Rodney Schwartz: Starting new markets - what counts as success and the possible sale of Big Society Capital

Our columnist looks at the history of government-backed initiatives that kick-start markets

Rodney Schwartz
Rodney Schwartz

In mid-April, it was announced that Australia’s Macquarie Bank had acquired the Green Investment Bank in the UK for £2.3bn. The GIB was launched by the coalition government in 2012 to facilitate a marketplace for renewable energy investment in the UK. It was an initiative designed to fill a state funding gap for tackling climate change by attracting private funds to finance investments related to environmental protection and improvement.

After the announcement, there was some concern in the marketplace that the new owner would asset-strip the GIB and its intentions were far from the more noble aspirations of the government. Macquarie has not been noted in the past for its green credentials. Only time will tell.

The UK has an honourable history of developing government-backed initiatives to kick-start markets considered important. The listed venture capital firm 3i was set up in 1945 as the Industrial and Commercial Finance Corporation to provide badly needed long-term funding in the post-war environment. The concept was to foster the development of a market for entrepreneurial businesses in the UK: it became the first and, for many years, the dominant venture capital firm in the UK market. Its original stakes were owned by the major UK banks as well as the Bank of England. After a merger and several rebranding exercises, it was floated on the stock exchange in 1994. After the business was listed, all the banks gradually sold off their stakes.

The Commonwealth Development Corporation – now known as CDC – was also begun by government initiative. It was founded in 1948 by the Attlee government to foster business development in the former British Empire, starting with agriculture. It has gone through many iterations, rebrandings and restructurings over the years, but like 3i and the GIB it has a core mission that is not, and was not meant to be, solely about profit maximisation.

Big Society Capital was another in a series of such UK initiatives. Commencing in 2012, it was funded by the commercial banks and received an initial allocation of £400m from unclaimed assets in the dormant accounts of UK banks. It may invest the £600m subject to certain criteria, but I would argue that its overriding mission is to build the impact investment market in the UK, which governments of all stripes have considered to be in the best interests of the UK. In my view, it has been the most significant development in the UK impact investment market.

Some time ago, at a public meeting, I asked the Minister for Civil Society, Rob Wilson, if he expected to consider selling Big Society Capital now that the GIB was being sold off, and whether the new administration was less committed to impact investment. His reply was not altogether clear, but observers should note that there is form for UK governments to get excited about some new concept or initiative, establish a vehicle to finance it, support it and then sell it. This is all part of how impact investing – and early-stage investing, renewables investing and investing in developing markets – becomse part of the mainstream.

To me, it’s not a development to moan about or feel sad about, but part of a process of moving markets forwards in a way that benefits society. Were Big Society Capital to become privately-owned – and I have no reason to think this is imminent or even planned – it would mark a new stage in impact getting closer to the mainstream; a next step in an unfolding process.

And as a footnote, it is interesting that Big Society Capital’s first chief executive has just been appointed chief executive of CDC.

*In the interest of transparency, please note that Big Society Capital has an equity investment in ClearlySo of about 9 per cent and also has some £600k of debt outstanding to the company.

Rodney Schwartz is chief executive of ClearlySo, which helps bring impact to all investment

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