Introduction to impact investing in the UK – growing opportunities for private capital

Impact investing is the practice of investing with the specific intention to generate positive, measurable social and environmental impact, alongside a financial return. Impact investments can be made in both developed and emerging markets, and the growing impact investment market in the UK provides the opportunity for investors to deploy private capital to address some of the most pressing societal and environmental challenges in a variety of sectors – from renewable energy, sustainable agriculture, and affordable and accessible healthcare, housing and education.

Impact investing challenges the long-held views that social and environmental issues should only be addressed by philanthropy and government aid, and that investments should focus exclusively on financial returns. It is becoming clear that governments and philanthropic donations cannot solve the funding and development demand on their own and impact investing can help meet that demand.

Characteristics of impact investing

There are four core characteristics of impact investing:

1. Intentionality: an investor's intention to have a positive social or environmental impact is essential. All investments make an impact on society, some positive and some negative. Impact investors intentionally pursue investments that lead to measured positive impact.
2. Return expectations (and range of return expectations): impact investments are intended to generate a financial return on capital. Impact investments also target financial returns that range from below market to a risk-adjusted market rate.
3. Range of asset classes: impact investments can be made across asset classes, including fixed income, venture capital and private equity, allowing for diversification of investment portfolios.
4. Impact measurement and management: an impact investor is committed to measuring and reporting the social and/or environmental performance and progress of their investments, ensuring transparency and accountability.

Impact investors

Impact investing now attracts a wide variety of investors, both individual and institutional. Many types of investors are entering the growing impact investing market, including fund managers, development finance institutions, foundations, family offices, individual investors, NGOs and religious institutions.

For family offices, impact investing can offer a unique position to reflect and reinforce family values and enhance reputation and legacy, and alongside rising regulatory and generational expectations, families can demonstrate leadership in responsible investment. In particular, family offices can often act earlier and more independently than institutional investors, serving as first movers in new impact sectors, unconstrained by institutional mandates, enabling quicker decision‑making and bold moves into emerging or innovative areas. Patient, multi‑generational capital allows investments in areas that require longer timelines, and younger generations often push for investments that reflect ethical and sustainability priorities.

Types of impact investments

The recipient of impact investment is usually a mission-driven organisation (whether for profit, non-profit, or a hybrid of the two), with a market-based strategy. Increasingly both for-profit and non-profit organisations can now be values-driven and market-responsive, with many hybrid corporate forms developing in a range of jurisdictions. For example, over 2,700 organisations across the UK have become certified B Corp organisations, vetted to account for their social purpose, representing the world's largest B Corp community.

Impact investment structure

The investment structure also has a range of possibilities. It can incorporate traditional cash, private and public debt and equity, real assets, and innovative instruments such as 'pay-for-success' contracts or social impact bonds (where private investors provide upfront capital for social services provided by NGOs, such as education or tackling homelessness, but investors are only repaid (typically by government entities) if predefined, measurable outcomes are met).

Impact investing offers a broad range of options, from a 'finance first' to an 'impact first' approach.

Impact investing opportunities in the UK

The UK has emerged as a global leader in impact investing, with a rapidly expanding impact investment sector. In November 2025, the government launched the Office for the Impact Economy, a new body to build partnerships and investment opportunities aimed at improving lives and communities across the UK. The Office will also serve as a clear ‘front door’ for external stakeholders in the UK and abroad, strengthening the UK’s position as a leading global centre for impact capital and internationally mobile investment.

The visible leadership of the Office and its ministerial sponsors is expected to help attract more of the £1.9 trillion global pool of impact capital to the UK, to engage in place-based impact investing and assist in the national transition to a net-zero economy. We will closely watch how this initiative develops and provide further thoughts and guidance on this particular aspect.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2026