UK social impact sector valued at £9.4bn

More than half is invested in social and affordable housing, Big Society Capital finds – a long-term, stable asset class attracting local pension funds – while social impact ventures values fell.

Social impact investments in the UK reached £9.4 billion (€11 billion; $11.8 billion) in value in 2022, research by British impact investor Big Society Capital has found.

The market grew by nearly 20 percent between 2021 and 2022: BSC’s annual market sizing exercise valued UK social impact investments at £7.9 billion in 2021.

The research counts investments that “have a clear social impact intent and some form of impact reporting and evidencing around that impact,” Big Society Capital chief executive Stephen Muers told New Private Markets. The majority of these investments seek market-rate, non-concessionary returns, although some investors take on additional risk, said Muers.

And investor interest in impact is accelerating: 2022 saw £1.8 billion committed to UK social impact projects, up from £1.4 billion committed in 2021. Nevertheless, Muers has seen the slowdown in fundraising and deployment across private markets more generally since late 2022 reflected in the UK social impact sector, he said.

More than half of the UK social impact market – £5.1 billion – is in social and affordable housing, BSC’s research found. This is because “we see a lot of local authority pension funds getting interested in investing in this space, and they have very deep pockets,” said Muers.

“They understand housing, and they can see the need” for long-term housing that is affordable or meets other social needs. The asset class can provide stable revenues as rent is often paid by governments, local authorities or charities rather than individuals, Muers added.

Charities, foundations and endowments are also showing more interest in social impact investing, said Muers. “There’s definitely a move in that space to invest more of that money in line with their [overall] mission, as well as the more mainstream, traditional markets.”

More than one-third of the market (£3.5 billion) constitutes social lending – loans by banks and other lenders to social enterprises and charity-issued bonds.

Higher-risk strategies form a smaller part of the social impact sector. Venture investments make up 7 percent of the market (£673 million), and decreased by 10 percent in value in 2022 in line with general venture valuations. And social outcomes investments – which involve financing social projects and generating returns through financial rewards from governments or stakeholders for achieving social KPIs – were valued at £28 million.