An introduction to impact
Schroder BSC Social Impact Trust plc
At Schroders our sustainable investing approach sits on a spectrum and has been developed to suit the different requirements of investors. For investors who want their money to work in a way that has a specific, measurable and positive benefit to society or the environment while also delivering a financial return, “Impact Investing” is one option that can facilitate this.
Expressing impact in a meaningful way
Many investors use the UN Sustainable Development Goals (or SDGs) as a framework to guide their impact investing. However, Schroders and Big Society Capital also endorse and adopt the work of the Impact Management Project (IMP), an initiative supported by various standard setting organisations, such as the International Finance Corporation (IFC) and United Nations Development Programme (UNDP), which proposes frameworks for measuring and managing impact as well as aligning investments to impact objectives.
Big Society Capital, as one of the UK’s leading impact investors, has been an advisor to the Impact Management Project since inception, and was involved in the development of its approach.
The IMP measures impact across five dimensions, and proposes a clear classification framework called “A, B, C” to help investors align their investments with their objectives. Within the IMP framework, the Company’s investments are expected to sit in Category C – Contribute to Solutions which we have defined as “high impact”.
The IMP measures impact across five dimensions, and proposes a clear classification framework called “A, B, C” to help investors align their investments with their objectives. Within the IMP framework, the Company’s investments are expected to sit in Category C – Contribute to Solutions which we have defined as “high impact”.
A: Acting to avoid harm
This means that an investment contributes to preventing or reducing impacts that may have an important negtive outcome for people adn the planet.
B: Benefitting Stakeholders
This means that an investment not only contributes towards avoiding harm but also contributes towards positive outcomes for people and the planet.
C: Contributing to Solutions
This means an investment contributes towards positive outcomes for otherwise underserved people and the planet. This is the category that impact investing sits in and investments are often framed with reference to the UN’s Sustainable Development Goals (SDGs) or Impact Management Project (IMP) frameworks
Investors’ intentions across the ABC of impact map to specific impact goals across five dimensions: what, how much, who, contribution, and risk.
Investors’ intentions across the ABC of impact map to specific impact goals across five dimensions: what, how much, who, contribution, and risk.
Operating Principles for Impact Management
To ensure that impact considerations are purposefully integrated throughout the investment life cycle, Big Society Capital follows the Operating Principles for Impact Management. The intention of the Principles is to provide a framework that brings greater discipline and transparency around impact management practices to the impact investing market.
Big Society Capital has been a signatory to the Principles since March 2020. Big Society Capital’s alignment against the Principles is documented and independently verified in its disclosure and verification statement.
Our Impact Investment Thesis – Investing to drive positive societal change in the UK
An increasing number of impact driven organisations are developing investable solutions to significant UK social challenges, but they can lack access to capital to scale. We aim to invest in more proven models and managers that can deliver high social impact alongside good risk adjusted returns to investors, with low correlation to mainstream markets.
We target investments benefiting more vulnerable and disadvantaged people in areas of high need such as housing, health and social care that can demonstrate positive outcomes through transparent reporting, aligned with the United Nations Sustainable Development Goals. The focus is on investing in enterprises with experience of delivering significant and sustained social impact in their local context.
Our target investments receive revenue primarily from government sources, which have historically been resilient through economic cycles. We look for areas where enterprises can generate significant savings for government and society, which can also provide additional revenue resilience. Our portfolio aims to be low volatility diversified across models and revenue sources, with the majority of the portfolio also benefiting from asset coverage and/or returns that are linked or correlated to inflation.
Impact management is central to delivery of our impact investment thesis and integrated at every stage of our investment process. It is our strong belief that understanding the impact that is being achieved is a competitive advantage for the enterprises we invest in - reducing risk and creating long term value for investors.
UN's Sustainable Development Goals
Alongside the Trust's adoption of the IMP framework and the Operating Principles for Impact Management, the Trust maps all investment to the UN Sustainable Development Goals or SDGs. The SDGs are a “blueprint to achieve a better and more sustainable future for all”. The UN describes them as a “call for action” to “promote prosperity while protecting the planet”. They were adopted by all UN Member States in 2015 as part of the 2030 Agenda for Sustainable Development to address global challenges.
"As investors, the SDGs help us understand where to deploy capital and how to ensure the capital we deploy is aligned. The SDGs can also offer a way of understanding how investments align to an investor’s personal values. A wide array of solutions appeared over the last five years in the form of SDG-focused funds and measurement and reporting tools."
Global Head of Sustainable Investment
What are the risks?
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 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.