Impact investment: An emerging asset class

In mid-June, the leaders of the G8 countries gathered in Enniskillen in Northern Ireland for their annual pow-wow. But UK Prime Minister David Cameron persuaded them to stop off in London on the way – to talk specifically about social impact investment (investing in search of a social as well as a financial return). 

Of course, there was a degree of self-aggrandisement about this: the UK government is keen to take credit for an area where it believes that it is forging ahead of the global pack. Nonetheless, it’s a good illustration of how impact investing – which until relatively recently was virtually unknown to the wider world – is rapidly going mainstream.

To be fair, the UK government deserves some kudos for its role in this. Although the social investment agenda had progressed to some extent under the previous Labour administration (thanks largely to the tireless efforts of long-time advocate and Apax founder Sir Ronald Cohen to promote it), the current coalition has embraced and accelerated it. Now, according to the Boston Consulting Group, “the UK is rightfully recognised as the global leader for social impact investment”.

BCG has developed a proprietary framework called the ISI3 (International Social Impact Investing Index), to assess the maturity of the market in various countries. It used four criteria: activity levels, the quality of the supporting infrastructure; the range of financial products available, and the strength of the policy environment. 

The UK’s lead is due to “a range of bold moves by the UK government along each of the ISI3 dimensions”, it said – notably the introduction of ‘payment by results’ contracts and social impact bonds, plus the establishment of Big Society Capital (a publicly-funded social investment bank). Deal value in this area totalled £165 million in 2011, and probably jumped to nearly £300 million in 2012, according to BCG estimates.