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 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:
- We act as a champion for the social investment market to increase awareness of, and confidence in, social investment.
- 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 £300 million in fund managers and social banks, who in turn lend to social enterprises and charities .
What is social investment? Is it different to impact investment?
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Essentially, social investment refers to repayable finance used to create social impact, mainly through social enterprises and charities. Social investing is a subset of impact investment, with some distinguishing factors including: the intention to deliver deep impact, being impact first, and with a long-term commitment to delivering impact.
The UK’s social investment market is currently worth over £3.5 billion.
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.[KM3]
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”. [KM4] [AB5] [KM6] 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 £355 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 Actincluding investment by the Big Society Trust in Big Society Capital as equity.
- The four main UK high street banks: Over time, Barclays, HSBC, Lloyds Banking Group and RBS each contributed capital in aggregate £2000 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 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 Big Society Trust 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 RBS) 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. The Investment Committee is chaired by the Chief Executive of Big Society Capital, Cliff Prior. Current members of the Investment Committee are: Anna Shiel, Christina McComb, Christine Chang, David Burndred, Geetha Rabindrakumar, Harvey McGrath, James Westhead, Jeremy Rogers, Keith Starling 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 the cost of Big Society Capital's capital?
We have been set up with the premise that the most social impact will be achieved by establishing a sustainable social investment market that is able to attract significant additional capital for the social sector. We target a wide range of returns across our portfolio in order to bring in other investors alongside us. The cost of capital to social enterprises and charities will be higher than our expected return due to intermediary costs and expected write-offs.
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.