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Assessment and co-development

We consider potential investments against our investment criteria, and assess intermediaries' ability to deliver intended outcomes.

We focus on sustainable solutions that will achieve positive investment returns as we believe those will be able to attract the most co-investors and ultimately achieve the greatest systemic change.   By investing our capital, we aim to build a thriving ecosystem which has strong intermediaries and more available finance from diverse sources.  We will judge our ultimate success by the growth and social impact of the broader environment we help create, not just the direct impact of our investment capital.

Before we proceed with any due diligence, we apply our pre-due diligence screen.  This is a condensed version of the later work we do such as our Social Impact Tests, and is designed to give applicants a quick inital response.

How our investment criteria influences our activities

           Social Impact

What we are looking for

We are looking for investments that deliver significant social impact, by helping charities and social enterprises to improve the lives of vulnerable and disadvantaged people in the UK. 

Investments with significant social impact will typically have many or all of the following characteristics:

  • Clear social mission and articulation of how activities will deliver impact (theory of change)
  • Well evidenced understanding of the people who will be impacted by the investment and what their needs are
  • Impact delivered is more than would be achieved without the intervention
  • The model (and impact) can be replicated or scaled
  • The solution is innovative, in that it addresses the problem in a new or better way
  • Achieves the best result for the beneficiaries for the amount of capital relative to alternative ways of tackling the problem (the impact yield)

We also take into account the intermediary’s track record and capacity to deliver impact:

  • Can demonstrate a deep understanding of the social issues and the proposal will lead to positive social impact.
  • The governance structure protects the social mission, through the composition of the Board and Investment Committee as well as appropriate mission locks.
  • The management team has a track record of delivering their proposed solution and, where relevant, of working with the beneficiary group
  • The intermediary has robust impact processes that they apply when assessing, measuring and reporting the impact of investments in charities and social enterprises

We will assess impact slightly differently according to the strategic aims proposals address, we show some of this on the second page of our pre-due diligence screen.

You can explore this approach in practice by looking at the investments we have made already.

How we assess it

During due diligence we assess the social impact of potential investments against our Social Impact Tests. These have been built on existing best practice in the sector and can also be used by intermediaries to assess the potential social impact of their investees. 

As part of our due diligence process we look at how our intermediaries will assess the impact of proposals they receive from charities and social enterprises. We expect this to be embedded in all parts of their investment process - from early screening to portfolio management and exit - and reflected in their governance arrangements.

           Building the Market

What we are looking for

We are looking for investments that make a strong contribution to building the social investment market, with a particular focus on market failure and those that support our four strategic visions for the market.

We will generally have different market development objectives for each investment:

How we assess it

We have developed Market Development Tests. These consider how the investment would contribute to the growth of the social investment market in relation to the following areas:

  • Demand for capital by charities and social enterprises
  • Supply of capital from investors
  • Strength and diversity of intermediaries

During the due diligence process, we will ask for evidence of the demand from the charity or social enterprise and will also explore how the intermediary will reach those organisations. We will aim to externally validate this including guidance from our Charity and Social Enterprise Engagement team.  Similarly, we will review the intermediaries’ fund raising plans and may offer guidance and support from our Investor Engagement team.


           Financial Sustainability

What we are looking for

Investments that will be assessed to be strong on financial sustainability have the following characteristics:

  • There is a sustainable revenue model and repayment route
  • There is a demonstratable need for the type and amount of capital
  • The business plan is based on realistic assumptions in view of past performance and market data
  • The intermediary has the capability and track record to deliver
  • The management team demonstrates a good understanding of the risks inherent in the business plan and have considered how those risks can be mitigated
  • The financial returns appropriately reflect the risk profile, duration and social impact
  • The terms and structure are suitable for the needs of investors and investees alike
  • Fees and expenses are fully transparent and appropriate relative to benchmarks and the intermediary’s resourcing requirements
  • Incentives appropriately align the intermediary’s interests with those of the investors and beneficiaries

We have a target return across our portfolio of 4-6%, though we have made investments with expected returns both below and above this range. We judge the financial return against likely risk, the social return, market development return, and its ability to attract the co-investors we require.   

How we assess it

We review the financial model and business plan to understand the key assumptions driving financial sustainability and returns. We seek evidence from the intermediary and third parties to determine whether these assumptions are well evidenced and realistic. We run sensitivities to test how resilient the financial case is in the event of underperformance or external market shocks. In light of our analysis we review whether terms and structure are appropriate for the risk and social impact.

Decision making

While all proposals are assessed against our three investment criteria, in practise we often have to make trade-offs.  For example when a proposal performs lower on one aspect, its combined score on the other two may still result in a positive decision. We have written a blog giving examples of some Investment Committee discussions.

Find out more about our application process