Social impact bond
Encyclopedia
A Social Impact Bond, also known as a Pay for Success Bond, is a contract with the public sector in which a commitment is made to pay for improved social outcomes that result in public sector savings. The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes.
Social Impact Bonds are not bonds
in the conventional sense. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is contingent upon specified social outcomes being achieved and therefore in terms of investment risk Social Impact Bonds are more similar to that of an equity investment.
In the UK, the first Social Impact Bond run by Social Finance
was announced on 18 March 2010 by then Justice Secretary Jack Straw.
In the US, Social Impact Bonds have been called Pay for Success Bonds . A report from the Center for American Progress (released in February 2011) analyzes their potential.
In the UK the Prime Minister’s Council on Social Action (a group of ‘innovators from every sector’ brought together to ‘generate ideas and initiatives through which Government and other key stakeholders can catalyse, celebrate and develop social action’) was asked in 2007 to explore alternative models for financing social action. The group began to develop the idea of a Social Impact Bond, and the work is being taken forward by a number of organisations including Social Finance
, an organization committed to increasing investment in the third sector. the Young Foundation
, the Center for Social Impact in Australia, other NGOs and private firms.
The idea of a Social Impact Bond has generated significant interest from across the political spectrum in the UK.
Social Impact Bonds have also generated interest in the United States. In January, 2011 Social Finance announced a Boston, Massachusetts based sister organization to offer Social Impact Bonds in the U.S. In February 2010, Barack Obama’s proposed 2012 budget stated that up to $100m would be freed up to run Social Impact Bond pilot schemes.
describes Social Impact Bonds as:
The Young Foundation
describes Social Impact Bonds as:
Social Finance therefore specifies that the investment is from non-government bodies, whereas the Young Foundation envisages that public bodies could be potential investors.
has been examining how Social Impact Bonds could work in practice in the UK by, for example, raising non-government investment for services to prevent re-offending.,
On 18 March 2010, Secretary of State for Justice Jack Straw
announced a six-year Social Impact Bond (SIB) pilot scheme run by Social Finance
that will see around 3,000 short term prisoners from Peterborough prison, serving less than 12 months, receiving intensive interventions both in prison and in the community. Funding from investors outside government will be initially used to pay for the services, which will be delivered by Third Sector providers with a proven track record of working with offenders. If reoffending is not reduced by at least 7.5% the investors will receive no recompense.
The Social Impact Bond in Peterborough was launched by Secretary of State for Justice Kenneth Clarke
MP and Prisons Minister Crispin Blunt
on 10 September 2010.
, announced that Social Impact Bond trials could be expanded across government departments. “The Department for Children, Schools and Families
have pledged to explore the potential of SIBs to lever in additional resources to support early intervention approaches with children and young people,” he said in Parliament.“Communities and Local Government are also working with Leeds City Council and NHS Leeds to enable them to use a SIB approach to reduce health and social care costs among older people. Similarly Bradford Metropolitan District Council are considering applying this model as part of their involvement in the government’s Total Place programme.”
to assess the potential for social impact bonds to improve family support services. These studies will assess the potential of social impact bonds to fund preventative and early intervention services which improve outcomes for children and generate cost savings for Local Authorities.
Social Impact Bonds are not bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
in the conventional sense. While they operate over a fixed period of time, they do not offer a fixed rate of return. Repayment to investors is contingent upon specified social outcomes being achieved and therefore in terms of investment risk Social Impact Bonds are more similar to that of an equity investment.
In the UK, the first Social Impact Bond run by Social Finance
Social Finance
Social Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
was announced on 18 March 2010 by then Justice Secretary Jack Straw.
In the US, Social Impact Bonds have been called Pay for Success Bonds . A report from the Center for American Progress (released in February 2011) analyzes their potential.
History
The idea of the Social Impact Bond has been promoted and developed by a number of agencies and individuals in an attempt to address the paradox that investing in prevention of social and health problems saves the public sector money, but that it is currently difficult for public bodies to find the funds and incentives to do so.In the UK the Prime Minister’s Council on Social Action (a group of ‘innovators from every sector’ brought together to ‘generate ideas and initiatives through which Government and other key stakeholders can catalyse, celebrate and develop social action’) was asked in 2007 to explore alternative models for financing social action. The group began to develop the idea of a Social Impact Bond, and the work is being taken forward by a number of organisations including Social Finance
Social Finance
Social Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
, an organization committed to increasing investment in the third sector. the Young Foundation
Young Foundation
The Young Foundation was launched in the spring of 2006 following the merger of the Institute of Community Studies and the Mutual Aid Centre. It is named after Michael Young, the British sociologist and social activist who created over 60 organisations including the Open University, Which? and...
, the Center for Social Impact in Australia, other NGOs and private firms.
The idea of a Social Impact Bond has generated significant interest from across the political spectrum in the UK.
Social Impact Bonds have also generated interest in the United States. In January, 2011 Social Finance announced a Boston, Massachusetts based sister organization to offer Social Impact Bonds in the U.S. In February 2010, Barack Obama’s proposed 2012 budget stated that up to $100m would be freed up to run Social Impact Bond pilot schemes.
Definitions
There are a range of interpretations of what the term ‘Social Impact Bond’ means. For example, Social FinanceSocial Finance
Social Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
describes Social Impact Bonds as:
‘Social Impact Bonds are based on a commitment from government to use a proportion of the savings that result from improved social outcomes to reward non-government investors that fund the early intervention activities.’
The Young Foundation
Young Foundation
The Young Foundation was launched in the spring of 2006 following the merger of the Institute of Community Studies and the Mutual Aid Centre. It is named after Michael Young, the British sociologist and social activist who created over 60 organisations including the Open University, Which? and...
describes Social Impact Bonds as:
‘a range of financial assets that entail raising money from third parties and making repayments according to the social impacts achieved.'
Social Finance therefore specifies that the investment is from non-government bodies, whereas the Young Foundation envisages that public bodies could be potential investors.
Benefits of social impact bonds
The benefits of Social Impact Bonds depends on the definition being used, but the broad benefits are that:- More funds are available for prevention and early intervention services.
- The public sector only has to pay for effective services; the third party investor bears all the risk of services being potentially ineffective.
- Investors and servicers have an incentive to be as effective as possible, because the larger impact they have on the outcome, the larger the repayment they will receive.
- The Social Impact Bond approach imbeds vigorous ongoing evaluation of program impacts into program operations, accelerating the rate of learning about which approaches work and which do not.
Pilots
The Government has continued to remain interested in the idea of Social Impact Bonds, and in December 2009 it published the white paper ‘Putting the Frontline First: Smarter Government’, which stated ‘We will pilot Social Impact Bonds as a new way of funding the third sector to provide services.’Re-offending
Social FinanceSocial Finance
Social Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
has been examining how Social Impact Bonds could work in practice in the UK by, for example, raising non-government investment for services to prevent re-offending.,
On 18 March 2010, Secretary of State for Justice Jack Straw
Jack Straw
Jack Straw , British politician.Jack Straw may also refer to:* Jack Straw , English* "Jack Straw" , 1971 song by the Grateful Dead* Jack Straw by W...
announced a six-year Social Impact Bond (SIB) pilot scheme run by Social Finance
Social Finance
Social Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
that will see around 3,000 short term prisoners from Peterborough prison, serving less than 12 months, receiving intensive interventions both in prison and in the community. Funding from investors outside government will be initially used to pay for the services, which will be delivered by Third Sector providers with a proven track record of working with offenders. If reoffending is not reduced by at least 7.5% the investors will receive no recompense.
The Social Impact Bond in Peterborough was launched by Secretary of State for Justice Kenneth Clarke
Kenneth Clarke
Kenneth Harry "Ken" Clarke, QC, MP is a British Conservative politician, currently Member of Parliament for Rushcliffe, Lord Chancellor and Secretary of State for Justice. He was first elected to Parliament in 1970; and appointed a minister in Edward Heath's government, in 1972, and is one of...
MP and Prisons Minister Crispin Blunt
Crispin Blunt
Crispin Jeremy Rupert Blunt is a British Conservative Party politician. He is the Member of Parliament for the Reigate constituency in Surrey, and since May 2010 he has been the Parliamentary Under-Secretary of State for Prisons and Youth Justice within the Ministry of Justice.He first entered...
on 10 September 2010.
Communities
The chief secretary to the Treasury, Liam ByrneLiam Byrne
Liam Dominic Byrne is a British Labour Party politician who has been the Member of Parliament for Birmingham Hodge Hill since 2004, and was the Chief Secretary to the Treasury from 2009 to 2010 before being appointed Shadow Secretary of State for Work and Pensions on 20 January 2011.-Early...
, announced that Social Impact Bond trials could be expanded across government departments. “The Department for Children, Schools and Families
Department for Children, Schools and Families
The Department for Children, Schools and Families was a department of the UK government, between 2007 and 2010, responsible for issues affecting people in England up to the age of 19, including child protection and education...
have pledged to explore the potential of SIBs to lever in additional resources to support early intervention approaches with children and young people,” he said in Parliament.“Communities and Local Government are also working with Leeds City Council and NHS Leeds to enable them to use a SIB approach to reduce health and social care costs among older people. Similarly Bradford Metropolitan District Council are considering applying this model as part of their involvement in the government’s Total Place programme.”
Vulnerable children
Three UK local authorities are working with Social FinanceSocial Finance
Social Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
to assess the potential for social impact bonds to improve family support services. These studies will assess the potential of social impact bonds to fund preventative and early intervention services which improve outcomes for children and generate cost savings for Local Authorities.
Publications
- Social FinanceSocial FinanceSocial Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
(2011) A Technical Guide to Developing Social Impact Bonds,http://www.socialfinance.org.uk/resources/socialfinance/Technical_Guide_Overview.pdf - Centre for American Progress (2011) Social Impact Bonds http://www.americanprogress.org/issues/2011/02/pdf/social_impact_bonds.pdf
- Social FinanceSocial FinanceSocial Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
(2010) Towards a New Social Economy: Blended value creation through Social Impacts Bonds, http://www.socialfinance.org.uk/downloads/Towards_A_New_Social_Economy_web.pdf - Young FoundationYoung FoundationThe Young Foundation was launched in the spring of 2006 following the merger of the Institute of Community Studies and the Mutual Aid Centre. It is named after Michael Young, the British sociologist and social activist who created over 60 organisations including the Open University, Which? and...
(2010) Social Impact Investment: the challenge and opportunity of Social Impact Bonds, http://www.youngfoundation.org/social-impact-investment-november-2010 - Social FinanceSocial FinanceSocial Finance is a London, England, based organisation created in 2007 with the aim of developing a social investment market in the UK. The organisation provides access to capital and advice to investors and social sector entities interested in delivering social impact.- Funding :Initially...
(2009) Social Impact Bonds: Rethinking finance for social outcomes, http://www.socialfinance.org.uk/downloads/SIB_report_web.pdf - Impact Economy (2011) Four Revolutions in Global Philanthropy, http://www.sanitationfinance.org/sites/www.sanitationfinance.org/files/11_Martin_Four%20Revolutions%20in%20Global%20Philanthropy_IE%20WP_1.pdf