Private equity and children’s care homes: a socially responsible investment?
The operation of care facilities for vulnerable children by private-equity backed companies poses threats to human rights that require urgent scrutiny by global human rights institutions.
Worldwide, private companies and investors are increasingly involved in the delivery of essential public services. Besides elderly care, this includes residential care homes for vulnerable children in the custody of the State. A recent court case from the UK demonstrates the devastating consequences for children’s human rights of failings of corporate providers in the private children’s home sector—and highlights the need for urgent scrutiny and effective accountability of the companies concerned and their investors.
Corporate human rights abuse in a children’s care home
The case AB (A Child: human rights) concerns a 12-year old child (referred to here as “AB”) who was placed by the local authority in a care home run by a UK-registered company, Horizon Care Ltd. Horizon Care happens to be one of the largest corporate providers in the UK children’s home sector, operating 50 care homes, over a dozen special schools, and various other facilities.
Over the course of almost two years in Horizon Care’s home, the case reveals the child was subject to sustained human rights abuses, including repeated unlawful deprivations of liberty, and physical restraint interfering with the rights against torture, cruel, inhuman or degrading treatment or punishment under Article 37 of the UN Convention of the Rights of the Child and Article 3 of the ECHR. Given COVID-19 pandemic-related restrictions, for months AB was deprived of direct family contact. There were suspicions that AB was bullied by other children and possibly subject to assault by care home staff.
Eventually, AB’s social worker contacted Ofsted, the UK statutory body responsible for overseeing children’s social care and schools, which investigated the home in question. According to the judge in AB’s care proceedings, the resulting report was “scathing,” and “The conditions… shocked even senior managers of the company that operates the home when they visited... AB was living in a neglected, chaotic and unsafe environment.”
Consequently, the Horizon Care home’s authorization to provide residential care for children was withdrawn; AB and the home’s other residents were relocated to other facilities; and Ofsted issued a list of requirements to be met, including staff training and improvements to the property, before any reopening.
The role of private equity and investors in children’s care
Taken alone, AB’s case, and others like it, are profoundly troubling. Yet their significance deepens when viewed in the context of sector-wide and international trends.
In Europe and North America and elsewhere, elder and social care services, including children’s homes, are increasingly run by corporations who are owned or backed by private equity firms. Behind such firms stand commercial and institutional investors.
In the UK, this ownership and investment model is common: 75% of children’s care homes are private, and eight of the 10 largest UK private providers involve private equity. This includes Horizon Care, the company that operated AB’s home, which was acquired in 2019 by Graphite Capital, a private equity firm with a range of global pension funds, insurance companies, and endowment funds as its ultimate investors.
One major reason for the growing presence of private equity and other investors in the public care sector is its value. The UK children’s home market is worth £6.5bn annually, while the UK adult social care system costs £22bn a year. Private companies can charge more than £30,000 per week or £1m per year for placements for children with significant care needs. Secure public children’s homes, by comparison, cost £270,000 per year. In addition, the market is highly lucrative. Indeed, profit margins for the UK’s 15 biggest private children’s home operators have escalated to an average of 22.6%, while social care investors more broadly frequently enjoy ‘double-digit’ returns.
Companies like Horizon Care claim that such profits derive from the lower operating costs and “increased efficiencies” they achieve compared to state providers. Yet, the evidence points in other directions. First, the prices charged by private children’s home companies to local governments have dramatically increased by 84% in the UK since 2015. Second, as a UK regulator recently found, corporate children’s homes are “making materially higher profits” than they should be able to in an ‘effectively functioning’ market.
At the same time, many owners of private-equity backed care companies, both in the children’s and adult care sectors, load these companies with debt, often in the form of expensive loans to hedge funds via holding companies in offshore jurisdictions. When care companies are bought out, such arrangements are effectively removed from public scrutiny. If such loans turn bad, as they do regularly, tax-payers are left to pick up the pieces.
Financialization of public services: a global governance gap
These trends are not unique to the UK but widespread and systemic. Given the severe and often irremediable character of human rights abuses in care or other public service settings, this poses an urgent challenge.
International standards, such as the UN Guiding Principles on Business and Human Rights and OECD Guidelines for MNEs require businesses, including investors, to respect human rights. Emerging recognition of this responsibility is found in new laws on corporate human rights due diligence, as well as “sustainable,” “responsible” or “ESG” investment frameworks.
In principle, under such standards, companies like Horizon Care and its owners should be accountable for their involvement in human rights abuses. Their investors should exercise leverage to avoid harm to human rights and where this is not possible, responsibly exit from their investments.
In practice, the impacts on human rights of the financialization of social care services for vulnerable individuals remain a gap in business and human rights discussions, largely neglected by key international actors and invisible to “sustainable investment” frameworks. Investments in the social care sector would, for instance, not raise concerns based on OECD guidance on high risk sectors, or proposals for EU criteria on “social” investments, for example.
To the contrary, such investments would be evaluated positively on many “social impact” investment frameworks. At the same time, corporate due diligence requirements directed only at the largest companies, as anticipated in the EU, or a UN business and human rights treaty focused only on transnational activities might capture neither the immediate corporate perpetrators of abuses in child care, nor the investors behind them.
Children in care, like adult social care users including the elderly and persons with disabilities, are amongst the most vulnerable in society whose voices are seldom heard. Their defense from corporate exploitation and profiteering requires, as this case illustrates, that human rights standards and institutions hold individual care companies effectively to account.
Crucially, however, going beyond individual cases, business and human rights institutions are needed at the global level that can also identify and challenge sector-level and systemic dynamics associated with global financialization, to set standards, and secure their adherence. Meanwhile, business and human rights actors and discussions need to adopt a more skeptical stance towards regulatory approaches, such as “sustainable finance”, that ultimately rely on capital to discipline itself.