Schroder BSC Social Impact

REPORT AND ACCOUNTS

Schroder BSC Social Impact Trust plc (the "Company") hereby submits its Report and Accounts for the period from incorporation on 24 September 2020 to 30 June 2021, as required by the Financial Conduct Authority's Disclosure Guidance and Transparency Rule 4.1.

Highlights

·      Strong progress since launch with IPO proceeds fully committed, ahead of original timetable, into a high-quality and diversified portfolio.

·      NAV returns of 6.09%, ahead of target, driven primarily by capital gains.

·      Maiden dividend of 0.57p per share, a dividend yield of 0.55% for the period from IPO to 30 June 2021/1.05% annualised (ex-dividend date of 28 October 2021).

·      Invested capital already driving positive social outcomes across the UK, with the Company's investments supporting over a hundred frontline organisations.

·      Potential for further fundraise in 2021 to invest in an attractive pipeline of investments, that can deliver high social impact in the UK alongside sustainable real returns and low correlation to traditional quoted markets.

The Portfolio Manager will be presenting at a webinar on 9 November 2021 at 11.30 a.m. Shareholders can sign up for the webinar at: https://registration.duuzra.com/form/SBSIAnnual 

The Company's Report and Accounts for the period from incorporation on 24 September 2020 to 30 June 2021 is also being published in hard copy format and an electronic copy will shortly be available to download from the Company's website: www.schroders.com/sbsi 

Please click on the following link to view the document:

http://www.rns-pdf.londonstockexchange.com/rns/2141Q_1-2021-10-25.pdf 

The Company has also submitted its Report and Accounts to the National Storage Mechanism. It will shortly be available for inspection at:  https://data.fca.org.uk/#/nsm/nationalstoragemechanism 

Enquiries:

Gareth Faith

Schroder Investment Management Limited

Tel: 020 7658 5264

Chair's Statement

I am pleased to present the first annual report of Schroder BSC Social Impact Trust plc ("the Company"), covering the period from incorporation on 24 September 2020 to 30 June 2021.

Investment opportunity

Despite decades of economic growth, the UK still struggles with many deep-rooted social issues, including homelessness, uneven health outcomes, rising income inequality and unequal life opportunities. The global pandemic has highlighted the extent of many of these problems as well as creating a number of new societal challenges. The pandemic has also placed further pressure on Government finances at a time when funding in many areas of health and social care had already been drastically reduced over recent years. An increasing number of private and charitable impact-driven organisations are developing investable solutions to these challenges. However, they often lack access to capital to reach more people and improve and increase their impact.

The Company was created to help address this funding gap and builds on Big Society Capital's track record of delivering sustainable financial returns, while having a positive impact on the lives of vulnerable and disadvantaged people across the UK. Big Society Capital (the "Portfolio Manager") manages the Company's portfolio, and Schroders (the "Manager") serves as the AIFM (Alternative Investment Fund Manager, as defined by the Alternative Fund Management Directive), bringing extensive experience as the manager of a large stable of investment trusts, including those investing in private markets. It is a powerful partnership and the Board is confident it can deliver the unique combination of financial and social returns expected by our shareholders.

The Company targets investments in high-need areas aligned to the United Nations Sustainable Development Goals ("SDGs"), such as housing, health and social care. It is our strong belief that understanding and measuring impact can enhance accountability and facilitate more informed decisions about balancing financial and social goals, thus reducing risk and creating long-term value for investors.

Progress since IPO

At the time of the Company's initial public offering ("IPO") and listing on the premium segment of the London Stock Exchange on 22 December 2020, the Company raised £75 million. The Portfolio Manager has made strong progress since launch and committed all IPO proceeds ahead of the originally envisaged 12-month period into high quality assets. As at 30 June 2021 the Company had deployed 66% of its IPO proceeds into 23 investments, supporting over 100 front-line organisations across three broad sectors: High Impact Housing, Debt for Social Enterprises, and Social Outcomes Contracts. The remaining commitments are expected to be called over the coming months with Liquid ESG funds being used to avoid short-term cash drag to investors.

More details on these initial investments including a description of how they are defined can be found in the Portfolio Manager's Report.

Financial performance

The Company has delivered strong shareholder returns since launch. The Company's NAV produced a positive total return of 6.1% in the period, ahead of the performance target of CPI +2%, with returns primarily driven by capital growth. It is also pleasing that the Company's share price has risen since launch with a positive total return of 3.5% to 103.50p per share as at 30 June 2021, which we believe reflects the high level of investor interest in the Company's unique investment strategy.

A more detailed analysis of performance may be found in the Portfolio Manager's Report.

Social impact performance

One of our commitments at the time of the IPO was to provide an easily accessible and informative map to bring to life the "on-the-ground" work done by our investees in towns and cities across the UK. I would like to draw readers' attention to the Portfolio section of the Company's webpage where this map can be found. The interactive map tracks the Company's underlying investments by region, outcome area, asset class and the SDG to which it contributes. Place-based impact investment is a growing trend and we are pleased that your Company's investments are facilitating beneficial change through engagement with local communities across the country.

To ensure that impact considerations are purposefully integrated throughout the investment life cycle, Big Society Capital follows the Operating Principles for Impact Management (the "Principles"). The intention of the Principles is to provide a framework that brings greater discipline and transparency around impact management practices to the impact investing market. Big Society Capital has been a signatory to the Principles since March 2020. Big Society Capital's alignment against the Principles is documented and independently verified in its disclosure and verification statement.

Many investors use the SDGs as a framework to guide their impact investing, and as stated above, the Company maps all investments to the SDGs. The SDGs are a "blueprint to achieve a better and more sustainable future for all." The UN describes them as a "call for action" to "promote prosperity while protecting the planet." They were adopted by all UN Member States in 2015 as part of the 2030 Agenda for Sustainable Development to address global challenges.

Additionally, Schroders and Big Society Capital also endorse and adopt the work of the Impact Management Project, an initiative supported by various standard setting organisations, such as the International Finance Corporation and United Nations Development Programme, which proposes frameworks for measuring and managing impact as well as aligning investments to impact objectives. Big Society Capital, as one of the UK's leading impact investors, has been an advisor to the Impact Management Project since inception, and was involved in the development of its approach. We think it is a great advantage that our Portfolio Manager is able to bring this extensive expertise to its sourcing of opportunities, support for investees and monitoring of impact across the Company's holdings.

More details on the positive social impact created by the Company since launch can be found in the Impact Report on pages 15 to 25 in the Report and Accounts.

Promotion and premium/discount management

The Company has shareholder authority to issue shares under the prospectus. That authority will expire at the Annual General Meeting ("AGM") to be held on 3 December 2021 and it is the Company's intention to issue new ordinary shares following the strong growth in NAV.

At the Company's AGM, resolutions to authorise the Board to issue up to 10% of the issued share capital on a non-pre-emptive basis, and a proposal for authority to purchase up to 14.99% of the Company's issued share capital, will be put forward. Any shares so purchased may be cancelled or held in treasury for potential reissue.

Dividend

The Company will seek to use the investment trust interest streaming regime which enables an investment trust which receives "qualifying interest income" to treat the whole or part of a dividend distribution as an interest distribution. The effect of streaming is to move the point of taxation in respect of the Company's qualifying interest income, from the Company to its investors. For UK income taxpayers it will be taxed as interest received on the date the distributions were made. The potential benefit of splitting the dividend between a normal equity dividend and a streamed interest payment is for investors who are not liable to taxation.

The Board has considered the amount available to distribute to investors and has declared that the Company will pay out substantially all income as a dividend, resulting in a dividend of 0.57p per share, payable to shareholders on the Company's share register as at 29 October 2021. This is consistent with the target dividend communicated to investors at IPO. All of this dividend payment should be treated by shareholders as an interest distribution.

AGM

The AGM will be held on Friday, 3 December 2021 at 12.00 noon at the Company's registered office. Shareholders are encouraged to cast their votes by proxy.

The Portfolio Manager will be presenting at a webinar on 9 November 2021 at 11.30 a.m., to give shareholders the opportunity to hear from them, and to ask questions. Shareholders are encouraged to sign up using this link: https://registration.duuzra.com/form/SBSIAnnual 

In addition, the Board would like shareholders to get in touch via the Company Secretary with any questions or comments, so that the Board can answer them in advance of the AGM. The Board will be providing answers to commonly asked questions on the Company's webpage, as well as the answers to questions received from shareholders before the AGM. To email, please use: [email protected] or write to us at the Company's registered office address: Company Secretary, Schroder BSC Social Impact Trust plc, 1 London Wall Place, London, EC2Y 5AU.

For regular news about the Company, shareholders are also encouraged to sign up to the Manager's investment trusts update by visiting the Company's webpage: https://www.schroders.com/en/uk/private-investor/fund-centre/funds-in-focus/investment-trusts/schroders-investment-trusts/never-miss-an-update/

Outlook

The Board is pleased with the initial progress made by the Company in deploying IPO proceeds and delivering against its investment objectives. The investments made have already started to impact lives positively and this impact should continue to grow over time as the Company deploys further capital.

Looking forward, the funding gap of capital required to address a broad range of societal challenges seems certain to grow, and at the same time, new sustainable and creative solutions and enterprises are being developed. Therefore, we are confident that the pipeline of opportunities for the Company to invest in will remain robust. Our focus will continue to be on our core areas of social housing, debt for social enterprises and social outcomes contracts, but the Company will continue to utilise the Portfolio Manager's expertise and deep networks in identifying potentially new areas for investment.

It is the intention of the Company to continue to grow in time in order to increase the magnitude of its impact, increase liquidity in its shares, and bring down ongoing costs for shareholders. The Company will continue to consult with its shareholders on its growth plans and will update the market on future fundraising plans in due course.

Susannah Nicklin

Chair

25 October 2021

Portfolio Manager's Report

Market developments

The social issues we set out to address with the Company are as pressing as ever. Although the economic recovery from COVID-19 is under way, the pandemic has exacerbated the underlying structural challenges of UK society. Since the start of the pandemic, people in the lowest pay quintile are more than twice as likely as those in the highest to have lost their job, been furloughed or had hours and pay reduced. NHS waiting lists recently reached 4.7 million people, a 14-year high. At the end of 2020, over 95,000 UK households, including over 121,000 children, were living in temporary accommodation; double the number ten years ago.

Social impact investment, and the areas that we focus on specifically for the Company's portfolio, are one part of the solution to such growing challenges. While we are aware that social impact investment is not a universal solution for social challenges, we are encouraged to see an increasing number of organisations developing investable models that provide successful solutions. There is an expanding universe of opportunities for the Company to make successful investments with a deep impact.

The global impact investing market is made up of diverse investments across a range of asset classes, in both private and publicly listed markets. When the Company was launched, the Global Impact Investing Network had estimated the value of this market at US$715bn.

The Company is exclusively focused on the social impact investment segment in the UK. Over the last decade, this segment has grown significantly, with an annual growth rate of 25 per cent since 2011, the year before Big Society Capital was established. Big Society Capital estimates the total market size has grown from £5.1bn in 2019 to £6.4bn in 2020, an increase of 26% over the year. In late 2020, we estimated, based on underlying market demand and current growth rates, the investable high-impact segment of the UK market would be approximately £10 to £15bn by 2025. From what we have seen so far in 2021, we are confident that this forecast is on track. New funds have come to market and existing ones have raised further capital, because of the coming together of investor demand and an increasing opportunity set of investable high impact enterprises tackling issues such as housing, health & social care and education.

The positive market developments have enabled us to commit the Company's initial capital ahead of schedule to high quality holdings which meet our financial return and impact targets.

Performance update

We are pleased with the progress our portfolio has made since launching the Company in December 2020, with overall performance ahead of plan.

This section outlines the financial performance of the Company, taking into account the period of operation since IPO. In the next set of financial statements, with a full year of performance, we intend to publish a broader set of key performance indicators.

Total return to 30 June 2021 was ahead of expectations, with a total return since IPO of 6.1%. Gains on investments in the period were driven primarily by strong performance in Bridges Evergreen Holdings. This fund comprised part of the seed portfolio purchased from Big Society Capital and benefited from the strong performance of earlier investments, in particular AgilityEco, tackling fuel poverty and New Reflexions, providing children's services. Other assets in the portfolio performed in line with forecasts. Overall, the Company's Net Asset Value rose from £73.7m at IPO to £78.2m at the period end, or 104.3p per share as set out in the NAV bridge below. This represents an increase in NAV of 6.1% since IPO and 4.4% since the last reported NAV as of 31 December 2020.

The portfolio proved resilient during the period, with income from investments stable and increasing in some cases with additional demand for services, despite significant uncertainty created by the ongoing pandemic. The investments targeted by the Company have remained resilient throughout the last 18 months, demonstrating the value of its diversification and revenue streams, with low correlation to economic cycles and mainstream markets. We established the Company with a substantial seed portfolio to help drive initial performance, and it is the seed portfolio assets later in their investment cycle that have driven positive performance in the period.

Importantly, we were able to source and deploy capital into highly attractive investment opportunities that meet our high bar of impact and our target returns more quickly than expected.  We committed substantially all the initial capital raised by the end of June 2021, faster than the original 12-month commitment timetable. Two thirds of the net proceeds of the initial public offering had been invested by the end of the reporting period.

At the time of publication of the Annual Report, the net IPO proceeds are fully committed, following the signing of a £2m secured loan to Abbeyfield York Society, a charity for older people providing housing that enhances quality of life. The loan is a co-investment with Charity Bank and is part of the Debt for Social Enterprises asset class.

Portfolio allocation

In the period from IPO to 30 June 2021, the Company recorded gross revenue return of £0.8m and net revenue after fees, costs and expenses of £0.44m, a net revenue return per share of 0.58 pence. The Company also recorded gains on the fair value of investments of £4.2m, resulting in a total gross return of £5.0m, and total net return of £4.5m, or 5.98 pence per share.

The Company will pay out a dividend of 0.57p per share, or dividend yield of 0.55% for the period from IPO to 30 June 2021/1.05% annualised. This is in line with the guidance in the IPO prospectus of an expected dividend yield in the region of 1-2% p.a.

One of our key aims is for the Company to provide investors with a diversified mix of high-impact assets, that have a low correlation to traditional quoted financial markets. We achieve this in part by backing business models that are underpinned by government expenditure that does not fluctuate in line with economic cycles. At the end of the period, 79% of the committed portfolio is underpinned by government backed revenue streams. These revenue streams are themselves diversified across policy areas, such as housing, clean energy and energy poverty, education, redressing inequalities / "levelling up". This diversification reduces exposure to individual policy risk, such as the risk that government or budgetary changes would significantly reduce or withdraw payments (e.g. housing or other benefits). We target areas with a track record of delivering impact for more disadvantaged groups and generating savings for the public purse which provide additional revenue resilience.

Our target is to provide a Net Asset Value total return of CPI plus 2% per annum, once the portfolio is fully invested and averaged over a rolling three- to five-year period, net of fees. We target a significant degree of inflation linkage (such as leases indexed to CPI) and correlation (such as government payments that have historically moved with inflation) in the revenues that underpin returns.

We have also made good progress with our approach to measuring and managing social impact. This is an essential part of how we manage the portfolio, and we are committed to continuous development of this process and to bringing the impact of our investments to life for our shareholders. Please see the dedicated Impact section on pages 15 to 25 of the Report and Accounts for further detail.

Portfolio developments

The Company invests primarily in three asset classes that were selected to give a diversified set of opportunities with low correlation, both with one another and with mainstream financial markets. We have been pleased to see positive developments across all three in the period.

Asset Class: Debt for Social Enterprises

Many impact-led social enterprises need capital so they can grow and increase their impact, as well as to satisfy their existing working capital requirements. The Company's portfolio is designed to include a diversified set of debt products, including asset-backed lending, mezzanine debt (including some equity) and charity bonds. The underlying charities and social enterprises deliver interventions which often support the most disadvantaged or vulnerable members of society, in areas such as health and social care, which benefit from government backed revenue streams.

As of 30 June 2021, the Company had committed £33m to investments in this asset class (45% of net IPO proceeds); the current value of investments in this asset class is £36m (45% of NAV).

Initial Seed Portfolio Review

The existing social enterprise debt investments have contributed well to the Company's overall performance in the period.

Evergreen Holdings, run by Bridges Fund Management is a £50m+ long-term capital vehicle that makes subordinated debt, mezzanine and equity investments into mission-led businesses. The fund targets a 5% yield alongside capital growth. Total return in the period was particularly strong driven to a large degree by strong earnings growth at AgilityEco, a leading provider of fuel poverty, energy efficiency and low carbon services across the UK. New Reflexions, a leading provider of residential care to children with complex needs, also had strong trading performance and contributed to the overall valuation uplift. The Evergreen team made one new investment, into learning and skills provider Skills Training UK. It works with funding partners in central and local Government to offer a diversified range of apprenticeships, traineeships, adult skills and employability courses that support 16-24 year-olds and adult learners, many of whom are from disadvantaged communities.

The Charity Bond Portfolio managed by Rathbones supports larger UK charities seeking to raise significant amounts of capital via the public and private bond markets, providing an alternative source of funding to bank finance. The portfolio is invested in nine bonds (both listed and unlisted) issued by charities and social enterprises. The total portfolio value is £15m, which has been fully committed and drawn, delivering an annualised yield of 4.5%. Bond issuers have repaid capital and interest in line with schedule and no defaults have been reported.

The Company holds three secured loans within the Charity Bank Co-investment Portfolio, totalling £5.1m. The portfolio is fully committed and 75% drawn. Working with Charity Bank, the portfolio supports housing and care related investments in Sue Ryder, Abbeyfield South Downs and Uxbridge. Overall, the three facilities are performing well, with no material change in credit quality, provisioning, security or repayment profile. The facilities are secured with low loans to value and floating interest rates with a current annualised yield of 2.4%.

New investments since IPO

Shortly after the IPO, in December 2020, the Company made a £2.5m investment in the inaugural private bond issue by Triodos Bank UK Ltd, a leading lender to sustainability and social impact focused organisations. This includes social housing, healthcare, education, renewable energy, arts and culture, and community projects. The bond issue enables Triodos Bank to continue to grow its loan book and contribute to the resilience and growth of charities and social enterprises. The bond has a ten-year duration, callable by Triodos Bank at year five. It pays a fixed 4% coupon, which will reset to base rate +3.9% at year five, if not called.

Asset Class: High Impact Housing

The portfolio is invested in affordable and social housing, which is intended to address the housing needs of a wide spectrum of people, who are often those on the lowest incomes and the most vulnerable. We invest across a range of asset types, from long-term inflation-linked lease contracts with high-quality counterparties to shorter leases to address specific issues, such as homelessness or the housing needs of survivors of domestic abuse. Counterparties include Registered Providers of social housing (such as housing associations) and charities with long-standing track records, deep expertise in addressing specific issues, and strong local relationships with authorities and beneficiaries.

In addressing these needs, we seek to deliver returns that are often supported by the government-backed and inflation-linked housing benefit system. This has led to a lower historical correlation to mainstream markets and insulation from the sharper price movements in the private housing market.

As of 30 June 2021, the Company had committed £30m to investments in this asset class (41% of net IPO proceeds), of which £13m has been invested (17% of NAV).

Initial Seed Portfolio Review

The high-impact housing investments in the portfolio have continued to deliver in line with our strategy.

The UK Affordable Housing Fund raised £244m at launch in 2018. Its objective is to deliver a positive social impact by contributing to the supply of sustainable and affordable homes for people unable to purchase or rent in the open market. The fund achieves this by providing equity financing for Registered Providers, where the assets are owned by the fund and managed for the long term by the Registered Provider through leases of 10 to 25 years. The fund has invested or committed £210m (86% of its initial capital commitments) and raised a further £137m in the first half of 2021, bringing total client commitments to £381m. This reflects the strong performance so far and the robust pipeline of opportunities that the manager has identified. The fund aims to produce a total return greater than 6% (with an annual target income distribution yield of 4% from income producing assets) net of all costs over the long term.

The Real Lettings Property Fund, managed by Resonance, is a £57m fund operated in partnership with leading homelessness charity St Mungo's. It provides homes for people in temporary accommodation or at risk of homelessness by purchasing ordinary homes and leasing them to St Mungo's. In doing so, the fund helps people to be more independent. The fund is fully invested and at the end of the reporting period had housed 971 tenants (including 515 children) to date, in 259 properties. Quarterly profit grew during the period, largely due to an increase in Local Housing Authority rates from 1 April. The fund continues to generate a cash yield of 3% and a life to date net internal rate of return ("IRR") of 5%, in line with its financial projections.

New investments since IPO

We committed £5m to the Man GPM RI Community Housing Fund, which is addressing the UK's housing crisis through the provision of new affordable housing. The fund aims to deliver 3,500 new homes in mixed-tenure communities, predominantly leased to UK councils and housing associations, and seeks to achieve returns driven by long-term, inflation-linked income streams. The fund is targeting 8-10% net IRR with a stabilised yield of 6% from income producing assets.

We also made a follow-on commitment of £5m to the Social and Sustainable Housing LP (SASH), following the first £5m commitment acquired through the initial portfolio in December 2020. SASH provides investment to high-performing social sector organisations with local knowledge and networks, and a strong track record of managing transitional supported housing for vulnerable individuals. They may include survivors of domestic violence, children leaving the care system, ex-offenders, asylum seekers, people with complex mental health issues and people with addiction issues. SASH makes flexible secured loans which participate in changes in property prices and rental incomes - generated from government-backed rental payments with a target net IRR of 6%.

In addition to these investments, a key development in the period was our publication of two reports from the initiative we are leading with social advisory firm The Good Economy Partnership. The initiative aims to establish new consistent and transparent impact management norms in UK affordable housing investment and build greater ability to assess and compare impact performance and understand impact risk.

Asset Class: Social Outcomes Contracts

Social outcomes contracts aim to help the government achieve better life outcomes for vulnerable people and better value for public funds. They are public sector contracts designed to overcome challenges in the way that public services have traditionally been managed. The providers of these services are being paid for achieving specified outcomes rather than prescribed inputs, using investment to cover the upfront costs incurred to deliver the service, which ultimately produces the desired social outcomes. We look to invest in a pool of outcomes contracts that is diversified across central and local government commissioners and different policy areas.

As of 30 June 2021, the Company had committed £8m to investments in this asset class (11% of net IPO proceeds), of which £3m has been invested (4% of NAV).

Initial Seed Portfolio Review

There is one fund holding in the portfolio and there were no new fund investments in the period. Significant future growth in the social outcomes contract market will be determined by central government spending decisions that we expect to be made in late 2021. We will assess the potential for further investments once that position is clear.

The £35m Social Outcomes Fund II managed by Bridges Fund Management invests in social outcomes contracts, receiving payments when outcomes are delivered and thereby ensuring that payment is completely aligned with measurable improvements in the lives of participants.

The fund is 50% committed, with three out of nine of the underlying contracts being written up in value in the period. These contracts have already supported over 6,000 individuals with complex needs. The fund has a good pipeline of social outcome contract investments, is currently ahead of plan on the delivery of social outcomes and on track to deliver its target IRR of 6%, net of all costs.

Asset Class: Liquid ESG Investments

The Company includes a Liquid ESG allocation of up to 20% of net assets, which can be invested in bond funds, real estate investment trusts, infrastructure trusts and other liquid investments that align with the Company's liquidity requirements, meet high ESG requirements and are compliant with the Company's investment policy. As at 30 June 2021, we had invested a total £11.0m in four funds, detailed in the table below.

Liquid ESG investments sit within a broader set of tools to manage Company cash and commitment levels, with the central objective of contributing to the Company's target returns and impact goals by minimising the amount of unproductive cash held prior to deployment.

The initial priority for Liquid ESG investments over 2020-22 is to mitigate cash drag during the Company's ramp up phase, by reaching a full 20% allocation to high-quality investments. Following this we expect the Liquid ESG allocation will be dependent on the Company's liquidity needs and commitment levels. The Company does not charge management fees on allocations to Liquid ESG investments or cash.

Covid-19's impact on portfolio

The Company's portfolio has shown its structural resilience during the pandemic, with revenue stable and increasing in some areas with increased demand. The Company's investments are helping to tackle significant social issues across the UK, with a substantial proportion of revenues (79%) coming from government sources. The pandemic has exacerbated many social issues and providing solutions has become a political priority. An example was the Everyone In initiative in the early stages of the pandemic, which was designed to help protect rough sleepers from Covid and was supported by emergency government funding. More generally, we have seen revenues increase in response to greater social needs, such as addressing homelessness and domestic violence.

The portfolio's underlying fund managers have actively supported their portfolio companies and worked with regulators and industry bodies to support their resilience in extraordinary times. In particular in the social outcomes contract segment, BSC worked with Bridges and commissioners to convert outcomes contracts to payment on the basis of fee for service, during a period when certain face-to-face services could not be delivered or were being transitioned to remote delivery. This ensured that services for vulnerable beneficiaries could continue at a time when they were most needed, while the organisations delivering those services continued to be paid for their delivery and for adapting their model to a remote setting.

In high-impact housing, revenues for the majority of our portfolio companies are government backed and demand for high-impact housing has remained elevated during the pandemic with stable rents. This contrasts to private rental and commercial real estate, which have experienced high volumes of voids, arrears and rent defaults. The Company's high-impact housing investments are diversified across affordable and social housing for key workers, social rent and homes for vulnerable people, such as asylum seekers, homeless people and women experiencing domestic violence.

Outlook

Looking ahead to 2022, we see continued strong potential. The social impact of the COVID-19 pandemic will take much longer to address than the immediate economic impact of the lockdown measures. The UK government faces a tight fiscal situation, with the Institute for Fiscal Studies saying in July that "the Chancellor is likely to have very little room for manoeuvre in his forthcoming Spending Review". We believe that this fiscal position will make social impact investments a continued important part of the solution, allowing the government to leverage outside capital and deliver services that can create government savings alongside significant social impact.

In addition, wider markets have been affected this year by the increased uncertainty over the future path of inflation. We expect this will make the inflation-linked or inflation-correlated aspect of our approach an even more valuable part of investor portfolios in the coming period.

Within this overall picture of a dynamic and growing market, the Company will remain focused on three specific areas, discussed in detail in this report. These are debt for social enterprises, high-impact housing and social outcomes contracts.

These three asset classes were selected to give a diversified set of opportunities that have low correlation, both with one another and with mainstream financial markets. BSC has been investing across these three asset classes since we launched in 2012. There are established models and managers with a track record of delivering high social impact alongside a financial return, whilst also being areas with significant opportunity for future investment. They are also investment areas which are generally inaccessible or present liquidity challenges for most investors. We have an ambition to raise further capital in order to put it to work in these areas, allowing the Company to expand the resources available to organisations dedicated to improving people's lives in our society and also to serve as a partner in facilitating further growth of the impact investment ecosystem.

Strategic Report

Principal risks and uncertainties

The Board is responsible for the Company's system of risk management and internal control and for reviewing its effectiveness. The Board has adopted a detailed matrix of principal risks affecting the Company's business as an investment trust and has established associated policies and processes designed to manage and, where possible, mitigate those risks, which are monitored by the Audit and Risk Committee on an ongoing basis. This system assists the Board in determining the nature and extent of the risks it is willing to take in achieving the Company's strategic objectives. Both the principal and emerging risks and the monitoring system are also subject to regular, robust review. The last review was completed in October 2021.

Although the Board believes that it has a robust framework of internal controls in place this can provide only reasonable, and not absolute, assurance against material financial misstatement or loss and is designed to manage, not eliminate, risk.

Actions taken by the Board and, where appropriate, its committees, to manage and mitigate the Company's principal risks and uncertainties are set out in the table below.

Emerging risks and uncertainties

In October 2021, the Board also discussed and monitored a number of risks that could potentially impact the Company's ability to meet its strategic objectives. These were political risk, climate change risk and COVID-19-related risks. The Board has determined they are not currently material for the Company. The Board receives updates from the Manager, Portfolio Manager, Company Secretary and other service providers on other potential risks that could affect the Company.

Risk assessment and internal controls review by the Board

Risk assessment includes consideration of the scope and quality of the systems of internal control operating within key service providers, and ensures regular communication of the results of monitoring by such providers to the Audit and Risk Committee, including the incidence of significant control failings or weaknesses that have been identified at any time and the extent to which they have resulted in unforeseen outcomes or contingencies that may have a material impact on the Company's performance or condition.

No significant control failings or weaknesses were identified from the Audit and Risk Committee's ongoing risk assessment which has been in place throughout the financial year and up to the date of this report. The Board is satisfied that it has undertaken a detailed review of the risks facing the Company.

A full analysis of the financial risks facing the Company is set out in note 20 to the accounts on
pages 67 to 70 of the Report and Accounts.

Viability statement

The Directors have assessed the viability of the Company over a five year period, taking into account the Company's position at 30 June 2021 and the potential impact of the principal and emerging risks and uncertainties it faces for the review period. The Directors have assessed the Company's operational resilience and they are satisfied that the Company's outsourced service providers will continue to operate effectively, following the implementation of their business continuity plans as required by COVID-19.

The Board believes that a period of five years reflects a suitable time horizon for strategic planning, taking into account the investment policy, liquidity of investments, potential impact of economic cycles, nature of operating costs, dividends and availability of funding. In its assessment of the viability of the Company, the Directors have considered each of the Company's principal and emerging risks and uncertainties detailed on pages 32 and 33 of the Report and Accounts and in particular the impact of a significant fall in regional equity markets on the value of the Company's investment portfolio.

The Directors have also considered the Company's liquid investments, the Company's cash balances and the forecast income and expenditure flows as well as commitments to provide further funding to the Company's private equity investee companies; the Company currently has no borrowings. A substantial proportion of the Company's expenditure varies with the value of the investment portfolio. In the event that there is insufficient cash to meet the Company's liabilities, the liquid investments in the portfolio may be realised. The Company has additionally performed stress tests which confirm that a 50% fall in the market prices of the portfolio would not affect the Board's conclusions in respect of going concern. The Directors have also considered the continuation vote which the Company is required to put to shareholders if, in the two-year period ending on 31 December 2023, and in any two-year period following such date, the ordinary shares have traded, on average, at a discount in excess of 10 per cent. to net asset value per share. The Company has not traded at a discount of this level since launch in December 2020 and the Directors therefore currently do not believe this affects the viability of the Company over a five year horizon. Based on the Company's processes for monitoring operating costs, the Board's view that both the Manager and Portfolio Manager have the appropriate depth and quality of resource to achieve superior returns in the longer term, the portfolio risk profile, limits imposed on gearing, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period of their assessment.

Going concern

The Directors have assessed the principal risks, the impact of the emerging risks and uncertainties and the matters referred to in the viability statement. Based on the work the Directors have performed, they have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Company's ability to continue as a going concern for the period assessed by the Directors, being the period to 25 October 2021 which is at least twelve months from the date the financial statements were authorised for issue.

By order of the Board

Schroder Investment Management Limited

Company Secretary

25 October

Statement of Directors' Responsibilities

The Directors are responsible for preparing the annual report and accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial period. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (FRS: 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland) and applicable law. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the return or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

-          select suitable accounting policies and then apply them consistently;

-          make judgements and accounting estimates that are reasonable and prudent;

-          state whether applicable UK Accounting Standards, comprising FRS 102, have been followed, subject to any material departures disclosed and explained in the financial statements;

-          notify the Company's shareholders in writing about the use of disclosure exemptions in FRS 102 used in the preparation of the financial statements; and

-          prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Manager is responsible for the maintenance and integrity of the webpage dedicated to the Company. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed on pages 35 and 36 of the Report and Accounts, confirm that to the best of their knowledge:

-          the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

-          the Strategic Report contained in the report and accounts includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and

-          the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Susannah Nicklin

Chair

25 October 2021

Income Statement

For the period from the date of incorporation on 24 September 2020, to 30 June 2021

The "Total" column of this statement is the profit and loss account of the Company. The "Revenue" and "Capital" columns represent supplementary information prepared under guidance issued by The Association of Investment Companies. The Company has no other items of other comprehensive income, and therefore the net return after taxation is also the total comprehensive income for the period.

All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period.

Statement of Changes in Equity

For the period from the date of incorporation on 24 September 2020, to 30 June 2021

Statement of Financial Position

at 30 June 2021

Cash Flow Statement

For the period from the date of incorporation on 24 September 2020, to 30 June 2021

Included in net cash inflow from operating activities are dividends received amounting to £285,000, income from debt securities amounting to £283,000 and other interest receivable and similar income amounting to £5,000.

Notes to the Accounts

1.         Accounting Policies

The accounts are prepared in accordance with the Companies Act 2006, United Kingdom Generally Accepted Accounting Practice ("UK GAAP"), in particular in accordance with Financial Reporting Standard (FRS) 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (the "SORP") issued by the Association of Investment Companies in October 2019. All of the Company's operations are of a continuing nature.

The accounts have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss. The directors believe that the Company has adequate resources to continue operating until 31 October 2022, which is at least 12 months from the date of approval of these accounts. In forming this opinion, the directors have taken into consideration: the controls and monitoring processes in place; the Company's level of debt and other payables; the low level of operating expenses, comprising largely variable costs which would reduce pro rata in the event of a market downturn; the Company's cash flow forecasts and the liquidity of the Company's investments.

The accounts are presented in sterling and amounts have been rounded to the nearest thousand.

Certain judgements, estimates and assumptions have been required in valuing the Company's investments and these are detailed in note 19 on page 66 of the Report and Accounts.

2.         Income from investments

3.         Investment management fee

The bases for calculating the investment management fees are set out in the Report of the Directors on pages 35 and 36 of the Report and Accounts and details of all amounts payable to the managers are given in note 17 on page 66 of the Report and Accounts.

4.         Dividends

A final dividend of 0.57p per share has been declared in respect of the period ended 30 June 2021, and has been designated as an interest distribution.

5.         Return per share

6.         Called-up share capital

The issued share capital at the accounting date was as follows:

On incorporation, the issued share capital of the Company comprised a single 1p Ordinary Share,
£1 paid, held by an employee of the Company's legal adviser, as subscriber to the Company's memorandum of association.

On 2 November 2020, 50,000 Redeemable Shares were allotted to a member of the Schroder Group, in order to obtain a certificate to conduct business. These shares were paid up to one quarter of their nominal value of £1 per share.

On 22 December 2020, 74,499,999 Ordinary Shares were issued at £1 per share, following a placing and offer for subscription, and the 50,000 Redeemable Shares were redeemed out of the proceeds of the issue.

7.         Net asset value per share

8.         Transactions with the Manager

Under the terms of the Alternative Investment Fund Manager Agreement, the Manager is entitled to receive a management fee. Details of the basis of the calculation are given in the Directors' Report on pages 37 and 38 of the Report and Accounts.

The fee payable to the Manager in respect of the period ended 30 June 2021 amounted to £209,000, and the whole of this amount was outstanding at the period end. Any investments in funds managed or advised by the Manager or any of its associated companies, are excluded from the assets used for the purpose of the calculation and therefore incur no fee.

No Director of the Company served as a director of any company within the Schroder Group at any time during the period.

In accordance with the terms of a discretionary mandate, Rathbone Investment Management Limited is entitled to receive a management fee for portfolio management services relating to certain of the Company's investments. The fee payable to Rathbone in respect of the period ended 30 June 2021 amounted to £33,000, of which £16,000 was outstanding at the period end.

Status of announcement

2021 Financial Information

The figures and financial information for 2021 are extracted from the Report and Accounts for the period from incorporation on 24 September 2020 to 30 June 2021 and do not constitute the statutory accounts for the period. The 2021 Report and Accounts include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Report and Accounts will be delivered to the Registrar of Companies in due course.

Neither the contents of the Company's webpages nor the contents of any website accessible from hyperlinks on the Company's webpages (or any other website) is incorporated into, or forms part of, this announcement.