How is Big Society Capital making a social impact?
We invest in four main areas. One is social and affordable housing, where we provide homes for vulnerable people. These are typically people who would otherwise be in temporary accommodation or in care. We also house those dealing with domestic abuse or who are on a low income.
The second is social lending, or social debt finance, with social purpose organisations or large charities issuing bonds. In that lending space we also hold equity in social banks.
We also have an impact venture. This is where we invest in venture capital funds which specifically focus on tackling social problems and using tech-driven innovation to address social issues.
The fourth strand is focused on social outcomes. This is funding all the issues around delivering public service contracts on an outcome basis.
On geography, we are UK wide with about 75% of our interests being outside of London and the Southeast. The debt finance piece is in the more deprived parts of the country, targeting areas where mainstream finance is reluctant to tread.
For example, we back the Black Country Reinvestment Society, a non-pro t that lends money to people who want to start micro businesses in areas where mainstream lenders are absent. We help to catalyse that.
Will any of those four approaches dominate going forward?
We try to be balanced. That is partly for portfolio reasons in that we do not want to be exposed to risk.
It is also because we see a different potential for impact. The route to impact is different when supporting different organisations. So, our strategy is to keep all these elements running.
How much have you invested?
To date, we have made £880m of commitments and there is currently more than £300m out there.
On Big Society’s website £2bn is cited.
That is the total if you include those who have invested alongside us. A big part of our mission is to enable others to invest with impact, so we invest in a way that encourages other investors to come with us. That is now up to £2.5bn.
How would you describe your investment approach?
Our mission has been to build a market around social impact investing. To enable more money to be invested in tackling social problems in the UK.
So, our investment approach is to balance three things: financial return, social impact and what we call ‘systems change’. That is building the market, helping others to invest alongside us and creating some momentum in this way of investing. Our mandate is to build that wider market.
Are all of your investment returns reinvested into your portfolio?
Yes. That is our model.
You split your portfolio into a range of specifically focused funds – from community investment, social outcomes, care and wellbeing, to name just a few. Why take this approach?
In some cases, fund managers approach us. In others, we see a need for a fund in a particular area and then find a manager to deliver that for us.
We have a range of managers, from big commercial fund managers to small managers focusing on impact.
So, you did not set out with the belief that you needed a fund in a particular area?
We have done that, say in the case of domestic abuse. There was a need in the women’s sector to access properties and charities to house those who needed them. We worked with the women’s sector to build a fund that was designed for their particular needs and found a manager who could deliver that.
In other areas, people have come to us with a great idea and asked if we wanted to be part of it. It works both ways.
Are fund managers up to speed on social impact investing?
Some are and some aren’t. What is interesting to see is what you would call traditional fund managers realising that the social impact space is important and one they have to get involved with.
How do you decide what justifies a social impact investment?
We talk about impact that is intentional and measurable. You are investing in organisations that have a specific purpose to create positive social change.
It is different from the S in ESG. Often, and being overly simplistic, the S in ESG is making sure you are not doing something bad, such as having modern slavery in your supply chain. Social impact investing goes beyond that. It is about what can you positively achieve, to use money to make the world better.
Are pension funds up to speed on that nuance in definition and they could do more?
There is potential to do more. Some get it. Quite a few pension funds have invested alongside us.
The Greater Manchester Pension Fund, for example, invested alongside us in the housing area. The Teesside Pension Fund, among others, has also invested with us. We did some research that found pension funds were increasingly engaged in this, with almost half having some form of impact in their portfolio.
What about place-based investments?
There are different opportunities in using social impact investing in a place-based way, especially when a local authority gets this.
In Greater Manchester, there is a partnership with the local authority providing services to the region.
So, there are definitely opportunities, but we are not a pure place-based investor, because what we do is national.
Are different stakeholders buying into a key part of social impact investing?
There are opportunities to do more with more buy-in from central and local government. What is interesting about tackling big social issues, like homelessness and health, is you could think that government doesn’t care. But we have dialogue with the government about how we can work together to gain social benefit from all of this.
But does the government listen?
It feels more so in the last couple of years. There was a period around Brexit, when they were not doing much else. We have had more traction and more co-investment alongside us in the past two years than in our entire history, particularly in the housing area. There is potential to do more.
Did that tie-in with the government’s levelling-up agenda?
Social impact investing speaks to the levelling-up agenda. There is good evidence in what social impact investing contributes. I have been speaking to senior government officials on how we can do more work on this. It is not the whole answer to society’s problems, but it is a useful tool.
What could be done to improve social impact investing?
The important point is this whole field now has a real track record. The market is about £8bn and has grown tenfold over the last 10 years. And with fund managers who have been operating for 10-plus years. To take it all forward, to help more people, we need more capital. It is building on that emerging track record by establishing scale and bringing more investors to the market.
What has been Big Society Capital’s biggest success?
It has been 10 years since we have been up and running and we have helped to grow the market. I am proud of that. Underpinning that tenfold growth are many thousands of people we have helped.
In what area could you have performed better?
Probably delivering public services differently. Radical or innovative approaches to delivering services to people with complex needs has not taken o in the way we hoped. There is still an opportunity there and we have not taken it.
What has been on your agenda since you were appointed chief executive in 2021?
At the beginning, it was surviving the pandemic. My number one priority is the team. We have a fantastic team. We have grown a fair bit but maintained the culture, mission and impact in helping organisations. Building on that is my priority.
We want people to come and work with us and be partners in the wider system. The more organisations we can connect with on this journey, the better.
What is your plan for growth in the next five to 10 years?
We see a great opportunity in creating platforms for investors to get involved in impact. In the past they haven’t, for whatever reason. Here we have created an investment trust on social impact, which we think it is the first in the world of its type. This is a great example of a platform in which a whole new set of investors can get involved. And we are asking ourselves: are there other areas where we can create something?
What are your plans for the future?
To crack on and get to a bigger scale. We have reached thousands of people and we want to reach hundreds of thousands more.
I would like to see in 10 years’ time when writing about how the UK has tackled homelessness, that social impact investing will be part of the story. So, making a real difference on an important social issue. We can make a real dent on social issues that really matter.