Social Impact Bonds in Nova ScotiaAn Innovative Approach to Complex Social Issues

January 2nd, 2013

Setting the Context

• In October, the Minister of Finance asked a Working Group to perform research on Social Impact Bonds; including:– Existing examples world wide– Opportunities for suitable pilots in NS– Draft wording for inclusion in the 2013/14

Budget

Working Group:

Arthur Bull, Chris Payne , Joanne Macrae, Mike Kennedy, Kathryn Morse, David Upton

jobsHere

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Setting the Context (Cont’d)

Social Enterprise- businesses or organizations operated for the purpose of tackling social, economic, or environmental challenges (Social Enterprise in Nova Scotia – February 2011).

Social Finance is an approach to managing money that delivers social and /or environmental benefits, and in most cases, a financial return. (Social Finance)

Social Impact Bonds are a multi-stakeholder partnership in which philanthropic funders and impact investors—not governments—take onthe financial risk of expanding preventive programs that help poor and

vulnerable people (McKinsey)

Here is a short video that explains how Social Impact Bonds (SIBS) work: An Introduction to Social Impact Bonds

From the jobsHere strategy: Social enterprises play an important role in Nova Scotia’s economic prosperity. Work will be done to improve access to capital and small-business support programs for social enterprises while developing a better understanding of their impact in the province.

Setting the Context (Cont’d)

Why Social Impact Bonds?

• Difficult, intractable files that need a new approach

• Improve the capacity of non-profits to provide service delivery as well as improve their operational capacity

• Paying for outcomes… but only if they are achieved

• Potential for integrated learning across public, private and not-for-profit sectors

• Allows for access to capital outside of traditional budget constraints

The case for outcomes-based funding

How SIBs work…

Government department or agency

Defines outcome to be pursued.

InvestorsProvides investment in

exchange for payout based on achievement of outcomes.

Service delivery organization(s)

Delivers outcome specified.

IntermediaryAdministers relationship between Gov. and service

delivery organization, raises investment capital.

EvaluatorProvides objective independent oversight and measurement of whether outcomes have been

achieved.

If outcomes are achieved,

Gov. issues payout to investors.

Investors provide start up capital to

intermediary.

Intermediary determines appropriate

service delivery organization.

$$$

Contract for achieving outcomes, including rate of return for achievement

of outcomes.

PublicResponsive and participatory interface between citizens and

stakeholders.

Criteria for SIBs partner selectionRole Criteria

Intermediary • Ability to meet outcomes• Ability to source investors and service delivery

organization(s)• Ability to share learning and build capacity across sectors• Ability to integrate with other services and support wider

objectives of the Government

Investors • Independence from the project

Evaluator • Independence• Subject Matter Expertise

Service Delivery Organization(s)

• Ability to meet outcomes• Established record for providing innovative, outcome-

focused programming

It is essential that any and all partners selected are subject to a timely, open, and transparent procurement process.

The First SIB Pilot – United Kingdom

Interventions

• Individuals receive a range of intensive interventions, both in prison and following release

Outcomes

• The conviction levels among the target population are compared to a matched cohort; if convictions are reduced by more than a set amount the investors are paid a return

Investors

• £5m is being raised from investors; initial investors will be primarily charitable trusts and foundations.

Investor Returns

• The maximum financial return to investors is capped; if the services are unsuccessful, the original investment is not returned

The first Social Impact Bond pilot was launched with the Ministry of Justice, in Peterborough United Kingdom; aimed at reducing re-offending, by working with short term male offenders This six year program began in August of 2010 and is the model for all of the other initiatives being launched in Australia and North America

Other Areas of Interest

Drugs - Improve recovery from drug addiction, thereby improving life chances for the children of addicts and reducing crime

Children and Young People at Risk- Reduce the time that children spend in care and improve their general wellbeing (such as education outcomes)

Women in the Criminal Justice System- Reduce women’s reoffending and divert low risk female offenders away from custody

Health- An SIB model to reduce the number of emergency hospital admissions. is currently being researched 

Potential Application in Nova ScotiaThe following Departments have been asked to provide ideas for potential pilot programs:

• Community Services

• Education

• Health and Wellness

The Working Group has developed Criteria to assist in evaluating appropriateness of potential projects…(More in depth criteria and drill down questions can be found at Appendix A)

Criteria Weighting Score

Strategic Fit- Is this an issue that is clearly defined and going unaddressed or under addressed?

20%

Impact Measurability- Will we be able to effectively measure the impact of the intervention relative to the status quo on social and financial levels?

20%

Economic Impact- Will the approach proposed deliver greater value for money than alternative means of meeting the outcome or the status quo?

20%

Service Delivery Model- Is a social impact bond the appropriate delivery mechanism for delivering optimal outcomes given current service delivery environment?

15%

Financial- Can we measure the net cost savings related to the intervention and are they sufficient to provide a reasonable return for investors?

15%

Administration- Are there appropriate parties in place to fill the roles of Intermediary, Service Delivery Organization(s), Investors and Evaluators?

10%

Total

Next Steps

• Draft wording on SIBS for inclusion in 2013/14 budget

• Add any necessary expertise to Working Group (e.g. Procurement)

• Create timeline for SIB pilot

• Draft RFP for intermediary

Appendix A

Criteria

Criteria I: Strategic Fit

• Is there an identified and clearly articulated “need” or issue that is not currently being addressed or is not likely to be addressed?– What is the target population for the issue (e.g.

volumes, age range, geographic area)? – Does the need represent a gap in existing service

provision, entirely new service provision or re-procurement of existing service provision?

– What interventions are effective in achieving the desired outcome? How will they fit into existing service provision?

– What is the likely time horizon over which the interventions and outcomes they aim to support will occur? Is this an issue that is clearly defined and going unaddressed or

under addressed?

Criteria II: Impact Measurability• Is the outcome sought to be address the need

capable of being measured and has its measurement been clearly defined?– What metrics can be used as a proxy to evaluate the

success of the intervention at delivering the required outcome?

– What population size is required to ensure statistical significance?

– How can a baseline be structured against which the impact of the intervention can be measured?

Will we be able to effectively measure the impact of the intervention relative to the status quo on social and financial levels?

Criteria III: Economic Impact

• Do the estimated cost savings generated from an improved outcome exceed the cost of the proposed interventions? – Which public sector bodies would benefit from the

outcomes delivered and in what quantum?– What are the anticipated underlying costs of the

potential interventions?– Is there appetite from all beneficiaries to share in the

funding cost of successful interventions? – What are the existing value for money benchmarks for

delivering the outcome? • Consider: Will the intervention generate bankable net savings to government?

• Ex. if an investment in early childhood investment reduced justice system interactions, would the given branch of the justice system be reduced, resulting in cost savings?

Will the approach proposed deliver greater value for money than alternative means of meeting the outcome or the status quo?

Criteria IV: Delivery Model

• Has an options appraisal identified the optimal delivery structure for the outcome to be commissioned?– How does the delivery fit with existing provision?– What (if any) statutory obligations need to be met by

the intermediary?– What alternative delivery options are there (e.g.

traditional procurement, incumbent providers)?

Is a social impact bond the appropriate delivery mechanism for delivering optimal outcomes given current service delivery environment?

Criteria V: Financial

• Is the approach to incentivizing the delivery of outcomes through the contract and payment mechanism clearly defined and articulated? – What are likely to be the cashable savings arising from

the use of a Social Impact Bond? (e.g. reduced drug costs, ability to reduce other costly downstream interventions)

– What are the risks and dependencies in realizing such benefits?

– Who are likely to realize such savings? (e.g. departments, agencies, commissions)

– Is there the ability to agree and account for differences in the timing of the activity and the benefits realization?

– Are the accounting implications of the service to be commissioned fully understood? What are the relevant accounting and budgetary considerations? Can we measure the net cost savings related to the intervention and

are they sufficient to provide a reasonable return for investors?

Criteria VI: Administration

• Can appropriate parties be identified to fill the roles of Intermediary, Service Delivery Organization(s), Investors and Evaluators? – Has a suitable procurement procedure been selected

which is both compliant with necessary procurement regulations?

– Has a committed project team been identified for the commissioning and on-going monitoring of the service provision?

– Are there any capacity/ capability gaps within the in-house project team?

– Has a plan for capacity building of Gov/ NGO been built into the plan?

Are there appropriate parties in place to fill the roles of Intermediary, Service Delivery Organization(s), Investors and Evaluators?