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Social Impact Bond Future Developments and Trends
 

Social Impact Bond Future Developments and Trends

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    Social Impact Bond Future Developments and Trends Social Impact Bond Future Developments and Trends Presentation Transcript

    • SIB Future development and trends Webinar 17 May 2011 Toby Eccles 1 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • AgendaSection 1 – Introduction and definitionSection 2 – A model for social change• Commissioning on outcomes• Towards an effective social economy• Early interventionsSection 3 – Adapting to new social areas• Issues for government• Issues in building models• Potential market growthSection 4 – Challenges for stakeholders• Commissioners• Service Providers• Investors 2 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Social FinanceWe are a team of bankers and social sector specialists.We believe that if social problems are to be tackled effectively, successful organisations seeking to solvethem need sustainable revenues and investment to enable innovation and growth.Our role is to devise the financial structures and raise the capital to enable this to happen. Government Voluntary Sector Private Sector Social Finance Research & Development Financial Structuring Capital Raising Key social issues Long-term Social Social Investment Voluntary Sector Change Market Growth Development 3 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • What is a Social Impact Bond?• A Social Impact Bond is a contract with the public sector in which it commits to pay for improved social outcomes.• On the back of this contract, investment is raised from socially-motivated investors.• This investment is used to pay for a range of interventions to improve the social outcomes.• The financial returns investors receive are dependent on the degree to which outcomes improve. 4 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Social Impact Bond mechanism Social Impact Bonds raise funds for outcomes-focused activity based on a contract with public sector agencies. Investors are repaid on the basis of the outcomes achieved. Advisory Committee Make payment Financial returns based on defined dependent on outcomes outcomes Public Sector Social Impact Bond Investors Delivery Agency Initial investment Improved social outcomesReduced public sector costs Wider benefits to society Funds Service Providers Services Information Target population 5 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • AgendaSection 1 – Introduction and definitionSection 2 – A model for social change• Commissioning on outcomes• Towards an effective social economy• Early interventionsSection 3 – Adapting to new social areas• Issues for government• Issues in building models• Potential market growthSection 4 – Challenges for stakeholders• Commissioners• Service Providers• Investors 6 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Commissioning on outcomesCommissioning has in the past been focused on inputs, efficiency, and process rather than quality.There are a range of ways to improve commissioning, one of which is outcomes. Two factors makecommissioning on outcomes difficult. Finding funding for services The problem of attribution • If payments are made in arrears, organisation will need • Outcomes are rarely achieved through one service. to find funding to pay for the delivery of services. • For example, helping an ex-offender to turn their life • Third sector organisations often struggle to access around might require housing advice, employment training working capital to cover this gap: and addiction support. o There is a lack of supply of finance in the sector; and • It is often difficult to identify which services are the ones that achieve the intended outcome. o Very few organisations have sufficient reserves to pay for service delivery. • It is rare that one organisation alone can provide all of the services needed to achieve the outcome. • As a result, only a small range of organisations will be able to engage in outcomes-based commissioning. • As a result, it is sometimes difficult to build a contract based on outcomes with individual organisations. • Effective organisations may be unable to participate. Achieve outcomes Deliver services and receive funding Funding gapSIBs bring in separate investors to provide the outcome finance and allow services to be commissionedas a group 7 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Towards an effective social economyThere is widespread agreement that charities and social enterprises should be more involved in thedelivery of public services, and that there is a need for an effective social economy. A healthy social economy needs both diversity of Third sector delivery of public services provision and rational market discipline.The benefits of third sector public service delivery Diversity of provision• Quality is increased thanks to localised services that are • A healthy social economy needs a wide variety of robust, developed by trusted organisations. high quality service providers.• It leads to a greater diversity of provision and increased • Sometimes commissioning practices can favour larger, choice, pressures that can lead to better services. often private sector, service providers.Barriers to third sector involvement Rational market discipline• Many third sector organisations lack the scale and A key issue is that present funding streams do not act as capacity to bid for public sector contracts. an effective market discipline: • Grants can be opaque and at times irrational.• They do not typically have access to investment that will allow them to build such capacity. • Revenue from public sector contracts can be focused on inputs and process.• Public sector contracts are not always aligned with • Donations focus on brand, not impact. third sector organisations’ mission. This can lead to ‘mission drift.’Outcomes as a market discipline would be a substantial improvement for the social economy and enablegreater investment in successful social enterprises. 8 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Early interventionsThe Social Impact Bond can support the shift from acute to community-based care • Government budgets are limited and early intervention spending is easier to cut in difficult times. • Over time this creates a a negative spending cycle and an ever growing need for government resources to be spent on expensive acute care. • Social Impact Bonds can support positive spending cycles that increase investment into early interventions and community-based care.Social Impact Bonds transfer the risk of failure of early intervention away from the public sector andallow investment in prevention without impacting on the acute budget until outcomes are achieved 9 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • AgendaSection 1 – Introduction and definitionSection 2 – A model for social change• Commissioning on outcomes• Towards an effective social economy• Early interventionsSection 3 – Adapting to new social areas• Issues for government• Issues in building models• Potential market growthSection 4 – Challenges for stakeholders• Commissioners• Service Providers• Investors 10 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Adapting to new social areas Children’s Services Criminal Justice Children who have been in care have many of the poorest outcomes in our society Many women who end up in prison are • 50% of the prison population have been in themselves victims of abuse, domestic abuse care or violence • 80% of Big Issue sellers have been in care Can more women be diverted from going to Can intensive support for families and foster prison, by intervening with those who have carers, reduce the numbers entering care and received multiple community orders provide more stable, family environments for those in the care system? Healthcare Drug RehabilitationHospital admissions are rising, partly due to the Users are significantly more likely to commitgrowing numbers of older people and patients crime, claim benefits, experience healthwith long-term conditions such as diabetes. They problems and have their children taken intoare costly for commissioners and disruptive for carepatients. Can additional services such as familyCan better community interventions and primary counselling, peer mentorship and transitionalcare services help patients with long-term employment services, improve treatmentconditions to stay healthy and out of hospital? outcomes? 11 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Issues for government Outcomes for multiple parties Local authority and housing Criminal Justice Chaotic Families Police Drug Benefits Rehabilitation Health A unified central government outcomes fund to support locally generated model would support this emerging stage of the market Easily realised • Reduced children in care  children’s home places Cashability of cost savings • Reduced hospital admissions  reduced hospital beds More difficult • Reduced offending  fewer prison placesA supply reduction strategy needed alongside the demand reduction strategy of the SIB 12 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Issues in building models Fully aligned: Reduced reoffending Alignment of cost outcome with social value Partially aligned: Reduced numbers of Children in care Secondary outcome measures required to ensure incentives are effectively aligned Sometimes looking at smaller populations and/or where a comparison group Scale and is hard to develop attribution Considerations: stability of historical data/baseline and cashability of cost savings 13 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Further observationsThe development of the SIB model in any new area is complex and requires time• Once a model is put together the potential for wider replication is significantThe outcome and comparison structures require the most work• Careful analytics and research need to be balanced with pragmatism• We define the best outcome measure as “the simplest measure possible that effectively incentivizes the right behaviour from service providers and gives investors confidence”.Impact of interaction between different department’s payment by results pilots unclear• For example, the work programme (DWP), Drug rehabilitation (DH), Reducing reoffending (MoJ)There is inertia created by the uncertainty of delivering cost savings• We have been helped by working in a broader cost cutting environment when supply reduction strategies are already being put in place 14 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Potential market growth Sept 2012 Sept 2013 Sept 2014 Criminal Justice No. of SIBs launched per year # 2 5 12 Value of SIBs launched per year £ £20,000,000 £50,000,000 £120,000,000 Childrens Services - LA SIBs No. of SIBs launched per year # 2 8 20 Value of SIBs launched per year £ £14,000,000 £60,000,000 £160,000,000 Healthcare SIBs No. of SIBs launched per year # 1 2 10 Value of SIBs launched per year £ £5,000,000 £15,000,000 £150,000,000 Drug Rehabilitation SIBs No. of SIBs launched per year # 1 2 3 Value of SIBs launched per year £ £5,000,000 £12,000,000 £21,000,000 Young Adults - LA SIBs No. of SIBs launched per year # 0 1 5 Value of SIBs launched per year £ £0 £5,500,000 £35,000,000 Chaotic Families - LA SIBs No. of SIBs launched per year # 1 3 6 Value of SIBs launched per year £ £5,000,000 £15,000,000 £30,000,000 Total SIB Market No. of SIBs launched per year # 7 20 53 Value of SIBs launched per year £ £46,000,000 £156,500,000 £445,000,000 Cumulative No. of SIBs # 7 27 80 Cumulative value of SIBs £ £49,000,000 £203,500,000 £718,500,000Note 1. Criminal Justice figures do not include Peterborough SIB 2. Which areas progress more rapidly and which more slowly is unpredictable, therefore the headings are to some extent indicative 15 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • AgendaSection 1 – Introduction and definitionSection 2 – A model for social change• Commissioning on outcomes• Towards an effective social economy• Early interventionsSection 3 – Adapting to new social areas• Issues for government• Issues in building models• Potential market growthSection 4 – Challenges for stakeholders• Commissioners• Service Providers• Investors 16 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Challenges for stakeholders • Managing risk of both failure and success • Lack of experienceCommissioners • Ensuring genuine risk transfer • Working on innovative structure at a time of massive change • Collaborating for outcomes Service • Availability of evidence Providers • Building compelling intervention propositions  Design thinking vs. Evidenced programmes • Present social investment market players would not support capital at levels outlined Investors above • Need to generate structures to reach into different investor communities 17 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • CommissionersMove towards market shaping and away from procuring is a huge challengeCommissioners have traditionally assessed what services are required and then procured them as cheaplyas possibleThis model assumes that the commissioner knows best• What services are needed and what is best value for service users• What is the best intervention model for achieving the desired social outcomesThe role becomes one of defining the market, either by• Agreeing budgets for service users to spend and supporting them in spending them, or by• Valuing outcomes and commissioning services accordingly, enabling greater adaptation to service users and innovation in service provision This model assumes that either the service user or a mix of the service user and the service providers know what works best This model requires very different skills and expertise which are only just emerging Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 18 © Social Finance, 2011
    • Service providers I – InterventiondevelopmentTwo emerging needs – intervention development and service integration Evidence based programmes: Focus on scientifically proven interventions and manage quality through Two schools of fidelity to the original programme structure thought on intervention development Service design: Develop by focusing on insights gained by shadowing the user experienceBoth are valuable and share a data driven approach, but are not directly compatible.Extracting the best of both is one of our key challenges. 19 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Service providers II – Serviceintegration Government• Contract management• Information management• Technical assistance Investors / Integration• Performance management Finance• Interface management Service Providers Service integration is an emerging expertise that is key to achieving outcomes 20 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011 20
    • InvestorsNew structures are needed to bring together the level of capital required Individual SIBs Structure Products Investors in individual projects likely to stay To broaden the market we see two structures relatively specialised that are needed:• Can we reduce the overhead and transaction • Capital guaranteed or partially guaranteed costs per transaction? SIBs: by reducing the perceived level of capital risk , we believe that we should be• Can we open up new pools of capital by able to expand the range of investors using tax incentives such as the Enterprise Investment Scheme or a Venture Capital • SIB Funds: pooling of investments to provide Trust? scale and diversification • Both require a few more SIBs to be up and running before they can be fully explored 21 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Conclusion• Two mega trends into which the Social Impact Bond plays• Building a market oriented approach to public service provision – Focusing on the needs of service users rather than government – Focusing on outcomes rather than inputs and process – Moving away from government as monopoly supplier• If successful could have as profound an impact as the development of the welfare state…• Building a social investment market – People starting to realise that their money is part of their influence on the world – The potential is for active investments in society for people to be proud of and talk about – The scale of passive ethical investment indicates the potential scale of this market• If successful could change people’s relationship with their own money• This is an opportunity to support profound positive change in our society 22 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011
    • Slides will be uploaded to the following web address:www.socialfinance.org.uk/sib/webinars/social-impact-bond-futures-development-outcome- based-finance 23 Social Finance is Authorised and Regulated by the Financial Services Authority FSA No: 497568 © Social Finance, 2011