Big Society Capital

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Better Society Capital Limited (BSC) - formerly Big Society Capital is a social impact investor in the United Kingdom. Its mission is to grow the amount of money invested in tackling social issues and inequalities in the UK. It invests its own capital as well as enabling others to invest for impact too. The capital finances front-line social purpose organizations tackling everything from homelessness to mental health and fuel poverty, enabling them to grow and increase their impact.

Contents

Overview

Social impact investment is about lending or investing money to achieve a social, as well as, financial return. BSC was the world's first social investment institution of its kind, conceived under Gordon Brown's Labour government, then established in April 2012 by the Cabinet Office of the Cameron-Clegg ministry. It launched as an independent organisation with a £600m investment fund. [1] The investment fund comes from dormant bank accounts via an independent Reclaim Fund and four leading UK high street banks. The institution was set up as part of the Dormant Bank and Building Society Accounts Act 2008, which defined BSC as an organization that exists "to enable other bodies to give financial or other support to third sector organisations". A third sector or a social sector organisation is "a body that exists to assist wholly or mainly for society or the environment".

Better Society Capital is a "social investment wholesaler". This means that BSC does not directly invest in frontline organisations, but in Social Investment Intermediaries such as banks and fund managers. In turn these intermediaries provide finance and support to social sector organisations. [2] BSC also received funding from four of the main UK banks; Barclays, HSBC, Lloyds Banking Group and The Royal Bank of Scotland (later NatWest) have each invested £50 million in Big Society Capital. [3]

Banks and building societies in the UK pay money from dormant accounts into the Reclaim Fund Limited . The Reclaim Fund keeps sufficient funds to meet reclaims from any account holders and passes surplus funds to the Big Lottery Fund. The Big Lottery Fund releases the English portion of these funds to the Oversight Trust to invest in Big Society Capital as it was then known. BSC has received £425million from dormant accounts.

In 2022 The Department of Media, Culture and Sport launched a consultation on how to allocate a further £880m of Dormant Assets [4] and in March 2023 it was announced that social investment would remain one of the causes to receive further Dormant Asset funding. [5]

Mission

Better Society Capital's mission is to grow the amount of money invested in tackling social issues and inequalities in the UK. It aims to make a transformative impact on the social investment market by supporting intermediaries to be financially robust and effectively channel capital to the social sector. More widely, it aims to increase awareness of, and confidence in, social investment by promoting best practice and sharing information; improving links between the social investment and mainstream financial markets; and working with other investors to embed social impact measurement and management into the investment decision-making and portfolio management processes.

History

In 2000, Labour Chancellor Gordon Brown set up the Social Investment Task Force (SITF) [6] to look at ways to create wealth and promote enterprise to support economic regeneration and community cohesion. The first report of the SITF highlighted the need for "wholesale intermediaries" to provide new sources of capital to help the community finance sector grow. [2]

In 2005, an independent body, the Commission on Unclaimed Assets, was set up to consider how money left unclaimed in dormant bank accounts for over 15 years could be used to benefit society.

In a consultation paper published in July 2006, the Government recommended the establishment of a Social Investment Wholesale Bank. [7]

In March 2007 the Commission published its report "Social Investment Bank – its organisation and role in driving development of the third sector", which provided a blueprint for the institution's funding, goals and governance. The commission's final report concluded that: 'the third sector urgently needs greater investment and professional support and suitable capital should be available for organisations at all stages of development.' [8]

In 2008, the UK Government introduced legislation to enable unclaimed money in dormant bank accounts to be used for youth facilities, financial inclusion and social investment. [9] The Dormant Bank and Building Society Accounts Act 2008 passed with cross-party support. It stated that money from dormant accounts available for spending in England could be used for three specified purposes, one of which was creating a 'Social Investment Wholesaler'.

In July 2009, Office of the Third Sector in the Cabinet Office consulted on the functions and design of this organisation. [10] The idea of a Social Investment Wholesale Bank generated significant interest from across the political spectrum. [11]

In March 2010, the Labour Government's Budget announced up to £75 million from the dormant accounts would be committed to a social investment fund.

On 31 March 2010, David Cameron announced that a Conservative government would set up a "Big Society Bank" funded by unclaimed bank assets as part of a Big Society initiative. [12] A Conservative policy document said the proposed Big Society Bank would not be restricted to lending but would also invest in innovative products such as Social impact bonds. [13]

In July the same year, as Prime Minister, Cameron said: "We will create a Big Society Bank to help finance social enterprises, charities and volunteering groups through intermediaries… using every penny of dormant bank and building society account money allocated to England."

In 2011, the Merlin Agreement between the Government and the major UK high street banks included a commitment for the four largest banks to put £200 million into setting up the Big Society Bank. After consulting with key social sector organisations, Ronald Cohen (BCS's founder chair) and Nick O’Donohoe (BSC's CEO from 2011 to 2015) [14] offered the Government an outline proposal for the Big Society Bank. Caroline Mason was BSC's chief operating officer until 2013. [15] The proposal was accepted by the Cabinet Office subject to certain conditions, including regulatory approvals from both the EU Commission and the Financial Services Authority. An interim "Big Society Investment Fund" was set up under the auspices of the Big Lottery Fund to make investments before the new institution was launched.

In April 2012, Big Society Capital was launched by the Prime Minister at an event hosted by the London Stock Exchange. [16]

In 2022 Big Society Capital celebrated ten years since its inception. [17]

In April 2024 the organisation renamed as Better Society Capital to more accurately articulate its mission.

Reactions

The principle of BSC has met with criticism from diverse groups including banks and charities. Giving evidence to the Public Administration Select Committee, Thomas Hughes-Hallett, chief executive of the Marie Curie Cancer Care charity said: "it is potentially setting up a system to encourage vulnerable charities to borrow money." [18] In January 2011 Banco Santander, who have major retail banking interests in the UK, withdrew from Project Merlin negotiations with the Government and is expected not to make any direct payments to the BSB. [19]

The FT suggested that it was "a tiny acorn from which it is far from certain that a giant oak will grow. But there are some very exciting ideas ...which could help society and government tackle issues that have always struggled to obtain funding in the past" [20]

Management Today said that "There's nothing wrong with the idea, or the model, or even the pot. But this plan still seems to lack some hard-headed commercial nous". [21]

A heavier involvement with front line social sector organisations is something that others agree Better Society Capital needs to focus on. Others are equally worried about the direction of the social investment market overall, as they say that a lot of the noise around social investment has been from the perspective of investors rather than front line social organisations. Others point out that social finance will never be applicable to all of the social sector and Big Society Capital was established to make loans and not grants, a type of finance that will not necessarily be suitable for all. [22]

Corporate governance

Better Society Capital is an independent financial institution authorised by the Financial Conduct Authority. Independence is ensured by a structure which involves The Oversight Trust on whose board one Government representative serves. Big Society Capital is accountable to The Oversight Trust whose responsibility it is to ensure that Better Society Capital fulfills its mission. [23]

The Oversight Trust

The Oversight Trust is the majority shareholder in Better Society Capital, controlling 80% of the voting rights at shareholders' meetings.[ citation needed ] Its role is to ensure that Better Society Capital remains true to its mission. [24] For important issues such as a change to the company's objects or removal of a Big Society Capital director, the consent of at least 75% of the Oversight Trust board is required.[ citation needed ] Big Society Capital reports regularly to the Oversight Trust on its financial performance, its investments and board and senior manager appointments. The Better Society Capital CEO is invited to attend The Oversight Trust board meetings as an observer.[ citation needed ]

Shareholder banks

Barclays, HSBC, Lloyds Banking Group and RBS are shareholder banks. [23] Each shareholder bank has committed to subscribe to £50 million of Better Society Capital's shares; their individual shareholding will always be less than 10% of the outstanding paid-in capital. The banks can vote at shareholders' meetings. Their votes are in proportion to their shareholding, but each is capped at 5% of the overall voting rights. The banks are represented on the Better Society Capital board by a bank-nominated director. In addition to information provided to them by the BSC Director, the banks receive all Big Society Capital board papers and quarterly and half yearly reports. In certain circumstances the banks have the right to request a meeting with the senior management of Better Society Capital to discuss its performance. [25]

Investment categories

The investments made by Better Society Capital fall into these broad categories: [2]

  1. Specialised funds – These funds have "themes", for example, they might be for investing in specific social outcomes such as health and social care or a particular geographical area. Alternatively, they could invest in supporting specific types of contracts won by social sector organisations.
  2. General funds – These funds increase the supply of capital available to a wide range of frontline organisations.
  3. Social Impact Bonds (SIBs) – SIBs are a way of raising finance to deliver payment-by-results (PbR) contracts. Big Society Capital can invest directly in entities that are set up to take responsibility for funding and the delivery of outcomes detailed by PbR contracts.
  4. Operating intermediaries – These are organisations that provide support for the social sector, such as performance measurement and capital raising.

Investment activity

Better Society Capital was set up to receive equity capital from dormant bank accounts of up to £400m and £200m from the shareholder banks (Barclays, HSBC, Lloyds Banking Group and RBS). During:

Better Society Capital has made allocations to charities and social enterprises.

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<span class="mw-page-title-main">International Finance Corporation</span> World Bank Group member financial institution

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<span class="mw-page-title-main">Security (finance)</span> Tradable financial asset

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A mutual fund is an investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe, and the open-ended investment company (OEIC) in the UK.

An investment trust is a form of investment fund found mostly in the United Kingdom and Japan. Investment trusts are constituted as public limited companies and are therefore closed ended since the fund managers cannot redeem or create shares.

An institutional investor is an entity that pools money to purchase securities, real property, and other investment assets or originate loans. Institutional investors include commercial banks, central banks, credit unions, government-linked companies, insurers, pension funds, sovereign wealth funds, charities, hedge funds, real estate investment trusts, investment advisors, endowments, and mutual funds. Operating companies which invest excess capital in these types of assets may also be included in the term. Activist institutional investors may also influence corporate governance by exercising voting rights in their investments. In 2019, the world's top 500 asset managers collectively managed $104.4 trillion in Assets under Management (AuM).

<span class="mw-page-title-main">Custodian bank</span> Type of financial institution

A custodian bank, or simply custodian, is a specialized financial institution responsible for providing securities services. It provides post-trade services and solutions for asset owners, asset managers, banks and broker-dealers. It is not engaged in "traditional" commercial or consumer/retail banking like lending.

<span class="mw-page-title-main">Ronald Mourad Cohen</span>

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<span class="mw-page-title-main">Social finance</span>

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<span class="mw-page-title-main">Investment fund</span> Way of investing money alongside other investors

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<span class="mw-page-title-main">Business Growth Fund</span>

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References

  1. ↑ Big Society fund launches with £600m to invest BBC News 4 April 2012.
  2. 1 2 3 4 Big Society Capital First Annual Report, 2012.
  3. ↑ "Our history". Big Society Capital. Retrieved 15 March 2024.
  4. ↑ "Consultation on the English portion of dormant assets funding". GOV.UK. 16 July 2022. Retrieved 24 August 2023.
  5. ↑ "Millions released from dormant accounts to support vulnerable people with cost of living". GOV.UK. Retrieved 24 August 2023.
  6. ↑ Social Investment Task Force, 2000 Archived 29 August 2010 at the Wayback Machine .
  7. ↑ The Commission on Unclaimed Assets (2006) A Social Investment Bank – Consultation Paper
  8. ↑ The Commission on Unclaimed Assets (2007) The Social Investment Bank – Its organisation and role in driving development of the third sector
  9. ↑ "Commission on Unclaimed Assets". socialfinance.org.uk. Archived from the original on 1 September 2010. Retrieved 20 September 2015.
  10. ↑ Office of the Third Sector (2009), Social Investment Wholesale Bank: a consultation on the functions and design
  11. ↑ "Civil Society and the Third Sector". The Labour Party. Archived from the original on 14 April 2010.
  12. ↑ Nicholas Timmins (31 March 2010). "Cameron outlines 'big society' plans". Financial Times.
  13. ↑ "Share The Facts". Conservatives.com. Archived from the original on 17 November 2013. Retrieved 7 September 2015.
  14. ↑ "Nick O'Donohoe Chief Executive Officer". CDC Investments. Retrieved 26 November 2020.
  15. ↑ "Caroline Mason CBE". Esmée Fairburn Foundation. Retrieved 23 November 2020.
  16. ↑ Launch of Big Society Capital – the world’s first ever social investment market builder, Cabinet Office April 2012.
  17. ↑ https://bigsocietycapital.fra1.cdn.digitaloceanspaces.com/media/documents/Big_Society_Capital_Ten_Years_of_Investing_for_Impact.pdf
  18. ↑ "Philanthropy Review chair slams Big Society Bank". Civil Society. 19 January 2011. Retrieved 7 April 2024.
  19. ↑ David Ainsworth (17 January 2011). "Santander quits talks affecting the Big Society Bank". Third Sector. Retrieved 13 February 2011.
  20. ↑ Big Society Bank: Just the facts Financial Times 14 February 2011
  21. ↑ Big Society Bank faces awkward commercial questions Management Today 14 February 2011
  22. ↑ UK's social bank turns two: Has it met expectations Pioneers Post 22 January 2014
  23. 1 2 3 4 Social Investment from ambition to action, Big Society Capital Annual Review 2013.
  24. ↑ "The Oversight Trust home page, England, Governance, Dormant Accounts". The Oversight Trust. Retrieved 24 August 2023.
  25. ↑ https://bigsocietycapital.fra1.cdn.digitaloceanspaces.com/media/documents/Big_Society_Capital_Annual_Review_2021.pdf
  26. 1 2 Liam Kay (24 July 2018). "Big Society Capital records first profit". Third Sector.
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