In October 2014, the Alternative Commission on Social Investment convened in London to investigate “what’s wrong with the UK social investment market” and make recommendations to improve its value for the social sector. Given wide recognition that the UK is a global leader in social finance and impact investing, it’s worth exploring what led to the creation of the commission and this question. What is the state of the social investment space in the UK today, and what can we learn from the controversies and experimentation so far?

The attention, activity, and innovation by public and private actors in social investment markets have grown steadily and productively since 2000, when Sir Ronald Cohen, a founding father of modern venture capital, chaired the Social Investment Task Force with support from a Labour government. The initial years of the social investment markets were marked by diverse initiatives and approaches, including the raising of new social investment funds, the creation of a Community Development Finance Association, the founding of state-funded programs, pioneering regulation that authorized Community Interest Companies, and the invention of social impact bonds. That first decade saw broad experimentation and broad participation, with activity that invented new tools and organization forms and that extended familiar approaches from venture capital and not-for-profit models.

By 2011, the sector started to focus on a certain approach to social investment that featured a strong government presence in the building of market infrastructure, a central role of financial intermediaries, and a trend toward larger deals. The creation of Big Society Capital (BSC), the wholesale bank for social investors established in 2012 by the UK government, consolidated this approach and defined the current configuration of the impact investment markets. BSC has come to play an important role in steering sector thinking about how to channel available resources, but it also imposes a specific shape and direction to the social investment market.

These recent efforts have faced their fair share of criticism from experts, advocates, researchers, and the media alike. Some of the critics focus directly on BSC, which according to some is “currently operating under constraints that prevent from making a serious attempt to fulfil its stated aims.” Others disapprove of how former investment bankers and private equity managers are trying to apply their financial tools to social enterprises without real understanding of the distinctive needs and situation of the social sector enterprises. They say that the needs of the investors are now prevailing over the needs of the social enterprises: “It seems we have turned away from working to make markets serve society as best they can and instead, adopted a belief that investors know how to make the world a better place.”

Amidst this turmoil, it is useful to keep in mind that the UK impact investment markets are still “markets in the making”—nascent markets early in their development. Looking at recent research in economic sociology and innovation, and our own research, experimentation, ambiguity, and contestation are a necessary part of new market formation. Early markets are typically characterized by thin institutional arrangements, ambiguity among important market participants and products, and contests over agreed-on models and practices. Building innovative, complex markets takes time—often 20 years or more, as we know from accounts of the history of alternative stock markets and the globalization of stock exchanges.

Nascent markets develop through strategies of claims-making, demarcation, and control. Studying these early days of the social investment markets requires that we pay careful attention to networks; power relations; and institutional struggles over meaning, purposes, and practices. For example, we need to ask: How do we produce and diffuse information and knowledge? How do we develop a common language? Where does innovation come from? What sustains innovations over time? How do organizations agree on certain standards and metrics? Who benefits, how, and in what proportion?

No single or “correct” design is available for the social investment markets straight away. Policymakers and practitioners will want to value a sustained period of broad experimentation and innovation, and develop the capacity to accommodate ambiguity and variation instead of trying to quickly limit available models. This also requires patient and judicious action on the part of government agencies and others. The massive volume of resources BSC deployed over a short period accelerated the development of market infrastructure, and along with that came constraints on particular organizational models and practices prominent across the entire sector.

Going forward, we need policy guidance and political will that can recognize these plural and often unintended consequences and the value of preserving variation for the near-term. This is likely a shared task for senior policymakers and civil servants, in close consultation with practitioners and advocates.  They can also leverage the foundational work already available from community-based social entrepreneurs and social investors, and good amounts of academic research and reflection.

These are still early days for social finance markets in the UK and elsewhere. The vitality of the UK sector comes from the diversity of players and models over time and from judicious learning from that variety. The timeframe for market creation demands both urgency and sustained patience. The “efficient” timeframe may well be a few decades, with capacity and appreciation for purposeful experiments.

For policy-making in the UK and elsewhere, the challenge is two-fold: to conceive strategies and policies that promote experimentation by loosening the constraints on social enterprises and social investors through the different kinds of government intervention (such as direct investment, regulation on legal forms, tax reliefs, or building market infrastructure), and to continue to insist on imaginative tools and metrics to evaluate interim outcomes. There is no rush to design the perfect social investment market. Instead, we should keep the focus on going far rather than fast, which implies giving voice to grassroots change agents and thus enabling broad-based innovation.

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