demand grow rapidly as a new generation comes through, frustrated by perceived failure to address social and environmental issues and seeking new ways to use their capital for good. While many will be satisfied by the ESG approach which has swept through the financial sector in recent years, whether it’s a pension, savings or investments, a growing number will want their money to benefit their community in the widest sense.
So, there couldn’t be a more important mission or a better time than now for the new Institute to help open up these opportunities to the mainstream financial markets. The challenge is that if instead of impressive but relatively gradual growth we could help double or treble the social investment market over the next couple of years then we would be truly living up to the potential of impact investing and fundamentally redefining the relationship between private capital and public good.