Social impact investment has a long history. The earliest example of a social investment in the UK we have found is the Sir Thomas White Loan Charity in Leicester, that was founded in 1542 to make loans to local businesses and is still in operation today. More recently, ethical lenders such as Unity Trust Bank and Triodos Bank were operating by the end of the 20th century. Then the dawn of the new millennium saw several initiatives instigated by government, as well as the social and business sectors, that sought to answer some big questions, such as can investment be used to tackle the pressing social issues of the day? And can it do so sustainably, over many years?
The Social Investment Task Force
The flagship initiative to ask these questions was the Social Investment Task Force (SITF) launched in April 2000, by then Chancellor, Gordon Brown, as part of the HM Treasury’s desire to radically improve the UK’s capacity to create wealth, economic growth and employment in the most deprived communities. The treasury-backed Task Force was headed by Sir Ronald Cohen to explore ways in which investment could be used to gain social as well as financial returns and to develop new sources of private and institutional capital, as well as exploring ways in which innovative partnerships between Government, business and the voluntary sector could help this. The Task Force recommended a five-point action plan which included a tax credit to encourage private investment into under-invested communities, venture funds with Government money matched private finance, and support for Community Development Finance Institutions (CDFIs), principally by one or more independent, non-Government wholesale intermediaries that could channel funds to CDFIs and help the sector grow.  The Task Force ran for ten years, with their recommendations laying the foundation for the UK social impact investment market and the creation of Big Society Capital.
Unclaimed assets and the Social Investment Bank
The early 2000s saw a number of important developments in the social impact investment ecosystem. Several social impact investment organisations such as CAF Venturesome, Charity Bank and Bridges Ventures (later renamed Bridges Fund Management) were established, while at the same time the Government created the largest social impact investment fund the UK had seen, Futurebuilders, providing £145 million of loans to third sector organisations and ensuring a growing awareness of repayable finance.
At the same time, the potential of the capital available from ‘dormant’ bank accounts began to attract interest from government and the social sector. So, in 2005, Sir Ronald set up the independent Commission on Unclaimed Assets, drawing together experts from the financial and social sectors and working in partnership with Government.
Over this period the idea of a financial institution to further social impact investment began to take shape. A so-called ‘social investment bank’ would deliver activities such as developing intermediaries, connecting social entrepreneurs to capital markets so they can access growth capital, supporting financial innovation and developing the investor market through creating vehicles that support high growth ventures, as well as smaller local organisations.
Parliament passed the Dormant Bank and Building Society Accounts Act 2008, which set the definition for a dormant account, and established what funds from dormant accounts could be used for in England: the provision of services for young people; financial inclusion; and a social investment wholesaler to give financial or other support to third sector organisations.
The 2010 budget committed dormant account money to the Social Investment Wholesale Bank, with the aim of delivering financial inclusion and other social returns by linking mainstream investors with organisations creating social impact. The same budget also announced the Government’s support for the first social impact bond, an innovative pilot scheme to reduce re-offending at HM Prison Peterborough.
Within weeks of the 2010 budget, the Labour Government had lost the general election but the idea of a Social Investment Wholesale Bank continued with cross-party support for the concept.
As the Conservative Party came to power with the Liberal Democrats in the Coalition Government, social impact investment and the bank to deliver it were seen as positive policy ideas. When David Cameron launched the Big Society initiative that July, he stated that ‘every penny’ of dormant account money would go into the bank.
The legislation and mechanism were in place, so the new government invited Sir Ronald Cohen and Nick O’Donohoe, former Head of Global Research at JP Morgan, to develop a proposal for the Big Society Bank. The proposal, submitted in May 2011, was accepted by the Cabinet Office. Cohen and O’Donohoe continued working on the project, now as Chair and CEO respectively, and under a new name: Big Society Capital.
Project Merlin, announced in February 2011, provided a new injection of capital. The agreement, between the Coalition Government and four of the major UK high street banks – Barclays, HSBC, Lloyds Banking Group and the Royal Bank of Scotland, pledged £50 million from each to help capitalise the new institution.
With State Aid approval granted by the EU in the Spring, the final hurdle was cleared and we opened for business in April 2012.
Open for business
Big Society Capital launched as a financial institution, a limited company, independent of government, to act as a social impact investment wholesaler and to promote the development of the social impact investment market in the UK.
Independence was important and so was good governance. So, to ensure Big Society Capital stayed on mission the independent Big Society Trust (now known as The Oversight Trust – Assets for the Common Good) became the majority shareholder, with Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland as minority shareholders. In total we received £400 million of dormant account money, and £200 million from our four shareholder banks, to come in over several years.
The first investment we made was £2.7 million into The Foundry, an affordable office space for social enterprises and charities in Vauxhall. From there, we began working to identify new pools of capital, raise awareness of social impact investment amongst investors, and support investment readiness for social enterprises and charities. Early investments supported young people into education, helped homeless people into stable homes, and improved the health and wellbeing of older people.
A slow start
However, there were challenges in our early days. We started with an approach that was too inward looking and focused on financial products, and not enough on social issues and building around sector business models. The existing flows in social investment were small and heavily weighted towards bank lending, so there was initially limited capacity in intermediaries to scale. We received over 200 investment applications in our first year, but few combined the understandings of impact, a sustainable business model and the ability to attract investment from others that we look for in our investments. At first, we made less investments than planned and it took too long for capital to reach frontline organisations.
Laying the foundations
In 2014, we outlined our strategy for the next three years, in which we would:
- build mass participation in social impact investment through new products and the social investment tax relief
- improve access to finance for small and medium-sized social enterprises and charities
- invest in innovative approaches to tackle social issues at an early stage
- bring large-scale finance to tackle social issues.
Crucially we shifted our approach to starting with the social issue, considering sustainable enterprise solutions, then designing routes that bring together the needs of investors and enterprises. We aimed to open our approach to problem solving and learn from partners. We launched calls for funds in areas we identified as having high impact potential, such as health and social care which led to the Care & Wellbeing Fund with Macmillan in 2015, or social impact bonds where we cornerstoned the world’s first fund in 2013. We launched funds to match and crowd in investor capital to help scale products, such as the £30 million Charity Bond Support Fund in 2014 that helped grow the charity bond market from £35 million in 2014 to more than £330 million by 2020, or regional funds such as the North East Social Investment Fund with the Northern Rock Foundation. We also backed impact collaborations launched by fund managers, such as the Real Lettings Fund established by Resonance and St Mungo’s in 2013 to tackle homelessness, that has since grown to £250 million by 2021. We also aimed to provide patient capital to existing intermediaries to help them scale their impact, such as a £14.5 million equity investment into Charity Bank that has helped them increase their lending to charities and social enterprises from £50 million in 2013 to over £200 million today.
Increasing support for enterprises
While these early steps saw money flowing to social enterprises and charities, we knew that there were many organisations in the sector whose business models needed finance that was subsidised in some way. Because of our broader mandate to co-invest with others, our finance on its own wouldn’t meet the needs of some social enterprises and charities, either because there was too much risk, or the size of investment was too small. Subsidy might be needed in the form of capacity building grants, grants for market infrastructure or grants for blended capital products to make smaller and riskier loans. We began work on a way to address this, reaching out across the sector to find the right solution. Working together with the Cabinet Office and Big Lottery Fund (now the National Lottery Community Fund), we helped launch Access – The Foundation for Social Investment (Access) in March 2015. The Cabinet Office provided a £60 million endowment to provide long-term capacity building funding, while we invested £22.5 million matched by £22.5 million in grants from the Big Lottery Fund to form the £45 million Growth Fund, a fund providing blended finance to social enterprises and charities. To date, the Growth Fund has provided more than 500 organisations with finance, at an average investment size of £62,000, with over two-thirds of those organisations also receiving a grant. Our latest Market Sizing analysis shows that just under 20% of the total deal flow across the whole of the social impact investment market comes from the Growth Fund, and Growth Fund investees typically have half the turnover and 1/8th of the assets of other recipients of social impact investment, demonstrating the vital role that blended finance plays in the market, and the long-term need for subsidy to support it.
Another market gap we identified was around enterprise access to information on available finance. In 2016 we began work on this problem with Access and the Cabinet Office. The user-centred design project, which officially launched as Good Finance in 2017, was co-designed by social enterprises and charities to improve knowledge of social impact investment, help organisations make informed decisions and help connect organisations to the right investors with shared values. Good Finance continues to evolve and in 2017 launched The Get Informed campaign, supporting board members of social enterprises and charities to better understand social impact investment. By 2021 Good Finance had reached over 200,000 unique website users.
By 2017, we had helped establish over £1 billion of social impact investment vehicles with other investors, and we launched our second strategy that year. Our first phase had aimed to catalyse a breadth of products to match the diversity of enterprise business models. Our next phase saw us focus our efforts on the areas where experience had showed we could make a big difference: helping to create a more inclusive housing market; addressing inequality in communities; and tackling social issues at an early stage.
By 2021, we have seeded and scaled more than £2.5 billion of social impact investment vehicles, with £750 million of our money alongside £1.8 billion from over 100 institutional investors. Around 75% of our investments have been in first-time funds, teams or products, while there are now 13 fund managers with assets greater than £50 million investing in social impact compared to just one in 2012 when we launched. We have now committed all our capital and leveraged double that amount alongside us, trebling the amount available to social enterprises and charities. More than 1,500 of these organisations are now using that investment to improve people’s lives all over the UK.
More widely, we have helped grow the size of social impact investment market in the UK to £5.1 billion in 2019, compared to an estimated £800 million in 2011. Big Society Capital was established specially to grow alternatives to secured bank lending. These types of investments (such as charity bonds, property funds and venture funds) reached £3.4 billion in 2019 compared to £169 million in 2011, a growth of 20x in eight years. Over 5,000 investments have been made into social enterprises and charities. We have helped bring in investment worth many times our own capital by designing and supporting investments that meet the needs of investors and enterprises alike and have a high potential to scale to deliver impact.
We have seen some exciting developments over the last decade. For example, social property funds, which did not exist in 2012, are now worth more than £2 billion meaning more investment is having a positive impact on housing issues, from helping homeless people to housing vulnerable adults with a learning disability. There is a more diverse range of fund managers bringing experience in both real estate and impact to the market, and a growing role for institutional investors such as pensions funds and university endowments. There are now 28 impact venture funds compared to only 3 in 2012. There are 125 startups in our portfolio, and we’ve seen social purpose and impact rising up the agenda of venture investors and fund managers so more capital is being made available to the new wave of entrepreneurs who want to tackle social problems. And in December 2020, we embarked on a new development, partnering with Schroders to launch the Schroder BSC Social Impact Trust, allowing ordinary investors access to high social impact investment opportunities and harnessing additional capital for UK social challenges.
For the first time in 12 years since SEUK’s first State of Social Enterprise report, organisations stated that obtaining debt or equity wasn’t their greatest barrier to growth. That feels like a big achievement for the whole sector, especially for us. In 2019, the UK National Advisory Board on Impact Investing (that we established in 2014) worked with others to launch the Impact Investing Institute, with the aim of accelerating the growth of impact investing and improving its effectiveness, both in the UK and internationally. We are part of a growing global movement, with an exciting future. But there is still work to do. The recent Quadrennial Review acknowledged the substantial progress we have made towards our goals, and raised issues for us to take stock of and consider as we move forward, from relationships and influencing government, to working to ensure investment is available to the full range of organisations that could use it.
Our aim is to improve the lives of people in the UK through investment. We work with expert partners to understand people’s needs first, then we use our knowledge and capital to collaborate and invest with fund managers who want to create a better, sustainable future. These expert partners help seed new, innovative ideas and scale proven ones. As we move to the next phase with a new strategy, with a continuing role to play in the recovery from the global pandemic, there is much for us to be proud of, and still much more to be done.
 Enterprising Communities: wealth beyond welfare, Social Investment Task Force, October 2001 https://static1.squarespace.com/static/5a6f0b584c0dbf370367c95a/t/5b27ccd803ce643d6e7ccb10/1529335005229/SITF_Oct_2000.pdf
 Protecting Public Services, Budget 2010: Securing the recovery https://webarchive.nationalarchives.gov.uk/20100407215430/http://www.hm-treasury.gov.uk/d/budget2010_chapter6.pdf