Impact investing and social impact investing: What's the difference?

Impact investing and social impact investing: What’s the difference?

The distinction between social impact investing and impact investing can be subtle but significant. Social impact investors primarily evaluate investments using a ‘theory of change’ model. This measures the ability of an investment to maintain existing social impact or create ‘additionality‘ (additional social benefits).

Impact investors focus on quantitative metrics like the number of people served or the amount of CO2 emissions reduced.

While these metrics are important they do not always capture the qualitative changes in individuals’ lives. Social impact investors emphasise both quantitative and qualitative impacts, demonstrated through detailed case studies that highlight real-world changes.

Social impact investments address a broad range of social issues, from drug and alcohol misuse to dental care, end-of-life care, local community groups, and educational inclusion, among others. This diversity poses a challenge in summarising the breadth of impact, which is why case studies are vital. These often show the ‘materiality’ (deeply rooted social issues) and ‘intentionality’ (deeply rooted intention to create positive social change) of the investments. 

Better Society Capital states that social impact investing has significantly risen in the UK, with the sector valued at £9.4bn in 2022. This trend highlights the growing interest in investments that offer financial returns alongside positive social outcomes.

Why clarification is important

Despite the growth of social impact investing, impact investing has grown significantly more. The Impact Investing Institute estimated the UK impact investment market was an estimated £58bn in 2020. 

The difference between the two needs clarification to encourage balanced growth across these sectors. For example, while real estate funds often align with impact investments in social housing, they may not address broader social issues like job security and health.

Impact measurement

As impact investing grows among large investors, it’s vital to distinguish the varying depths of impact these investments achieve. For example, Big Issue Invest is positioned at one end of the spectrum prioritising investments deeply integrated with social missions. This approach contrasts with more traditional impact investments that may focus primarily on financial returns or broad ESG criteria. 

The future of impact measurement within the impact investment sector should adopt a more balanced approach. This would involve not only assessing the positive impacts of funding but also accounting for any negative impacts. Such an approach would offer a more comprehensive view of an investment’s true impact, potentially altering perceptions of certain impact funds.

Key differences – summary

1.  Focus on Impact Measurement: Social impact investors prioritize both qualitative and quantitative impacts
2. Intentionality and Depth of Impact: Social impact investing deeply integrates with social missions, emphasizing intentionality and materiality in creating positive social change.
3. Scope of Social Issues: Social impact investing addresses a wide range of social issues, such as drug misuse and educational inclusion, through specific investment outcomes and should therefore not be consolidated within impact investing.

Social impact since 2005

Big Issue Invest is committed to measuring quantitative and qualitative impacts, advocating for a precise understanding of social impact investing. This distinction is key to fostering a sector that grows in size and impact, truly benefiting individuals and communities.

Our founders, Nigel Kershaw and John Bird, launched the Big Issue to tackle social issues from the ground up, deeply rooting Big Issue Invest’s approach. This hands-on experience sets our investments apart from larger organisations. While bigger entities have impact funds and teams, they often miss the nuanced understanding needed to support smaller social enterprises and charities effectively.

We focus on creating or maintaining social impact that outweighs any potential negative consequences, this guides all our funding decisions. 

To find out more about investing in social impact funds at Big Issue Invest, please contact lars.hagelmann@bigissueinvest.com