Socially Responsible Investment & Social Impact Bonds: Innovative Grantmaking Practices at the Barrow Cadbury Trust

Visiting Scholar, Indian Institute of Management, Bangalore

This review examines socially responsible investment as an innovative grantmaking practice, specifically considering as case studies two investments by the Barrow Cadbury Trust: the Peterborough Social Impact Bond and the Social Justice and Human Rights Center. Socially responsible investment (SRI) – also referred to as social or ethical investment – refers generally to values-guided financial investing on a personal or organizational scale. According to the European Commission, “Social investment is about investing in people. It means policies designed to strengthen people’s skills and capacities and support them to participate fully in employment and social life.”1 Eurosif, the European Social Investment Forum, defines SRI as incorporating “ESG [Environmental, Social and Governance] issues as well as criteria linked to a values-based approach. For example, it can involve the application of pre-determined social or environmental values to investment selection. Investors may choose to exclude or select particular companies or sectors because of their impact on the environment or stakeholders.”2 SRI in one form or another has a centuries-old history, ranging from the values-based and anti- slavery business practices of sixteenth-century Quakers, to investment portfolios that exclude tobacco companies, to South African divestment in the 1980s.3

With Quaker values like “fairness, justice, equality, dignity, redemption, [and] service” as a guiding thread,4 the Barrow Cadbury Trust has since 2010 taken an explicitly SRI-based approach to their funding policies.5 The Trust was founded in 1920 by the Barrow Cadbury – grandson of the chocolate company’s founder – and his wife Geraldine to pursue social justice issues, including “racial justice, economic justice, gender justice and criminal justice” as well as “peace initiatives, democratic governance and civil society.”6 In 2013, the Trust was valued at around £80 million.7 Historically, the Trust has supported community initiatives in Birmingham, where it is based, including post-war reconstruction efforts and migrant justice issues, as well as projects abroad, including work in opposition to South African apartheid and in support of refugees.8 Today the Trust divides their support into three broad categories: criminal justice, migration, and poverty. In addition to these programs, the Trust has sought to base its investments portfolio on an SRI model “whereby capital as well as income is used for a social purpose.”9 The Trust had £4 million committed to social investment (for 3-10 year investments of roughly £50,000-250,000 per product), and recognizes that while socially responsible investing may yield a lower economic return, “this will be compensated for by the social return.”10 It invests these funds both “for impact” – in support of racial, gender, criminal, and economic justice in particular – and to develop the social investment market – that is, investments that broaden the market for SRI by supporting a secondary market for socially responsible trading and by making the market more appealing for institutional investors beyond just the charitable sector.11

This latter aim is the motivation behind the Trust’s interest in social impact bonds (SIBs), defined by Social Finance – a not-for-profit SRI organization – as a financing mechanism based of a “pay-for-success” contract model.12 Private-sector investors fund SIBs they believe will succeed and ultimately lower costs for government: “If a program funded by SIBs achieves successful outcomes, which are defined and agreed upon in advance by all parties to the contract, government repays investors their principal plus a rate of return based on the program’s success. If outcomes are not achieved, on the other hand, government is not obligated to repay investors.”13

The Barrow Cadbury Trust was one of the initial investors in the six-year Peterborough Prison SIB, established in 2010 “to fund interventions to reduce reoffending among three cohorts of 1,000 short-sentenced male prisoners,”14 and managed by Social Finance. The total investment by all parties was £5 million, with a return guaranteed “if reoffending is reduced by 10% per cohort compared to a national control group.” The SIB-funded program “focuses on the immediate needs such as accommodation, medical services, family support, employment and training, benefits and financial advice.”15 In 2013, roughly halfway through the SIB’s term, preliminary statistics showed a six percentage-point decline in reconviction, “from 87 in the period 2008 to 2010 to 81 in the period 2010 to 2012. This compares with a 10 percentage point increase nationally over the same periods, from 69 in 2008 to 2010 to 79 in 2010 to 2012.”16 However, the introduction of the Transforming Rehabilitation program in 2014 altered the context of the SIB by reforming probation and rehabilitation policy across the country, invalidating the SIB’s control group and necessitating a reworking of the terms of return.17 While this shift does not discredit the effectiveness of SIBs, it drew attention to the model’s vulnerability to policy change.18

The Barrow Cadbury Trust is also a primary investor in the Social Justice and Human Rights Centre (SJHRC), Ltd., established in May 2011 with Trust for London, Joseph Rowntree Charitable Trust, LankellyChase Foundation, and the Ethical Property Company.19 This £700,000 investment, in the form of £350,000 equity and a £350,000 loan,20 went towards the establishment of the SJHRC’s primary project, The Foundry – a centre designed to support social justice and human rights organizations. The centre allows these organizations to easily coordinate and share resources, while fulfilling its four central aims: “To enable organisations to achieve more impact and raise awareness of human rights and social justice issues; To offer an excellent quality ethically managed space; To help support the regeneration of the local community; [and] To offer a sustainable return to investors.”21 In the information provided for investors, The Foundry notes three dimensions of investment return: financial (an expected 3% dividend plus capital growth on equity and, for loans, a rate of 6.25% over 5 years); social (helping organizations “achieve more impact and raise awareness of social justice issues”); and environmental (in building design standards, energy use, and available bicycle parking).22 In an article written reflecting on The Foundry’s establishment, the Barrow Cadbury Trust’s Head of Programmes notes the challenge of raising funds for the project in a difficult economic climate, with most investors preferring lower-risk loans over higher-risk equity investments, but generally celebrates the success to-date of the project.23