Few funds give investors the chance to generate sustainable financial returns while making a specific and measurable improvement to the communities in which they live. The Schroder BSC Social Impact Trust is one of them.
The Trust was launched in late 2020 as Covid-19 gripped societies around the world. Since then, its mission has become even more urgent as the cost of living crisis pushes more people into poverty.
In this article, we look at the Trust's twin objectives of achieving positive social impact and the creation of value for investors and other stakeholders, the areas in which it is investing to address some of the most entrenched social issues in the UK and the positive impact it has achieved so far.
The Schroder BSC Social Impact Trust connects social mission funds and organisations with the capital they need to address some of the most deep-rooted social challenges in the UK. It also serves to fill a void for investors seeking to do social good with their capital, while adding a differentiated source of returns to their investment portfolios.
The Schroders Global Investor Survey 2020 examined how Covid-19 affected people's investment outlook. It surveyed more than 23,000 people from 32 locations around the world and found that most people - 77% of those surveyed - want to invest in funds that don't compromise their beliefs.
In recent years, investing in sustainable funds has become more widespread as a way to contribute to a more sustainable society. In Schroders 2020 survey, 47% of people said they frequently invest in sustainable investment funds rather than those that don't consider sustainability factors, up from 42% in 2018.
When asked the reasons why they find sustainable funds attractive, 47% cited the wider environmental impact, 42% said it was because these funds are more likely to offer higher returns and 32% said such funds align with their societal principles.
The demand for solutions that aim to help alleviate some of the country's most pressing social issues while targeting a sustainable financial return is abundantly clear. But while there is a growing impact investment market in the UK, many investments that deliver the highest level of social impact are found in private markets. Although they increasingly have the backing of institutional investors, they are not easily accessible to other investors who lack large investment sums, specialist expertise and deep networks.
To bring these opportunities to a wider audience, Schroders and Big Society Capital (BSC), one of the UK's leading social impact investors, joined forces to launch the Schroder BSC Social Impact Trust. The Trust provides investors with unique access to a diversified portfolio of actively managed high-impact private market investments within a liquid investment vehicle.
The benefits are manifold for all parties. For investors, the Trust marks the first time that most retail investors have had access to a broad portfolio of private social impact investments. The key financial benefits for investors are sustainable, low volatility returns and low correlation to mainstream investment markets. Investments in areas like social housing and social care have historically stable revenues from the government, which can provide resilience through the economic cycle.
Alongside the creation of value for investors, there is value created for the government by addressing entrenched social issues and social organisations that seek to create a more inclusive, sustainable and prosperous society in the UK. And, of course, there are direct and plentiful benefits for those people investee organisations seek to support.
Targeting high social impact
The Schroder BSC Social Impact Trust harnesses the collective strengths of Schroders in sustainability, impact investing, private markets and manager selection, and BSC in social impact investing.
BSC is a dedicated social impact investor. Chief investment officer Jeremy Rogers says: "It's the only thing we do - invest money to help improve lives across the UK. We have a specialist team of over 25 investment professionals and we're proud that so far, we've helped seed and scale over £2.5 billion worth of social impact investments in the UK."
The Schroder BSC Social Impact Trust invests in the more established high social impact areas that BSC backs. The Trust provides capital to organisations helping vulnerable and disadvantaged people in areas of high need, including housing, health, social care and education and skills.
The portfolio comprises 10 funds but its reach is far greater than may appear at first. The funds collectively finance more than 160 organisations believed to be leading examples of what can be achieved when investors, social sector organisations, communities and government work together to address a social problem. These 160 organisations have so far collectively reached 160,000 people.
Looking through the portfolio to see where capital is allocated, the bulk has been committed to debt for social enterprises and high impact housing. Debt for social enterprises include charity bonds and co-investments in portfolios of loans to social enterprises, while high impact housing relates to housing funds that help people who've experienced homelessness or domestic abuse or provide affordable housing to lower income groups.
A smaller allocation has been made to social outcomes contracts. These provide capital to charities and social enterprises to deliver outcomes-based government contracts that benefit vulnerable or disadvantaged people and seek to make better use of public finances.
In evaluating its impact, the Trust adopts the Impact Management Project framework, a global initiative to standardise the measurement, management and reporting of impact, as well as aligning investments to impact objectives.
The framework defines the five dimensions of impact - what, who, how much, contribution and risk. In applying the dimensions to the portfolio, BSC can better understand the Trust's impacts, as well as portfolio and individual investment performance.
In terms of what outcomes the Trust seeks, each investment aims to achieve important positive outcomes aligned with at least one of the United Nations Sustainable Development Goals (SDGs). These include SDG1, to eliminate poverty; SDG10, to reduce inequality; and SDG11, to promote sustainable cities and communities, among others, goals that are often underrepresented in investors' portfolios.
Because the Trust's investments focus on meeting the needs of disadvantaged people through a combination of different services, each investment typically addresses more than one SDG.
The Trust's first annual impact report recognises the broad-based impact being achieved relative to the SDGs: 77% of investments are aligned with SDG10, 61% with SDG1 and 54% with SDG11. Overall, the portfolio addresses 12 of the 17 SDGs with others including SDG3, good health and wellbeing; SDG4, quality education; SDG7, affordable and clean energy; and SDG13, climate action.
In terms of who experiences the outcomes, the Trust's investments crucially support those in the greatest need. At least 90% of the 160,000 beneficiaries helped by the Trust so far are from more vulnerable and disadvantaged backgrounds.
In terms of how much impact is achieved, the Trust is already making meaningful improvements to the lives of many people with BSC seeing clear prospects for substantial growth. Its investments in debt for social enterprises have helped to provide essential services for more than 150,000 people. Its investments in social outcomes contracts have provided care, education and employment support for 11,343 people. And its high impact housing investments have supported 20 organisations providing homes for 3,915 people.
When it comes to the contribution or additional benefits achieved, the Trust has delivered 10,000 affordable, decent homes and achieved £56 million in near-term value as savings and benefits for the government and households.
Lastly, on the final dimension of risk, a focus on social organisations with strong track records averaging 28 years has mitigated the risk that the intended impact is not achieved.
In ascertaining its progress during 2021, BSC has also identified areas for improvement from 2022 onwards. In measuring the extent of its impact, for example, it would like to see data on the depth of impact extend beyond the 82% of the portfolio for which it is currently available. When measuring and managing risk, it would like to better assess and more deeply engage with investees on ESG risk management.
By sharing its methods for impact investing and reflecting on its learnings, BSC hopes to provide transparency for investors, and help develop the market for social investment, leading to greater capital flows, effective impact measurement and positive social advances for communities across the UK.
"Big Society Capital has been doing this for ten years," says BSC investment director Joe Shamash. "We're still learning and we think there's huge opportunity for this market to improve and grow."
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Key risks that are specific to the company
- There can be no guarantee that the Company will achieve its investment objective or that investors will get back the amount of their original investment.
- The Company has a limited operating history and investors have a limited basis on which to evaluate the Company's ability to achieve its investment objective.
- The Company has no employees and is reliant on the performance of third party service providers. Failure by the AIFM, the Portfolio Manager or any other third party service provider to perform in accordance with the terms of its appointment could have a material detrimental impact on the operation of the Company.
- The financial performance of the Company will depend upon the financial performance of the underlying portfolio. The Company's portfolio will include Social Impact Investments over which the Company and Portfolio Manager have no control. In particular, investments in Impact Funds and certain Co-Investments will be managed by third party managers. The Company's performance and returns to Shareholders will depend on the performance of those Social Impact Investments and their managers.
- The Company's objective is to deliver measurable positive social impact as well as long term capital growth and income and these dual aims will generally be given equal weighting. Social impact is the improvement of the life outcomes of beneficiaries in a specific target group or groups. There is no universally accepted definition of impact, an assessment of which requires value judgments to be made. The Company's impact focus may mean that the financial returns to Shareholders are lower than those which might be achieved by other investment products.
- The Company depends on the diligence, skill, judgement and business contacts of the Portfolio Manager's investment professionals and the information and deal flow they generate, especially given the specialist nature of social impact investing. The departure of some or all of the Portfolio Manager's investment professionals could prevent the Company from achieving its investment objective.
- The Company will make investments where the Company's commitment is called over time. Due to the nature of such investments, in the normal course of its activities the Company expects to have outstanding commitments in respect of Social Impact Investments that may be substantial relative to the Company's assets. The Company's ability to meet these commitments, when called, is dependent upon the Company having sufficient cash or liquid assets at the time, the receipt of cash distributions in respect of Investments (the timing and amount of which can be unpredictable) and the availability of the Company's borrowing facilities, if any.
- The Company's investments may be illiquid and a sale may require the consent of other interested parties. Such investments may therefore be difficult to realise and to value. Such realisations may involve significant time and cost and/or result in realisations at levels below the value of such investments estimated by the Company. Any change in the Company's tax status or in taxation legislation or practice generally could adversely affect the value of the investments held by the Company, or the Company's ability to provide returns to Shareholders, or alter the post-tax returns to Shareholders.
This information is a marketing communication.
This document does not constitute an offer to anyone, or a solicitation by anyone, to subscribe for shares of Schroder BSC Social Impact Trust plc (the "Company"). Nothing in this document should be construed as advice and is therefore not a recommendation to buy or sell shares.
Any reference to sectors/countries/stocks/securities are for illustrative purposes only and not a recommendation to buy or sell any financial instrument/securities or adopt any investment strategy.
The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance and may not be repeated.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of investments to fall as well as rise.
Schroders and Big Society Capital have expressed their own views and opinions in this document and these may change.
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Issued in June 2022 by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registration No 4191730 England. Authorised and regulated by the Financial Conduct Authority