UK social impact investment grows nearly ten-fold over decade, BSC report 

Big Society Capital’s CEO Stephen Muers welcomes the growth of the UK social impact investment sector as it grapples with the cost-of-living and energy crises

Big Society Capital (BSC) has today revealed that the amount of social impact investment in the UK has grown nearly ten-fold over ten years, from £830 million in 2011 to £7.9 billion in 2021.  Data from their annual Market Sizing exercise shows that the market continued to grow even after the onset of COVID-19, with a 22% increase between 2020-2021. 

BSC aims to improve the lives of people in the UK through social impact investing. As at end of Q2 2022 it has helped channel £2.7 billion into investments tackling a wide range of problems such as homelessness, mental ill health, and childhood obesity. 

Stephen Muers, BSC’s CEO tells Impact Investor: “Coming out of the pandemic we feared that the overall number might be someone lower than it was, so this was a positive surprise. The sector has done a little bit better than we thought it might do through the pandemic.” In 2021 alone, around £1.6 billion of investment was committed across approximately 1,300 investments.  

Social and affordable housing funds continue to account for the largest segment of the total market at £3.8 billion. Social lending – which is generally used by social enterprises, trading charities and community-based enterprises who struggle to access mainstream finance – is the second largest segment at £3.3 billion. 

Levelling up 

Muers believes “social impact investing has an important role to play in the UK’s ‘levelling up agenda’” – the desire to rebalance the UK economy away from an overdependence on London.  

BSC’s analysis of 5,900 of the social impact investment commitments made in the past decade revealed that 82% were made to charities, social enterprises and social purpose organisations based outside of London, and 60% to those in the UK’s most deprived communities.  

But the proportion of spending in London versus the rest of the UK number may seem to be moving in the wrong direction, given the proportion of the UK population in London is only 13.4% while it received 18% of funding.  

However, when challenged on this point, Muers states: “I think it is more sensible to look at London’s share of UK GDP which is far higher. And, it has to be borne in mind that the London number is artificially inflated by the number of companies who have their headquarters in London, and which are therefore reported as if they are doing work in London when, in fact, they’re doing work in the rest of the country.” 

Muers notes “33% of commitments were made within the UK’s levelling up priority one areas”.  

Cost-of-living crisis 

News that social Impact investing is surging was welcomed by Sarah Gordon, CEO at the Impact Investing Institute. “There has never been a greater need for social investment in the face of the cost-of-living crisis and the climate emergency. It is therefore very encouraging to see the growth in the market that this report demonstrates.” 

In recent days, the UK government addressed the energy crisis with its Energy Price Guarantee. However, according to the End Fuel Poverty Coalition, seven million UK households are estimated to be in fuel poverty this winter; while soaring inflation has left many families struggling to afford basics including food. 

Muers highlights the many enterprises that have taken on social impact investment to deal with cost-of-living issues. “Many of the companies we support are doing very good work in this area and we hope that investment will go further.” One such example is AgilityEco, which “helps low-income households manage their energy bills through providing practical help with energy efficiency and household finances”.  

Another is financial wellbeing app Wagestream which enables workers to manage their budgeting. Muers observes: “Our investment in Wagestream is going very well and it has made a real difference in helping people on lower salaries avoid high-cost payday lending. It is also particularly pleasing that we are seeing significant co-investment.” BSC’s mission includes a mandate to grow the UK social impact sector through catalytic co-investment. 

Energy crisis 

BSC’s report makes clear that local renewable projects have also received substantial social impact investment. Big Society Capital has invested in projects accounting for more than half of UK community energy generation using solar or wind. These include Community Owned Renewable Energy LLP (CORE) – a £40 million investment programme which helps purchase solar farms. 

Muers says BSC is also “particularly focused at looking at improving energy efficiency at the moment and a lot of the fund managers we are working with are looking at possible solutions. It is very important when we come out of government support in six months’ time that we are in a better position when it comes to energy efficiency. We are talking to partners in the sector on how best to address this.” 

In a response to the UK’s “mini budget” on Friday, End Fuel Poverty commented: “Hidden away in the small print of the Chancellor’s Plan for Growth is an announcement to expand the Energy Company Obligation (ECO) – which requires energy companies to install energy saving measures in fuel poor homes – with a £1bn boost over three years, starting from next April.”  

Relationship with the government 

The UK government’s period of consultation on the dormant banking assets comes to an end in a couple of weeks. BSC’s community enterprise growth plan is hoping to encourage the government to address community disadvantage in a sustainable way. However, Muers admits “with the change in government here in the UK it seems there may be some delay to decision-making”.  

Otherwise, there is one aspect of the recent government change that Muers welcomes – the talk about “breaking treasury orthodoxy”. He says: “I hope this may be applied to the commissioning of public services such as homelessness prevention and social healthcare. Currently rigid treasury rules require annual budgeting when many of these projects are on a more long-term basis. This will be one aspect of breaking treasury orthodoxy that I would certainly welcome.”