UK impact investments worth £58bn – first estimate | The social enterprise magazine

Impact investing in the UK totaled £58bn in 2020, according to the first market estimate, released today by the Impact Investing Institute.

The report, Estimation and description of the UK impact investment marketshows that impact investing is “on the verge of exploding”, the institute’s executive director, Sarah Teacher (pictured), told the Pioneers Post.

Funding for impact could double to more than £100bn in five years, the report suggests. (This does not include ‘impact-aligned’ capital – investments generating positive, but unintended and unmeasured social or environmental benefits – which were estimated at £53bn in 2020.)

UK impact investing market size by AUM - 2020

Breakdown of the UK impact investment market by type of organization, 2020. Chart Estimation and description of the UK impact investment market

Nigel Huddleston, Minister for Civil Society, said impact investing was “a great way for investors to help solve some of the most pressing issues of our time”.

He added: “The kind of cross-sector collaboration highlighted in the report can play a big part in upgrading our communities, so it’s good to see this growing market reaching around £58bn.”

However, the report raises concerns about the lack of a common definition of impact, with 65% of survey respondents saying they have used internally defined impact measurement frameworks, or none at all.

“A first peg in the ground”

Produced with EY and funded by the Department for Digital, Culture, Media and Sport with backing from Big Society Capital, the report also acknowledges several data gaps, but aims to provide “a first on-the-ground issue”. with this first national estimate. . The next iteration is scheduled for 2025.

The Global Impact Investing Network (GIIN) provides an estimate of the size of the global market ($715 billion in 2019). Big Society Capital publishes an annual assessment of the social impact investing market – in 2020 estimated at £6.4bn – but this does not include investments primarily targeting environmental outcomes, UK global investments Uni or impact investments in non-impact companies.

Social (Impact) Investing vs Impact Investing

The Impact Investing Institute used the GIIN’s definition of impact investing to produce its high-level estimate.

The £58 billion he identifies includes some, but not all, of the capital included in Big Society Capital’s market estimate of social impact investing. While social housing funds are identified in their own category, other forms of social impact investing are included in other categories. (For example, non-bank loans, charity bonds, and social performance contracts identified by Big Society Capital are considered included in the category of investment/fund managers; impact businesses are part of PE/VC. )

Bank loans, of at least £2 billion, as reported by Big Society Capital, are not included in the Impact Investing Institute’s market sizing, due to the current difficulty in obtaining an accurate estimate.

Key findings from today’s report include:

  • The UK market represents around 3.3% to 8% of the total global market (depending on whether the GIIN estimate or the much broader International Finance Corporation estimate is used).
  • Despite rapid growth, impact investing represents less than 1% of total assets under management in the UK.
  • Social investors, private equity and venture capital firms, and foundations have been identified as the top impact investors in the market today. But institutional investors have been identified as key drivers of future growth.

Furthermore, based on a survey of around 40 market participants (investment managers, social investors and other specialists):

  • 97% believe that impact asset allocation has increased over the past two years. 75% planned to increase their allocation to impact by more than 10% over the next five years
  • Nearly two-thirds predicted 10% annual growth in impact investment funds, and more than one-third predicted growth of more than 20% per year
  • Around 90% said 2020 returns met or exceeded their targets
  • 60% used measurement frameworks they had developed in-house, while only 35% used commonly accepted industry frameworks to measure impact – and 5% did not measure impact at all

An open door

As well as estimating the core impact investing market, today’s report identifies an additional £53bn of ‘impact-aligned’ investments in 2020. There was a ‘huge opportunity “, said Teacher, to help those who are behind these investments to become more intentional.

“There’s a lot of money going into businesses that will have a positive impact, like housing association debt and green investments. And putting them on a measuring frame would be really, really powerful. Because what gets measured gets managed.

People really hear us… I think we are pushing an open door

“If you own affordable housing, we want you to care about the affordability crisis, not because it’s a quick and risk-free win, [but] because it might change how you hold it, it might change what you do with it.

When asked how more investors could be brought into the impact investing fold, Teacher was optimistic.

“People are really hearing us…I think we’re pushing an open door,” she said.

But while new players such as institutional investors are expected to play an increasing role (see chart below), social investors have remained the “heart and innovation” of the sector.

“The 20 years of work that has gone into building this approach, these tools, these techniques, this way of thinking about investing – that have been generated by these established practitioners, who are the trusted brains what the mainstream is moving towards now,” Master said.

Market participants - Impact Investing Institute survey

The top impact investors currently in the market and those entering the impact investing market. Graph of Estimation and description of the UK impact investment market

Too big, too small?

The report highlights some of the limitations of estimating market size, including the difficulty of collecting data without globally agreed definitions of impact, and the need for impact investors to develop better ways to share data with mainstream finance organizations.

While the £58billion estimate will seem too small for some, too big for others, Teacher said, the findings were “intended to spark debate” as the “market itself is subject to of a debate”.

Using the GIIN definition of impact investing, for example, the report does not require impact investing to be truly “additional” capital, i.e. investment that produces a result. that would not have happened if the impact investment had not taken place.

According to the report, better data, impact management and reporting frameworks would help drive the growth of impact investing, along with other factors such as market awareness, policies and regulations and the number of viable investment opportunities. The need for a “just transition” approach to impact investing and the growing interest in investing in nature-based solutions are likely to shape the market going forward.

Header image: iStock; graphics courtesy of EY/Impact Investing Institute

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