A decade of social impact investing

Wednesday 3 August 2022

Social Investing

Author: Maha Khan Phillips

In July, Big Society Capital, the social impact investor, celebrated its ten-year anniversary. Since then, the landscape has changed significantly. Stephen Muers, Chief Executive of Big Society Capital, talks to Professional Investor how social impact has changed, and what the future holds.

PI: July has seen Big Society Capital celebrating its ten-year anniversary. Congratulations. How has the social impact investment market changed in that time?

Stephen Muers: Thank you! We’re proud of what we’ve achieved in our ten years but more than that we’re proud of the evolution of the market. When Big Society Capital was first launched with the aid of £600 million of dormant assets from the UK Government and our shareholder banks in 2012, social impact investing was a concept which wasn’t understood or appreciated on a large scale. While in some form or another it has existed for hundreds of years, it is now finally growing at some pace. In the time since our founding, social impact investment in the UK has increased by almost eight-fold over nine years: from £833 million in 2011, to £6.4 billion in 2020 and our model has been emulated across the planet, in places like Australia, Japan and South Korea. Social impact investment is no longer a niche approach, although there is always work that can be done to grow the market further.

Finally, over time we have been able to learn lessons on an organisational level. As one of the early examples of social impact investment using serious capital, we have been covering new ground and are therefore constantly learning and assessing what works best. On a macro level we reflect the market, in that we are able to improve our offerings for investors and social impact organisations through what is now a decade of greater understanding and insight into how best to execute our vision. So far, we have alongside partners helped channel £2.5 billion into investments to more than 2,000 social enterprises and charities tackling issues including homelessness, mental ill health and childhood obesity. Working in partnership has been essential to this success, which we could not have achieved alone.

PI: What are some of the biggest initiatives and projects you are currently involved with?

Muers: In terms of current initiatives, I’d like to highlight some work from us, but mostly also give you some examples done by great social organisations who we have been able to facilitate funding for. We work primarily in four areas – social and affordable housing, impact venture, social lending and social outcomes contracts.

Social and affordable housing is one of our focuses which is designed to address the current lack of available housing in the UK, particularly housing which is good quality and affordable. Ensuring that there is access to and availability of good housing helps to address a variety of social issues and can be a significant aid to people who are placed in vulnerable situations. One of our notable examples of this is P3, a charity which works across the UK to help deliver services to people facing homelessness or social exclusion. With two loans from Social and Sustainable Capital’s Social and Sustainable Housing fund, they have been able to provide housing for over 2,000 people and mental health support for over 13,500 people amongst other services.

Another developing area is impact venture, where we have seen social impact investment help create innovative tech solutions to address social issues and produce more effective products and services. One of our investments of note in this area is Wagestream, a financial wellbeing app which helps employers to ensure that their staff aren’t reliant on predatory lending services and offers advice to help them build up savings. Supported by The Fair by Design fund, Wagestream has had tangible impact, being used in around 100 companies and by 350,000 employees, 40% of whom have avoided turning to a high-cost lender and the pressure and difficulties which that can bring.

Any small business, including social enterprises and charities, needs access to finance, and traditional lenders may be unwilling to provide it to some business models and communities. Our social lending work aims to address this, helping these organisations increase their resilience and gives them capital to help improve people’s lives. An example of an organisation we have supported through social lending is Power 2, who run a variety of programmes to help raise the confidence of young people who are at risk of being excluded from school. With a £150,000 loan, Power 2 have seen an improvement in the self-confidence of 91% of participants and 74% of those at risk of exclusion no longer face that risk.

The final area is social outcomes. We are currently working on encouraging the uptake of Social Outcomes Contracts, which are innovative approaches to public service delivery which combine efficiency of public spending with localised expertise and track record. These address complex social issues using upfront investor capital that is only paid back by government funding once specific outcomes have been delivered. Research we commissioned has revealed that social outcomes contracts have saved £397 million from government budgets so far, as well as generating public benefits ten times greater than the contract value.

PI: How as the analysis, measurement, and transparency of impact investments changed?

Muers: These are all challenging elements for the whole market. Perhaps because of the relatively new popularisation of social impact investment, there is a lack of standardised metrics to definitively assess social impact.

Big Society Capital is looking to make improvements in this regard. For example, we recently partnered with the Good Economy to develop the Equity Impact Project – which aims to develop industry-wide standards for delivering social impact through equity investment in housing funds.

As we work to develop this in other areas though, social impact investors can focus on ensuring that investment teams have genuine impact intent and that the investment strategy contains clear impact investment objectives. While outcomes can be difficult to measure, they are very hard to achieve without these embedded into organisations and processes and that is what we must prioritise while we continue to improve and refine our approaches.

PI: What more can be done to bring further engagement and awareness from investors and fund managers?

Muers: We know through our own research that investors increasingly want to invest their money in good causes, particularly those with social or environmental benefit.

However historically, high impact investment opportunities have not always been easy for fund managers and investment managers to access and understand. Access to private market impact investments often means having to utilise certain fund structures that retail and private investors are not always accustomed to accessing. More generally there are also fewer social impact investment options available, due to the fact that it is a relatively new space.

At Big Society Capital, we have started to address this through partnering with asset management fund Schroder to launch the Schroder BSC Social Impact Trust (SBSI). Through this, we have given access to social impact investment to ordinary investors in what we believe is a world first public offering for investment in purely socially impactful organisations. The Trust is listed on the London Stock Exchange and allows investors to directly contribute to the funding of various projects with wide-ranging and meaningful social impact.

PI: Where is the impact market going? What will the next decade bring:

Muers: We are confident that within even the next three years the social impact market can continue to grow to a size of around £10-15 billion. This would mean that it’s more than doubling in size and subsequently reaching thousands more people who need support.

We expect to see social impact investment increasingly becoming a meaningful part of the solution to significant social issues. Whether homelessness, financial inclusion, mental health or others: we and our partners are showing that this approach can deliver change at scale, and we look forward to realising that opportunity over the next decade.

Stephen Muers, Chief Executive Officer, Big Society Capital.

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