It’s been a busy few years for impact investing in the UK.
The value of impact assets in the country surged by more than a third to almost £77 billion (nearly $102 billion) over three years through 2023, according to a new report by the London-based Impact Investing Institute. The growth was driven by new funds, such as Generation Investment Management’s $1.5 billion Just Climate fund and Morgan Stanley’s 1GT Fund. Smaller impact investors, including Resonance and Big Issue Invest, grew in size and sophistication.
Another driver: UK regulations such as the Financial Conduct Authority’s Sustainability Disclosure Requirements. The UK impact investing market “is not just growing; it is evolving, innovating, and embedding itself into the core of our financial system,” wrote the Institute’s Sarah Teacher and Bella Landymore in the foreword.
The report, the institute’s second, used data for the first time from the Global Impact Investing Network, or GIIN. Private equity drew the most capital (45%), followed by real assets (28%) and private debt (11%).
Impact growth
The UK is still a small player, accounting for roughly 8% of the nearly $1.2 trillion global impact investing market. The report estimates that investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return — the GIIN’s gold-standard definition — accounted for less than 1% of the entire country’s investing markets from the beginning of 2021 to the end of 2023.
Growth in the UK impact industry “significantly outpaced” that of the country’s broader investment sector. The UK’s impact industry had a 10.1% compound annual growth rate over the three-year period. By contrast, the broader UK asset management sector stagnated or backslid by as much as 2%.
The growth “invites all stakeholders – investors, businesses, policymakers, and citizens – to participate in building a future where financial success and positive impact are inextricably linked,” said Kieron Boyle, CEO of the Impact Investing Institute, in the report.
Institutional investors
The institute surveyed more than 100 “market actors, thought leaders and policy makers,” including 72 market participants involved in direct impact investing. Respondents included BlackRock, Blended Finance, Better Society Capital (formerly Big Society Capital), Bridges Fund Management, Circularity Capital, ThirdWay Partners, Impact Earth and Octopus Investments.
It found that UK-based impact investments were dominated by investment managers and development finance institutions, as opposed to foundations and pension funds — 88% vs. 68% globally. It also highlighted a concentration of impact assets among the largest organizations. The top 13% of organizations, with direct impact assets of more than £1 billion ($1.3 billion) each, accounted for 74% of the asset total.
The top sectors were financial services (including microfinance), healthcare, housing, and energy. Two-thirds said they planned to boost their impact investments in the UK over the next five years.
In April, Savills Investment Management landed £123 million ($162 million) for affordable housing in the UK. Last month, Just Climate invested $150 million in Continuum Green Energy to reduce India’s industrial carbon emissions.
Blended finance
Some 40% of respondents have participated in blended finance in the past five years. The most common approach: flexible-term debt. Others have leveraged government-backed first loss layers. The UK Nature Impact Fund, which invests in nature restoration projects and is managed by Federated Hermes, includes a £30 million ($40 million) first-loss layer from the UK’s Department for Environment, Food and Rural Affairs.
Nearly nine in 10 respondents said that their impact performance was in line with targets or higher.
Over 2017–2022, compound annual growth rates for the direct impact industry in the rest of the developed world were higher. The US and Canada led at 53%, followed by Western, Northern and Southern Europe (33%), and East Asia, Latin America and the Caribbean (21%), according to a GIIN study last year.
(See, “ImpactAlpha Latin America: Growing the impact ecosystem”).
