A snapshot of UK social investment history – and where we go from here

Support to social investment in the UK began in earnest just over 20 years ago. As efforts to expand the market continue unabated, what can we learn from two decades of experience – and what questions should we be asking now? Jess Daggers, David Floyd and Dan Gregory explore.

Since the year 2000, a huge amount has been done to build a market for social investment in the UK. Now, in 2021, the idea that finance can be a tool for social change is increasing in popularity across the world.

But as policymakers, investors, entrepreneurs and businesses look to the future, there is a risk that the UK’s two decades of experience and experimentation are overlooked. Our report, A snapshot of the UK social investment market: 2000 to 2021, gives a summary of developments over the last 20 years, providing an overview of what has been tried, what has been learnt, and the questions that remain.


The story so far

The period from 2000-10 saw numerous initiatives that are sometimes forgotten in the story of social investment. The Tony Blair and Gordon Brown governments, via funds distributed through several different government departments, did much to encourage social sector organisations to take on repayable finance. This period also saw significant lobbying, led by Sir Ronald Cohen, for a wide range of policy initiatives that would expand social investment. As a result, the 2008 Dormant Accounts Act made it possible for hundreds of millions of pounds to be directed to a ‘social investment wholesaler’.

This paved the way for the explosion of activity. In place of the disparate initiatives of the 2000s, the new coalition government adopted a coordinated strategy: they would create a fully functioning ‘market for social investment’. The Dormant Accounts Act enabled the creation of Big Society Capital in 2012, a wholesaler of social investment capital that would invest in, and build up, a range of intermediaries. A new tax relief for social investment was introduced. Social investment was high on the political agenda and promoted by the UK to the G20.

Since the abrupt end of David Cameron’s premiership in 2016, social investment has not been so high on the political agenda

However, by 2015, discontent with Big Society Capital and the much-heralded ‘social investment market’ was significant enough to require the creation of another social investment institution, Access - The Foundation for Social Investment. Access was intended to help social investment reach those organisations that Big Society Capital had proven unable to serve thus far.

Since the abrupt end of David Cameron’s premiership in 2016, social investment has not been so high on the UK’s political agenda. The ‘social investment market’ has continued to develop in the meantime, though without the clear (and controversial) strategic direction of the 2010-6 period.

In 2021, questions are again being asked about the merits and usefulness of the social investment market, and the direction of future policy.



Four ingredients for success

These are the main events, visible from a distance, but what of the underlying detail? There were, in fact, four ‘ingredients’ to the government’s strategy which, together, were intended to achieve the vision of a thriving market for social investment.

The first of these ingredients was the plan to attract new investors and new capital into the market. In our report, we outline the various initiatives which were targeted at attracting institutional investors, at persuading charities to invest their endowments differently, and the curious blind spot of the market ‘visionaries’ over the substantial volumes of investment already made into social sector organisations via mainstream bank lending.

The second ingredient was the plan to develop a wider range of investment products. Here, venture capital was a source of inspiration, and the idea of ‘quasi-equity’ received significant interest. Heavy subsidy was deemed necessary and appropriate to support the creation of the first social impact bonds, while the lesser known, but more substantial (in terms of volumes of investment) charity bonds also gained traction.

After being dismissed by the leadership of newly formed Big Society Capital as too soft, blended finance later came roaring back with the creation of Access

The type of investment seemingly most sought after by social sector organisations, however, was blended finance, which offered more generous terms than conventional finance, by combining grants and loans. After being dismissed by the leadership of newly formed Big Society Capital as too soft, blended finance later came roaring back with the creation of Access, and has once more become a centrepiece of the social investment market.

Impact measurement was the third ingredient: the idea was that enterprises and investors alike would collect data about their impact and use it to make better decisions, lubricating the market. This was the focus of further policy initiatives, but also perhaps the aspect of the market that deflated most rapidly when subsidy and grant funding dried up. After more than a decade of attempts to influence wider practice, it seems the majority of actors in the social investment market have only very basic measurement practices in place themselves, if they measure impact at all.

The fourth ingredient was perhaps the most ambitious: the plan to mould the social sector into a shape where it could more readily take on investment capital. As the need to create the Access Foundation demonstrated, many social sector organisations were simply not ready, willing or able to take on the kind of investment envisaged by the market visionaries. A range of initiatives have aimed to build ‘investment readiness’ of social sector organisations, as well as testing ideas around ‘profit-with-purpose’ businesses, which stretched the boundaries of the social sector.

How are we to assess how successfully these four ingredients were combined? Data about the market is an important part of the puzzle, and in our Snapshot we provide an overview of where data is available, and where it is not. While there are multiple sources, we are still in a position where an accurate overview of market activity is largely unattainable.



What next? Five key issues

Two decades after we started talking about social investment, and a decade after concerted market-building activities commenced, there are multiple directions that the social investment agenda could take. Various parties, including the Adebowale Commission on Social Investment, are examining this question.

For each of these issues, there are multiple responses, and different actors in the market will have different opinions over the best way forward. We lay out the issues here, and leave it to the reader to make up their own mind.

1. The terms on which social investment is made available. Should social investment be on cheaper and riskier terms than other finance? Why? Are social impact metrics part of the equation? Is there a place for often proposed but rarely implemented quasi-equity products?

2. Niche or mainstream? Should the social investment market grow? Or should the space which conventional finance does not serve shrink? Social sector organisations can access finance from social investors but also from other investors too, so why focus on growing the specialist market?

3. The role of government. What is government’s future role in social investment? Previous governments have played significant roles in shaping activity and institutions, the narrative and vision. Future governments may take a different role or, indeed, do nothing.

4. What to expect from Big Society Capital. Big Society Capital has several competing aims, while also being constrained by the Dormant Accounts Act, the expectations of the Merlin banks (the four major UK high street banks – Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland – which pledged £50m each), state aid rules, government directions, and its governance, leadership and culture. What can it realistically be expected to do, or do differently?

5. Who benefits from social investment? Has public and philanthropic money gone largely to the social sector, investors or intermediaries? Is social investment addressing or perpetuating the gender, geographic, ethnic and class inequalities we should hope it is dismantling?

  • Jess Daggers is an academic and consultant specialising in social investment and impact measurement; David Floyd is managing director of Social Spider CIC; Dan Gregory is a director at Social Enterprise UK and an advisor at Common Capital. This article is extracted from A snapshot of the UK social investment market: 2000 to 2021 and is republished here with permission from the authors.

Header image: former Prime Minister David Cameron pictured in 2015, who devoted part of the UK G8 presidency in 2013 to social impact investment (credit: 10 Downing Street)

Thanks for reading Pioneers Post. As an entrepreneur or investor yourself, you'll know that producing quality work doesn't come free. We rely on our subscribers to sustain our journalism – so if you think it's worth having an independent, specialist media platform that covers social enterprise stories, please consider subscribing. You'll also be buying social: Pioneers Post is a social enterprise itself, reinvesting all our profits into helping you do good business, better.