Social impact bonds

INTRODUCTION TO SOCIAL IMPACT BONDS –

BRISTOL LIF EVENT

Tom Symons, Associate

[email protected]

14TH JANUARY 2014

Social Finance is authorised and regulated by the Financial Conduct Authority FCA No: 497568

©Social Finance 2012

INTRODUCTION TO SOCIAL IMPACT BONDS 2

• What is a Social Impact Bond?

• Why a Social Impact Bond?

• SIB Case Study – the Essex Edge of Care Social Impact Bond

• Support available through the Big Lottery Fund ‘Commissioning Better Outcomes fund’

Social Finance are the support provider for the Commissioning Better Outcomes fund and this presentation is part of our intensive support offer


INTRODUCTION TO SOCIAL IMPACT BONDS CONT. 3

• The Social Impact Bond is a means of investing in intensive prevention services where improved social outcomes are likely but not certain.

• Social Impact Bonds are contracts with public sector commissioners under which government commits to pay for improved social outcomes.

• On the back of this contract, investment is raised from non-governmental investors.

• This investment is used to pay upfront for a range of interventions to improve social outcomes.

• Investors are repaid only if successful outcomes are achieved. Investors stand to lose some or all of their capital if positive outcomes are not achieved.

• The investor takes the risk that the interventions do not deliver the desired outcomes. The greater the improvement, the greater the financial return to investors.

SOCIAL IMPACT

BONDS BRING NEW

INVESTMENT TO

BEAR ON SOCIAL

ISSUES, AND ALIGN

ALL PARTIES

AROUND A

COMMON GOAL.


WHAT IS A SOCIAL IMPACT BOND? 4

• Social Impact Bonds invest in preventative services to improve social outcomes

• (1) Public sector commissioners commit to pay for improved social outcomes for a target population

• (2) On the back of this contract, investment is raised from social investors

• This investment is used to provide working capital for intervention services

• (3) Social outcomes are measured over time

• Investors are repaid only if desired outcomes are achieved

• Investors risk losing their money if the intervention does not deliver the desired outcomes

• The greater the improvement in outcomes, the greater the financial return to investors


WHY WOULD A LOCAL COMMISSIONER EMBARK ON A SIB? 5

• Innovation: trying a new intervention that doesn’t fit with existing funding buckets and only paying if it succeeds. This helps to be more outcomes-focused, filling a service gap or addressing intractable problems

• Flexibility: SIBs offer the flexibility of how a programme is delivered and allow services to respond to individual need as well as real-time learning about what works

• Rigour: focus on performance data and management to ensure programmes are delivered effectively and where relevant with fidelity to the evidence based model

• Partnership: multiple service providers, investors and commissioners working together towards a common goal

• Early Intervention and Prevention: enables new up-front funding to help shift resources and services to earlier indicators of need

• Social Investment: accessing additional capital to try new things and partner with new funders


Initial SIB model

2nd stage implementation

Scaling

EXAMPLE OF IMPACT DELIVERED SO FAR 6

Peterborough

SIB

Essex,

Manchester

and Liverpool

feasibility

studies

Further PbR pilots

-Doncaster

-Local Government Incentive models

Essex children at the edge of care

MST SIB launched

Procurement support in

Manchester

Announcement of large-scale PbR

focused on recidivism and including

short-sentenced prisoners

Work on additional four SIB models in

Essex, including drugs and social

isolation

Feasibility studies started in five other

local authorities on children in care

Criminal

Justice

Adolescents

in or on

edge of care

Social Impact Bonds are demonstrating an ability to create systemic change.


SIBS: UK AND INTERNATIONAL ACTIVITY 7

Reducing reoffending

Children in care

Early childhood

Employability skills

Older people

Self management of chronic health conditions

Homelessness

Adoption

Addiction

Other

x2

x2

x9

*

* Demonstration project

Launched In development (illustrative)

*


CASE STUDY: ESSEX EDGE OF CARE SIB 8

Action for

Children

Evolution Fund

Services

Service Users

Outcomes

Contract

CSSL (an SPV)

£3.1 million

Investors

ECC

Ongoing operating

funds

Social

Finance

Service

Contracts

1

2

3

4

• Board of Directors

1

2

3

4

CSSL and ECC enter

Outcomes Contract

Investors fund CSSL

Funds released to pay for

service delivery. CSSL

contracts with service

provider in Services

Agreement

ECC makes payments

based on reduced care

placement days

Essex SIB Investors

David Burnett through

• The Essex SIB was the first example of a SIB being used in a local authority context

• It is designed to prevent vulnerable adolescents entering the care system

http://www.socialventurefund.com/eng/home/


DEVELOPING THE ESSEX SOCIAL IMPACT BOND 9

There are four main areas we work through when developing SIBS

Social Issue Target

Population Intervention

Outcomes Metrics

What was the problem

Essex identified?

Which group of

children would most

benefit?

What services could

improve outcomes

for this group?

How should success

be measured and paid

for?

Poor outcomes and

high costs associated

with children entering

the care system

11-16 year olds at risk

of entering care or who

recently entered care;

key issues are

behavioural problems

or family breakdown

Multi-Systemic Therapy

(MST) identified as the

intervention with the

strongest evidence base

Total number care

placement days saved

compared against a

comparison group

within Essex before the

SIB


HOW IT WORKS - SUMMARY

Essex Children’s Social Impact Bond (“SIB”)

Issue Essex Children’s SIB

Size c.£3.1 million

Objective Improve outcomes for children and young people

at the edge of care

Public Sector Counterparty Essex County Council, contracting with SIB

delivery entity

Delivery Partner National Children’s Charity: Action for Children

Maturity Up to 8 years

Outcome Metrics Care placement days saved Education, offending and behavioural outcomes tracked but not

linked to payment

Target Returns 8-11% p.a.

Target Investors Trusts, foundations and funds


WHAT ATTRACTS SOCIAL INVESTORS TO SIBS 11

Essex SIB Investors

Learning and innovation •Essex SIB attracted Belgian foundation and German social investment fund

Applies investment approach to delivering improved social outcomes

•Rigour, focus, data analysis

Social issue •All investors are committed to improving outcomes for vulnerable young people

Engagement •Some like to be involved in business case development

Local interest •Some are keen to support their local communities e.g. Community Foundations

Intervention •Scaling up promising approaches which have potential to transform outcomes and reshape service delivery

http://www.socialventurefund.com/eng/home/


PROGRESS TO DATE – WHAT HAVE WE LEARNED SO FAR?

Performance Management: rigorous data capture and analysis informs continuing service delivery Affordable: cost benefit comparison, value of risk transfer, performance incentives Attributable: intervention, to outcome, to savings benefit Cashable: payment realised from commissioning budget where saving is made Simple: understood by all stakeholders Tactical: targeted where impact will be greatest and last longest Marketable: use development to shape and grow market from commissioner perspective Replicable: future application supported by model design


BIG LOTTERY AND CABINET OFFICE FUNDS 13

What are the funds?

• Big Lottery Fund’s ‘Commissioning Better Outcomes’ fund makes £35m available in top-up funding for SIBs

• The Cabinet Office’s ‘Social Outcomes Fund’ makes £20m available in top-up funding for SIBs and other PbR mechanisms as a means of contributing to financial benefits to central government which are generated locally, and testing innovation in public service redesign

• There is a single application and entry point for both funds. The funds are working together to support local commissioners to use SIBs to achieve social and financial impact. Commissioners do not need to state which fund they are applying to.

• The funds are available to commissioners in England

What will the funds cover?

• a ‘top-up’ to commissioners’ outcomes payments – could represent: non-cashable savings or benefits to other public sector commissioners

• development funding - for commissioners to purchase technical support to develop their Social Impact Bond (available to commissioners regardless of which fund ultimately makes top-up outcomes payments)

Outcomes payments

• no minimum or maximum funding available

• average amount of funding is expected to be around £1 million

• expected that the average contribution to be around 20% of the total outcomes payments.

Development funding

• between £10,000 and £150,000 of development funding following approval of an Expression of Interest

Two-stage application process – single application form and entry point for both funds:

1. Expression of Interest – Outline of proposal

2. Full application – Detailed proposal

http://www.biglotteryfund.org.uk/sioutcomesfunds


WHAT SUPPORT IS SOCIAL FINANCE AND THE LOCAL

GOVERNMENT ASSOCIATION OFFERING?

14

• Social Finance is partnering with the Local Government Association (LGA) to support potential applicants to the outcomes funds of the Big Lottery Fund and Cabinet Office.

• There is a single application process to the funds that involves two stages: an Expression of Interest and a subsequent Full Application.

• The support has been designed to assist commissioners to develop an idea for submission as an Expression of Interest.

• If the Expression of interest is successful, commissioners can also ask for between £10,000 and £150,000 of funding to purchase technical support to develop their proposal for submission of a Full Application.

WE’RE SUPPORTING

COMMISSIONERS TO

APPLY FOR SOCIAL

OUTCOMES ‘TOP UP’

FUNDING FROM BIG

LOTTERY FUND AND

THE CABINET OFFICE


FURTHER SOCIAL FINANCE SUPPORT 15

SOCIAL IMPACT

BONDS BRING NEW

INVESTMENT TO

BEAR ON SOCIAL

ISSUES, AND ALIGN

ALL PARTIES

AROUND A

COMMON GOAL.

Workshops • SIBs in Health and Social Care

• SIBs in Criminal Justice

• SIBs in Children’s services

• Commissioning and Procurement

• Social Impact Bonds for Legal teams

• Social Impact Bonds for Finance

Directors

Resources • SIB Developer Directory

• Articles and blog posts on specific issues

• Interactive web-based tools

• Case studies

• Technical guides

• Podcasts

• Webinars

PLEASE LET US

KNOW IF THERE IS

A SPECIFIC SOCIAL

IMPACT BOND

DEVELOPMENT

ISSUE YOU WOULD

LIKE A RESOURCE

DEVELOPED FOR

Economy & Finance

Social impact bonds