Social impact investment in 2019

What might 2019 bring for social impact investment, the organisations that use it and the people we all serve?


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Progress despite the headwinds

Social enterprises and charities are still facing the twin challenges of austerity and uncertainty, alongside social needs which continue to grow. It is outstanding – and a great tribute to the leadership of social enterprises and charities – that they are still finding new and better ways to tackle the most pressing issues in such difficult times.

Social impact investment is one tool that some use to boost their work – and social impact investment is continuing to grow. Some areas are thriving. Here at Big Society Capital, we are working on new approaches to social housing and homes for vulnerable people, including people who are homeless or seeking a new life after domestic abuse. Many of the intermediary investors we have funded are supporting vital organisations in underserved communities, and we plan to invest further in this area. And we are finding real energy and strong teams for investment into early-stage social ventures, as well as in government programmes based on outcomes funds or social impact bonds, all of which can prevent harms through early action.

More widely, we are helping the social banks to increase their loans to social organisations, and charity bonds to become a standout success story – in four years, from £25m to £350m, providing finance to a substantial group of organisations at modest cost. Access has now completed its portfolio of Growth Funds with 5 more signed in 2018, and an expectation that several hundreds of small investments will be made into small and medium-sized social enterprises and charities.

2018 saw us sign 14 deals into intermediary investments totalling £90m, with a reasonable expectation that a further £300m of co-investment will be drawn in alongside.

Wider impact investment

In the last few years, several mainstream investment managers have launched impact funds, some of which we have helped cornerstone as part of our treasury function. These will offer larger scale finance to enterprises that deliver impact, including the bigger social enterprises and charities, housing associations, clean energy and more. Here at Big Society Capital, we work with mainstream managers to help open up impact opportunities in the social sector. We believe that many of the deeper impact investments have a valuable role to play in impact portfolios, both in driving the changes in the world which investors seek and playing a diversifying role in portfolios. We have not yet finalised our Q4 valuations, but it looks likely that in 2018 where every major asset class is down, a balanced portfolio of social impact investments will have made a positive low single-digit return.

Social impact investment delivers deep and lasting social impact in the UK, providing the positive and sustainable financial returns which can attract mainstream investors. The UK has some of the best in class impact investment managers in the world, and UK social impact investment is highly diversified and often unaffected by volatility in mainstream markets. With a 7-year track record, Big Society Capital and its intermediary partners represent an exceptional prospect for impact investors.

Larger mainstream impact funds can offer the scale of investment required by growing social organisations. For example in social housing, following our investments in Cheyne’s Social Property Impact fund and Resonance’s Real Lettings Fund, this new approach to the housing sector has so far grown to £2bn of new investment. This work on breaking new markets to demonstrate long-term viability complements our activity on deepening social investment in key areas, and supporting the highest priority areas that need more flexible capital.

Developing the field

UK social impact investment has developed over many years with support from across political parties, from pioneer investors such as foundations and venture philanthropists, expert charities as critically important development partners, growing interest from the public, and now increasingly mainstream impact investors. In the long run, the public support is the most important – people wanting to buy social, work in the sector, and put some of their savings into social impact investment.

At present there are many barriers in the way of the public being able to do what they want to do, to support social enterprise. Social Enterprise UK as the network organisation has worked with its partners to boost awareness and opportunities to buy social. More recently, the taskforce led by Elizabeth Corley on opening up retail social impact investment opportunities is working on social savings opportunities. In 2019 we will work towards even greater collaboration, to build a stronger and more rounded force for the future of the social economy.

Achieving that goal means we need to continue improvements in our own practice at Big Society Capital – on impact information, on smoother investment processes, and on finding the priority social issues where social impact investment can make the difference. It also demands regulatory change, and the ambition of mainstream investors to take the kind of first steps we are now seeing, to connect with the public interest which surveys show is clearly there, and to include an element of deep social investment within their new funds.

A thank you

Social impact investment is a collaborative endeavour. It relies hugely on the investment from foundations and venture philanthropists, the savers in social banks and charity bonds, the shareholders in community shares, and now increasingly the mainstream impact investors, as well as Big Society Capital’s own investments and market championing. It depends on the deep expertise and reach of development partners, often themselves charities or foundations with exceptional reach and understanding of their sectors. It is delivered by the intermediary investors, whose work goes far beyond finance to deep knowledge of how social sector organisations work, and collegiate engagement with us to improve all our practice. And most of all, social impact investment relies on those front-line social enterprises and charities which make the investment funds turn into better lives for people in disadvantage.

We are so much stronger together: it is this ecosystem of finance, understanding, capacity and delivery which makes it work. There is still much to do, still many areas of social need that could benefit from social impact investment which is not yet getting there, and still much to do in making systems work smoothly and simply. But each year shows substantial progress. Thank you to all of you – for what you have contributed already, for what you will do in the future.

2019 will still challenge us all with austerity and uncertainty. The social sector supports the people in greatest need and always has. In our highly polarised society, it’s the social enterprises and charities, the community organisations and individual champions, which can bridge divides, repair communities, and build for a better future. Social impact investment is one tool which helps some of them to do more: a vital tool, one which is growing and diversifying, learning and improving, a viable sector for co-investors, and where increasingly individual savers wish to put some of their hard earned money.

We at Big Society Capital will do our part. Thank you for all you will do in 2019.