A growing number of investors are seeking to do good with the money they invest. Our new research sets out ways to help such investments do more to address London’s key challenges.
What is impact investing?
Impact Investments are investments made with the intention to generate positive, measurable social impact alongside a financial return.
So, when choosing where to put their money, investors consider the positive difference a project will make to society as well how much and how quickly they will achieve a financial return.
We think about investments as falling on a scale from traditional profit-based investing to philanthropy, with impact investing covering a range in the middle.
Why does it matter to London?
We believe that impact investing is likely to play an increasingly important role in addressing London’s key challenges over the next few decades.
The threat of further government spending cuts risk diverting money away from addressing the critical challenges that London faces. And current political arithmetic means that London is unlikely to be an electoral priority for some time.
This leaves an increasing gap to be filled by philanthropy and private capital, alongside public investment.
How much impact investing is there in London?
Interest in impact investing has grown considerably in recent years. The size of the market is estimated to have grown by as much as 10 times in the decade to December 2021.
Available data suggests that London receives between 5 and 13 per cent of all impact investment in England. After accounting for missing data, this rises to between 27 and 42 per cent.
This suggests that London receives more impact investment per person than the average across England, as Londoners represent 16 per cent of the population of England.
What opportunities are there for it to do more?
The research explored how to maximise the local benefits of impact investment capital – with five key recommendations on how to support and boost the sector:
- Make access to capital more inclusive: Create funds for minority led projects and champion diversity in the sector.
- Reflect real needs: Asset managers should ask organisations applying for funding to demonstrate that it’s what the people who benefit want and need.
- Fill gaps in the market: Expand funding for early to mid-stage SME projects seeking £100-300k and blended finance options for projects with deep impact but limited scalability.
- Build connections and community: To help connect the right type of capital with the right project at the right time, the Greater London Authority (GLA) should provide a forum for investors.
- Talk clearly about aims and impacts: To reach more people, the impact investing sector needs to speak the same language. It should work on using common definitions of goals and measurements of impact.
Impact investing is already achieving a lot in London, but it could do even more. Our research identifies actions that government, investors, and others can take to make impact investing work better in London.