Here are the answers to some of the questions you may have about Big Society Capital.

What is Big Society Capital?

Big Society Capital is the UK's leading financial institution dedicated to social impact investment in the UK. We exist to improve people’s lives by uniting capital, expertise and ideas to create opportunities for investors and enterprises to generate impact.

We collaborate with investors and expert partners to achieve systemic, sustained and measured impact, while targeting positive, sustainable returns and building the UK social impact investment market.

We have two roles:

  1. We act as a champion for the social investment market to increase awareness of, and confidence in, social investment.
  2. We are also an investor that provides capital to social investment finance intermediaries (such as fund managers or specialist banks serving the sector) that in turn provide finance and support to charities and social enterprises.

Since it was set up as an independent organisation in 2012, Big Society Capital has invested more than £500 million into fund managers and social banks, who in turn lend to social enterprises and charities .

What is social impact investment? Is it different to impact investment?

Across the globe, investors are taking a more socially responsible attitude to their investments. They want to make a clear statement of intent. Some want to do good with their money, some think it will be rewarding to do so, or both. Many are investing in funds with environmental, social and governance (ESG) integration.

Other investors are making impact investments. These are made with the intention of generating a positive, measurable outcome for society and the environment while making a financial return.

Social impact investment provides repayable finance to enterprises with a social purpose such as charities and social enterprises. The investment enables them to deliver products or services that create measurable, lasting social impact that improves people’s lives. Social impact investors are seeking positive social impact as well as a financial return.

The UK’s social investment market is currently worth over £7.9 billion. Find out more about our market data.

How is Big Society Capital helping to grow the UK's social investment market?

We know that a larger and more diverse social investment market is essential for tackling societies toughest issues and we have a clear vision to make this happen:

  • Bring mainstream investors in alongside us to increase the amount of capital available for tackling social issues. To improve the lives of people in the UK we will need the full spectrum of capital, from philanthropy and social investment up to mainstream finance
  • Improve access to finance for small and medium-sized social enterprises and charities. If repayable finance is appropriate for a social organisation they should have access to a range of simple, sustainable products.
  • Help the most innovative approaches to tackling social problems to scale and be replicated. We want to ensure social entrepreneurs tackling the most entrenched social problems can access the capital they need.
  • Build mass participation in social investment. We want ultimately to see millions of people contribute to social change through their personal finance choices – and thousands of grassroots organisations able to access the finance they need to support their local communities.

Who does Big Society Capital invest in?

Big Society Capital was established by law as a “social investment wholesaler”. This means we cannot invest directly in social enterprises and charities. We invest in entities such as fund managers and specialist banks serving the sector that in turn provide finance and support to these organisations.

Big Society Capital can only invest dormant account money in entities such as fund managers providing finance to “Social Sector Organisations”. Social sector (or third sector) organisations are defined by the Dormant Accounts Act as those that “exist wholly or mainly to provide benefits for society or the environment”. We have interpreted this to include regulated organisations such as charities, Community Interest Companies or Community Benefit Societies, as well as some profit-making companies or enterprises that have a clear social mission. These ventures need to be able to meet the principles set out in our Governance Principles.

We aim to demonstrate that the social investment model is sustainable through our own portfolio. By investing through social investment fund managers, rather than directly in social enterprises and charities, we’re looking to build a diverse market of finance providers without undercutting the existing providers of finance to the sector.

Where does Big Society Capital invest?

We invest in funds registered in the UK that provide finance and other support to social sector organisations that primarily benefit people and communities anywhere in the UK.

We do not invest in funds without a base in the UK or which provide finance and support to social sector organisations that primarily benefit people and communities outside the UK.

How is Big Society Capital funded?

Big Society Capital gets its funds from two streams:

  • English dormant bank accounts: Big Society Capital has so far received £425 million from the Reclaim Fund Ltd (previously a wholly owned subsidiary of the Co-operative Group Ltd) which collects dormant bank and building society account monies from UK banks and building societies. After retaining reserves to cover possible future claims, the Reclaim Fund passes the money it receives to The National Lottery Community Fund. The National Lottery Community Fund then allots the money to each of the home countries using a standard government formula. The English monies are used in compliance with the Dormant Accounts Act including investment by The Oversight Trust – Assets for the Common Good in Big Society Capital as equity.
  • The four main UK high street banks: Over time, Barclays, HSBC, Lloyds Banking Group and Natwest Group each contributed capital in aggregate £200 million as an equity investment.

Further information about Big Society Capital’s current funding levels can be found in our latest Annual Review and Annual Report, which can be found here.

What is Big Society Capital's governance structure?

Big Society Capital is an independent financial institution authorised and regulated by the Financial Conduct Authority.

The Oversight Trust – Assets for the Common Good (previously known as The Big Society Trust) acts as the majority shareholder (with 80% of the voting rights) in Big Society Capital to ensure that it remains true to its social mission to grow the social investment market in the UK. The Oversight Trust – Assets for the Common Good comprises: the CEO of one of the charity sector umbrella organisations NCVO or ACEVO; the CEO of Social Enterprise UK; two social sector representatives, one finance sector representative and one business representative appointed following an open recruitment exercise; one appointment by the Cabinet Office; and the Chairs of Big Society Capital and Access (The Foundation for Social Investment).

Each shareholder bank (Barclays, HSBC, Lloyds Banking Group and Natwest Group) can vote at shareholder’s meetings. Their votes are in proportion to their shareholding but each is capped at 5% of overall voting rights. The banks are represented on the Big Society Capital board by a bank-nominated director.

Who makes investment decisions?

The Big Society Capital Investment Committee makes investment decisions for all investments up to £10 million. Current members of the Investment Committee are: Anna Shiel, Christina McComb, Christine Chang, Jeremy Rogers, Keith Starling, Lisa Hilder and Stephen Muers. Find out more about our investment committee.

Investment decisions above £10 million are made by the Board of Directors of Big Society Capital on the recommendation of the Investment Committee.

What is Access - the Foundation for Social Investment?

Access – The Foundation for Social Investment works to make charities and social enterprises in England more financially resilient and self-reliant, so they can sustain or increase their positive social impact. This is achieved in two key ways:

  • by supporting the development of enterprise activity to grow and diversify income,
  • and improving access to the social investment which can help stimulate that enterprise activity.

Access was set up in 2015 and will exist for ten years, but the need for its work will continue well beyond that. Therefore it works through others to create partnerships which can outlive Access itself. The partnerships also test and learn from new approaches while generating knowledge which they can share with others seeking the same goals.

Access has been endowed with £60m by the Government to support more organisations to access social investment. It also runs blended finance programmes, including the Growth Fund which supports small scale lending to the sector on behalf of the Big Lottery Fund and Big Society Capital.

You can find out more about Access on its website here.

Does Big Society Capital 'Buy Social'?

We are keen to further integrate social organisations into our supply chain. We already use social enterprises for stationery supply, electrical safety testing, printing and design agencies. We are keen to work with more social enterprises in all areas and explore whether there is an opportunity for them to become a preferred supplier of goods or services.

Our key procurement goals are:

  • We will give preference to suppliers who can demonstrate that they have or will implement practices to support the social sector and will meet all other supply conditions.
  • Wherever possible, Big Society Capital employees and contractors will pursue these goals and adhere to the specified principles when purchasing products and services.

Why does Big Society Capital make investments rather than grants?

Making investments is at the heart of our mission, since Big Society Capital was established to grow social impact investing in the UK. We aim to build an investment ecosystem made up of fund managers, social banks and other intermediaries that supports social enterprises and charities in improving people’s lives.

Investment isn’t a substitute for grant– and many organisations use both. Instead, it allows organisations that have a suitable business model to access a different, additional source of money to support and grow their impact and allows valuable grant capital to be prioritised where investment may be less suitable.

The key difference between an investment such as a loan and a grant is that a grant maker gives away their capital for good. An investor expects to invest in an enterprise that can generate a return through its business model, meaning also that their capital can be recycled and used again. Big Society Capital, for example, was established with £425 million from dormant accounts. By investing rather than giving away this money in the form of grants, every £1 that Big Society Capital lends can be recycled and used 6 or 7 times by social enterprises, charities and other partners - rather than just once. The investments that Big Society Capital has made have also attracted new capital: we initially crowded in £200 million of investment from four shareholder banks, and, nearly ten years later, the total amount of capital from other investors alongside us is £2.5 billion. This is more than five times the initial sum, and a number we expect to only continue to grow.

Why does Big Society Capital need to generate a return on its investments?

Big Society Capital was set up to be a sustainable investor that would not be dependent on future granting of assets. Therefore, we seek to generate a sustainable financial return from our investments alongside positive social impact, so that we can continue recycling our capital for future investees. That way Big Society Capital can deliver its mission to grow social impact investing into the long term and serve future generations.

How are Big Society Capital’s investments priced?

Big Society Capital helps create new investment funds that improve lives across the UK as well as investing into established funds. Since our mission is to build the social impact investment market, we will often be the first to invest into a new fund, channel, or financial vehicle that is creating positive social impact, in order to build momentum and encourage other investors alongside us.

When we invest into a fund, we look for proposals that have the ability to raise substantial capital from other investors to increase the amount of capital channelled towards enterprises tackling social issues. This is because many of the problems these social investment funds seek to address need many multiples of the amount of capital Big Society Capital has. As a result, we rarely “set the price” for investments. We cover our own costs by ensuring a balance of investment types and returns across our own portfolio so that overall our capital is preserved targeting a small return.

When we invest into a fund or intermediary, we consider various factors in assessing whether the proposed return is appropriate for the risk and impact and so the ‘price’ is effectively determined by these factors:

  • The impact and systems change potential: The extent to which a fund or intermediary is able to create deep social impact as well as to scale up to have a transformative impact over time.
  • The return a business model can sustain: we will consider the type of organisations the fund will be investing in and what return their business model can sustain.
  • The return required by co-investors: We want other investors to invest alongside us, so we need to find funds or intermediaries that offer the right balance of impact-risk-return to suit the needs of the investor we believe is most suitable to support them in creating systems change.

Of course, the ‘price of capital’ means much more to most enterprises than simply the headline rate of return. It can include the duration, patience, and flexibility of the investment. All of these are factors that may make social impact investment more attractive for some charities and enterprises and are part of the offer social investors seek to improve for their investees.

In some instances, we might let a fund manager know that we don’t think their target return is appropriate, generally because it will not help them raise other investment. In these cases, we’d advise them not to solely depend solely on our judgment and to seek further feedback.

Are social impact investment returns lower than other investments?

Not necessarily. Social impact and financial [risk-adjusted] returns can be in tension, but often they’re not. For many of the investments we support, the impact, financial risk and returns are closely correlated – with some of those that have been the most financially successful also driving the most social change. These investments have the potential to attract substantial amounts from investors who want to invest with impact but have less ability to take lower returns.

There are of course some cases where tensions exist. Social impact investing happens across a wide spectrum and supports a range of different market segments including social property, venture and equity, and social outcomes contracts. With Big Society Capital’s mandate to support this diverse investment ecosystem, we invest across this range – which means that in any given segment the risk, returns and impact we are seeking can vary widely. For example, there are certain parts of the market where there are business models that generate lower returns than a purely commercial business; however, generate significant social impact. To support them, we look to find investors who are willing to accept those lower returns – or higher risks. We also believe there is an important role for subsidy such as guarantees and blended finance in making these parts of the market accessible to a broader range of investors – while remaining affordable for the organisations receiving investment.

Why is there a range of returns across our portfolio?

Social impact investing happens across a wide spectrum and supports a range of different market segments including social property, venture and equity, and social outcomes contracts. With Big Society Capital’s mandate to support this diverse investment ecosystem, we invest across this range – which means that in any given segment the risk, returns and impact we are seeking can vary widely.

In some areas, such as those involving some element of grant funding, our original expected returns could be between 2-4%, whereas in our impact venture investments that are high risk, high impact, we will be looking for much higher returns reflecting the returns generated by these high growth businesses, the high risks of early stage investing, and it is the level that other investors are willing to commit to grow the segment.

What drives the return that a social impact investor needs?

The level and type of return an investor is looking for will depend on several factors:

  • Purpose of the investment – do they need income, or are they looking for the value of their money to increase over time? This will determine both the level of the return they want but also other features, such as how long they are willing to invest for and whether they are looking for regular returns or a lump sum.
  • Risk: linked to this is the amount of risk that the investor is willing to take around their investments not resulting in the returns they expect. For example, if the money comes from people’s bank deposits or pension schemes, it is not money the investor can afford to lose, regardless of the impact. Other investors have more ability to take risk that they don’t get their capital back, but in return may be looking for a higher return in terms of both financial and impact outcomes.
  • Sustainability: As with any organisation, social impact investors need to run a sustainable business which includes covering the costs of making the investments. These costs might be direct if the investor makes the loans themselves or indirect if they choose to outsource investments to an expert like a social impact fund manager.

If you are a social enterprise, charity or mission-driven organisation looking for further information about how much social impact investment might cost your organisation – head to the Good Finance Cost of Capital calculator.

What determines the cost of an investment for an organisation?

Organisations are likely to be obtaining finance from intermediaries like social impact fund managers and banks – who are investing money on behalf of these ultimate investors.

The cost of taking an investment for a charity or social enterprise will depend on these factors, among others:

  • The product: What type of investment it is e.g. a secured or unsecured loan, equity or bond. These products carry different levels of risk for investors and are suitable for different organisations at different stages of their development.
  • The term and repayment structure: How long will the investors invest their money for, and how and when will they get their return? Social impact investors will look to understand the level and profile of returns the organisation generates on the investment. For example, will it take several years before the business makes a surplus from the activity it is using investment to carry out, or will it be generating an income from day one? It is important this is matched well to the returns that the business model generates or the organisation might be exposed to a gap it can’t bridge.
  • The risk: How likely an investor is to get their money back or to get the return they might need for their purposes. The greater the risk of loss or very uncertain outcomes, the higher the return that will usually be needed. Investors need to look at the business, the market and the economy to assess the risk of not getting their money back.
  • The fees: How much it costs the investor to make the investment happen including the amount of staff time and due diligence that needs to be carried out.

The cost of an investment for an organisation is made up of several elements, such as upfront and ongoing fees, interest costs if it’s a loan or share of revenues if its quasi-equity, or rental payments if it’s a lease. For organisations taking equity investment it’s about how much of ownership you give up.

It also makes a big difference how the return is structured and its timing – for example, if there is interest to be paid on day 1 or if it is rolled up – and how this matches with the returns they expect to generate on the investment. Even if there are no interest costs for five years, will the organisation have generated enough surplus to repay the full amount of the investment when due?

If you are a social enterprise, charity or mission-driven organisation looking for further information about how much social impact investment might cost your organisation – head to the Good Finance Cost of Capital calculator.

Should Big Society Capital be doing more to support diversity in social impact investment?

Big Society Capital needs to do much more to address equality, diversity and inclusion. For example, recent sector research shows that there is a lower success rate for ‘BAME’-led organisations applying for social investment from funds we support. We are keen for this to change – and have started to implement processes that might help do so such as collecting data on diversity, changing our investment policy and processes, and running programmes to recruit more diverse people onto investment committees, as well as actively engaging with the Diversity Manifesto.

We are also committed to supporting and helping grow – through investment – initiatives which will invest in black-led entrepreneurs; in addition to actively campaigning with SEUK and other partners for dormant assets to be used to create a new dedicated body to invest in black-led social enterprise.

Should Big Society Capital be providing cheaper capital?

We agree that low cost, flexible and subsidised capital is critical for many social sector organisations. That’s why we took a leading role in supporting the creation of Access - The Foundation for Social Investment; to provide a source of blended finance which combines grant with our investment to make it more accessible. We have invested c.£150 million to provide blended finance and other subsidised approaches like this. Along with a wide range of partners from across the social economy, we are also supporting the Community Enterprise Growth Plan; which seeks to secure ongoing commitment for Access to provide subsidy for the sector from Dormant Assets.

However, we also have a wider remit - to grow the amount of capital invested into social impact as well as increasing its reach among social sector organisations. The reason for this is that our funds are tiny when compared to the scale of the social problems in the UK. For example, Crisis estimates that £19 billion of investment is needed to address homelessness alone. Also, if we used our capital more like grant rather than investment it would make relatively little difference as it is dwarfed by the £3.5 billion already granted annually by foundations.

Therefore, we believe that the best use of our capital is to build a wider market for investment for social impact. We believe that this will help generate tens of billions, rather than tens of millions, for the sector. This approach is already paying off; we started with £625 million of initial capital and together with partners, have now made £2.6 billion of investment into more than 2,000 social enterprises and charities.

Why does Big Society Capital support organisations that are not structured as social enterprises?

Social enterprises and growing investment in them are absolutely at the heart of Big Society Capital’s mission.  We share their focus on social impact and so the vast majority of our investments are in social enterprises or charities. However, we recognise that organisations with other legal structures can also deliver social impact and therefore tend to focus more on the mission, values and impact intent demonstrated by our investees, rather than their legal form. To-date, we have invested in various legal entities; from charities and companies with shares, to community interest companies and co-ops.

We have a vision where every investment helps improve people’s lives, and we believe that supporting organisations of different structures where purpose rather than purely profit is the goal provides an opportunity to source new ideas and scale successful models that can make a difference.

What is Big Society Capital's target rate of return?

There is a common mistaken assumption that Big Society Capital has a target rate of return for individual investments that drives market rates. In fact, it is the other way round, since the return rates of the funds we support are in practice determined by what enterprises and other investors will accept.  Since the social investment market has successfully grown bringing in other investors, our capital is now less than 10% of the market. As a result, Big Society Capital could not influence the rate other investors will accept, and in any case should not do so as offering ‘reduced’ rates would simply undercut other investors and reduce the amount of capital available. The reality is that we have never pursued a target rate for investments, as we have instead prioritised impact and preservation of capital as opposed to prioritising a return. To reflect this, in 2022 Big Society Capital’s board revised its overall target for net return, after costs, to 1% per annum averaged over five years. As this reflects the net result of our existing investment practice, it won’t lead to any cascade of change to the cost of capital affecting enterprises.

To understand more about how much social investment costs this short animation on the cost of capital from Good Finance helps explain the factors that influence interest rates and repayment terms.