What is Impact Investing?
Section 1 | BVCA Impact Investor Knowledge Hub
Private equity and venture capital managers are well placed to drive change in business. By working closely with management and supporting businesses with capital, expertise and networks, investors have demonstrated they can drive improved growth and profitability for companies of every size and stage, across a very wide range of sectors and geographies. This has led to a growth in the uptake of impact investments.
Sizing the impact investment market is not easy, due to the wide range of investors operating across the ‘impact economy’ spectrum. The Global Impact Investing Network released a Market Sizing Report in 2022 which pegs the market at $1.164tn USD in impact investing AUM worldwide (based on input from 3,349 organizations across all asset classes). This is over twice the figure reported in 2018, showing the rapid growth of the impact investing sector.
Globally, investment of $3-5 trillion is needed to be mobilised if we are to build climate resilience and support nature’s recovery. There's been huge amount of progress over the last five years, but more capital is needed, and we absolutely cannot be complacent about it… Investors are already recognising the opportunity to invest in the transition to a more sustainable and more inclusive economy. And we can see evidence of this already from growing size of the worldwide impact investing market topping the trillion-dollar mark for the first time in 2022. This is definitely a growth opportunity of the century.
Impact Investing and the UK
In the UK, there is an increasing number of General Partners (GPs) and Limited Partners (LPs) now integrating ‘impact’ into their core investment model. The Impact Investment Institute (III) reported in 2022 an analysis of the UK impact investing market and estimated the market to be £58 billion. According to the III, impact investing accounts for less than 1% of total AUM in the UK, with the UK market represents roughly 3.3-8% of the total global market. The impact investment asset class has the potential to double the funds allocated to impact to over £100bn in the next five years.
The III also found social investors, private equity, venture capital firms and foundations to be leading the impact investment market, with institutional investor identified as the primary drivers of future growth. The III are in the process of re-running this research with a proposed publication date of June 2024.
With the size and growth of impact investing, the UK has an opportunity to position itself as a centre of excellence in this area. The UK has institutional grade GPs, a fertile investment environment, and high levels of innovation within the SME space. This is driving the growth in impact investing in the UK, see the drivers for growing impact investment here.
Social investors, private equity and venture capital firms were found to be the leading impact investors. The BVCA Impact Investment Advisory Group continue to advocate for the required policies to advance the UK’s impact investing potential and propel the UK as leader in this asset class.
The UK’s position as a financial hub, combined with its role as a home to several of the world’s leading impact investing firms sees it ideally positioned to position itself as a centre of excellence for impact investing globally. This opportunity is further reinforced by the UK’s access to the top universities, talent, and a history of developing innovative market standards and frameworks.
Case Study
Inclusive Employers is the UK’s first membership organisation for employers looking to build inclusive workplaces. Inclusive Employers works with more than 500 businesses, organisations, and sporting associations to provide consultancy, training, advice and learning resources to help them to create more inclusive workplaces. Their mission is to help businesses thrive by attracting and retaining the best talent and creating a truly inclusive culture. Palatine Private Equity invested in the company via their second Impact Fund in October 2022, providing capital to support the expansion of the senior management team, digital transformation, and the further development of the ESG strategy of the organisation.
Explore other sections in the Knowledge Hub
Measuring and Managing Impact
Section 3 | BVCA Impact Investor Knowledge Hub
Useful Resources
Section 4 | BVCA Impact Investor Knowledge Hub