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UK Institutional Investors Can Drive Social Impact Momentum

Housing, education, childcare and financial inclusion will be core themes over next ten years, says Big Society Capital CEO. 

After a decade of working to grow the UK’s social impact investing market, Big Society Capital (BSC) is calling for more institutional investors to invest more in themes such as the provision of social housing and supporting businesses and communities in deprived areas. 

“Continuing to upscale the UK’s social impact space will require large amounts of capital from institutional investors,” Stephen Muers, CEO of the independent social investment institution, told ESG Investor. 

“There are real opportunities across a number of social themes for institutional investors looking to diversify their approach to sustainability to both generate a positive social impact and drive strong financial returns.” 

This week, BSC published a report outlining its contributions to UK-based social impact projects since being established in 2012.  

The organisation has worked with over 200 institutional co-investors to raise £2.6 billion in social-focused investment, the report said, noting that this has been directed to over 2,000 charities and social enterprises tackling issues such as education in poverty-stricken areas. 

One such charity is the London Early Years Foundation, which has been utilising investments to provide subsidised childcare in deprived communities, said Muers, ensuring that parents are able to continue work and maintain an income.  

2025 target 

Over the next ten years, Muers said he hopes to see more asset owners with longer-term investment horizons – such as pension funds – contributing to scaling social impact.  

In 2020, the Greater Manchester Pension Fund invested £10 million in a fund tackling homelessness. Last year, the Swansea, Strathclyde and London Borough of Hammersmith and Fulham pension schemes invested in a Man Group housing fund that aims to deliver housing for people earning below the median income. 

“While there is a continued need to address homelessness in the UK, funding is also needed to support small businesses in the poorest parts of the country and to bolster financial inclusion for people currently struggling to get bank accounts, good credit or insurance without paying premium prices,” said Muers. 

One in five Britons feel “locked out” of the financial system, according to The Financial Inclusion Report 2022 from London-based lender Plend. With energy and food costs rising, a third say they are unprepared for a financial emergency.  

Sir Ronald Cohen, Chair of the Global Steering Group for Impact Investment and a pioneer of global impact investing, previously said investment in “disruptive technology” can have a positive impact on social issues like education and healthcare.  

“As our economies shift from optimising risk-return to risk, return and impact, we can expect both investors and companies to deliver powerful solutions to the great social and environmental problems we face, leading our economic system to generate widespread economic, social and environmental improvement,” Cohen, who is also co-founding Chair of BSC, wrote in the report. 

The UK impact investment market was worth an estimated £59 billion in 2020 and is expected to almost double in the next five years.  

However, the social segment of the current impact investment market is around £6.4 billion, the BSC report noted, adding that its 2021-25 strategy aims to help grow the market to £10-£15 billion. 

“To ensure this happens, it would be useful if the government clarified existing regulations to more specifically outline the extent to which pension scheme trustees and charitable endowments can take social impacts into account in their investing decisions, in line with their fiduciary duty,” Muers added. 

Given that the current cost-of-living crisis is expected to have a disproportionate long-term impact on poorer communities, ensuring that maximum financial support is there for people who need it most is paramount, he said.  

Grappling with social impact data 

One of the biggest challenges that continues to make social impact investing more challenging for asset owners is the lack of reliable, comparable and transparent data, said Muers, to support the investment case.  

Investors can measure a company’s emissions reductions following their investment in a decarbonisation project to assess their climate-related impact, Muers noted.  

“Social-related impact is far more varied. You may be assessing health, education outcomes, stable housing and more. These themes aren’t easily comparable to each other and can’t be combined under a single metric,” he said.  

BSC uses the Impact Management Platform “extensively” across its investments, Muers noted, explaining that the framework “pushes for real clarity and transparency around what an organisation or investor is trying to achieve through their impact investing strategies”.  

Launched in November, the Impact Management Platform was developed to improve cohesion between existing standards and to support industry impact-related dialogue with policymakers. The platform hosts impact measurement and reporting resources provided by standards-setters and frameworks, such as the UN Sustainable Development Goals. 

In the absence of standardised metrics, Muers said that the collation of qualitative information is an important part of measuring social-related impact.  

“It helps investors understand the difference their investments are making if they engage with the organisations and people the capital is affecting directly,” he said.  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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