Behind the trust: Schroder BSC Social Impact Trust
Positive impact for people and portfolios: as social challenges in the UK mount, the Schroder BSC Social Impact Trust helps investors to do well by doing good
Increasingly, investors want their portfolios to do well by doing good. Seven out of ten UK adults with at least one investment outside their pension are more likely to invest in a fund or organisation if they knew it was having a positive social or environmental impact, according to research from Big Society Capital1 .
The sustainable investment universe has grown exponentially to meet the appetite for funds that strive to do good. Some of them simply screen stocks based on environmental, social and governance (ESG) metrics but a lack of clear definitions and sometimes overzealous marketing by fund management groups has led to allegations of greenwashing.
Separating greenwashed products from the real deal – those that are truly aligned with investors’ principles and objectives – can be fraught with difficulty. One way in which investors can be assured they are really making a difference though, is through impact investing.
Such investment products have clear aims and objectives, against which they can measure and report on their progress. Going further than avoiding doing harm to people and planet, impact investments target solutions that make a positive difference. Many of them have environmental objectives – to hasten the transition towards net zero carbon emissions.
A smaller number target social impact – addressing entrenched social issues, which have been exacerbated by the Covid-19 pandemic, cost-of-living crisis and geopolitical instability, and making measurable improvement to the lives of disadvantaged people in areas of high need.
The Schroder BSC Social Impact Trust seeks to do just that. Launched in December 2020, it is the only trust in the AIC Flexible Investment sector with a social impact mandate, making it a unique proposition for investors looking to invest in a liquid investment vehicle that is positive for both people and their portfolio.
Exactly how does the team behind the trust drive positive impact for society and financial returns for shareholders and what makes the trust a worthy addition to an investor’s portfolio today?
What does the trust do?
The Schroder BSC Social Impact Trust has two key objectives: achieving positive social impact throughout the UK and providing financial returns for investors.
It provides capital to organisations helping vulnerable and disadvantaged people in areas of high need across the UK, including housing, health, social care and education and skills. All its investments must demonstrate positive outcomes aligned with the United Nations Sustainable Development Goals (SDGs).
In its first year alone, it made £85m available to 160 social enterprises and charities that are tackling a wide range of problems, such as homelessness, mental ill health and childhood obesity2. Its portfolio is already benefiting more than 160,000 people, at least 90% of whom are disadvantaged and vulnerable.
How does it do it?
The Schroder BSC Social Impact Trust invests in a range of other funds that are providing capital to local social organisations, which are often best placed to tackle social challenges and develop innovative, cost-effective solutions that are tailored to disadvantaged groups.
It invests in three main asset classes: debt for social enterprise, high impact housing and social outcomes contracts. Debt for social enterprises includes charity bonds and co-investments in portfolios of loans to social enterprises; high impact housing relates to housing funds that help people who have experienced homelessness or domestic abuse or those that provide affordable housing to lower income groups; and social outcomes contracts 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.
Three examples give a flavour of the trust’s investments and the social impact achieved:
Alleviating fuel poverty
Through its debt for social enterprise investment in Bridges Evergreen Holdings, the trust has helped AgilityEco, a leader in low carbon, energy efficiency and fuel poverty services, to reach almost 45,000 individuals and generate more than £200 million worth of lifetime savings in energy bills. This investment is aligned with SDG 7 (affordable and clean energy) and SDG 13 (climate action)3.
Providing safe and secure housing for women and children who have experienced domestic abuse
One of the trust’s high impact housing investments is the Social and Sustainable Housing Fund. It has financed Hull Women’s Network to purchase 49 safe, high-quality houses helping more than 300 women and children to break free from domestic abuse. This investment is aligned with SDG 1 (no poverty), SDG 10 (reduced inequality) and SDG 11 (sustainable communities)4.
Helping children most at risk of poor educational outcomes
Through its investment in the Bridges Social Outcomes Fund II, the trust provides funding to West London Zone. Its link workers support children – 702 of them in 2021 – in the deprived Harrow Road area of West London, tackling a range of social issues from social isolation and mental health problems to poor academic outcomes. This investment is aligned with SDG 4 (education for all)5.
In driving positive impacts like these, the trust has also delivered strong performance to shareholders against a challenging fiscal environment. Since inception on 22 December 2020 to 30 June 2022, they have made an annualised net asset value total return per share of 5.1%.
Why invest?
There are many compelling reasons to invest in the Schroder BSC Social Impact Trust. Here are the trust’s central selling points:
Collective strengths
The trust harnesses the collective strengths of Schroders and Big Society Capital (BSC). Schroders has a wealth of experience and resources in sustainability, impact investing, private markets and manager selection. In launching the trust, it has partnered with Big Society Capital, one of the UK’s leading social impact investors and delegated portfolio manager of the trust. BSC has a ten-year track record of investing for social impact.
Powerful process
What makes the portfolio so powerful is that the investment selection process starts with the social issue. Within each issue area, the portfolio manager looks for fund managers that demonstrate good impact practice and an ability to structure investments to align financial and social value. It favours enterprise models that can reach disadvantaged or vulnerable people, generating revenue by delivering significant positive impacts for people and savings for society and the government.
Transformational impact
The trust targets sustainable models that can have a transformational impact on people’s life chances. In its first year, it provided finance to 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 organisations collectively benefited more than 160,000 people, 90% of whom are from more vulnerable and disadvantaged backgrounds. It is this achievement of deep, scalable and sustainable impact that drives financial performance.
SDG alignment
Every investment in the portfolio contributes to the UN SDGs in the UK, with the majority targetingSDG 1, to eliminate poverty, and SDG 10, to reduce inequality, which are often underrepresented in investors’ portfolios. Because the trust focuses on meeting the needs of disadvantaged people through a combination of different services, each investment typically addresses more than one SDG.
Portfolio diversification
The portfolio provides access to private market opportunities that are otherwise unavailable for ordinary investors. The high impact models that the trust supports create an investment profile that has a low correlation with mainstream investment markets. The trust seeks good risk-adjusted returns and low correlation to other asset classes provide diversification benefits for investors.
Stable revenues
Demand for the services offered by social organisations has increased. Many of these organisations deliver essential government-mandated services and derive a substantial proportion of their revenues from government-backed sources, which have historically been stable through economic cycles.
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.
[1] - The comparative figures cover the period from the date of incorporation on 24 September 2020 to 30 June 2021. The Company began investing on 22 December 2020 (“launch date”).
[2] - Borrowings used for investment purposes, less cash, expressed as a percentage of net assets. The Company currently has no borrowings, so this is shown as a negative, net cash figure.
Fund Risk Disclosures
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.
Important information
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.
The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance. 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 any overseas investments to rise or fall.
Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.
Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.
Important information
This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.
The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past Performance is not a guide to future performance. 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 any overseas investments to rise or fall.
Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.
Issued by Schroder Unit Trusts Limited, 1 London Wall Place, London EC2Y 5AU. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.