SOCIAL INVESTMENT
INSIGHTS SERIES
June 2014
Social Impact Bonds: Lessons Learned
Social Impact Bonds were first developed in 2010 with the launch of the Peterborough Social Impact
Bond. Since then, there have been 16 more Social Impact Bonds commissioned in the UK aimed at
improving services including tackling special education needs, young people not in education,
employment or training, adoption, children in care, homelessness and reoffending. As the market
continues to develop, and commissioners and investors are becoming increasingly interested in the
potential for Social Impact Bonds, this paper draws together Big Society Capital’s experience as a
social investor in these programmes to-date.
Author: Daria Kuznetsova & Jenna Palumbo
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The Social Investment Insights Series are occasional papers drafted by members of Big Society Capital’s team on areas of interest
to the social investment market.
Big Society Capital is an independent financial institution with a social mission, set up to help grow the social investment market in
the UK, so that charities and social enterprises who want to borrow money, or take on investment, can access the finance they
need to do more. Since we were set up in 2012, we have committed nearly £150 million in investments to specialist organisations
who lend to charities and social enterprises, and are showing that social investment can work. Over five years we will be capitalised
with approximately £600 million - £400 million of public funds from English dormant bank accounts, and £200 million from the four
main UK high street banks.
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DEVELOPMENT OF THE SIB MARKET
The Social Impact Bond (SIB) market has developed substantially over the last few years with a rapidly
changing landscape of investors, commissioners and providers.
Investor Landscape
SIBs have managed to attract around £26m of capital to the social sector. The drivers behind investor
interest include:
•
The direct link between the social impact and financial return
•
The potential to scale up innovative interventions
•
The rigour they are able to bring through their investments to the delivery of the interventions
The market to date has been dominated by investment from philanthropic foundations such as Esmée
Fairbairn Foundation and LankellyChase Foundation. The SIBs they have chosen to invest in are often
those most closely aligned with foundations’ social objects and enable them to test innovative
interventions with potential for scale later on. The SIBs supported have often involved smaller charities –
with the SIB structure enabling foundations to take on the risk from smaller delivery charities.
To date, mainstream institutional investors have not invested in SIBs in the UK as the risk/return profile,
lack of scale and track record remain key challenges to their involvement. However, a number of
investment banks have begun to show interest in either investing their own capital in SIBs or trying to
structure them. They see this as a stepping stone to greater engagement, whether distributing to their own
client bases or structuring products, as the market grows.
Retail appetite for SIB investment remains low. While in the US one of the SIBs has been offered via the
Bank of America Merrill Lynch Wealth Management platform to qualified private investors, the private
banks in the UK would like evidence of the performance of the initial round of SIBs before deciding
whether they are appropriate for their clients. The lack of High Net Worth investment in SIBs is a reflection
both of the unproven nature of the product, from an investor adviser viewpoint and the perceived lack of
critical mass of investment products. Nevertheless, retail investment might see a boost with the rollout of
the Social Investment Tax Relief which will include SIBs. Although the details on eligibility and process will
be put forth in secondary legislation, there is potential for the relief to draw in significant investment from
individuals looking to have closer links between their capital and the social impact of their investments.
The possibility of a retail tax relief will be particularly valuable for smaller SIBs where high transaction
costs are likely to discourage institutional investors.
Whilst in some countries, such as Australia and Canada, SIBs have been de-risked for investors either
through Government guarantee or subsidy from grant donors, the appetite for such structures from UK
foundations remains low and would likely be controversial.
Commissioning Environment
SIB commissioners to date have involved local authorities, Big Lottery Fund (BLF), central government
departments such as Ministry of Justice (MoJ), Cabinet Office (CO) and Department for Work and
Pensions (DWP). To increase the diversity and number of SIB commissioners a number of initiatives have
been launched. These have ranged from funding to raise awareness to co-payments for outcomes where
there is not one clear commissioner benefiting from potential cash savings. The full range of support
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programmes are outlined in Figure 1:
Figure 1: Support programmes for SIB commissioners
Awareness raising
Events to raise
awareness of SIBs
and cover
commonly asked
questions
Gauging
feasibility
BLF grant to
support in-depth
feasibility studies
by Local
Commissioners
Contracting
Template SIB
service contract to
help minimise
transaction costs
developed by CO
Paying for
outcomes
CO Social
Outcomes Fund
(£20m) and BLF’s
Commissioning
Better Outcomes
Fund (£35m) will
top up outcome
payments when
savings from
services don’t
accrue to a single
commissioner
Provider Landscape
There have been more than 30 social sector organisations (SSOs) that have participated in SIBs across
the country. These range from larger charities with turnovers over £100m such as Action for Children to
smaller local providers with turnovers under £2m such as Teens and Toddlers. Although it is early days,
there are a number of possible benefits for providers participating in SIBs:
•
Opportunity for providers to deliver preventative services, aligned to motivations and aims of
voluntary sector as well as aligned to commissioners’ interests in terms of cost effective services
•
Opportunity for providers to deliver services they haven’t had experience of (for example, prior to
the Essex SIB, Action for Children had not delivered Multi Systemic Therapy)
•
Opportunity to expand delivery of existing services
•
Flexibility in delivering outcomes compared to traditional contracts
•
Confidence and track record to take risk of Payment by Results (PbR) contracts in future rather
than necessarily via SIB
•
Discipline around performance management and experience of tracking outcomes can strengthen
organisation
However, there also remain challenges and negative aspects of SIBs for providers:
•
Difficulty faced by providers in initiating SIBs with routes to establishing dialogue with
commissioners unclear, particularly if lots of providers could deliver interventions that create
similar outcomes
•
Difficulty of identifying cashable savings in effective interventions delivering positive outcomes
•
Complexity and transaction fees, some of which could have been used to expand front line delivery
•
Accessibility to smaller providers, unless through consortia
•
Requirement to finance certain PbR programmes externally when might not be most appropriate
strategy for a charity
•
Lack of clarity on exit strategy following completion of a SIB contract
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SIB Models
The UK SIBs commissioned to date can be categorised according to which party was the driving force
(commissioner vs. SSO/intermediary) and the form of contracting (e.g. upfront procurement vs. spot
purchase model). This is set out in Figure 2.
Figure 2: Categorisation of SIB models
Three out of the four models have been tested to date and there are a number of advantages and
disadvantages we have observed. These are set out in Table 1.
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Table 1: Pros and cons of different SIB models
Pros
Approach 1:
SSO/Intermediary
led procurement
(e.g.
Peterborough,
Essex)
• Often based on a deep understanding of the
social issue
• Likely to foster a strong degree of stakeholder
buy-in as stakeholders may well have been
involved in the development phase
• Use of block contracts provides a degree of
certainty on contract volumes and allows
providers to invest in staff/premises etc.
Cons
•
•
•
Approach 2:
Commissioner
led procurement
(e.g. DWP
Innovation Fund)
Approach 3:
SSO /
Intermediary led
spot contracts
(e.g. Adoption
SIB)
Approach 4:
Commissioner
led spot
contracts
• Enables testing of different interventions to
solve a particular social issue
• Enables emerging lessons to be transferred
across different programmes aimed at
achieving comparable outcomes
• Clarity on outcomes and pricing enables
providers to choose early on whether or not
there is a business case for their engagement
• Encourages a range of new providers and
Social Investment Finance Intermediaries into
the SIB market that would have been unlikely
to engage if required to originate the
opportunity
• To date, the process has been much faster –
for example the lead time for the nine SIBs in
the DWP Innovation Fund was much shorter
than local SIBs. This could change as local
contracts and processes become more
standardised.
• As per Approach 1, likely to be based on a
deep understanding of the social issue and
foster stakeholder buy-in
• Spot purchase model circumvents the need for
a procurement process
• Highly scalable model that can be “sold into”
local commissioners nationwide as long as
there is suitable delivery body capability
• Provides a means of more organic growth for
delivery bodies and more flexible entry points
for social investors.
•
• Commissioners could develop a rate card
across public sector bodies outlining the value
placed on outcomes
• Having an “open framework” rather than a
fixed procurement process would create a
more dynamic market with easy entry/exit for
delivery bodies
• Possibility of multiple commissioners to set a
range of outcomes (e.g. DWP, MOJ, Local
Authorities, etc.) Providers could then target
multiple outcomes across commissioners
depending on their theory of change and the
needs of clients (e.g. homelessness +
reoffending, substance misuse + reoffending,
substance misuse + looked after children etc.)
• Investment requirement becomes more
working capital to scale participation, rather
than large scale outcomes risk.
•
•
•
•
•
•
•
•
Requires initial commissioner engagement –
means significant development work is done
at risk
There might be concern about SSO /
intermediary risks losing their intellectual
property, as a receptive commissioner will
then need to competitively tender the
opportunity
Current public sector funding environment
might favour low cost bids, regardless of
whether they deliver the desired outcomes.
As per Approach 1, procurement tends to
favour low cost bids and long contracts are
less powerful in ensuring ongoing service
quality.
If programme goes through central
government procurement, there is a high
cost to bid preparation that smaller providers
might find difficult
Fitting social investment within tight
procurement windows is difficult. Whilst this
has been feasible on small contracts with
supportive investors, there will likely be
challenges with larger contracts and new
groups of investors.
Spot model provides no certainty of referral
flow and therefore makes it difficult for
delivery bodies to invest in staff/premises
etc. Therefore, this model is most suitable
for interventions that build on an existing
delivery network
Continued “sales” role required throughout
the life of the SIB
Commissioner receptiveness is still relatively
unproven
Creates demand led budget pressures which
are difficult to monitor centrally.
Untested – requires discussion with
commissioners on feasibility
Commissioner budgeting would be
challenging – and likely only suitable for
areas where savings were genuinely
“cashable”.
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LESSONS LEARNED AS AN INVESTOR
Big Society Capital is an investor in six SIBs1 with a range of commissioners, structures and service
providers. From our experience as an investor there are a number of lessons we have identified for the
development and implementation phases of the process.
Development Phase
Stakeholder buy-in
It is important to get buy-in from key stakeholders in the development phase. For example, the
Peterborough SIB involved a large number of partner organisations, including many that are not part of the
contracting structure (e.g. probation, police, community safety partnerships) in the programme design
phase. This seems to have contributed to a much more embedded local service. SIB programmes that
have engaged stakeholders to a lesser extent have potentially missed out opportunities to get buy-in from
key partners that will play a role in their success. Additionally, investor involvement at the outset can
ensure the design of SIBs does not deter investors putting in capital at later stages.
Defining the cohort
If possible, the cohort for an individual programme should be very clearly defined so that all parties are
absolutely clear on who constitutes the cohort. For example, Peterborough SIB’s cohort is very objectively
defined: “every male prisoner released from Peterborough Prison having served a sentence of less than
twelve months”. This is the clearest cohort definition of any of the SIBs. The broad definition of the cohort
in the DWP Innovation Fund (young people at risk of ending up not in employment, education and training
(NEET)) has enabled providers to target a wider range of young people but has the potential for a number
of negative consequences. For example, this can lead to a possibility of “cherry-picking” the easier cases,
although this could be mitigated by robust governance structures. Additionally, when the scope of the
beneficiary group is unclear, there might be confusion amongst service providers and the user groups
meaning time could be wasted on marketing the programme and referring participants.
Defining outcomes
Outcomes must be very clearly defined so that all parties are absolutely clear on outcomes definitions.
When possible, existing, robust data sets (e.g. Peterborough - Police National Computer data) should be
used as primary outcome measures. More subjective outcome measures (e.g. Innovation Fund relies on
letters from teachers) can be helpful to smooth cash flow for providers.
Additionally, the outcome should avoid perverse incentives. Binary outcomes (e.g. yes/no reoffending)
could encourage the “financially rational” service provider to: 1) “cream and park”; and 2) stop working with
individuals that have reoffended. Frequency measures are often preferable (e.g. number of reconviction
events or days spent out of care) as they recognise the complexity of the social issue and reward
providers for progress towards the ultimate outcome.
1
BSC has invested in seven SIBs but in 2013 transferred ownership of T&T Innovation Programme to Bridges SIB Fund
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Intervention development
It is vital to have clear impact logic between the actual interventions and the change you are seeking to
make, with particular emphasis on the ultimate outcome not interim outcomes. To do so, it is important to
set out the assumptions (e.g. caseload sizes, duration of participation) and map the flow of activity which
will deliver the targeted outcomes. This can then be costed, proving or disproving that there is a viable,
known link between the expenditure going in and the earnings coming out. Once the operating model is in
place, the type of management information to be collected can be defined, tracking progress each step of
the way (along this mapped causal chain) to achievement of the ultimate outcome. On the frontline, all this
needs to be echoed in a well-drawn performance management system. Ideally this would also have been
set in place, and staff instructed on how to use it, prior to going-live.
Risk sharing
Risk sharing is instrumental to a SIB and to date SIB structures have varied in the balance of risk across
investors, commissioners and service providers. There are a number of different risks that are important to
consider – including performance, political risk and reputational risks.
•
•
Commissioner/investor risk sharing – in a SIB, if 100% of the payment is made on achievement of
outcomes the commissioner is able to pass on delivery risk to the investor or the provider. A fee-forservice can be part of the contract to reduce the investor risk.
Investor/delivery body risk sharing - SIBs to date incorporate varying degrees of risk sharing with the
delivery bodies. Delivery bodies sharing in the risk can be attractive to investors as it reduces
financial exposure and aligns performance incentives. For delivery bodies, taking on a portion of the
risk can enable them to participate in the upside and prepare them for future PbR contract bids.
Some examples are outlined in Table 2.
Table 2: Examples of risk sharing in SIBs
Name of Programme
Peterborough SIB
Essex SIB
DWP Innovation Fund SIBs
It’s All About Me (IAAM) SIB
GLA Homelessness SIB
Manchester SIB
2
Delivery body participation in risk
Delivery bodies do not have any risk share (other than reputational).
This is arguably appropriate given attribution is virtually impossible
with a consortium of providers
Action for Children does not share any risk. Again, this is appropriate
given the highly vulnerable population and the potentially perverse
incentives around care decisions
Several of the delivery organisations receive a portion of the carry, so
they share in the upside but are protected from the downside
Providers are collectively exposed to the placement breakdown rate
(i.e. have outcome payments reduced if breakdowns collectively
exceed 10%) and share in the surpluses. This structure provides
incentives for successful delivery, collaboration and also provides
some downside protection to investors
St Mungo’s made an equity investment into the SIB therefore sharing
in the delivery risk of the intervention2
Action for Children take on some of the risk individually which
enables them to develop some of the capabilities needed to win
future PbR contracts
Early Intervention Foundation (2014) Introduction to Social Impact Bonds and Early Intervention
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Staged payments
Staged milestone payments are attractive to investors and should be explored with commissioners. For
example: under the terms of the IAAM SIB, outcomes payments are linked to interim outcomes
(registration and placement) in addition to placement stability milestones3. This is helpful to the
investment case as it:
•
•
•
Reduces the working capital requirement
Reduces the risk to investors
Decreases operational leverage – i.e. Voluntary Adoption Agencies only receive additional funds
when they achieve various milestones/outcomes, vis-à-vis other SIBs where delivery
organisation receive a fixed payment stream.
Staged payments are also helpful in ensuring the outcomes of the programme are achieved as they
enable investors to intervene early on when programme delivery is not proceeding as projected. However,
the effectiveness of staged payments on the ultimate outcomes of the programmes will be determined
after a number of years in operation.
SIB Structure
There are certain structural characteristics of a SIB which can be beneficial from an investor perspective:
•
Simplicity of a SIB structure can help with stakeholder communication, reduce misunderstandings
in negotiations and help bring in new investor groups.
•
Structures that enable flexibility are highly preferable, particularly in relation to being able to add
/remove delivery bodies or performance managers. For example, the Innovation Fund and Essex
structures use Special Purpose Vehicles (SPV) which enable the board of the SPV to remove any
party for underperformance4.
•
Investors need mechanisms by which they can influence the programme to improve performance
whether it be board seats/ enhanced control under certain circumstances. From an investor
perspective, situations where investors are forced to continue funding an underperforming
programme without an avenue to influence change are unattractive.
Investor returns profile
Investor return profiles have tended to become “smoother” and therefore less risky over time. In general,
investor financial return must be proportionate to the outcome improvement and positive programme
outcomes must be associated with a positive return for investors. It will be very difficult to invest in a
scenario where the overall programme delivers a statistically significant improvement in outcomes, but
investors lose some or all of their capital. In the Peterborough SIB, it was agreed that if the drop in
reoffending is below 7.5% across the three cohorts of 3000 prisoners, investors lose their money5.
This type of “cliff edge” profile is difficult for investors to accept as there may be situations where the SIB
has likely generated impact, yet investors lose all of their investment. A similar structure would be difficult
to raise future investment for in the future. The IAAM SIB has a “smoother” return profile as a result of an
individual tariff (cf. cohort model), delivery bodies sharing in the risk and payments to delivery bodies
3
http://data.gov.uk/sib_knowledge_box/node/183
ttp://www.socialfinance.org.uk/sites/default/files/technical_guide_to_developing_social_impact_bonds.pdf
5
http://emmatomkinson.files.wordpress.com/2013/06/case-study-the-peterborough-pilot-social-impact-bond-oct-2013.pdf
4
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being tied to the same milestones and outcomes as the outcome payments.
Legal documentation
There are several contractual terms that have proved to be most challenging in SIB contracts. These tend
to be the terms where standard government service contract terms are used but are unsuitable in a SIB
context. These difficulties often stem from the change in focus between delivery contracts where the
government is the direct purchaser of a service to an outcomes based contract where government is the
purchaser of outcomes and the risk of programme underperformance is transferred to investors. Examples
include:
1. termination clauses and investor/delivery body rights on termination;
2. investor commitment and caps on liability;
3. exclusivity of service provision;
4. intellectual property rights over service delivery and evolution of programme design;
5. rights to veto changes to the service design.
Data systems
Investment is needed for a tracking system for outcomes to reduce administration costs. The
development of high quality data management systems by SIBs has taken a significant amount of time
and resources following launch. Grants are often required to support the development of these data
systems.
As the number of SIBs underway increases, resource will need to be allocated to record and communicate
learnings from each of the individual SIBs in a coordinated and comparable manner. The BLF support for
evaluation will likely assist in developing these learnings.
Operational Phase
Starting up
All SIBs to date have ramped up significantly more slowly than targeted. This has resulted from a range of
factors (e.g. challenge recruiting the right staff, refining referral pathways, marketing to the cohort etc.).
Once outcomes have fallen behind, it can be difficult to catch up. At the same time, it is challenging for
providers and performance managers to gear up for programme launch in advance given the uncertainty
as to whether the contract will materialise (subject to procurement award).
Performance management
Good performance management is a crucial component of the SIB as it enables robust evidence to drive
improvements in outcomes. The role of managing a SIB can be taken on by an independent party or by an
investor itself. Additionally the level of the performance management can be varied: it can be solely data
capture or direct involvement in coordinating delivery bodies, identifying challenges and driving delivery
and operational performance to maximise performance.
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Governance
The governance system needs to be extremely robust, particularly when dealing with highly vulnerable
individuals. For example, in the Essex SIB the decision as to whether a child enters into care sits entirely
outside of the SIB structure, ensuring that financial incentives can play no part in the child’s care plan. In
the early months, it is crucial for boards to keep focused on the long term view. The chairman role is
important and it is very helpful having an experienced practitioner from whatever field the SIB is in on the
board. The board should focus on getting high quality people into every role and making sure they are
well-organised. As the delivery gets underway, the board should be conscious of “outcomes coasting” (i.e.
only targeting the easier / soft outcomes). The board should ensure the performance management and
delivery body are constantly striving to generate sustained and meaningful impact. Lastly, there can be
cases when having the performance manager/arranger on the board can make it difficult for board
members to hold the performance management accountable should they underperform.
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POSSIBLE BARRIERS TO MARKET GROWTH
Commissioning Environment
There is a broad consensus that the greatest barrier to SIB development is the commissioning
environment.
•
For central government commissioning, the key barriers are annularity of budgets and lengthy
procurement processes. Whilst the DWP Innovation Fund is an excellent example of how central
government can stimulate SIB development, central government budgets are largely allocated only
until the next spending review, making it very challenging to free up funding needed to underwrite
the outcomes payments. Additionally, most outcomes in SIB programmes will be achieved after a
number of years of intervention delivery and require a longer term government commitment to pay
on those ultimate outcomes.
•
For local authorities the challenges include the large budget cuts announced in the 2010 Spending
Review and therefore the lack of resource to allocate to SIB development. Additionally, for many
services that local authorities have statutory responsibility over, a high proportion of budgets are tied
up in existing contracts.
•
Across government, siloed budgets and lack of data mean savings are difficult to identify, attribute
and capture across budgets.
•
There remain gaps in understanding around the price of risk transfer and the appropriate
mechanisms of risk sharing between commissioners and providers. There are challenges for
commissioners to cede control of service specification, which can act as a barrier to outcomes
based contracting. Most of these challenges are similarly present in the design of more
conventional PbR programmes such as the Work Programme and the DWP Troubled Families
Programme, however the involvement of the social sector and an external investor/intermediary
adds unique challenges to SIBs.
Cultural Barriers
Given the SIB market is still growing, there are a number of cultural barriers to SIB development
•
Lack of trust between partners: there remain “language barriers” in discussions between providers
and investors. Although intermediaries are vital to helping bridge those barriers, there is often a lack
of understanding of investor motivations and characteristics.
•
Data gathering: there remain cultural barriers to data gathering and difficulties about the costs
associated with it. However, there have been a number of positive examples of where quality
reporting has helped providers better understand their impact which has resulted in a significant
change in the perceptions of data capture.
•
Concern regarding IP: there are some concerns from delivery bodies that bring forward an idea
may result in it being competitively tendered and therefore they risk losing their intervention IP.
Social Investment Intermediaries
The lack of scale and the early stages of SIB development make it difficult for sustainable business
models to evolve in the intermediary market. The revenue lines from a SIB remain sparse:
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•
Service providers often do not have the resource to invest in feasibility studies, and there is not a
developed culture of paying for professional services. For commissioner originated programmes,
Investment and Contract Readiness Programme has helped complement provider fees for
intermediaries to provide support in bid development. However, the time allocated to bid preparation
for the SIB contract is often insufficient for intermediaries to access funding to support a wider group
of providers.
•
Commissioners have invested in feasibility studies but these feasibility studies are mainly funded by
BLF in support of growing the SIB market.
•
Investors have paid corporate finance advisory fees on SIB deals but these are often insufficient to
adequately compensate the adviser for the full development costs.
Data
•
Lack of data: there is very limited data and an evidence base in some sectors. This includes data
on historical outcomes for a given beneficiary group, data linking interventions to ultimate outcomes
and data on the cost of those outcomes to the public purse. For example, in the justice sector the
lack of data on reoffending stems from delivery bodies not being able to access data from the Police
National Computer. This presents a challenge in both the development of a SIB (i.e. investors and
commissioners do not have clarity on what works) and also in the operational phase (i.e. there is
limited real-time data on which to base service improvements).
•
Inappropriate data: other areas are quite data rich (e.g. health / local authorities) however, data is
often not in a readily analysable format. For example, data from case notes is entered in text data
fields so needs to be read, understood, classified and entered as searchable data before
quantitative analysis can be conducted.
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OPPORTUNITIES FOR THE FUTURE
Commissioning
Emergence of new public sector commissioners
Historically most of the SIBs have been commissioned by a small number of local authorities and central
government departments. However, as the demand for budget savings and better service delivery grows,
new commissioners are becoming increasingly interested in SIBs and have substantial budgets from which
to commission them. These could include some of the examples set out in Table 3.
Table 3: Potential future public sector commissioners
Total Budget
(annual)
Social issues
suitable for SIBs
Clinical
Commissioning
Groups
£65bn across 211
CCGs
• Long term conditions
• Ageing
Police and
Crime
Commissioners
£8bn across 41
PCCs
LEPs
£5.2bn across 39
LEPs
NA
• Crime
• Drug misuse
• Families with complex
needs
• Unemployment
• Local skills gaps
• School readiness
• Attainment gap
Academy
Chains
Housing
Associations
£0.5bn spent on
community
investment
• Financial inclusion
Potential savings or outcomes
to be delivered in more cost
effective ways
• A&E admissions
• Ambulance services
• Reduced drug prescriptions
• Hospital beds
• Reduction in anti-social
behaviour
• Reduction of arrests
• Better use of skills budgets
• Reduction in expenditure on
exclusion
• Improved transition from
primary to secondary schools
• Reduced evictions
• Reduced rent arrears
Emergence of non-government SIB commissioners
Going forward, commissioning of SIBs will not need to be limited to public sector bodies but could be done
by other “purchasers” of social outcomes such as foundations or even corporates. Although the SIBs would
not necessarily lead to public sector savings, foundation commissioned SIBs could offer more rigorous
service provision by social sector organisations and a potential transfer of risk from foundations to other
investors. New commissioner groups are already beginning to emerge in developing countries with a
recent Development Impact Bond in education commissioned by the Children’s Investment Fund
Foundation6.
6
http://philanthropynews.alliancemagazine.org/2014/06/17/ciff-and-ubs-optimus-foundation-launch-first-development-impact-bond-in-education/
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Additionally, corporate organisations could look into commissioning SIBs. For them, SIBs could offer a
better mechanism of delivering internal programmes (such as employee wellbeing programmes to improve
workplace productivity) or a more effective use of their Corporate Social Responsibility (CSR) budgets. A
recent KPMG report found that only 20 percent of companies funding social programmes reported any
quantified metrics for the impact of the programmes7. A SIB would enable companies to better evidence the
impact of their CSR spending and only pay on the programmes that deliver positive outcomes. In situations
where risk transfer from corporates to social investors would be unfavourable, companies could look into
mechanisms of encouraging employees to be the “outcome purchasers” whilst locating investment from
central funds.
Improved procurement ecosystem
The procurement environment is slowly changing in favour of an enabling environment for SIBs. The
Procurement Directives adopted in 2014 by the European Parliament will have a two-fold impact. Firstly,
they will enable commissioners to restrict procurement processes under certain circumstances to social
sector organisations. Additionally they will enable commissioners to engaged in innovation partnerships,
defined as “structured partnerships with a supplier with the objective of developing an innovative product,
service or works, with the subsequent purchase of the outcome”8. Both these changes will further support
public sector commissioners in co-creating and procuring innovative programmes of delivery with social
sector providers through SIBs.
Standardisation of documentation and processes from previous SIBs
As the number of active SIBs in the UK increases, the learnings will become more streamlined and enable
more efficient mechanisms of SIB development. There has already been a standardisation of processes
and documents from historical transactions reducing the development costs for future SIBs. Some
examples of standardised practices have included:
1) Templates for legal documentation
2) Central procurement processes replicated across different departments
3) Outcome rate cards based on savings to taxpayer shared across government departments
Data
There is positive progress being made to improve the collection, availability and analytical use of data. As
discussed previously, the data needed for SIB development includes data on costs of poor outcomes to
government, historical outcomes for tackling social issues as well as data on delivery performance of
social sector organisations. In 2014, central government has helped develop a number of resources to
support SIB developers:
7
8
•
Unit Cost database developed by CO documenting cost estimates across crime, education and
skills, employment and economy, fire, health, housing and social services
•
Centralised data repositories such as the Justice Data Lab containing historical data on re-offending
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Press-releases/Pages/companies-invest-billions-social-programs.aspx
http://www.fsb.org.uk/092/assets/sme_public_procurement.pdf
Social Investment Insights Series 16
Social Impact Bonds: Lessons Learned
Additionally, there is also a growing amount of data available on delivery performance of social sector
providers. Impact measurement has greatly improved in the sector over the last few years9 with strong
pushes by both commissioners and funders for better data quality. 75% of charities say they measure some
or all of their work, and nearly three quarters have invested more in measuring results over the last five
years10. These investments into data systems and infrastructure will further support SIB development and
delivery as well as reduce the perceived investor risk of interventions. Lastly, the Investment and Contract
Readiness Fund is supporting ventures to further improve practices with more than 50% stating they are
better able to measure their impact following the support received11.
Conclusion
SIBs offer an exciting opportunity to rethink public sector service delivery and test innovative models of
service provision by the social sector. We hope this paper, with our experiences and lessons learned, will
serve as a useful guide for both commissioners and investors in engaging with SIBs in the future. As the
market develops, Big Society Capital hopes to continue working with partners to support the growth of new
models and new practices for tackling social problems.
9
http://socialwelfare.bl.uk/subject-areas/services-activity/community-development/thirdsectorresearchcentre/152552LinkClickwp106.pdf
NPC (2012) Making an Impact: Impact Measurement Among Charities and Social Enterprise in the UK
11
Boston Consulting Group (2014) Ready, Willing and Able – An interim review of the Investment and Contract Readiness Fund
10
Social Investment Insights Series 17
Social Impact Bonds: Lessons Learned
APPENDIX
Social Impact Bonds referred to in this paper
Commissioner
Outcome
Delivery body
Ministry of Justice
Reduced reoffending
Department for Work
and Pensions (10
SIBs)
Improved youth,
employment, education
attainment, and/or job
training
Reduction in the
number of children in
care
Reduced homelessness
St Giles Trust, Ormiston
Trust, YMCA
Various
Essex County
Council
Greater London
Authority (2 SIBs)
It’s All About Me
(IAAM)
Manchester City
Council
Worcestershire
County Council
+CCGs
Increase in adoption
rate
Reduction in the
number of children in
care
Reduced social
isolation
Referred to in the
paper
Peterborough SIB
DWP Innovation
Fund SIB
Action for Children
Essex SIB
St Mungo’s, Broadway
and Thames Reach
Various
GLA homelessness
SIB
IAAM SIB
Action for Children
Manchester SIB
TBD
Worcestershire SIB
Social Investment Insights Series 18
Social Impact Bonds: Lessons Learned
The information and opinions in this report were prepared by Daria Kuznetsova, Strategy and
Market Development Associate and Jenna Palumbo (while Investment Director) on behalf of Big
Society Capital.
Titles available in the Social Investment Insights Series
Growing Social Enterprise through the Holding Company Model: Groupe SOS (June 2014)
Social Impact Bonds: Lessons Learned (June 2014)
The Development of the UK Retail Bond Market (coming soon)
www.bigsocietycapital.com
Big Society Capital Limited is registered in England and Wales at Companies House number 07599565. Our registered office is
5th Floor, Chronicle House, 72-78 Fleet Street, London EC4Y 1HY. Big Society Capital is authorised and regulated by Financial
Conduct Authority number 568940.