An introduction to impact

Schroder BSC Social Impact Trust plc
Icon_Holding charity

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.

11 605629_SCAP_AI_CMAP ABC diagram-01

Investors’ intentions across the ABC of impact map to specific impact goals across five dimensions: what, how much, who, contribution, and risk.

12 605629_SCAP_AI_CMAP what, how much, who etc copy-01

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."

Andrew Howard

Global Head of Sustainable Investment

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Fund Risk Considerations: Schroder BSC Social Impact Trust plc

Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.

Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.

Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.

Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress, it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.

Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.

Smaller companies risk: Smaller companies generally carry greater liquidity risk than larger companies, meaning they are harder to buy and sell, and they may also fluctuate in value to a greater extent.