With challenges to sustainable finance in the US, London has a unique opportunity to establish itself as the global leader in impact investing, writes Sarah Teacher
In a watershed momentum for impact investing in the UK, HM Treasury and the Department for Culture, Media & Sport (DCMS) recently announced the formation of a new Social Impact Investment Advisory Group.
This initiative, which brings together traditional investors and philanthropic foundations, marks a decisive step in bridging the gap between public policy and private capital to address pressing societal challenges.
Working closely with the Chief Secretary to the Treasury and DCMS ministers, the Advisory Group will advise on the design of a new impact investing vehicle announced in the 2024 Budget and develop recommendations for mobilising impact capital in support of government missions and priorities.
The formation of the group is just one of many steps that signals the UK government's growing commitment to impact investing and more broadly to the impact economy where all investment, business, consumption, and government decisions take into consideration social and environmental impact at their core.
The timing couldn't be more critical. As we navigate through 2025, the UK faces interconnected challenges ranging from achieving net zero targets to addressing regional inequalities and strengthening public health systems.
The government's response has been notably proactive, with the creation of the National Wealth Fund – already dubbed the "UK's new impact investor".
This policy momentum also reflects a broader transformation in how capital markets approach investment decisions. While financial returns remain paramount, there's growing recognition that environmental and social factors are crucial for understanding risk and identifying value creation opportunities.
The market data supports this shift: global impact investments have surpassed $1.5 trillion in 2024, with the UK market alone reaching £77 billion and growing at an impressive 10% annually, outpacing the broader asset management sector despite challenging economic conditions.
The establishment of the Social Impact Investment Advisory Group, chaired by Dame Elizabeth Corley, represents a sophisticated understanding that complex societal challenges require innovative solutions bridging public and private sector capabilities.
Working directly with Treasury and DCMS ministers, the group is positioned to shape policies that could transform how mission-aligned capital is deployed across the UK.
What makes this moment particularly significant is its timing within the broader global context. With anticipated challenges to sustainable finance in the United States, London has a unique opportunity to establish itself as the global leader in aligning private capital with social and environmental outcomes.
The next 18 months will be crucial, as government decisions shape spending review cycles that will influence deliverables throughout this five-year political cycle.
Consumer sentiment strongly supports this direction, with over 80% of investors wanting their investments to generate both financial returns and positive change.
This alignment between public policy, market dynamics, and consumer demand creates a powerful momentum for scaling impact investing in the UK.
The transformation underway in the UK's investment landscape represents more than just a shift in capital allocation – it could be the beginning of a fundamental reimagining of how financial markets can serve society.
When major asset managers commit significant capital to impact-led financing of affordable housing, urban regeneration, natural capital solutions and green energy, they demonstrate that addressing societal challenges can generate both compelling returns and measurable impact.
The question has shifted from "why impact investing?" to "how quickly can we scale?" – and the UK is positioning itself to lead the answer.
Sarah Teacher is co-CEO of the Impact Investing Institute.