Social kontrakt introduction

PUBLIC SECTOR INNOVATION USING IMPACT BONDS © 2013

SIBs enable public organizations to experiment with new welfare solutions on challenges they choose using private investors’ money as the risk-takers while engaging civic organizations to implement the projects.

MEET US: SOCIALKONTRAKT

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Competences and experiences in public policy and administration, public

innovation, investment structuring, welfare innovation, public private partnerships, startup companies.

Collaboration with SocialFinance and Center

for Economic and Business Research (CBS)

Communities moving forward

Our goal is to strengthen the welfare state by providing municipalities with the

network and resources to experiment with innovative solutions

Team

Reach us: [email protected] Twitter: @socialkontrakt

GLOBAL COVERAGE OF SOCIAL IMPACT BONDS IN SELECTED MEDIA

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Short articles about Social Impact Bonds -  Wikipedia article -  The New York Times (20.06.2012) -  The Economist (18.08.2012) -  The New York Times (02.08.2012) -  Center for American Progress (09.02.2011) -  McKinsey & Company (May 2012) -  Huffington Post (10.018.2012) -  Corporation for Enterprize Development

(03.09.2011) -  Non-profit quarterly (17.04.2013)

Studies about Social Impact Bonds -  Third Sector Capital Partners (2011) -  McKinsey & Company (May 2012) -  RAND corporation (2011) -  Social Finance: SIB in Essex (21.10.2012) -  Social Finance: SIB in Thames Valley

(31.10.2012) -  Social Finance: SIB in Peterborough

(2011)

SIB TO IMPROVE OUR WAY OF DEALING WITH COMPLEX SOCIAL ISSUES

reduce teenage overweightness?

find employment opportunities for the disabled population?

increase ratio of public transport (or bicycles)?

ensure hospitals are not crowded with unnecessary doctors visits?

reduce smoking (or alcohol use)?

Social issues are complex => that creates need to find new mechanisms to deal with them

integrate ex-prisoners to society and avoid high re-offending?

How do we…

…public organizations could get money to try additional solutions without risk ?

What if…

…public organizations could involve their community in decision process?

What if…

…public organizations collaborate with innovative companies for welfare solutions?

What if…

INTRODUCING SOCIAL IMPACT BONDS

Repayment guarantee based

on project success

Receive services

Determine the strategic public

goals

Investment into the

providers

Return based on outcome

Pay for the service

Service delivery

commitment

Service delivery

Program success assessment by

independent auditors

THE BASIC IDEA: FOCUS ON OUTCOMES, NOT OUTPUT

Traditional public contracting based on OUTPUTs

Social impact bonds enable contracting based on OUTCOMEs

“Deliver the target group of overweighed kids the following services: > 100 hours of outdoor activities > 100 hours of lectures on healthy diet”

Service provider focuses on delivering services just as contracted – even when they know it’s not working

Service provider measures its own performance frequently and adjusts

project performance

example example “Reduce the number of overweighed kids: > Improve body mass index to less then 25 > Ensure that kids do not undergo social, psychological or health problems”

vs

⇒ 

ALLOWING TO LEARN CONCURRENT WITH EXISTING ACTIVITIES

SIB projects don’t need to replace existing projects, but provide experiments alongside.

Family consultations Special lectures at school

Example: How do we reduce the number of overweighed kids?

Kids in a selected school

Outdoor sports activities

New computer game involving exercise

Heavy computer users between 13-15

Existing projects

New projects realized with SIBs

All kids with the problem

BRIDGING THE RISK THROUGH INNOVATION VALLEY OF DEATH

SIBs provide the necessary risk-taking capital in order to facilitate the learning process

time

Perceived project risk

Municipal willingness to invest

Project 1

Project 2

ROOM FOR ALIGNMENT BETWEEN PUBLIC GOALS AND CIVIC ORGANIZATIONS

Align public goals with private money and capacity of non-public organizations using SIBs

Service delivery

Service delivery

Pay for the service

Service delivery

commitment

? Lack of

collaboration

Interested funds include: •  Obelske Familiefond •  Velux Fonden •  SociaKapitelFond

SIB FUND ENSURES APPROPRIATE LIQUIDITY FOR SIB REPAYMENT

•  Public institutions make annual payments to the SIB fund.

•  The payments are sourced from savings and/or from preventive or innovation public budgets.

•  In case the SIB project doesn’t achieve the highest performance, some of the project payments are saved in the SIB fund for future SIBs, or paid back.

•  The investors pay for service providers during the course of project.

•  The impact bond fund accumulates necessary money to cover investors.

•  Investors are paid at the end based on project success level.

Payments during project

Payments during project

Repayment upon impact assessment

PROCESS OF ISSUING SOCIAL IMPACT BONDS – HOW TO GET STARTED

SIB projects start with the crucial step of defining the problem –by public organization

Projects worth 3-20m DKK per year over 3-7 years period

PROGRESS WITH SEVERAL PUBLIC INSTITUTIONS

*Aalborg, focus on elderly healthcare.

*København, focus on preventative healthcare

*Probation services for temporary inmates, Odense Area.

*Ikast-Brande, ongoing discussion

*Middelfart, ongoing discussion

*Halsnæs, ongoing discussion

PROCESS OF SOCIAL IMPACT BOND ISSUANCE

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Problem with a price tag and clear variable(s) of

success

Executing organizations are matched with

investors

Projects are delivered on pre-agreed budget and

timeline

Investors are funded based on the Impact

assessment

Align public budgets with public vision. * What are crucial goals? * How much are they worth? * Which specific parameters indicate success?

* Invite companies and NGOs to submit projects. * Prequalify projects with public organization * Open the projects for funding by investors

* Monthly performance reviews, and adjustments to project methodology * Investment is released to service providers upon milestones

* Project efficacy measured by independent auditors * Investors receive pay-back based on projects’ success * Projects adopted by public institutions


Problem with a price tag and clear variable(s) of

success

Align public budgets with public vision. * What are crucial goals? * How much are they worth? * Which specific parameters indicate success?

EXAMPLE HYPOTHETICAL FIGURES AND STATEMENTS

Problem: “Too many overweighed kids between age 6 and 12 in the district” Value to public sector: •  Highly overweighed persons cost the health system over 1m DKK over their lifetime as

they are more prone to diabetes, and require operations •  Overweighed kids are more likely to require study help and additional teaching •  Overweighed kids are less likely to find a job when they finish their education ⇒  Total current public value of reducing overweigh issue is 0.8m DKK per head as a

combination of the impacts in various public budgets ⇒  Municipality agrees to pay to projects 0.4m per person whose overweigh problem is

resolved with a cap of 14% in annual return

Success parameters: •  Number of persons in target group whose body mass ratios has reduced to from

“extremely high” to “normal”. •  Number of persons in target group whose body fat ratio has reduced to less then 30%. •  The normal weigh status needs to be sustained over 18 months. •  No increase in behavioral or health problems during treatment.


EXAMPLE HYPOTHETICAL SCENARIO

Executing organizations are matched with

investors

* Invite companies and NGOs to submit projects. * Prequalify projects with public organization * Open the projects for funding by investors

1.  Service providers are invited to make their bid to carry out projects concerning the overweigh issue. a.  Red Cross Youth applies with a project to engage target group with outdoor

activities b.  Mobile app developer company Shape applies to develop a mobile app which

will get the kids to work out and earn badges c.  Therapists association apply to carry out a new child-centric therapy method

with the target group and their teachers, families and friends.

2.  Municipality pre-approves all projects based on their ethical and political fit.

3.  During a 3-month period, investors are invited to finance each of the projects a.  80% of the money is raised from foundations and CSR funds with social

objectives. b.  95% of the investors are private individuals who have some kind of experience

with or exposure to the overweighed kids. c.  Projects (a) and (b) receive adequate funding for pilot and start implementation



•  Red Cross project focuses on 1000 overweighed kids between 6-12 divided into two cohorts based on their age.

•  Red Cross Youth finds out that in order to move the overweighed kids to enjoy and compete on outdoor sports such as kayaking, the kids need to have peers who do not have the overweigh problem

•  They also find out that finding appropriate equipment for the target group is essentially a major part of the problem, and they make necessary arrangements to procure the equipment.

•  They receive project payments in 3 steps; initially (40%), upon reaching the desired body-weight with the first cohort (30%) and upon sustaining the body-weight for one year with the first cohort (30%).

•  The interim impact assessment reports show encouraging results, but some delays in the execution.

•  By adjusting program activities and calendar, Red Cross manages to deliver above the minimum impact threshold.

Projects are delivered on pre-agreed budget and

timeline

* Monthly performance reviews, and constant adjustments to project methodology * Investment is released to service providers upon achieving milestones



•  Final impact assessment shows success with 60% of the target group •  Red Cross project receives enough funding to cover project costs plus a return

which corresponds to 7% annual return on investment •  Funds and private persons who funded this project are encouraged to fund other

social impact bonds •  Project assessment studies show that the method employed creates 3 times more

value for society then its cost •  Municipality decides to implement the project with scale with all target group •  Red Cross leads implementation by training municipal employees that

implemented SIB, as well as others.

⇒  The public workers are convinced about the efficacy of the new approach proven project carried out by civic sector – which they previously resisted

⇒  A new method/approach to help kids with overweigh problems considered risky by municipality is implemented

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Investors are funded based on the Impact

assessment

* Project efficacy measured by independent auditors * Investors receive pay-back based on projects’ success * Projects adopted by public institutions

BUILDING BLOCKS FOR SOCIAL IMPACT BONDS

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Robust outcome metric(s) Clearly defined target

group

Issue area a priority for public sector

Promising and innovative interventions and service

providers exist

Issue area a priority for investors

Cost of intervention is small relative to potential

public sector value

Considered interventions are currently not viable for public sector to invest in

EXAMPLES OF BONDS – CASE UNDER DISCUSSION WITH AALBORG

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Goal

Reduce unnecessary hospital visits by the recent elderly hospital patients

Measurement Variables

y  Reduction in the number of unnecessary doctor visits

y  Maintain health conditions

Elderly people with recent hospitalization

record

Aalborg Kommune

Social Kontrakt

TBD

TBD

Budget and Period

~15m DKK

Stakeholders

2014 - 2016

Contact SocialKontrakt for more information

EXAMPLES OF BONDS – CASE UNDER DISCUSSION WITH MIN. OF JUSTICE

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Goal

Avoid traumatic experiences among the detainees awaiting trial in detention prisons


y  Reduction in the number of sick-days by prison guards

y  Improved health conditions and days necessary for psychiatric of detainees.

Detainees in Fyn, Syd- og Sønderjylland

Arresthuset I Odense

Social Kontrakt

TBD

TBD

Budget and Period

~20m DKK

Stakeholders

2014 - 2017


EXAMPLES OF BONDS – VULNERABLE YOUTH IN ESSEX, UK

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Goal

Provide therapeutic support and improve outcomes for vulnerable adolescents at risk of going into care


y  Reduction in days spent in care by the adolescents y  Improved school outcomes y  Wellbeing (health) y  Reduced reoffending

380 vulnerable young people between 11-16 & families

Essex County Council

Social Finance

Big Society Capital, Bridges Ventures, &

others

Action for Children

Commitment

£ 3.1 million

Stakeholders

2012 - 2017


EXAMPLES OF BONDS – DISADVANTAGED KIDS IN THAMES VALLEY, UK

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Goal

Help the kids participate and succeed in education or training and thereby improve their employability


y  Improved behavior y  School attendance y  Educational qualifications y  Employment opportunities

2,500 vulnerable young people

between 14-15

Department of Work and Pensions

Social Finance

Big Society Capital, Bridges Ventures,

Barrow Cadburry Trust and Impetus Trust

Adviza (Energize Program)

Commitment

£ 7 million

Stakeholders

2013 - 2016


EXAMPLES OF BONDS – EX-PRISONERS IN PETERBOROUGH, UK

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Goal

Reduce reoffending among the short-term ex-prisoners after they leave the prison


y  Reduction in re-offending rate

3,000 short-sentenced male ex-

prisoners from Peterborough jail

Department of work and pension

Social Finance

Blue Sky, RAPt, St Giles Trust

YMCA, St Giles Trust,

Ormission Trust

Commitment

£ 5 million

Stakeholders

2010 - 2016


EXAMPLES OF BONDS – HOMELESS PEOPLE IN GREATER LONDON, UK

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Goal

Create sustainable solutions for the homeless in London


y  Reduction of individuals bedded on the streets y  Confirmed tenancy y  Confirmed connection to a country with social connections y  Decrease in A&E episodes per person per year

830 homeless people in London

Department of Communities and Local Government

(DCLG)

Social Finance

Greater London Authority

Two providers (TBD)

Commitment

£ 5 million

Stakeholders

2012 - 2014


EXAMPLES OF BONDS – ADOPTING VULNERABLE CHILDREN, UK

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Goal

Family finding for vulnerable children at adoptive families.


y  Number of children adopted

300 vulnerable minority children with clinical conditions or over 4 years of age

Department for Work and Families

BakerTilly & LSE

HNWIs

Consortium of Voluntary Adoption

Agencies

Commitment

£ 5 million

Stakeholders

2012 - 2014


EXAMPLES OF BONDS – REDUCING YOUNG OFFENCES, AUSTRALIA

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Goal

Reduce foster care and prevent young criminals from returning to prison


y  Number of days spent in foster care y  Reduction in young offenders

500 young adult repeat offenders

Government of New South Wales

Mission Australia

(Ongoing)

Benevolent Society, Westpac Corporation

and Uniting Care Burnside

Commitment

$ 20 million

Stakeholders

2013 - 2018


Technology

Social kontrakt introduction