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Social investment FAQs

This page provides a general overview of social investment, future opportunities for growth internationally and how the City of London supports social investment. It highlights some of the key, frequently asked questions relating to social investment and provides responses to these. Further information is available on the external websites and documents linked to on this page.

What is social investment?

Social investment or impact investment is the provision and use of capital with the aim of generating social returns as well as financial returns. It is different from philanthropy, as social investment carries an expectation of repayment of some or all of the initial stake. Social investment can take the form of investing in a social enterprise – which generates social returns through its activities - among others.

What are social enterprises?

Social enterprises are businesses which re-invest the majority of their profits for social or environmental benefits. A wide and growing range of businesses are social enterprises, offering diverse products and services. For more information about how social enterprises are defined visit the Social Enterprise UK.

Social enterprises are part of the wider voluntary, charitable and social enterprise (VCSE) sector. In 2011/12 the primary economic activity of 18.4% (30,000) of voluntary organisations was the provision of social services; 13.9% (22,000) were engaged in culture and recreation; 8.4% (approximately 13,000) were categorised as religious (2014 NCVO Almanac).

The majority of social enterprises are small or medium sized (SMEs).

How do social enterprises use investment finance?

​Social enterprises use investment capital in the same ways as a mainstream for-profit organisation: for working capital, reserve finance, research and development, diversification, expanding market reach or asset acquisition. The stage of an organisation's development will determine the purpose and type of capital they seek to raise.

How big is the UK social investment market?

​The UK social investment market is currently sized at just over £200m. Of this, unsecured or risk capital is estimated at less than £50m. The latest data suggests there are an estimated 180,000 SME social enterprise employers in the UK, rising to 688,000 when including sole traders. Growth in platforms and products, support programmes and the availability of a tax relief for social investors, are all expected to swell the investment figure in the near future.

What role do social enterprises play in the UK economy?

In addition to the direct positive social or environmental impacts of the work of social enterprises, for example in client communities, social enterprises contribute at least £24bn to the UK economy and employ over 1 million people. Research shows that such organisations have greater resilience and higher growth rates than their mainstream counterparts, in spite of a difficult economic environment.

According to Government estimates, the social sector represents over 4% of Gross Domestic Product and 5% of UK employment. The sector holds assets collectively worth around £105 billion.​

Who are social investors?

High net worth individuals, charitable trusts and foundations, social and ethical banks, public bodies, development finance institutions, Government and certain financial institutions, such as pension funds and investment houses, have all engaged in social investment to date. Additionally, individuals provide capital for the social sector through placing deposits with social lenders. Social Investment Research Council research identified eight untapped potential investor groups who could be targeted to increase sources of supply in the UK:

  1. Charitable organisations​
  2. Corporations
  3. Faith-based organisations
  4. Family offices
  5. Insurers
  6. Housing associations
  7. Pension funds
  8. University endowments

Read the City of London's research report New specialist sources of capital for the social investment market which identifies two sets of opportunities for previously under-researched institutional investor groups who may provide pools of untapped capital for the UK's growing social investment market.

As well as direct social investments being made, a proportion is made through Social Investment Finance Intermediaries (SIFIs). These are firms that attract social investors and channel their capital into social investment products they have developed or structured. Some also support social enterprises in developing their investment offer. SIFIs play a key role in supporting the market's development and growth. In 2011/12, 29 active SIFIS made 765 investment deals, resulting in the creation or safeguarding of 340 social ventures, 6,870 FTE jobs, and £58m in annual GVA contribution to the UK economy.

In addition to SIFIs there are social banks or lending organisations – such as Triodos or Charity Bank – which specialise in lending capital for the purposes of social or environmental benefit. Some mainstream financial institutions are also starting to get involved in this space.

What are the future opportunities for growth in the social investment market internationally?

In general, retail opportunities for this type of investment will grow in line with the sector's track record, as it is heavily protected by consumer protection regulations. Investor momentum is gaining ground and the European Union has supported social investment through its Social Business Initiative as a component of its Europe 2020 job creation agenda.

Research by PwC for the City of London Corporation presents a model of development for a global financial centre for social investment identifying three clear stages of development for financial centres.

  • Stage 1 - a mature national financial centre
  • Stage 2 - an emerging global financial centre
  • Stage 3 - a mature global financial centre for social investment with inward and outbound flows of international social investment capital.

What are the future opportunities for social investment in London?

City of London Research concludes that London is well positioned as a strong national centre for social investment. It has some features that might attract international investment, and has potential to develop its international capabilities. However, there are areas that will require further strengthening, including:

  • Developing coherent, industry-led social impact standards and accreditation models
  • Creating opportunities for national and international retail investors to engage with social investment
  • Attracting more skilled professionals into the sector with a combination of financial and social skills
  • Stimulating demand for international social investment opportunities through product innovation and design.

How does the City of London Corporation support social investment?

​The City of London acts as a key player in the marketplace and social sector, and has implemented a three-pronged social investment strategy to enable the Corporation to continue to support this agenda.

  • To encourage and steer a growing supply of suitable finance into social investment (including through the development and management of the CoL's own £20m social investment fund). The Fund has committed some £7.4m to date. (Social investment remains a new market and there is, at the moment, a relatively small pipeline of investment opportunities.)
  • To improve the regulatory and fiscal framework needed to support the new marketplace (eg through providing underpinning research and rationale for the social investment tax relief and working with FCA and others to promote an appropriate regulatory regime, for example amends to the Financial Promotion Order) and
  • To develop the capacity of social enterprises to access and receive investment and secure contracts (eg promoting responsible procurement within City businesses, developing with partners the award-winning Buy Social Directory championing business volunteering within social enterprises to build resilience of the sector.)

For further details on the City of London's activity visit our supporting social enterprise page.

Who else is working on this agenda?

​There are a range of organisations, institutions and government bodies supporting the UK social investment agenda. A few, but by no means all, key examples are: