Saskatchewan Chamber of Commerce P3 Summit Social Finance Overview September 9, 2014

Saskatchewan Chamber of Commerce P3 SummitSocial Finance Overview

September 9, 2014

© Deloitte LLP and affiliated entities.

What is social finance?

2

Approach: Impact investing is an investment approach across asset classes (e.g., public and private equity, debt, etc.)

An investment approach that intentionally seeks to create both

financial return and positive social impact that is actively measured

Source: From the Margins to the Mainstream: Assessment of the Impact Investment Sector and Opportunities to Engage Mainstream Investors; A World Economic Forum Report supported by Deloitte.

Saskatchewan Chamber of Commerce P3 Summit - Social Finane Overview


Although estimates vary, there is general consensus that the impact investment sector will grow significantly by 2020

3

$500

$400

$650

$1,000

Monitor Institute estimates the potential for impact investing at 1 percent of total managed assets, estimated at US$50 trillion

JP Morgan estimates the impact investing market through 2020 by sizing Base of the Pyramid market opportunities across five sectors: housing, rural water delivery, maternal health, primary education, and financial services

Calvert forms an estimate through a representative survey of investment managers, applying prospective adoption rates to a global investment management industry of US$26 trillion

Bil

lio

ns

(U

S$)

Sources: The Monitor Institute, Investing for Social and Environmental Impact, 2009; GIIN, JP Morgan, Impact Investments: An Emerging Asset Class, November 2010; Calvert Foundation, Gateways to Impact, June 2012

Monitor Institute (2009) JP Morgan/GIIN (2010) Calvert Foundation (2012)

Analysts project that the global market could grow as large as $1 trillion, up from a current estimate of approximately $50 billion in committed capital.



Estimates of growth are also high in the Canadian impact investing market, with organizations already making significant commitments

4

• 42 Canadian signatories across sectors, with $215B in assets under management, to the Principles of Responsible Investment (PRI).

• Ontario and BC have both recently released strategies of promoting social enterprises.

• Ontario released a Social Impact Bonds Call for Ideas and a $4M Social Enterprise Demonstration Fund.

• The Government of Canada completed and reported on a National Call for Concepts for social finance, followed by a literacy and essential skills pilot.

Potential Canadian Market Growth Recent Canadian Initiatives

2011 2021

2

30

Ma

rke

t s

ize

, bill

ion

s C

DN

31%CAGR

Source: MaRS Center for Impact Investing 2011



Impact Investing

Opportunity

Examples of impact investing applications:• Direct investment into social enterprises

• Community bonds• Crowdfunding• Microfinancing

Enabling Trends

Advancement of Related Concepts

• Public-Private Partnerships (PPP)• Corporate Social Responsibility (CSR)• Double / Triple Bottom Line• Social Return on Investment (SROI)• Social Innovation• Social Enterprise

Environmental Context and Enabling Trends

• Social Impact Bonds (SIBs)

5

The developing impact investing market is opening a range of new opportunities


Spotlight on Social Impact Bonds (SIBs)

6 Saskatchewan Chamber of Commerce P3 Summit - Social Finane Overview


How Social Impact Bonds (SIBs) are structured

7

4. Based on the degree to which the social outcome is achieved (as determined by an independent evaluator), government pays

investors as negotiated in contract

$$$

Independent Evaluator

2. Based on the contract, the intermediary raises upfront investment from socially-minded investors and foundations

Investors

$$$

Service Delivery

Organization(s)

3. The social service delivery organization(s) receive(s) the funds to address social issue

$$$

1. A contract is negotiated where the government agrees to pay a rate of return on invested capital for improved social outcomes

Government Department or Agency

Intermediary



• Develop new funding stream, including for preventative measures

• Participate in payment for outcomes (not activity)

• Clearly demonstrate results to citizens

• Enable steady revenue stream

• Achieve longer planning horizon

• Create and apply innovative approaches to complex problems

• Enhanced levels of performance management and measurement

• Establish socially-minded capital deployment

• Gain the potential for blended financial and social returns

• Demonstrate innovative philanthropy

There are a variety of benefits for the different participants in a SIB model

Social Impact bonds allow each participating organization to bring their best expertise to the table to deliver social services with

more innovation and flexibility

GovernmentsService Delivery Organization(s)

Investors



Social impact bonds continue to gain momentum and are being rolled out in over 20 countries as we speak

Columbia (1 SIB in Design)

United States(20 States with Pay For Success Deals

in Progress)

Australia(2 SIBs in Design; 1 in

Implementation)

India (1 SIB in Design)

Israel(3 SIBs in Design)

Mozambique(1 SIB in Design)

South Africa(1 SIB in Design)

Swaziland(1 SIB in Design)

Uganda(1 SIBs in Design)

United Kingdom(11 SIBs in Design; 4 in

Implementation)

South Korea(1+ SIB in Design)

France, Germany & Spain(Actively Considering SIBs)

Sources: http://payforsuccess.org/learn-out-loud/activity-map, http://www.instiglio.org/sibs-worldwide/ and input from Deloitte practitioners

Canada(Actively Considering SIBs)

Rwanda(1 SIB in Design)



Canada’s First Social Impact Bond (SIB) was announced in May 2014 in Saskatchewan

“Sweet Dreams” SIB for a supported living home for at-risk single mothers

House between 8 to11 adults and 8 to 15 children, for a period of 2 month to 2 years

$1 million investment between one private investor and one credit union

Basic pay-for-performance contract where government reimbursement occurs if social outcome is met to keep children out of foster care

Independent assessor measures success at 2nd, 4th and 5th years

10

“… expected to result in savings to the Government of Saskatchewan of between $540,000 and $1.5 million over five years.” – Government of SK

“…[there is] value of looking at old problems in a new and innovative way.” - The Star Phoenix

“This program gives at-risk mothers and children a chance at a better life…” - Government of SK

Up to 5% return

$1M

EGADZ’s Saskatoon

Downtown Youth Centre

5 year term

Saskatchewan Ministry of

Social Services

Conexus Credit Union; Wally &

Colleen Mah

TBD

Independent evaluationReporting/

project management

SIB Overview Saskatchewan SIB Model



SIB Profiles: First major implementations in UK & US

HMP Peterborough, United Kingdom, September 2010

• Aim to reduce recidivism by 7.5% among short-term male offenders.

• “Through the gate” support to offenders for drug and alcohol addiction, mental health, educational and job skills training, and post-release accommodation.

• Resettlement planning with families of offenders.• Formative evaluation released May 2011.

Rikers Island Prison, New York City, August 2012

• Aim to reduce recidivism by 10% among adolescent offenders aged 16-18 years.

• Adolescent Behavioral Learning Experience (ABLE) Program interventions focused on developing personal responsibility and decision-making skills through in-class instruction, recreation, and community building.

Up to 13% return

£5M paid upfront

St. Giles Trust & OrminstonChildren &

Families Trust

Steady funding over 6=year term

UK Ministry of Justice & Big Lottery Fund

Social Finance UK

Coalition of investors

(charities and foundations)

Social impact bond

QinetiQ and the University of

Leicester

Independent evaluation

Up to 22% return

US$9.6M loan

Osborne Association &

Friends of Island Academy

Steady funding over 4=year term

New York City Department of

Correction

MDRC

Goldman Sachs

Pay for Success bondVera Institute of

Justice

Independent evaluation

US$7.2M loan guarantee from Bloomberg Philanthropies



Recent SIB Profile: Largest US Social Impact Bond

Massachusetts Juvenile Pay for Success Project, United States, February 2014

• A $27 million, 7 year social impact bond that targets at-risk young men in the Boston, Chelsea and Springfield areas who are in the probation system or exiting the juvenile justice system.

• The objective of the program is to reduce the number of days participating young men spend in prison, improve their job readiness and increase their employment – the specific target is a 40% reduction to days of incarceration

• Other investors include Kresge Foundation, Living Cities, Laura and John Arnold Foundation, New Profit, and Boston Foundation – New Profit is also providing additional management support.

Independent Evaluator:

Sibalytics LLC/ PCG

Senior Investor: Goldman Sachs

Service Provider: Roca, Inc.

Commonwealth of Massachusetts

Intermediary: Third Sector Capital Partners Inc. US$27 million

investment7 year term

(with potential 2 year

extension)

Social Impact Bond

Success payments made between years

2 - 7


Public Private Partnerships vs. Social Finance: Social Impact Bonds



Comparison of Market CharacteristicsPublic Private Partnerships vs. Social Finance: Social Impact Bonds

14

Market CharacteristicsPublic Private Partnerships

Social Finance: Social Impact Bonds

Performance based contract Utilizes private finance / third party funding Captures private sector innovation and focus High order, transparent transaction processes Supports government transformation agenda Requires stakeholder management and education processes in order for success to be achieved Provides for an alternative method of service delivery Level of market maturity High Very Low


Documents

Saskatchewan Chamber of Commerce P3 Summit Social Finance Overview September 9, 2014