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The first Social Impact Bond arranged by [[Social Finance]] was announced in the UK on 18 March 2010 by then Justice Secretary Jack Straw, to finance a prisoner rehabilitation program.<ref>[http://www.guardian.co.uk/society/2010/mar/19/investors-pay-for-prisoner-rehabilitation Guardian, Investors to pay for prisoner rehabilitation (19.03.2010)]</ref><ref>Financial Times, Bond offers return for curbing reoffending (19.03.2010)[http://www.ft.com/cms/s/0/d9dca292-32f6-11df-bf5f-00144feabdc0.html]</ref>
The first Social Impact Bond arranged by [[Social Finance]] was announced in the UK on 18 March 2010 by then Justice Secretary Jack Straw, to finance a prisoner rehabilitation program.<ref>[http://www.guardian.co.uk/society/2010/mar/19/investors-pay-for-prisoner-rehabilitation Guardian, Investors to pay for prisoner rehabilitation (19.03.2010)]</ref><ref>Financial Times, Bond offers return for curbing reoffending (19.03.2010)[http://www.ft.com/cms/s/0/d9dca292-32f6-11df-bf5f-00144feabdc0.html]</ref>


In the US, Social Impact Bonds have been called ''Pay for Success Bonds''.<ref>[http://www.economist.com/node/18180436?story_id=18180436 The Economist, Performance Bonds: Who succeeds gets paid (17.02.2011)]</ref> A report from the Center for American Progress (released in February 2011) analyzes their potential.<ref>http://www.americanprogress.org/issues/2011/02/social_impact_bonds.html</ref>In 2012, the city of New York financed a $9.6 million social bond for prisoner rehabilitation.<ref name="nybond">[http://www.nytimes.com/2012/08/02/nyregion/goldman-to-invest-in-new-york-city-jail-program.html New York Times - Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply]</ref>
In the US, Social Impact Bonds have been called ''Pay for Success Bonds''.<ref>[http://www.economist.com/node/18180436?story_id=18180436 The Economist, Performance Bonds: Who succeeds gets paid (17.02.2011)]</ref> A report from the Center for American Progress (released in February 2011) analyzes their potential.<ref>http://www.americanprogress.org/issues/2011/02/social_impact_bonds.html</ref>In 2012, the city of New York financed a $9.6 million social bond for prisoner rehabilitation.<ref name="nybond">[http://www.nytimes.com/2012/08/02/nyregion/goldman-to-invest-in-new-york-city-jail-program.html New York Times - Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply]</ref> The Departments of Justice and Labor are also funding Pay for Success models to improve outcomes for past offenders and workers outside the economic mainstream.<ref>{{cite book |last=Lane |first=Marc J. |authorlink1=Marc J. Lane |editor-first=Dan |editor-last=Pallotta |title=Charity Case |publisher=Jossey-Bass |date= 2012 |pages=165–167 |chapter=Chapter 5: Enact a National Civil Rights Act for Charity and Social Enterprise |chapter=Vision from Visionaries |chapter=Commit More Federal Funds for a Pay-for-Success Bond Program |isbn=9781118117521}}</ref>


In Australia, Social Impact Bonds have been called ''Social Benefit Bonds''. A Request for Proposal was released by the [[New South Wales]] Treasury on 30 September 2011 asking non-government organisations to propose pilots in the areas of reoffending and children in out-of-home care.<ref>NSW Treasury, [http://www.treasury.nsw.gov.au/site_plan/social_benefit_bonds “Social Benefit Bonds”], 2012</ref> On 20 March 2012 three successful respondents were announced and entered into a joint development phase with the [[Government of New South Wales]].<ref>NSW Treasury, [http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0005/21794/Request_for_Proposal_Outcome.pdf “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”], 20.03.2012</ref>
In Australia, Social Impact Bonds have been called ''Social Benefit Bonds''. A Request for Proposal was released by the [[New South Wales]] Treasury on 30 September 2011 asking non-government organisations to propose pilots in the areas of reoffending and children in out-of-home care.<ref>NSW Treasury, [http://www.treasury.nsw.gov.au/site_plan/social_benefit_bonds “Social Benefit Bonds”], 2012</ref> On 20 March 2012 three successful respondents were announced and entered into a joint development phase with the [[Government of New South Wales]].<ref>NSW Treasury, [http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0005/21794/Request_for_Proposal_Outcome.pdf “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”], 20.03.2012</ref>
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The Government of New South Wales, Australia, announced on 20 March 2012 that it will develop a pilot to reduce adult [[recidivism]] with Social Finance (Australia) <ref>http://www.social-finance.com.au/</ref> and [[Mission Australia]].<ref>NSW Treasury, [http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0005/21794/Request_for_Proposal_Outcome.pdf “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”], 20.03.2012</ref>
The Government of New South Wales, Australia, announced on 20 March 2012 that it will develop a pilot to reduce adult [[recidivism]] with Social Finance (Australia) <ref>http://www.social-finance.com.au/</ref> and [[Mission Australia]].<ref>NSW Treasury, [http://www.treasury.nsw.gov.au/__data/assets/pdf_file/0005/21794/Request_for_Proposal_Outcome.pdf “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”], 20.03.2012</ref>

The U.S. Department of Justice gives “Priority Consideration” to Fiscal Year 2012 Second Chance Act grant applications that include a Pay for Success component.<ref>{{cite web |url=https://www.bja.gov/Funding/12PayforSuccessFAQ.pdf |title=Pay for Success and the Department of Justice's Second Chance Act Programs Frequently Asked Questions | publisher=U.S. Department of Justice, Bureau of Justice Assistance |accessdate=28 September 2012}}</ref> The Second Chance Act (P.L. 110-199) authorizes federal grants to support services that help reduce recidivism.<ref>{{cite web |url=http://nationalreentryresourcecenter.org/about/second-chance-act |title=Second Chance Act |publisher=National Reentry Resource Center |accessdate=28 September 2012}}</ref>


In February 2012, the city of New York issued a $9.6 million social bond for prisoner rehabilitation. Goldman Sachs bought the bond and will profit if recidivism decreases.<ref name="nybond"/> While the City of New York didn't actually issue bonds or put up-front capital for [[MDRC]] to run the program (this was done by [[Goldman Sachs]] directly with [[MDRC]]), the City may be liable for some amount if the program is successful, presumably to be paid with savings associated with reduced recidivism. Independent evaluation would be performed by the [[Vera Institute of Justice]].<ref>NYU Wagner Executive Briefing Series, [http://www.accenture.com/us-en/company/events/Pages/event-wagner-executive-briefing-series.aspx/albany/index.html “Managing the Social Bond Initiative”], 20.09.2012</ref>
In February 2012, the city of New York issued a $9.6 million social bond for prisoner rehabilitation. Goldman Sachs bought the bond and will profit if recidivism decreases.<ref name="nybond"/> While the City of New York didn't actually issue bonds or put up-front capital for [[MDRC]] to run the program (this was done by [[Goldman Sachs]] directly with [[MDRC]]), the City may be liable for some amount if the program is successful, presumably to be paid with savings associated with reduced recidivism. Independent evaluation would be performed by the [[Vera Institute of Justice]].<ref>NYU Wagner Executive Briefing Series, [http://www.accenture.com/us-en/company/events/Pages/event-wagner-executive-briefing-series.aspx/albany/index.html “Managing the Social Bond Initiative”], 20.09.2012</ref>

Revision as of 21:13, 28 September 2012

A Social Impact Bond, also known as a Pay for Success Bond or a Social Benefit 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.[1] The expected public sector savings are used as a basis for raising investment for prevention and early intervention services that improve social outcomes.[2][3]

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 a structured product or an equity investment.[4]

The first Social Impact Bond arranged by Social Finance was announced in the UK on 18 March 2010 by then Justice Secretary Jack Straw, to finance a prisoner rehabilitation program.[5][6]

In the US, Social Impact Bonds have been called Pay for Success Bonds.[7] A report from the Center for American Progress (released in February 2011) analyzes their potential.[8]In 2012, the city of New York financed a $9.6 million social bond for prisoner rehabilitation.[9] The Departments of Justice and Labor are also funding Pay for Success models to improve outcomes for past offenders and workers outside the economic mainstream.[10]

In Australia, Social Impact Bonds have been called Social Benefit Bonds. A Request for Proposal was released by the New South Wales Treasury on 30 September 2011 asking non-government organisations to propose pilots in the areas of reoffending and children in out-of-home care.[11] On 20 March 2012 three successful respondents were announced and entered into a joint development phase with the Government of New South Wales.[12]

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. New Zealand economist Ronnie Horesh advocated them in 2000, calling them social policy bonds, and argued that they be made tradable.[13]

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’)[14] 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,[15][16] the Young Foundation,[17] 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.[18][19][20]

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.[21] 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.[22]

In Australia, the intention to trial Social Impact Bonds was announced in New South Wales in November 2010 by Premier Kristina Keneally of the Australian Labor Party.[23] The policy direction was continued by the Coalition (Australia) after a change in Government in 2011.[24]

Definitions

There are a range of interpretations of what the term ‘Social Impact Bond’ means. For example, Social Finance 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.’[25]

The Young Foundation 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.'[26]

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.[27]
  • 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.[28]
  • 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.’[29]

Re-offending

Social Finance 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.[30][31][32]

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.[33][34]

The Government of New South Wales, Australia, announced on 20 March 2012 that it will develop a pilot to reduce adult recidivism with Social Finance (Australia) [35] and Mission Australia.[36]

The U.S. Department of Justice gives “Priority Consideration” to Fiscal Year 2012 Second Chance Act grant applications that include a Pay for Success component.[37] The Second Chance Act (P.L. 110-199) authorizes federal grants to support services that help reduce recidivism.[38]

In February 2012, the city of New York issued a $9.6 million social bond for prisoner rehabilitation. Goldman Sachs bought the bond and will profit if recidivism decreases.[9] While the City of New York didn't actually issue bonds or put up-front capital for MDRC to run the program (this was done by Goldman Sachs directly with MDRC), the City may be liable for some amount if the program is successful, presumably to be paid with savings associated with reduced recidivism. Independent evaluation would be performed by the Vera Institute of Justice.[39]

Communities

The chief secretary to the Treasury, Liam Byrne, 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.”[40]

Rough Sleepers

Housing Minister Grant Shapps and London Mayor Boris Johnson announced in March 2012 that a Social Impact Bond would be launched to help London's persistent rough sleepers off the streets and into secure homes.[41]

Children and Families

Social Finance worked with UK local authorities to assess the potential for social impact bonds to improve family support services. These studies assessed the potential of social impact bonds to fund preventive and early intervention services which improve outcomes for children and generate cost savings for Local Authorities.[42][43]

In March 2012 Manchester City Council announced a social impact bond to fund Multi-dimensional treatment foster care.[44]

The Government of New South Wales, Australia, announced on 20 March 2012 that it will develop two pilots in the area of child protection and foster care. One is with a consortium involving the Benevolent Society, Westpac Bank and the Commonwealth Bank of Australia. The other pilot is led by UnitingCare Burnside, a division of UnitingCare Australia.[45]

Publications

  • Social Finance (2011) A Technical Guide to Developing Social Impact Bonds, [4]
  • Centre for American Progress (2011) Social Impact Bonds [5]
  • Social Finance (2010) Towards a New Social Economy: Blended value creation through Social Impacts Bonds, [6]
  • Young Foundation (2010) Social Impact Investment: the challenge and opportunity of Social Impact Bonds, [7]
  • Social Finance (2009) Social Impact Bonds: Rethinking finance for social outcomes, [8]
  • Impact Economy (2011) Four Revolutions in Global Philanthropy, [9]
  • Technical Guide to Commissioning Social Impact Bonds(2011),[10]
  • Social Impact Bonds: The One Service. One Year On(2011),[11]
  • A New Tool for Scaling Impact: How Social Impact Bonds Can Mobilize Private Capital to Advance Social Good(2012),[12]

See also

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References

  1. ^ The term was originally coined by Geoff Mulgan, Chief Executive of the Young Foundation: Social Impact Bonds: Rethinking finance for social outcomes, http://www.socialfinance.org.uk/downloads/SIB_report_web.pdf
  2. ^ Social impact bonds, http://www.socialimpactbond.org.uk
  3. ^ The Guardian - Will social impact bonds solve society's most intractable problems? (06.10.2010)[1]
  4. ^ Social Impact Bonds: Rethinking finance for social outcomes, http://www.socialfinance.org.uk/downloads/SIB_report_web.pdf
  5. ^ Guardian, Investors to pay for prisoner rehabilitation (19.03.2010)
  6. ^ Financial Times, Bond offers return for curbing reoffending (19.03.2010)[2]
  7. ^ The Economist, Performance Bonds: Who succeeds gets paid (17.02.2011)
  8. ^ http://www.americanprogress.org/issues/2011/02/social_impact_bonds.html
  9. ^ a b New York Times - Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply
  10. ^ Lane, Marc J. (2012). "Commit More Federal Funds for a Pay-for-Success Bond Program". In Pallotta, Dan (ed.). Charity Case. Jossey-Bass. pp. 165–167. ISBN 9781118117521.
  11. ^ NSW Treasury, “Social Benefit Bonds”, 2012
  12. ^ NSW Treasury, “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”, 20.03.2012
  13. ^ Horesh, Ronnie, Injecting Incentives into the Solution of Social Problems: Social Policy Bonds, Economic Affairs 20(3), September 2000 [3]
  14. ^ Cabinet Office website, http://www.cabinetoffice.gov.uk/social_action.aspx
  15. ^ Community Links (2008) Council on Social Action: Commentary on year one http://www.community-links.org/our-national-work/publications/council-on-social-action-commentary-on-year-one/
  16. ^ Social Finance website, http://www.socialfinance.org.uk/
  17. ^ http://www.youngfoundation.org
  18. ^ John Loder, Geoff Mulgan, Neil Reeder & Anton Shelupanov (2010), Financing social value: implementing Social Impact Bonds. Young Foundation
  19. ^ Sir Ronald Cohen: capitalism has its consequences, http://www.telegraph.co.uk/finance/financetopics/profiles/7856009/Sir-Ronald-Cohen-capitalism-has-its-consequences.html
  20. ^ Progress Magazine: King Maker, http://www.progressives.org.uk/articles/article.asp?a=6165
  21. ^ David Leonhardt: For Federal Programs, a Taste of Market Discipline http://www.nytimes.com/2011/02/09/business/economy/09leonhardt.html?_r=1&adxnnl=1&ref=economicscene&adxnnlx=1297299664-nsqQfZ4x85JyWJzIQMnbww
  22. ^ The Economist, Performance bonds: Who succeeds gets paid, http://www.economist.com/node/18180436?story_id=18180436
  23. ^ Kristina Keneally, “Social Impact Bonds – First in Australia”, 25.11.2010
  24. ^ NSW Government, “NSW Engages Private Sector to Tackle Social Challenges with Innovative Bond”, Budget 2011-12, 06.09.2011
  25. ^ Social Finance (2009) Social Impact Bonds: Rethinking finance for social outcomes
  26. ^ John Loder, Geoff Mulgan, Neil Reeder & Anton Shelupanov (2010), Financing social value: implementing Social Impact Bonds. Young Foundation
  27. ^ Cabinet Office (2009), Putting the front line first: smarter government
  28. ^ Towards a New Social Economy: Blended value creation through Social Impacts Bonds
  29. ^ HM Government (2009), Putting the Frontline First: smarter government, http://www.hmg.gov.uk/media/52788/smarter-government-final.pdf
  30. ^ Times Online website, http://www.timesonline.co.uk/tol/news/uk/crime/article6908014.ece
  31. ^ The Economist website, http://www.economist.com/displayStory.cfm?story_id=14493098
  32. ^ The Economist website, Social financial engineering http://www.economist.com/business-finance/displaystory.cfm?story_id=15763214
  33. ^ The Financial Times, http://www.ft.com/cms/s/35123f02-bc5c-11df-a42b-00144feab49a.html&ct=ga&cad=:s1:f1:v0:d1:i0:lt:e0:p0:t1284069785:&cd=uJEiP15dU_I&usg=AFQjCNG6wmRM39DK3Do0Qm0ubgYI088QnQ
  34. ^ BBC News, http://www.bbc.co.uk/go/rss/int/news/-/news/uk-11254308
  35. ^ http://www.social-finance.com.au/
  36. ^ NSW Treasury, “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”, 20.03.2012
  37. ^ "Pay for Success and the Department of Justice's Second Chance Act Programs Frequently Asked Questions" (PDF). U.S. Department of Justice, Bureau of Justice Assistance. Retrieved 28 September 2012.
  38. ^ "Second Chance Act". National Reentry Resource Center. Retrieved 28 September 2012.
  39. ^ NYU Wagner Executive Briefing Series, “Managing the Social Bond Initiative”, 20.09.2012
  40. ^ Treasury hints at more Social Impact Bond trials, http://www.civilsociety.co.uk/finance/news/content/6476/treasury_hints_at_more_social_impact_bond_trials
  41. ^ Department for Communities and Local Government, "Grant Shapps: New £5m 'payment by results' deal to get rough sleepers off London's streets". Retrieved 2012-03-15.
  42. ^ "Third Sector, Councils consider Social Impact Bond to reduce number of children in care", http://www.thirdsector.co.uk/news/Article/1048566/Councils-consider-social-impact-bond-reduce-number-children-care/
  43. ^ Gentleman, Amelia (19 January 2011). "Making the case for early intervention". The Guardian. London.
  44. ^ "Manchester gives green light to social impact bond scheme", http://www.cypnow.co.uk/news/1122556/manchester-gives-green-light-social-impact-bond-scheme/
  45. ^ NSW Treasury, “New South Wales Social Benefit Bonds Trial – Request for Proposal Outcome”, 20.03.2012
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