Impact investing and the arts: What have we learned?

It’s been nearly three years since the Arts Impact Fund approved its first investments. We’ve published a first-year insights paper and our insights from the second year, and we talk about the fund all the time to other funders, policy makers and academics, in the UK and beyond. We also keep talking to our investees, our applicants, and other arts organisations about what’s working and what’s not.

We noticed two big things early on. First, a need for longer-term funding. Our concern with the Arts Impact Fund has been that our valiant investees take on the challenge to generate social impact, make great art and fully repay the investment, with interest, over a maximum five-year term. So we’re now hoping to secure investment for a follow-on Arts & Culture Impact Fund of £20m-£30m, which will again address the £150k+ market, but with loans for up to ten years.

The other option for investees is to refinance out the loan at the end of the period, rather than planning to pay it off over the term, but our committee is more likely to accept that as a reliable option in cases where property is involved. This would skew our portfolio towards capital projects. While we do fund capital projects – and see a clear gap for match, bridge or more risky development funding of these – we are also really keen to increase the number of investments we make that concentrate on non-property assets, like Soho Theatre’s venture into producing digital comedy and creating a video-on-demand player, or Birmingham Royal Ballet’s transferring its production of The Nutcracker to the Royal Albert Hall. These intangible assets are an under-exploited strength of arts and cultural organisations in general, and something we at Nesta as a whole are interested in stimulating.

Intangible assets are an under-exploited strength of arts and cultural organisations, and something we want to stimulate.

The second thing we noticed was the large number of organisations looking for smaller amounts of finance. Here’s where our new Cultural Impact Development Fund, recently launched in Blackpool with our friends at Light Up the North, comes in. This fund, which is kindly supported by Access – The Foundation for Social Investment through its Growth Fund programme, with finance from its partners Big Lottery Fund and Big Society Capital, hopes to lend around £4m to more than 40 organisations.

The aims of and eligibility criteria for the Cultural Impact Development Fund are slightly different, responding to the demand we saw both through direct applications to the Arts Impact Fund and from the findings of research we published in March 2018. This report showed, again, demand for smaller loans. It also showed demand from creative organisations that don’t fit under the traditional ‘arts’ banner, and aren’t typically eligible for Arts Council England funding, yet are generating growing social change, often at the grassroots level. This includes social impact businesses in fields like fashion, architecture, film and broadcasting. Their impact encompasses not only the intrinsic benefits of the arts such as enriching our lives and helping us to find meaning, but also its wider social benefits to individuals and communities.

Recent reports by an All-Party Parliamentary Group, Arts Council England and the Culture and Sport Evidence Programme show a growing body of evidence for the positive impact of arts and culture on areas as wide-ranging as health and wellbeing, educational attainment, and social inclusion. In particular, this fund is interested in supporting organisations using the arts to achieve positive outcomes for the most vulnerable and marginalised, such as people in contact with the criminal justice system, people with disabilities or long-term health conditions, and children in or leaving care.