UK social impact investments reach £10bn in 2023 but growth slows – Better Society Capital
Better Society Capital, the UK’s social investment wholesaler, reveals 7% growth in the market since 2022 plus a new analysis of the most prolific types of investor.
UK social impact investments reached £10bn in the 2023 calendar year, according to Better Society Capital’s latest market study, up from £9.4bn in 2022. This is the slowest year-on-year increase since at least 2016.
According to 2023 Market Sizing, published today, the size of the social impact investment market has grown by 7% since last year – a sharp slow-down in growth from 2022 when the social investment market showed a 18% increase on 2021 figures, while in 2021 the market grew by 21%.
Better Society Capital CEO Stephen Muers said: “We generally take a longer-term approach to viewing the overall trajectory of the market rather than honing in on any year in isolation. Over the last three years the growth of the social impact market in the UK is positive at 15%. We see this year's figure as continuation of a positive trajectory.
The figures are nonetheless achieving Better Society Capital’s objective to grow the social investment market to between £10bn and £15bn by 2025, and the continuous growth of the market (which was 12 times larger in 2023 than in 2011) is seen as a reassuring sign.
Better Society Capital CEO Stephen Muers said: “It is encouraging that the market has continued to demonstrate stability despite economic uncertainties and to see continued investment into tackling social issues – including child poverty, homelessness and the effects of long-term health conditions.”
Better Society Capital’s annual research is based on 100 different funds or social investment programmes that meet BSC’s criteria of social impact investment in the UK, including fund managers, intermediaries and social banks that make direct investment into social enterprises and charities, projects, and real assets.
What is social impact investment?Better Society Capital defines social impact investment as follows: “Investment into social purpose organisations such as charities, social enterprises and impact start-ups, or real assets such as social and affordable housing. The investment enables them to deliver products or services that create measurable, lasting social impact that improves people’s lives. Social impact investors are seeking positive social impact as well as a financial return and both investees and investor demonstrate social impact intent.” Source: 2023 Market Sizing, Better Society Capital |
The fall in growth wasn’t entirely unexpected: last year, Muers warned the economic circumstances in 2023 were “tougher” than in previous years – with fundraising becoming harder across the board due to investor cautiousness, further rises in interest rates and general uncertainty.
“Those are headwinds that affect all investors, and social impact investment is no different,” Muers then told Pioneers Post. “I’m definitely thinking that we won’t necessarily see growth at that level.”
The slower growth is in great part due to the stagnation of the capital invested in social and affordable housing, the largest segment of the market, which remained flat at £5.1bn in 2023 – after growing by more than 30% a year for three years in a row, and at times compensating for slower growth in other segments such as social lending or impact ventures.
Some segments performed better than last year, with social lending growing by 16% year-on-year in 2023, compared with a 6% increase the year before.
The report argues that social and affordable housing proved more resilient than the broader real estate market, which remained slow in 2023 due to high interest rates and inflation.
Source: Better Society Capital, 2023 Market Sizing
Investor type
For the first time, the market study looked at the makeup of investors in the market – based on a sample of 1,000 social investors. This showed that pension funds provide more than a fifth of social investment, mostly directed towards social and affordable housing, followed by endowment funds and charities, which provide 14% of capital invested in social investment.
Budget in focus
Ahead of the UK government’s budget later this month – expected to announce funding cuts across departments – Better Society Capital takes the opportunity of the publication of the report to call on the government to make use of social investment.
Muers insisted tackling rising social issues nevertheless requires much more capital: “The social issues that need addressing are showing no signs of abating… These are big challenges, requiring much more than the current £10bn market, which is why we are calling on government to join with investors to shape policies which can grow the existing pot of capital significantly in the years ahead.”
He said social investment could support the government’s plan to boost economic growth. “We hope that the increase in the size of the social investment market signals the potential for harnessing innovative sources of finance to government,” he said.
“With the Labour government’s focus on growth we have a unique opportunity to shape policies that encourage more capital into impactful projects that benefit society, ease the burden on the treasury and support the economy.”
Civil society minister Stephanie Peacock said the government was looking forward to “championing the growing impact investment sector, who harness the innovation and entrepreneurship in our country and direct it towards a common good”. She has however not indicated how nor when the government was planning to do this.
This mirrors the lack of detail expressed by many figures in the social impact sector who recently highlighted to Pioneers Post the government’s lack of detail on a plan to support the sector.
On social investors’s radar is also the upcoming new funding from the expanded dormant assets scheme – which will make £87.5m available to social investment wholesalers (namely Better Society Capital and the Access Foundation for Social Investment) between 2024 and 2028. The money, delayed by the change of government and related administrative processes, is expected to be ready to be deployed by the end of this year, according to a person close to the matter.
Muers said: “Future allocations of dormant assets will be important in supporting growth and in particular in helping the market reach the full range of opportunities to create impact. The use of dormant assets supporting social investment has been a significant success and we would hope to see this replicated should more be allocated based on the strong existing track record.”
UK social investment in 2023
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Top image: Social investor Bristol & Bath Regional Capital provided funding for the construction of The Elderberry Walk – 61 sustainably built houses, which will benefit society through a combination of lower rents for key workers, ethical market rents and rent-to-buy homes.
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