With great wealth comes great responsibility...
When Bill Gates famously rephrased Winston Churchill on power, wealth and responsibility in 2006, he spoke to many other high-net-worth individuals (UHNWs), who were already looking to shift their investments to align with the UN’s sustainable development goals. Whilst a significant amount of progress has been made to channel investment to high impact opportunities in this way, we still have a long way to go to ensuring the future we all hope for. This remains an important conversation in the context of the UK where the need for private capital to help tackle pressing social issues has never been greater.
Insights on private wealth shows that UHNWs and families currently make up a combined wealth of more than £1 trillion in the UK – more than three times the combined AUM of UK Local Government Pension Schemes[1][2]. If just a fraction of this wealth could be harnessed towards social impact investment there is a real opportunity for making lasting improvements for people and planet.
[1] Ultra High Net Worth Individual = individual with >$30bn net assets, Capgemini Global Wealth Report 2021
[2] LGPS AUM valued at c£342bn as at March 2021, https://www.lgpsmember.org/about-the-lgps/about-the-lgps/
For those of you reflecting on your role as a steward of capital and the different ways to invest, social impact investment provides an opportunity to preserve or grow wealth (like all investments, returns are not guaranteed), whilst at the same time contributing to solutions to some of our most pressing social and environmental challenges.
At Big Society Capital, we focus on impact investments that specifically focus on social outcomes in the UK (social impact investments). Through our investments, we have seen first-hand how it is possible for impact and financial returns to go side by side, with capital being used to finance organisations tackling everything from homelessness to mental health and fuel poverty.
Social impact investment removes the need to separate ‘doing good’ whilst targeting financial returns and offers various strategies which can help complement existing investment activities, ensuring alignment with goals. However, it can be a difficult sector to navigate, especially for those new to making investments. To help address this, this blog, and the video below, explores the benefits for those looking to start investing for impact, as well as some examples of investments and organisations which are already in play. We’d also love to hear from UHNWs and family offices who are already involved in the space on what they have learned from their experiences so far.
Potential benefits of incorporating an impact investment strategy within your portfolio
- Helping align your investments with your values
Social impact investment can be a great way to align your family’s investments with your values in a way that traditional approaches to investments often fall short. Investment opportunities are wide ranging across asset classes and social outcomes areas meaning you can select opportunities that most closely align with what matters most to you. Examples include investments into community-based organisations such as social enterprises and charities as wells as early-stage equity investing in high-impact start-ups.
Contento Social Homes and Switchee are two very different organisations that we’ve invested in and have also received social impact investment from wealthy families:
Contento Social Homes is a social enterprise that exists to improve the support for survivors of domestic abuse and their children by providing safe accommodation and skills to improve their wellbeing. The homes they provide are typically leased from private landlords one of whom offered them the opportunity to buy the home providing long-term security to the women living there. Contento Homes raised investment from Social Investment Business who provided a blended finance solution combining a repayable loan over 6-years alongside grant funding via two investment vehicles Recovery Loan Fund and the Flexible Finance Grant fund. The Recovery Loan Fund has received investment from wealthy families who are particularly interested in providing catalytic impact investment. Read the full investment case study here.
Switchee, is the UK’s first B2B smart thermostat and asset management platform for large social landlords. Amongst other benefits, Switchee is helping social tenants significantly reduce their energy bills and helping prevent harmful damp and mould developing in homes. To date, Switchee has raised several millions of equity investment from wealthy individuals who have invested both directly as angel investors and indirectly via impact venture funds Mustard Seed and The Fair by Design Fund. These venture funds seek outweighed risk-adjusted financial returns and impact in lockstep.
Learn more about types of social impact investment here.
2. Diversifying your investment portfolio
You may also consider social impact investment to help diversify your wider investment portfolio. Some social impact investments offer the potential for low correlation to other asset classes, one example being social and affordable housing. Social and affordable housing assets have shown a very low correlation to other property markets and the broader economy, and they possess strong cash flow characteristics, with rent collection rates typically between 97-99%. The sector has delivered very stable revenues over time, with a high proportion coming from government sources making them increasingly popular with investors[1].
For social impact investments, impact acts as a significant source of value with the potential to drive financial returns for example, impact venture. Through our own portfolio we see impact driving value in several different ways including helping startups accessing and retaining customers; attracting, retaining and inspiring the best talent; reducing risk and improving access to capital. We discuss this in more details in our blog series here.
3. Engaging with the Next Generation
‘A lot of people of from my generation are interested in being environmentally friendly, climate change and being sustainable’, Caitlan Turner, Turner & Co
We all know that there is greater awareness today than there ever has been about the impact that humans are having on the planet. The topic of climate change often catalyses a wider conversation amongst wealthy families and is a particularly pertinent way to engage the next generation on financial affairs. This is important because in the UK, the number of Millennial and Generation Z millionaires hit a record high, according to research released in February 2022, doubling in a year to 2,000. And, the so-called ‘Great Wealth Transfer’ is expected to happen over the next 20 to 30 years, with £327 billion set to be transferred to the younger generation in the UK over the next decade, as either inheritance or gifts.
Social impact Investing can be a great enabler for families to have some of those more personal conversations about their values at the same time as engaging on more technical aspects of financial wealth management which can be difficult for younger family members to engage with and as a result too often left until it is too late.
4. Complimenting your philanthropy
‘I think that social impact investment offers more hope to society than traditional philanthropy. It helps organisations to become more sustainable.’ Alexander Hoare
For more concessionary forms of social impact investment that don’t fit within a family’s investment portfolio, you could consider allocating a portion of your philanthropy to impact investing. Increasingly, philanthropists recognise social impact investment as a way of supporting social enterprises and charities to deliver better social outcomes and in some cases greater impact than grant making alone.
Whilst many social impact investments target market rate risk adjusted returns, others require more flexible capital to deliver their intended impact, where target return targets are sub-market or unproved. Philanthropists are particularly well- positioned to make the riskier sub-set of impact investments where financial return targets are either sub-market or unproven.
Read more about how social impact investment can help your philanthropy go further here and here.
Get in touch
So, whether you are looking for opportunities to align your investments with your personal values, diversify your investment portfolio whilst having a real-world impact, engage the next generation or compliment your philanthropic efforts, social impact investment has a lot to offer families.
At Big Society Capital, we want to help more families make the social impact investment that they want to make. Check out the investor hub of our website to learn more about how we can support you on your journey or get in touch directly with a member of the investor engagement team.
[1] Investing for impact in social and affordable housing: https://www.schroders.com/en-gb/uk/individual/insights/investing-for-impact-in-social-housing/
[2] The number of UK millennial and GenZ millionaires hits record high - IFA Magazine