I went to London as part of my research project about social impact investing as a German Chancellor Fellow and I was impressed by how much effort the UK is making to find solutions to social problems through the development of a distinctive social impact investing ‘market’. Nonetheless, there are still many concerns about whether this can be defined as real success.
We know that some social problems can be solved with conventional finance, but the fact that social impact investing emerged from government initiatives is unique and makes it a more viable solution.
Over the past 10-15 years the government has been supporting the development of this ‘ecosystem’ in the UK. Unlike other countries, the UK sees entrepreneurship as a good thing for the social welfare system, regardless of political affiliation or philosophical position.
In this sense, the UK seems to be not only the pioneer of an ‘Impact investing’ concept but also of a more advanced model, since the British continue to innovate in the way they develop this market. There are some other interesting characteristics about the UK environment:
- The UK embraces all kinds of models and innovative solutions, taking the best of both worlds: from a pure financial mindset to a social and philanthropic mindset.
- There is an extensive pool of learning tools, as one can see from www.GoodFinance.org.uk, that helps people interested in the market to easily educate themselves about social impact investing.
- The UK uses continuous gap analysis to understand what is missing from the market, such as ongoing capacity building issues and mapping underserved areas. The creation of Access to provide loans to smaller organizations (with tickets below 150k pounds), in addition to The Connect Fund, are good examples.
Besides the positive environment and will to make it grow, there are still other challenges for the UK:
- The amount of money invested in the market is still not enough. One could expect that there would be more incentives and funds being provided specially to organizations able to deliver social (impact) solutions to tap into governmental cuts.
- There is a huge gap between London and other regions. The great amount of investments is still very much concentrated in London leaving a huge inequality of available resources to other regions in the UK.
- Short term investments seem to be prioritized over long-term projects. Easier and lower risk projects like housing are prioritized over education or healthcare themes, which requires more complex and longer-term investment. This indicates that big problems are sometimes set aside from social impact investing solutions.
Many of these challenges the UK already has in mind and is trying to tackle. Given that, what is the direction Social Impact investing will take in the UK in the future? Would different priorities drive people to more urgent and quick ways of solving social problems? Is there going to be space to address market failures and long-term solutions? Or are other possibilities going to emerge?
Ana Carol Villela, German Chancellor Fellow – Alexander von Humboldt Foundation