1. Using social investment to achieve
departmental policy objectives
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Why you might want to use social investment, and how we can help

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Social investment is an important tool in public service provision
It can help finance new ways of tackling social problems
St. Mungo’s are a charity supporting people who
are homeless or at risk of homelessness.
Through a Social Impact Bond, St.Mungo’s raised
money from social investors to run new services
which aim to improve housing, health and
employment outcomes for a group of 800 people
who move in and out of rough sleeping.
If the services are successful, this will lead to cost-
savings for DCLG, who will use up to £5m of the
savings to pay back investors.
Avante Partnership is a charity supporting 2,700
people in the South East of England. Its mission is
to improve dementia care outcomes by reducing
loneliness, helplessness and boredom.
Working with Triodos Bank, Avante is raising £5m
from social investors through a charity bond. This
will allow Avante to fund a new 75 bed care home
and make improvements to its existing homes.
Avante will pay back 5% interest per year and the
original investment in full after 5 years.
The Greenway Centre is a business hub in Bristol.
It hosts a wide range of activities for community
groups, from employment and training courses
for adults to exercise classes for ex-offenders.
The Greenway Centre received a low-interest
loan from a social investor called Pure Leapfrog to
install a set of solar panels on its buildings.
This has enabled the organisation to reduce its
operating costs and generate an income to keep
services affordable for the local community.
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You don’t have to be a financial expert to use it
Social investment has a wide range of applications, which will be familiar to policy makers
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Unlocking markets
Social investors can invest for lower
returns and higher risk
For example, taking on more financial risk
in an investment in social housing,
enabling more commercially minded
investors to put money in.
If these are successful, mainstream
investors will often scale them up
Social investors are people who invest their money to have a measurable social impact, alongside a financial return. This
can create pools of capital and expertise to support policy interventions, and reduce public funding requirements in the
long-term. There is around £1bn of social investment available in the UK.
It is particularly relevant to policy
makers looking to innovate, create
sustainable public service markets,
or support new policy approaches.
Funding R&D
Social investors are willing to finance
new approaches to social issues
For example, investing in organisations
who take a more rounded approach to
reducing reoffending than many local
services are currently able to.
If these approaches are successful,
government can then scale them up
Supporting PbR
and open policy
making
Social investors are especially interested in deprived areas and outcomes-based service delivery
For example, providing working capital to organisations in payment by results schemes, or creating funding pools for
local authorities to tackle a range of social issues in one geographic area.
This can prevent lack of identified funding being an immediate barrier to policy interventions.

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Is social investment an option for your policy?
It needs to meet three broad criteria to be in scope
1. Are you trying to tackle a
social issue?
2. Are there socially minded
organisations well placed to
act on the issue?
3. Is there a revenue stream
that supports them?
These can cover issues for both
individuals and communities,
such as NEETs, fuel poverty, ill
health and re-offending.
These groups typically have a
social mission embedded into
their structures. e.g. charities,
CICs, social enterprises.
This means someone is willing to
pay for the services. This can
include you, service users, the
general public and so on.
Social investors want to invest in
positive social outcomes, often
aligned with Government policy.
Social investors are interested in
these, due to their frontline
experience and focus on
achieving more than profit.
There needs to be sustainable
business models for investment
to take place.

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Defining the social issue
Identifying organisations and
the kind of support they need
Finding revenue streams
What measurable outcomes are you looking
for in this area?
Departmental Business Plans set out social policy
objectives and measurable indicators of progress.
How much does this issue currently cost
you?
Departments’ analytical and finance teams and
the Centre for SIBs cost unit data can help to
build up the cost-benefit calculations of social
investment programmes.
Do the organisations need scale?
There are many social investment intermediaries
who are providing affordable finance for
successful organisations looking to grow.
Do they need business support?
The Investment and Contract Readiness Fund
gives high-potential ventures funding for business
support to enable them to take on investment.
Do they need incubation?
The Social Incubator Fund supports social start-
ups to get up and running.
Can government pay for the service?
There is excellent social value guidance for
procurement professionals and local
commissioners on how to buy goods and
services from socially minded organisations
There are resources that can help
Some which you use every day, and others which you might not have heard of
Can government pay for the outcome?
Social Impact Bonds enable policy makers
to commission an innovative intervention,
on an outcomes basis. The Social Outcomes
Fund provides top-up funding for Social
Impact Bonds that produce savings for a
number of public sector organisations.

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And a specialist social investment team in the Cabinet Office
Contact us if you would like our help in seeing how social investment can support your work
Cabinet Office support
CO have a dedicated Social Investment
and Finance Team
We can support departments to scope
social investment projects; work with
the social investment sector to develop
new mechanisms and leverage
additional external investment. More
detail on our work is available here
We also have a globally recognised
Centre for Social Impact Bonds, which
has expertise and funding to help
departments set up SIBs
The team is part of the Cabinet Office
Government Innovation Group. This
group promotes new approaches to
public service delivery
Examples of our recent work
Financial inclusion
Partnering with DWP and HMT to bring in new
sources of funding from Foundations to help
increase people’s access to affordable credit
Community arts
Working alongside DCMS and the Arts Council to
run a programme supporting community arts
organisations to become investment ready
Dementia
Supporting DH to identify ways in which social
investment can support HMG efforts to tackle
dementia, as part of the UK’s G8 commitments
Rough sleeping
Assisting DCLG and the GLA to evaluate the impact
of a £5m social impact bond focused on 800 people
who move in and out of rough sleeping
Local growth
Supporting BIS in connecting with Local Enterprise
Partnerships to identify options for how social
investment can support European funding
How we can help
Contact us at: SocialInvestmentandFinance@cabinet-office.gsi.gov.uk
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ADDITIONAL BACKGROUND INFORMATION
• 1: How departments are using social investment to support their goals
• 2: Background on Government’s support for the social investment market

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Many departments use social investment to support their policy goals
To innovate, to diversify supply chains and to strengthen existing policy implementation
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•£75m Impact Fund to
foster the impact
investment market for
development finance
• Consultation into
development social
impact bonds
• Guaranteed a bank
loan to Divine
Chocolate to support
poor farmers in Ghana
•Social Enterprise
Investment Fund
invested more than
£100m in over 650
social ventures
• Funding towards
investment and
contract readiness
• Trailblazers
programme looking
at social impact
bonds
•£30m Innovation
Fund enabled 10
social impact bonds
to support NEETs
•‘Rehabilitation
Revolution’
involves multiple
pilots, including:
• Social impact
bond at
Peterborough
prison to reduce
reoffending
• Community Shares
Unit provided
support and advice
to enable
communities to raise
equity finance
through community
share offers.
• As part of its
Community Energy
Strategy, promoting
existing social
investment
opportunities in the CE
sector.
• Establishing a working
group of HMG-,
community energy-
and social investor
stakeholders, which
aims to further support
community energy
projects’ Access to
Finance.

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Policy makers can tap into a growing social investment landscape …
The UK has the most developed social investment market in the world
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Trusts and
Foundations
Endowments
Big Society Capital
Wholesale investors investing in social
investment finance intermediaries
Mainstream investors
Investment banks | pension
funds | endowments
Trusts |
Foundations | CSR |
Philanthropists
Grants
Social Investment Finance Intermediaries
social banks | non-bank social investors | service providers
Loan, equity and quasi-equity finance
Business and investment readiness advice and support
Structuring and brokering investment
High street
banks
Mainstream
banking services
Social sector
Improving people’s lives, strengthening communities and contributing to economic growth
Individuals and Communities throughout the UK

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E.g. 10 social investments
... where investors are looking to support social outcomes ...
Social investors target social impact - they often accept reduced financial returns to achieve this
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Private corporations
Investment institutions
Charitable foundations
Companies are looking to support social outcomes that
develop their business. They are also seeking greater, and
more measurable impact from their Corporate Social
Responsibility programmes.
For example:
Individual investors
Many finance institutions are looking to use social
investment to diversify their investment portfolio and the
investment options that they can offer their customers.
For example:
Foundations are using social investment to support their
charitable mission. They both socially invest endowments
and also the money they would have given as grants.
For example:
Increasingly, individual investors are looking to invest
savings in a way that supports them to grow in value, but
also support jobs and community projects.
For example:
Investing
for
financial
and social
returns
E.g. Social Bond issues
Social Cash ISAs
E.g. UK Social Bond Fund
e.g. Ignite programme
e.g. Finance Fund
e.g. Impact Investment Fund e.g. Impact Ventures UK
e.g. Local social investment fund

11. ...they employ over 2 million
people...
… making use of a vibrant UK social sector …
Social enterprises make up 15% of SMEs and contribute £55bn to the UK economy
Social Enterprise Definition
 The enterprise must consider itself to be a social
enterprise; a business that has mainly social or
environmental aims
 It should not pay more than 50 per cent of profit or surplus
to owners or shareholders
 It should not generate more than 75 per cent of income
from grants and donations. Therefore, it should not
generate less than 25 per cent of income from trading
 It should think itself ‘a good fit’ with the following statement:
‘A business with primarily social/environmental objectives,
whose surpluses are principally reinvested for that
purpose in the business or community rather than mainly
being paid to shareholders and owners’.
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 There are 180,000 social enterprise SME employers,
representing 15% of SME employers; Including sole traders,
the total number of SME social enterprises is 688,000;
 The sector employs over 2 million people, including half a
million sole traders;
 They’re estimated to have total annual incomes of £163
billion a year; and contribute £55bn billion to the economy in
Gross Value Added.
 The full report can be accessed here:
https://www.gov.uk/government/publications/social-enterprise-
market-trends
...and contribute £55bn
to the UK economy.
£55bn
GVA
SE, 55%
SME, 43%
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Outcomes-based commissioning Investment readiness modelsLending models
Testing innovation and allowing VCSE
organisations to take part in PbR contracts
Investors are very interested in models
than link social to financial performance
1.Social Impact Bond: Departments can
commission a Social Impact Bond - a
mechanism through which private
investment provides the working capital
VCSE organisation requires to run a service
through a Payment-by-Results contract.
2.Innovation Fund: set up a fund that
specifies a menu of outcomes sought and
invite bids to achieve these through SIB(s).
3.Social Outcomes Fund: a fund through
which Departments can offer a top-up to
local commissioners doing a SIB.
Cabinet Office has a dedicated Centre for
SIBs that can advise on both setting up
individual SIBs as well as broader
Innovation Funds
Providing accessible finance to successful
enterprises looking to scale
Investors are often interested in matching
government funds
Big Society Capital: BSC invests in Social
Investment and Finance Intermediaries
who provide appropriate and affordable
finance and support to social sector
organisations. SIFIs have to find match-
funding to access BSC’s investment.
Loan guarantees: Guarantee a bank loan
for a high-potential social sector
organisation or investment platform
Social Enterprise Investment Fund:
Provide a mixture of grant and loan funding
to VCSE providers who are running
effective services and looking to grow.
Cabinet Office can help advise on ways in
which these funds have greatest impact
Providing grant funding to build markets
and diversify public sector provision
Investors often require organisations to
have greater capacity to take investment
Invite bids for grant funding from social
incubators; organisations supporting social
sector start-ups to become sustainable
Provide funding for a specific call-out
through the existing ICRF programme, that
provides grant funding to social ventures
with potential to access over £500,000
social investment or public sector contracts
worth at least £1m.
Social
Incubator
Fund
… and draw upon a variety of tried and tested tools
Departments can use these approaches to develop their own targeted programmes
Investment
and Contract
Readiness
Fund

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ANNEX
• 1: How departments are using social investment to support their goals
• 2: Background on Government’s support for the social investment market

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INCREASING THE
SUPPLY OF CAPITAL
INTO THE MARKET
SUPPORTING
DEMAND FOR
CAPITAL BY GROWING
THE INVESTMENT
‘PIPELINE’
CREATING AN
ENABLING
ENVIRONMENT
FOR ACCESSING
THAT CAPITAL
Creation of Big Society Capital Social Value Act Investment Readiness Programme
• Diversify investor base • Impact on growth
• Support global agenda
• Open up markets
• Support capacity building
Our policy framework focuses on supporting supply and demand
Underpinned by a targeted effort on building the right infrastructure for the market
Policy aim
Examples
Current focus
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WHAT THIS MEANS: BIG SOCIETY CAPITAL
BSC is a wholesale fund, set up in April 2012. It is
independent of government.
Invests directly in social finance intermediaries
rather than social ventures, to catalyse growth of
the market.
Capitalised with £600m of funds: £400m from
dormant bank accounts, and £200m from the UK’s
largest High Street banks
Acts as cornerstone investor, developing financial
products and funds that aim to provide risk and
working capital to the sector
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£10m Fund for early stage social ventures
Money dispersed via social incubators
Up to £15k of investment and other support
£10m Fund for growth social ventures
Ventures jointly apply with a support provider
Grants of £50k - £150k for capacity building
WHAT THIS MEANS: CAPACITY BUILDING
SOCIAL INCUBATOR
FUND
INVESTMENT AND CONTRACT
READINESS FUND
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WHAT THIS MEANS: SOCIAL IMPACT BONDS
In Payment by Results, the provider only gets
paid on outcomes. This makes it hard for
smaller organisations which may not have
access to up front finance
This can be overcome if investors provide
working capital, receiving any outcome
payments that are achieved
Therefore in a SIB all financial risk is
transferred to investors, and new sources of
capital have been made available
Cabinet Office support includes a Centre for
SIBs and a £20m Social Outcomes Fund
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18. WHAT THIS MEANS: SOCIAL VALUE ACT
Came into force in January 2013
All public bodies are required to consider how
the services they commission can improve the
economic, social and environmental well-being
of the area
Based on the observation that given the
complexity of social challenges it is important
not to rely on one measure alone (such as
financial performance)
So, for example, a local authority might employ
a social enterprise to do construction work. As
this social enterprise employs people who have
recently left prison, it has a high social value
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WHAT THIS MEANS: UK AS A GLOBAL HUB
NEW INFRASTRUCTURES THAT
ENABLE A GLOBAL MARKET
othe first global social stock
exchange was launched in London
in June 2013, with a market cap of
over £1 billion
othe UK hosted the first G8 forum
on social investment and is leading
the debate on outcome measures
Pioneering products that DRIVE
capital & innovation
osuch as the social impact bond, the
charity bond and the first listed
products available for retail
investors
oin 2012 there were two social
enterprise funds over £10 million; in
2014 over ten
BUILDING THE WORLD’S LEADING
SERVICE INDUSTRY
oglobal social investment
leadership of specialist legal,
accountancy and banking services
oin particular, a strong cluster of
social investment financial
intermediaries. This is creating
new export markets for the UK
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