The Impact Investing Institute has released a new report with the first estimate of the total size of the UK’s market for impact investment – investment which delivers a positive, measurable social and environmental benefit alongside a financial return.
The research, delivered in collaboration with EY, funded by DCMS with additional support from Big Society Capital, estimates the size of the market at £58bn in 2020, and demonstrates the growing importance of this segment of the capital markets, which is fast moving into the mainstream. As well as sizing the market for the first time and demonstrating its growth, the report also raises important questions about the future of the market, how it should be defined, and the methodological limitations raised when trying to size it.
Key findings from the report include:
- The UK impact investment market was worth an estimated £58 billion in 2020.
- The UK market represents an estimated 3.3-8% of the total global market.
- Social investors, private equity and venture capital firms and foundations were identified as the leading impact investors in the market today. Institutional investors, were identified as the primary drivers of future growth.
- Despite the rapid growth in the market, impact investing today still accounts for less than 1% of total AUM in the UK.
Sarah Gordon, Chief Executive of the Impact Investing Institute, says: “The impact investing market has grown hugely over the last decade. This new report demonstrates how far it has come in responding to people’s growing desire for their money to deliver positive impact for both people and the planet as well as a financial return – but it also shows how much further room there is for an impact investment approach to grow and develop.”
Penney Frohling, Financial Services Strategy Partner in EY Parthenon, says: “This report is an important first step in quantifying the scale and scope of the UK impact market. The convergence of factors such as the pandemic and recent severe weather events, and the increasing focus on ESG, are intensifying the demand for investments that deliver positive outcomes for people and the planet. The spotlight is firmly on the financial services industry and the critical role it can play in helping to resolve these societal and environmental challenges. We hope that the report will act as a catalyst for ongoing debate and will help accelerate the impact market’s further development and growth.”
The report, entitled “Estimating and describing the UK impact investing market”, provides a credible first estimate of the size of the UK impact investing market in its totality. While both the International Finance Corporation (IFC) and the Global Impact Investment Network (GIIN) have estimated the size of the market globally, the UK’s individual contribution has never before been calculated. Big Society Capital (BSC) publishes its market data on social impact investing in the UK annually, but this does not include investments targeting environmental outcomes, global investing from the UK or impact investing into businesses which do not have an explicit focus on delivering impact and/or do not measure it.
The report also incorporates insights from surveys of more than 40 market participants and 20 interviews with relevant industry bodies and subject matter specialists. Key findings from this study include:
- 97% of survey respondents held the view that over the past two years asset allocation to impact had increased.
- 64% predicted 10% annual growth in funds flowing to impact investments with 36% forecasting above 20% a year.
- Healthcare, affordable and clean energy, and sustainable cities and communities are the top focus areas for investment.
- Approximately 90% of the survey respondents reported that 2020 returns were either in line with or exceeded their targets.
- 75% of survey respondents are planning to increase their allocation to impact by more than 10% in the next five years. Applying a weighted average of all respondents to current estimated impact AUM results in a potential 15% growth, which would double funds allocated to impact to £100bn in five years.
With the scale of the environmental and social challenges we face becoming ever starker, a growing number of investors are recognising their ability to facilitate positive and measurable change while realising a market-rate financial return. This report provides an overview of the breadth of this quickly evolving sector, while also providing insights into what is required to sustain its momentum. It identifies the drivers and levers of growth for impact capital and the outline of two key themes likely to shape the future market: a Just Transition approach and the growing interest in investing in nature-based solutions.
The report also highlights some of the limitations in estimating the size of the impact investing market: from the difficulty of gathering data without globally agreed definitions for impact, to the need for impact investors to develop better ways to share data with mainstream finance’s key bodies.
The impact investing market has grown rapidly over the last decade, harnessing the demand from the public for investments that deliver positive outcomes for people and the planet as well as a financial return. By establishing a baseline for the size of the UK impact investing market, describing its major characteristics and actors and providing a sense of its future direction, this report marks a first stake in the ground as we anchor the rapid growth of the sector in verifiable data.