Investors put £10 billion into a better society as Treasury considers budget cuts

The impact market has grown 12x over the last 12 years, driven by an increasingly diverse group of investors

Better Society Capital’s investments represent 5% of the market – with a typical investment bringing £3 of co-investment in for every £1 invested originally

Ahead of the Budget at the end of the month, Better Society Capital is calling for active partnership from government to unlock more social impact investment in communities across UK

Published

The UK’s social impact investment market continued to demonstrate stability despite economic uncertainties, growing to £10 billion at the end of 2023, according to the annual assessment by the UK’s leading social impact investor, Better Society Capital (BSC).

This represents a 7% increase from £9.4 billion in 2022 and shows stable investor support for initiatives focused on tackling social issues such as reducing child poverty, combatting homelessness and preventing long term health conditions, even in challenging macro and micro economic conditions. This increase comes in the same month as the new Labour government’s first budget, when public spending on tackling these social issues is coming under enormous pressure and raises the potential for harnessing innovative sources of finance.

For the first time, Better Society Capital has also estimated the investor composition of the 2023 market. This new data shows the different types of investors that are active in the market and what areas they are investing in. The data shows that pension funds provide 21% of investment, with the highest concentration in social and affordable housing. Endowments and charities are the second largest investor group, committing 14% of the investment.

The groups cover a broad range of capital ownership from government bodies, including state owned funds, through to private wealth. The composition is an estimate based on over 1,000 investors covering BSC’s investor data and contributions from our wider collaborators on its investor base.

Aligning with government priorities on growth

The continued stability and consistent long-term growth in the sector comes at an important time as the new Labour administration prioritises economic stability and growth.

The government’s focus on building a strong foundation for the economy includes fostering innovation and investment in sectors that deliver both financial returns and social benefits—making the social impact investment market a natural alignment with these goals. This sector’s performance will be key as the government seeks to position the UK as a global leader in socially conscious investment.

The new Labour government should consider the role of social impact investment and how it can support left-behind places. Social investment has the dual benefit of driving local growth through a sustainable funding model and helping to ease the strain on public services, both vital for helping meet the five missions that the Government is focused on.

Stephanie Peacock MP, Parliamentary Under Secretary of State for the Department for Culture, Media and Sport, said:

“Labour has a proud history in this area – with Gordon Brown setting up the idea of impact investment from social bonds. As we set our priorities as a Mission Driven Government, we look forward to continuing this legacy by championing the growing impact investment sector, who harness the innovation and entrepreneurship in our country and direct it towards a common good. From assets of community value to cooperatives – we want to see more projects being funded where they are needed most.”

Polly Billington, MP for East Thanet, said:

"Better Society Capital has shown that by pairing investors with fantastic local organisations, we can tackle the great inequalities of our time and transform our communities for the better. That approach could not be more perfectly aligned with the government’s plan for a decade of national renewal, so I look forward to working closely with enterprises and investors to create that positive change in my own community in East Thanet and across the country.

Investor landscape: a focus for policy development

This year, for the first time, BSC has provided a detailed analysis of the composition of the 2023 investor market, with 14 distinct investor groups contributing capital. The top investor groups across the market include pension funds, endowments and charities and asset and wealth managers.

This insight is particularly relevant to the Labour government’s ongoing efforts to develop a strategy and tailor policies that encourage investment in the UK economy.

The government’s review of the pensions landscape, scheduled for this Autumn, will examine barriers to pension fund investments within the UK. Pension funds are a significant investor in impact, recognising a unique opportunity to align financial returns with social outcomes. Ahead of this, BSC’s findings will provide valuable input for policy discussions.

Stephen Muers, CEO of Better Society Capital said:

“It is a source of encouragement that the UK social impact investment market grew once again last year. However, we must not lose sight of the significant challenges ahead, whether that’s in housing, social inequality and the disparity in health and wellbeing across the UK.”

“As we look to the future, it is crucial for investors, businesses, and the government to work closely together to channel investment towards organisations that need it.”

“With the Labour government’s focus on growth we have a unique opportunity to shape policies that encourage more capital into impactful projects that benefit society, ease the burden on the treasury and support the economy.”

Affordable housing: a pillar of stability

The performance in of the social housing market remains consistent at £5.1 billion in both 2022 and 2023. This stability underscores the importance of high-quality housing for raising living standards and harnessing wider economic benefit1 in line with the Government’s missions. The affordable housing sector is critical, as a strong social property market contributes to reduced homelessness, increased ability for residents to work and better outcomes for children.

Loans to the social sector: a 16% rise reflects optimism

Loans to charities and social enterprises saw a significant 16% growth, reaching £4.1 billion in 2023, driven by charity bonds, increased bank lending and debt funds. This steady increase in lending highlights the sector’s potential to attract more capital, a key consideration for the government as it seeks to stimulate investment through its growth-focused policies.

Harnessing this in the future

While the 2023 figures offer assurance, significant challenges remain. Better Society Capital calls on investors and businesses to collaborate closely with the government to further unlock the potential of the social impact market. By aligning external capital with public policy objectives, the sector can continue to innovate, invest, and expand, contributing to the government’s broader goal of driving sustainable economic growth.

The figures are the realisation of Better Society Capital’s 2020 – 2025 strategy, which sought an increase in the size of the UK’s social impact investment market from £6.4 billion in 2020 to £10 – 15 billion by 2025. The achievement of this goal provides encouragement for the future of the sector, and its continued role to provide vital, sustainable finance to front line organisations who need it.

Denise Holle, Head of Social Investment at the Joseph Rowntree Foundation (JRF), said:

“We are pleased to have contributed to BSC’s 2023 market sizing review. Social investment plays a critical role in achieving JRF’s mission of a more equitable and just future, ensuring our assets are managed sustainably in alignment with our charitable objectives. We look forward to continuing to grow our social impact, alongside BSC and other likeminded investors.”

James Perry, Co-Founder and Co-Chairperson of COOK and Founding Partner of Snowball, said:

“I’m convinced that impact investing can change the world. But to make that happen, we need ongoing support from big investors, like pension funds, to really drive change. So, it’s exciting to see this new data from Better Society Capital which demonstrates that more money is flowing into investments that make a real difference and is coming from pension funds, Endowments and charities.”

Chris Moore, Investment and Accounting Team Lead at Wiltshire Pension Fund, said:

“Affordable housing provides us with inflation-linked income with the potential for long-term capital appreciation – a perfect match for a long-term open pension scheme such as Wiltshire Pension Fund. We believe that the positive impacts delivered by investing in affordable housing are completely integral to the investment case.  Affordable housing provides very positive benefits to those on lower or median incomes, priced out of home ownership in the less secure private rental sector.”

ENDS

Better Society Capital Chief Executive Stephen Muers is available for interview and further comment.

If you would like to get in touch with a UK social impact investor then please be in touch with the press team.

Press contacts

Ian Young, PR & Media Officer, Better Society Capital iyoung@bettersocietycapital.com

Paul Brannon, Director, Rose and Spencer Consulting pb@roseandspencerconsulting.com

About Better Society Capital

Better Society Capital is the UK’s leading social impact investor. Our mission is to grow the amount of money invested in tackling social issues and inequalities in the UK. We do this by investing our own capital and helping others invest for impact too.

Since 2012, we have helped build a market that has directed more than £10 billion into social purpose organisations tackling issues from homelessness and mental health to childhood obesity and fuel poverty, a twelve-fold increase in 12 years.