Social Impact Finance

The Financial Inclusion Centre has published a new report called Making an impact or making a return? which evaluates the burgeoning social impact and sustainable finance sector and finds a significant risk of social impact washing.

The summary report can be found here: FIC social impact finance April 2024 summary report The full report can be found here: FIC social impact finance April 2024 full report

The new report sets out six tests and policy recommendations to address these risks. The tests allow stakeholders to distinguish between finance that prioritises making a positive social impact, sustainable finance that makes a positive impact while making returns, socially harmful finance, and potential impact washing.

It is hard to avoid the terms impact and sustainability in the world of finance nowadays. The financial sector constantly tells us it is no longer just about making profits or generating returns for owners and investors; it says it wants to make a positive social impact, too.

Social impact or sustainable finance incorporates sustainable development goals (SDGs).[1] It is the S in ESG[2] and, along with environmental issues, it is referred to as ‘people and planet’. Yet these constructs do not properly convey the extent to which finance has redefined its role in the economy and society and, in doing so, created new opportunities to generate financial returns while bolstering corporate reputations.

The financial sector claims that private finance can be deployed more to: tackle social harms such as poverty and exclusion and enhance social good; invest in core infrastructure, regeneration, and levelling up so easing pressure on public finances; and improve standards of corporate behaviours on social issues such as diversity and inclusion, human rights, fair wages, ethnicity and gender pay gaps.

A whole new category of monetizable social sector assets has emerged because of the growing interest in ESG related concepts, and the financialisation of the economy and society. The state (central and local) is limiting its role in funding affordable housing, health, social care, specialist education, and other public services. Private finance seeks to fill that gap.

Financial sector trade bodies have successfully lobbied for financial deregulation[3] and pushed for corporate welfare[4] to make this social sector asset class even more commercially attractive. Politicians champion a greater role for private finance in meeting social and public policy goals.

This report challenges the claims about social impact and examines whether making an impact is indeed given the same priority as making financial returns. The report concludes that it is far too easy for financial institutions to impact wash their activities. It is too easy for conventional return-prioritising finance to masquerade as social impact or sustainable finance.

We argue for a more robust approach to distinguish between finance that: prioritises making a measurable positive social impact; socially sustainable finance which makes a positive impact while making financial returns; socially neutral finance which at least does no harm; and finance that continues to cause social harm. We propose a set of six tests to enable that distinction.


[1] Take Action for the Sustainable Development Goals – United Nations Sustainable Development

[2] Environmental, social, governance

[3] The Solvency UK ‘reforms’ are undoubtedly a weakening on prudential rules for insurers. The main insurance lobby group, the ABI, welcomed these reforms claiming this would allow it to invest in levelling up, social infrastructure, and the green transition Solvency II reform welcomed by insurance and long-term savings industry | ABI Phoenix urges solvency reforms to unleash £50bn for UK economy (

[4] Corporate welfare includes states or other non-market actors ‘de-risking’ financial commitments or providing financial incentives.