Growing the social investment market

In February 2011 Government published a vision for growing the social investment market (see the full document here), which has the potential to build society and grow the economy.

Social investment is the provision of finance to achieve social outcomes and gain a financial return. It is about harnessing the power of financial markets to help effect positive social impact.

Our ambition is for social investment to become a third pillar of finance for the social sector, alongside traditional philanthropy and Government grants. Critical to achieving this is the establishment of Big Society Capital (formerly referred to as the ‘Big Society Bank’) to help grow the supply of social investment capital to the sector.

We are also conducting a range of initiatives to grow demand for social investment, including trialling social impact bonds to support troubled families, working with other government departments to consider the needs of specific market segments and the launch of an investment and contract readiness fund for social ventures.

We will encourage appropriate intermediation amongst social investors through work on impact metrics and measurement.

And we are working on creating an enabling environment for social investment by reviewing tax, regulatory and legal barriers to the growth of social investment.

Big Society Capital

The independent Big Society Capital (BSC) became fully operational on 4 April. It is the first social investment institution of its kind anywhere in the world.

BSC will be capitalised with the English portion of the estimated £400 million in unclaimed assets left in dormant bank accounts for more than 15 years, as provisioned under the Dormant Bank and Building Society Accounts Act 2008. It will also receive up to £200 million equity investment from HSBC, Barclays, Lloyds TSB and RBS as set out in the Merlin Agreement.

BSC has been set up with four core principles:

• Independent from Government
• Transparent
• Wholesaler
• Self sufficient

As a wholesaler BSC will not invest in front line social sector organisations directly. Rather it will invest in social investment finance intermediaries. These are organisations that exist to invest in and provide other support to the frontline social sector. Ultimately the goal is that BSC will create a robust and sustainable market that can provide social enterprises, mutuals and other social sector organisations with an appropriate, reliable and sustainable supply of finance over the long term.

For more information about BSC and how it will function, please see the Big Society Capital website.

Social Impact Bonds

We have supported four local authorities to develop payment by results contracts that could be financed by social impact bonds to fund intensive intervention for families with problems such as crime, addiction and poor education. We hope to build the evidence base for this kind of payment by results scheme to encourage further similar innovative approaches to delivering positive social outcomes.

The four local authorities that the Cabinet Office supported are: Westminster, Hammersmith and Fulham, Leicestershire and Birmingham.

Cross Government activity

We are working closely with the Department for Communities and Local Government (DCLG) to ensure that the new Community Rights which have come into force through the Localism Bill help support the growth of the social investment market.

Government can also stimulate demand for the services and products of social ventures by increasing public sector spin outs. Government has indicated a long term potential for up to 1 million public sector workers to spinout and form mutuals. If you are interested in setting up a mutual, or finding out more about mutuals, please visit the mutuals website.

Investment and Contract Readiness

The Investment and Contract Readiness Fund is a three year £10 million fund to help social ventures secure social investment and bid for public service contracts.

The Investment and Contract Readiness (ICR) Fund will support social ventures that have the potential to deliver their services and positive social impact at scale, but are not yet in a position to take on repayable finance. The ICR Fund will give out grants of between £50k - £150k to high growth potential social ventures. The ICR Fund expects to support about 130 social ventures over the three years.

The ICR Fund is managed by the Social Investment Business (SIB), a social enterprise subsidiary of Adventure Capital Fund. Further information on the ICR Fund can be found on the Investment and Contract readiness Fund website.

Impact measurement

We have been working with the social sector to drive a new programme, Inspiring Impact, designed to accelerate the uptake of impact measurement across the UK social sector over the next decade. The programme is being coordinated by New Philanthropy Capital.

We supported both the drawing up of the programme and provided some start-up funding, which has to be matched. We have been clear however from the start that for this to work it has to be run and owned by the sector.

The programme focuses on:

• Impact leadership and culture—leaders committed to an impact approach and developing a culture in which it will thrive.
• Shared measurement—common approaches to impact measurement and common outcomes within subsectors and intervention areas.
• Data, tools and systems—increasing access to measurement tools and systems, and to data they need, and guidance to help select appropriate resources.
• Foundations, commissioners and investors—aligning incentives through practice that supports an impact approach, and developing funder-focused impact frameworks.
• Impact measurement support—a coordinated marketplace of consulting and support.

The full Inspiring Impact report can be found here.

Creating an enabling environment

We are also looking at creating an enabling environment for social investment to flourish. We have been working with the Department for Business, Innovation and Skills (BIS) on cutting red tape for the sector, and set out a commitment in the 2012 Budget to review the financial barriers to social enterprise.

The aim of the review is to create a legal, regulatory and tax environment which makes it easier to set up and grow social ventures by improving their access to social investment.

Further information

If you need any further information please see these FAQs.