Building the Market for Social Impact Investment

Artificial Intelligence and machine learning investments are growing rapidly. It is increasingly clear that AI will shape our world in the coming years and that Venture Capitalists (VCs) are increasingly investing behind AI. AI is also increasingly becoming part of the BSC underlying portfolio, with investments such as Flok Health and Juniver mentioned in this report. This coming year we are commencing a research project in partnership with VentureESG, building on previous work around responsible approaches to investing in AI and how AI can help us move the needle on major social and environmental issues. One of our key learnings has been to see how VCs are engaging with AI. While we acknowledge that it is still early days, we are observing three distinct approaches emerging:

• Those assessing impact potential using existing impact frameworks with some adaptation for AI solutions.
• Those assessing mostly the risk dimension of AI and drawing on responsible investing / ESG-oriented frameworks.
• Those doing minimal assessment of impact potential or impact risks associated with AI.

Since 2012, we have learnt the value of long-term partnerships to successfully move towards achieving our impact goals.

To secure future capital for blended finance, we worked with key partners to position the Community Enterprise Growth Plan as a vital response to the new government's mission’s agenda. By speaking with one voice, navigating political changes, and demonstrating the evidence and need for investment, we secured £87.5 million in subsidies via the Dormant Accounts Scheme.

Additionally, we expanded support for Community Development Finance Institutions (CDFIs). The launch of the Community ENABLE Funding (CEF) programme by the British Business Bank in November 2024 will support up to £150 million of lending over the next two years and the two-year extension of the Growth Guarantee Scheme will enhance access to capital and help CDFIs achieve sustainability and scale. This success involved playing diverse roles: collaborating with investors to showcase potential and partnering with sector bodies such as Responsible Finance and stakeholders, including the British Business Bank, to advocate for policy interventions that support capital to flow into communities across the UK. A key factor in these successes has been the development of tailored offerings and targeted communication strategies for different groups, including government bodies, investors, market-building partners, and intermediaries.

To effectively mobilise government support for SOCs, we have learned to adopt a comprehensive approach, building awareness among key politicians and their advisors, and fostering understanding and knowledge of SOCs across civil service departments. Focusing on political engagement, without sufficient attention to the civil service, can lead to challenges regarding the actual implementation of SOCs. This is illustrated by the Evaluation and Pilots Fund, announced in the 2023 Spring Budget, aimed at exploring methods to help people return to work. Despite political engagement with Treasury and Treasury's guidance highlighting the impact potential of SOCs in this area, there was limited uptake within the civil service in terms of proposing service delivery leveraging SOCs.

More than 100,000 families, including 130,000 children in the UK, are living in poor quality temporary accommodation, often without access to basic washing and cooking facilities.

The research we commissioned with Alma Economics, and Resonance showed that by using impact investment, Resonance Homelessness Property Funds can generate an estimated £312 million in public financial savings and £143 million in wellbeing benefits over their lifetime (2013-2035), totalling £455 million in social value. This will be achieved by providing 3,300 individuals – including 1,600 children at risk of homelessness – with stable, high-quality housing.

We believe the findings show that there is a better way for Government to support families out of homelessness, while saving millions for taxpayers on temporary accommodation costs. We estimate a £100 million grant from government combined with private investment could quadruple the projected impact over the next ten years, providing housing for 23,750 people and save £1.1 billion for the public purse on homelessness. As a result, we are calling for the government to reallocate a larger proportion of its existing spend to further scale initiatives like this, which enable taxpayer funds to go further.