Social impact investing in the UK has grown six-fold over the past eight years, increasing from £830 million in 2011 to £5.1 billion in 2019, according to figures released by Big Society Capital, the UK’s leading social impact investor [1].
Big Society Capital’s latest annual market estimate shows that most of the growth during this period has come through alternatives to traditional bank lending, which have scaled 20-fold from £169 million (2011) to £3,388 million (2019). This diversity in the social impact investment market has enabled different types of investor to enter the market and increased the availability of finance options for social enterprises and charities.
Most recently, between 2018 – 2019, there was a little over 20% increase in the value of social impact investments in the UK (to £5.1 billion). The number of transactions made in the sector increased by 18% year on year to more than 5,000 in 2019, with investment coming from a broad range of institutions, including venture capital funds, social banks, social property funds, charity bonds and specialist lenders.
Social property funds, which did not exist eight years ago, now account for the largest segment of the market: at 42% of the £5.1 billion outstanding social investments at the end of 2019. Social property funds use investors’ capital to create positive social impact, for example, providing specialist, supported housing for people with learning disabilities.
Secured Bank Lending is the second largest segment of the market at 34% and the source of finance still most likely to be taken on by a social enterprise or charity. This has grown from £664 million in 2011 to £1.7 billion in 2019.
Another sector which has seen considerable growth – nearly 50% year on year – is Venture Investing, where investors provide early stage and growth capital for innovative ventures tackling social issues, such as preventing mental ill health, childhood obesity and the ageing population.
Not all charities and social enterprises have assets against which a loan can be secured, and we have seen a doubling of the amounts of unsecured Non-bank Lending since 2011, with over 1,600 investments now outstanding, valued at £327 million, including blended finance.
Of course, during 2020, many social enterprises and charities in the UK face a perfect storm of rising demand for their services and falling income due to the pandemic. [2] For some who have been adversely affected by COVID-19, social lending has the potential to be a lifeline during these challenging times and demand is likely to continue.
Although the social impact investment market continued to expand across a wider range of product types, with larger value deals, there is still demand for the lower value deals, demonstrated by the volume committed through the Growth Fund during 2019 – just under 20% of the total deal flow across the market.
The Growth Fund – which is managed by Access – The Foundation for Social Investment with funding from The National Lottery Community Fund and Big Society Capital – was set up to enable charities and social enterprises to access repayable finance of up to £150,000.
Seb Elsworth, Chief Executive, Access – The Foundation for Social Investment, said: “The Growth Fund continues to be a cornerstone of social investment in England, with around one in six of all deals in 2019 coming from the programme. Average size investments of just over £60,000 are meeting clear demand from the sector. These numbers show the vital role blended capital plays and the need for long-term subsidy to support it.”
Stephen Muers, Interim CEO of Big Society Capital, added: “It is very pleasing to see the substantial growth in the market to the end of 2019 and the growing popularity of the different investment options available, encouraging a broader spectrum of investors into this market to create greater positive change for people across the UK.
“The impact of COVID-19 has been both social and economic and I believe will be a key driver in shifting investors’ focus from a purely financial return to one that delivers a social impact too. I expect social impact investment to play an increasingly important role as an engine of the economic recovery.”
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[1] Big Society Capital estimates the value of social investments in the UK was worth £5,116 million at the end of 2019, representing nearly 5,072 transactions. £1,210 million was committed to 1,192 charities and social enterprises during 2019.