BSC’s approach to impact and system change

Our investing and other market-building work at BSC is underpinned by a robust approach to impact management and measurement, and systems practice.

Beyond our own operations, we are committed to help improve impact practice across the fund managers and social banks we invest in, and we play an active part in supporting advance impact and systems practice more broadly across the global impact investing community.

We consider BSC’s contributions to impact essentially at two levels.

  1. Changes at the market system level, across different market stakeholders (from investors to enterprises) and market infrastructure (system change)
  2. Changes in outcomes for people and end-users (impact on people)

Both levels of impact are considered throughout the investment life cycle, as well as within our broader market-building practice.

A comment on our take on “investor contribution”: We fully acknowledge that a change in people’s outcomes is the impact that enterprises and charities directly contribute to. As BSC we contribute to such outcomes through our capital, as well as broader market-building activities. We consider both as BSC’s “investor contribution”.

Managing impact along the investment cycle

At BSC, impact is firmly embedded along the entire investment cycle, from setting investments strategies, making and managing investments, to existing and learning from them. In doing so, our various investment and impact management frameworks and tools are building upon the impact norms, developed by the Impact Management Project.

We consider the understanding of impact important in its own right – it is the very reason we exist – and we believe it can be a powerful competitive advantage for funds and enterprises we invest in. It can help reduce risks and create broader long-term business value.

Operating Principles for Impact Management

We are a signatory to the Operating Principles for Impact Management, and our latest Disclosure Statement from March 2023 provides a comprehensive summary description of our impact management approach and its alignment with the Impact Principles.

Our latest independent Impact Verification reports high or advanced alignment against eight out of nine Principles.

Key pillars of our impact and systems practice

  • Regular fund-specific impact reporting, based upon our Impact Canvas tool, which captures the specific impact thesis, measurement plan and KPIs for each investment.
  • Annual impact conversations with our fund manager to discuss and influence impact performance (including impact risks) against thesis of our investments, state of underlying impact practice, and ESG performance.
  • Annual performance committee to internally review performance and learnings of all our investments against their impact and system change thesis.
  • Regular external impact reporting through our annual Schroder BSC Social Impact Trust Impact Report and BSC’s external impact report (from 2023 onwards annually).
  • Annual market systems workshops to review progress and learnings against our broader market system change goals.

A comment on “setting impact targets”:

At the strategic market level, we have started to set overall performance goals, as part of our 2025 strategy (see market building section of report for more information) At the investment level, as a fund of funds investor, we have so far not found it meaningful and practically feasible to set targets around the intended impact on people. We do however define, measure and manage an impact on people thesis for all our investments.

Systems practice

We consider social impact investment markets and most of the social issues we seek to affect as complex social systems. We are trying to continuously improve our understanding of how complex systems work, and translate such insights into internal practice that is actionable and of added value.

What we mean by “market system”:

By market systems we mean a set of interconnected actors (fund managers, investors, etc) that shape the flow of capital (and support) from asset owners to enterprises and charities, influenced by a set of market conditions, including rules and policies, practices, resources, relationships, power dynamics and mental models.

While “system change” has been part of our mandate and work since the very beginning, over the last few years we have tried to embed system practice more explicitly into our market-building efforts. This remains very much work in progress and has included:

Market system maps

We map key market actors and their relationships with each other, as well as specific conditions[1] – rules and policies, practices, resources, relationships, power dynamics and mental models – that shape those relationships. We then identify the right leverage points where we believe BSC is well positioned to contribute to actual change in the market.

Market system change strategies

Based on our market system maps and identified leverage points, we develop market system change strategies, aimed at addressing specific market conditions and barriers to growing the market. These strategies then drive specific activities that we define as part of our annual business planning cycle.

Annual market system progress and learning workshops

Once a year, we convene comprehensive learning sessions in which we review across the organisation progress against our market system change goals, identify learnings in terms of what appears to work and what doesn’t, and define revised strategies for the subsequent year. The workshops are meant to help us live up to the reality that market systems are constantly evolving and adapting in non-linear ways, which requires us to regularly reflect on our assumptions underpinning our actions.

Comment on measuring changes at the market system level

Measuring changes at the market system level is difficult – methodologically and practically. In certain areas of our market-building work, we have started to identify indicators meant to help us understand whether our activities are effective in terms of intended outputs, and whether the market is developing, as intended.

This approach is not a formal evaluation of actual changes at the market system level and our contribution to them. With any changes we do try to capture on an ongoing basis, we do not intend to establish formal attribution regarding our interventions. We acknowledge that many changes in our market system-level theories of change result from a broad range of interconnected, influencing factors, well beyond our own interventions. We are considering a more formal, third-party evaluation of our contribution to key changes in the broader market at the end of the 2025 strategy period.

Improving impact practice across our portfolio

We consider robust impact practice at fund manager and enterprise level an essential part of ensuring actual impact is being achieved and impact risks are being managed. We not only assess a fund manager’s impact practice at the point of investment, but continue to engage and seek improvements over time, as part of our standard portfolio management and engagement approach.

To help us engage more effectively on impact practice with our fund managers, we developed bespoke impact practice engagement tools, built upon the Impact Principles:

  • For our engagement with venture managers, we have built an Impact Roadmap that spells out good impact practice, particularly for early-stage VCs. We use the Impact Roadmap to assess a new manager’s impact practice at the point of investment, and subsequently determine areas for improvement.
  • For our engagement with property managers, we have piloted an assessment tool that aims to adopt the Impact Principles to a property investment context.

Our experience in venture and in property suggests that such frameworks can yield significant value when trying to influence impact practice among fund managers. They provide a clear, shared foundation for discussion with our fund managers, and allow us to be more focused and efficient in our engagement efforts.

In our social lending work, we continue to focus on shared data collection and measurement framework of enterprise-level impact, including the original purpose of investments, the use of proceeds and enterprise-level resilience.

Helping advance impact and systems practice across the broader impact investing sector

We seek to play an active role in helping advance impact and system change practice across the impact investing sector more broadly. Some of our recent key contributions include:

Recent contributions

The Equity Impact Project

The Equity Impact Project is a collaborative project with asset managers to develop a sector standard impact measurement approach for equity investments in social and affordable housing.

ImpactVC

ImpactVC is a community of VCs learning about and accelerating impact within venture, incubated at BSC. To unlock the impact potential of venture capital, and help solve world problems, ImpactVC seeks to build high-quality resources and a community of dedicated VCs.

Enterprise-Level Impact

To better understand the effect of social impact investment on enterprise resilience and growth, BSC co-developed, with fund managers, a shared measurement framework. The framework was piloted in 2021/22 and is currently including data on 501 SPOs across nine fund managers.

Improving clarity and standardising good impact reporting practice

As part of an asset allocator working group, we supported BlueMark in developing a framework and report on good impact reporting practice and subsequently participated with our SBSI Impact Report in a pilot project to test this new framework and share learnings with the broader sector.

Developing the field of system change investing

We supported the development and set-up of a new initiative, soon to be launched as TWIST, that seeks to support the development of a new set of practices to support investing for systems change.

Other recent impact practice resources and research we have supported

A field guide by Case at Duke University and BlueMark on Impact Due Diligence and Management for Asset Allocators; Consultation on Impact Performance Reporting Norms, led by Impact Frontiers; research on Impact Linked Incentives and others.

Impact report resources

End notes

  1. Based on John Kania, Mark Kramer and Peter Senge’s work (FSG) in “The Water of System Change”