Sustainable bank Triodos buys social impact bond consultancy

Triodos Bank has acquired UK-based social impact bond (SIB) consultancy Evidence-Based Social Investments (EBSI) in a “calculated move” to help the SIB market in the UK develop quicker, after EBSI went into voluntary liquidation after just 10 months in business.

EBSI was established in 2015 by Roger Bullen, a former local government commissioner with Essex County Council, who established the UK’s first social impact bond from a local authority in 2012.

EBSI, which attracted £475,000 (€563,000) in start-up capital from Big Society Capital, consulted with local authorities to develop and deliver outcomes based-commissioning contracts such as social impact bonds.

However, according to a statement on behalf of EBSI, it encountered delays in closing transactions and in October 2016 ran out of funding and entered into a creditors’ voluntary liquidation. The company’s largest creditor was Big Society Capital who consented to the acquisition by Triodos, who bought EBSI’s pipeline of business for an undisclosed sum.

Cliff Prior, CEO of Big Society Capital, said: “While it’s always disappointing to lose a good organisation, it’s great news that the pipeline of EBSI’s deals will remain, skills will be transferred and no vulnerable people will have lost a service.”

EBSI’s most recent accounts show it had a turnover of £200,108 but made a loss of £18,127. Big Society Capital “made an investment of shares of £150,000” the accounts show. Bullen was also a shareholder, as were Isabelle Gregory, a director of the company and James Plunket-Checkemian, a former director.

Both Bullen and Gregory had charged around £40,000 in consultancy fees each to the company last year. Big Society Capital had made a loan to the company of £200,000.

Keith Starling, Head of Portfolio Management at Big Society Capital, said it is now working with the liquidators to see how much of the start-up capital can be recovered.

Triodos Bank had helped arrange the Big Society Capital investment into EBSI at the time.

The EBSI client projects will be taken into Triodos Corporate Finance – a division of the bank which specialises in raising risk capital for clients in the social and environmental sector. The division has helped charities and social enterprises raise capital for six social impact bonds in the UK. Bullen will join Triodos Corporate Finance as Lead – Commissioner Advisory Services.

Speaking to Responsible Investor, Dan Hird, Head of Corporate Finance at Triodos, said the move reflected its desire to support the development of social impact bonds in the UK: “We have done some social impact bonds over the last three years as an advisor to charities and social enterprises and helping them bid and win contracts and raise capital.“We’ve always approached it from that view. But the market is very slow moving and to get social impact bonds going we need commissioners to understand their potential and commission this way.”

There are currently around 31 commissioned social impact bonds in the UK.

Hird said: “If local authorities aren’t on board there won’t be a market. For the market to develop we need to approach this from the commissioner end. It’s a calculated move.

“The barriers for local authorities are quite complex. They are facing huge budgetary pressure – cuts of up to 20% and needing to preserve vital services. It’s difficult to find the headspace to commission through a seemingly complex structure. It is a challenge to dispel the myth that social impact bonds are complex – that’s got to be our job.”

There are a number of central government initiatives to support the development of social impact bonds in the UK. These include a Centre for Social Impact Bonds, a central resource of knowledge for local governments and others, and funds to help local authorities commission social impact bonds by topping up their outcome payments to investors. Minister for Civil Society Rob Wilson, who has SIBs in his remit, has said the market for social impact bonds will be worth £1bn by 2020 – though it’s not clear whether this means investment into social impact bonds, the size of outcome payments, or both.

EBSI itself had received grant funding from government fund the Investment and Contract Readiness fund and the Big Lottery Fund Commissioning Better Outcomes Fund – though the Big Lottery Fund, an independent body funding by the UK National Lottery, is independent from government, it is directed on its strategy.

In the past weeks, high-profile figures in the UK social sector have been highly critical of social impact bonds to the country’s Parliament. In evidence to the upper house’s Committee on charities, Social Investment Business said there was “too much hype” without evidence from ministers around SIBs. Peter Holbrook, chief executive of Social Enterprise UK, while supporting SIBs, added there are other forms of finance that were as effective, cheaper and simpler. UKSIF said it was “not a given” that charity boards understand SIBs.

Hird said: “One problem is lots talk about social impact bonds and there is not enough action. I am interested in doing deals and learning from them and creating positive impact. A lot of people involved in SIBs haven’t been involved in them. What you do to overcome barriers count.”