Thanks to everyone that tuned into the ‘E’ for environmental day of our ESG conference this week. If you missed it, you can listen back to presentations by the AIC, Bluefield Solar, SDCL Energy Efficiency and Jupiter Green here. Next Tuesday it is the turn of ‘S’ for Social.
The line-up for the social day is dominated by funds providing social housing for a range of tenants. These funds provide access to attractive returns and deliver measurable benefits to society – we think they’re great. Home REIT is doing its bit to tackle the crisis of homelessness in the UK, Civitas Social Housing and Triple Point Social Housing are focused on accommodation for people requiring some form of specialist care, mainly people with physical and mental disabilities, and Residential Secure Income invests in affordable shared ownership, retirement and local authority housing.
New IPO
The other fund presenting on Tuesday doesn’t actually exist yet. Schroders BSC Social Impact Trust announced this week that it was looking to raise £100m. It has £42.5m of that lined up already – £25m from Big Society Capital and £17.5m from clients of Schroders. It aims to be the first London listed investment company to deliver measurable positive social impact as well as long term capital growth and income.
Social impact funds are becoming more popular. Their investments are intended to create measurable positive impacts on society and/or the environment. They should also offer something beyond the feel-good factor – this is not philanthropy.
This is a step beyond funds that incorporate ESG considerations into their investment process and even funds such as the open-ended Montanaro Better World Fund, where companies are selected for the positive impacts that they have on the world about them as much as the upside that the managers see in their share prices.
Investment giant, Schroders is partnering with Big Society Capital. It was founded in 2012 by Sir Ronald Cohen (co-founder of the private equity firm Apax Partners) and funded in part by £425m of unclaimed money in banks accounts operated by Barclays, HSBC, Lloyds and NatWest. Those banks have also contributed a further £200m from their own balance sheets. This gives it the muscle to be a leading player in this area. Big Society Capital reckons that there was about £5bn of outstanding social impact investments at the end of 2019 and the market could triple in size by 2025.
The investments that it has on its balance sheet include loans to social enterprises, financing outcomes-based contracts for social enterprises and charities, charity bonds, finance for small businesses in socially disadvantaged areas and even finance for homes for homeless people – straying into the territory covered by Home REIT.
These sorts of investments would not sit happily in an open-ended fund – they aren’t liquid enough. However, the two management groups see an opportunity to grow a trust, over time, to about £500m.
The outcomes-based contracts are perhaps the element of this that we are least familiar with. One example that Big Society Capital use is a project – Stronger Families Norfolk – that aims to support families to prevent children being take into care. Keeping children in care is expensive – a single place in a secure children’s home can cost over £200,000 per year, money which comes from stretched local authority budgets. In addition, those children often have poor life outcomes – all of which adds to the burden on the state. For the government and local authorities, spending a fraction of that potential outlay on preventing children being taken into care is worth every penny. Big Society Capital pre-funds the cost of providing the contract. It gets repaid from funds that the project earns which are dependent on minimising days that children spend in care.
Tune in on Tuesday for the ‘S’ for social day, of our ESG conference series, where you can learn more about these funds. The importance of these social considerations is growing in the eyes of investors, and we expect to see more launches join this small club of social impact funds. We are aware of a potential launch that would invest in a portfolio of modern, new, and adapted properties that provide often life-long accommodation to people with high-acuity care needs, for example – look out for that.