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The status of the social impact investing market

Social-Impact-InvestingAn independent report for the Cabinet Office provides an overview of the nascent but fast growing market for social impact investing, through which private capital is invested to intentionally create positive environmental and social outcomes as well as financial returns.

The Government has recently published an update on the key achievements since the publication in February 2011 of its vision and strategy for growing the social investment market.

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Status of the Social Impact Investing Market: A Primer provides an overview of the social impact investment market. The report was prepared for the Cabinet Office and distributed to delegates at G8 Forum of Social Impact Investment.

The report’s findings are based on research activities around the world and across the major G8 languaages, including a screening of almost 200 social impact investment-related reports, a survey of more than 250 market players, and a media search of terms related to “social impact investment”. The report was prepared for the Cabinet Office by Dr Maximilian Martin, Founder and Global MD of Impact Economy.

What is social impact investing?

Social impact investments are investments of private capital made with the intention to generate measurable social and environmental impact alongside a financial return. Such investments are distinct from from socially responsible investments, which aim to avoid social or environmental harm, while still pursuing a single bottom line: profit.

While the market for social impact investing is still nascent it is growing fast and, the report argues, holds great promise both as a tool to grow the economy and fund the provision of public goods. Since the term “impact investment” was first coined in 2007 the practice as grown into a USD 36 billion market, with USD 4.3 billion worth of impact investments made in 2011, USD 8 billion in 2012, and a planned USD 9 billion in 2013. The estimated potential is for investment of USD 400-1000 billion by 2020.

Megatrends: the wider context for social impact investing

The report places social impact investing in the broader context of three megatrends identified through the research:

  • Massive pent-up demand at the “Bottom of the Pyramid” – the 4 billion people from mostly developing countries living on less than USD 2 per day
  • The need for radical resource efficiency and green growth
  • New approaches to the provision of public services

The report also looks at the role different groups of investors play in the market, ranging from philanthropic investors such as foundations, angel and venture stage investors, private and institutional investors, financial services institutions, and government.

A new role for finance?

At a time when the reputation of mainstream finance has been called into question, the report concludes that social impact investing provides a major opportunity to demonstrate a new role for finance and financial innovation. This new role will be fundamental to the emerging imperative for sustainable growth and to the stewardship of society’s assets in the twenty-first century.

Growing the social investment market: the Government’s vision and strategy

The Government’s vision is for a thriving social investment market where social ventures can access the capital they need to grow, allowing them to do more to help build a bigger, stronger society. In February 2011 the Government published a strategy for achieving the vision, explaining how government and others can act, including the key role of the Big Society Bank as a wholesale investor and champion of the market.

THe Government aims to support the growth of the social investment market by:

  • Increasing supply of social investment
  • Improving the environment for social investment
  • Increasing demand for social investment

A recent update sets out key achievements since the publication of the original vision and strategy for growing the social investment market. It also highlights wider developments in the market as well as current priorities focusing on supporting the development of a strong pipeline of viable social investment opportunities and clearing away unnecessary and unhelpful barriers to social investment.

The update highlights achievements in the last year:

  • Commitment to a Tax Relief for Social Investment
  • Establishing a £10m Social Incubator Fund
  • Creation of the £20m Social Outcomes Fund

And sets out plans for the coming year to:

  • Diversify the investor base
  • Support investment-readiness
  • Open up markets
  • Maximise the impact on economic growth
  • Drive the global agenda

In his foreword to the update Minster for Civil Society Nick Hurd outlines the aim of and potential the social investment market:

“The growing social investment movement is an important one. Pioneering investors and intermediaries are looking for a blend of financial return and social impact. Socially responsible capital is looking to prove the proposition that you can invest for good. The movement may be embryonic but it has the potential to be a very powerful force for positive change.”

For further information please contact the Social Investment and Finance Team at: socialinvestmentandfinance@cabinet-office.gsi.gov.uk

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