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Main Title

Subtitle

The benefits of social finance

and social benefit bonds

Kevin Cosgriff

Associate Secretary, NSW Treasury

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Social Finance

Social Finance, including social investment, is a rapidly developing area in

which both financial and social returns are sought by stakeholders.

The benefits of social finance are varied however the underlying fundamental

benefit is that social finance contributes to creating sustainable solutions to

significant social, environmental and cultural issues.

There are many examples, of which Social Benefit Bonds are just one.

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Main Title

Subtitle

The NSW social benefit bond

pilots and the expected benefits

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What is a Social Benefit Bond (SBB)?

Private

Investors

Social Benefit

Bond Issuer Service

Provider(s)

Government

1. Up-front

investment for

working capital

2. Funding

for services

3. Payment based

on outcomes

achieved by

provider

4. Returns paid

on investment

based on

performance

A SBB is a financial instrument that pays a return based on the achievement of

agreed social outcomes. Savings generated from these improved outcomes

enable Government to repay the upfront investment and provide a reward

payment commensurate with the outcomes achieved.

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NSW Social Benefit Bonds Trial

February 2011 – the Centre for Social Impact (CSI) feasibility report

September 2011 – SBB trial announced

November 2011 – a Request for Proposals closed

March 2012 –Joint Development Phase commenced

March 2013 –Contracts signed for Australia’s first SBB (Newpin SBB)

June 2013 –Contracts signed for Australia’s second SBB

May 2013 –$7 million raised for the Newpin SBB

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Benefits of Social Benefit Bonds

A focus on outcomes rather than outputs

Additional resources towards early intervention programs and services

Innovation

Improving the evidence base

Accountability and transparency

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Benefits of the NSW SBB Trial

From the NSW SBB Trial we aim to better understand:

how to strengthen families and hence reduce the number of children in

foster care

how to reduce recidivism;

the appetite for social finance products in the market;

the potential for contestable outcomes-based contracting in social services;

how to realise the benefits of prevention and early intervention services;

how government can better define and measure outcomes.

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The NSW SBB Trial – Joint

Development Phase

The NSW SBB Trial included a Joint Development Phase where the three

successful proponents worked with Government on:

Analysing the cohort and likely improvements to the targeted social

problem

Designing the financial model;

Defining the outcomes to be targeted and measured;

Developing the measurement framework.

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The Newpin SBB

The Bond: $7 million over a 7 year period.

Investor returns: The Newpin SBB targets a financial return of 10 to 12

percent per annum . This is dependent on the successful performance of the

service and the outcomes it achieves.

Service: Intensive support to over 700 families to improve parenting styles,

behaviour and practices, the program helps parents to build positive parent-

child relationships.

Outcomes: The service aims to safely restore more than 400 children in foster

care to their families and to prevent at-risk children entering care.

Performance indicator: The key indicator will be the restoration rate of

children who enter the program.

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The Newpin SBB

The Newpin SBB funds an outcomes-based agreement between the Government

and UnitingCare Burnside (UCB).

Loan

Special Purpose

Vehicle

OBA Government UCB

Investors

$

$

$

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The Benevolent Society(TBS) SBB

The Bond: $10 million with a Term of 5 years.

Investor returns: The TBS SBB has two tranches of investment. Returns are

dependent on the successful performance of the service and the tranche of

investment, and are paid at the end of year five.

Service: Intensive work with up to 400 families and their children in the

Resilient Families Service (RFS).

Outcomes: The service aims to keep children safely with their families and

out of foster care.

Performance indicator: A range of NSW Government data will be used to

measure success including entries into foster care, reports to the Child

Protection Helpline and safety assessments by Family and Community

Services exhibited by children in the treatment group when compared to a

control group.

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The TBS SBB

A Special Purpose Vehicle (SPV) issues the SBB to fund operating expenses of a

service provider subcontracted to achieve outcomes. The Government contracts

with the SPV and pays a return based on the achievement of outcomes.

OBA

Subcontract

TBS

Special Purpose

Vehicle

Government

Investors

$

$

$

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The Mission Australia SBB

The Government is working with Mission Australia on the development of a third

SBB pilot. The SBB will aim to reduce adult reoffending in the criminal justice

system.

The structure of the SBB arrangement is likely to be similar to the TBS SBB.

The development of this SBB requires significant collaborative work that is ongoing.

If a viable model can be designed for the benefit of the community, investors and

Government, this pilot will also be implemented in 2013-14.

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Benefits of the NSW SBB Trial

The Joint Development Phase for the pilot SBBs has provided:

A better understanding of how to define and measure outcomes;

Enhanced knowledge of payment by results contract management

principles;

Increased accountability for staff involved in the implementation of the

SBBs;

Insights into the government’s data gathering and reporting capabilities;

A greater emphasis on the benefits of data sharing with NGO partners;

Better targeting of resources to maximise outcomes.

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Main Title

Subtitle

Creating a mutually beneficial

environment for socially-

motivated investors, government

and social institutions

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Balancing Interests

SBBs aim to provide benefits to all parties, including

the community, investors and government.

Service providers can tap into new sources of

outcomes-based funding to expand and improve

services for vulnerable members of the community.

Investors (institutional, retail and private) have access

to a new financial instrument offering a mix of

economic and societal returns. Government can

reorient spending from acute services to other areas of

need.

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Mutually Beneficial Environment

Investors

Service Providers

Government

Social need

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Essential Building Blocks

Awareness

Relationships

Capability

Evidence

Support