Across the globe, many societies are arguably experiencing a higher standard of living than at any time in human civilisation. Thanks, in part to greater accessibility to clean water, reduction in infectious diseases and provision of health care. However, despite these advances, poverty still exists and while there are higher rates in developing nations, the developed nations are not immune. While there are a number of different frameworks in relation to the structure of the Welfare State, they all share a common characteristic – none in their current form are perpetually sustainable, even in the case of the Scandinavian models which are often regarded as the most successful.
There is little question that the Welfare State is there to provide protection for the most vulnerable and disadvantaged in society. How this is provided is a complex mix of cash payments, services, taxation, industrial relations policies and wage setting. What we know is there is a percentage of people in any society that have, by no fault of their own, a level of dependence on the state, to assist in providing equality of opportunity, or just getting some people to the starting line. Even when doing so, there are then other policy mechanisms that impact on the ability of people to contribute as much as they can. Regardless, the need for services for people who have a disability, those experiencing intergenerational poverty, child protection, justice and ageing issues will be constant. Governments will need to demonstrate accountability measures to show that services are achieving their intended outcomes.
For service delivery agencies and non-government organisations (NGOs) in both international development and local service delivery sectors, there is a need to ensure they are both accountable and can demonstrate a return on investment for the funders whether that be government, multinationals exercising their ‘cooperate social reasonability’, or philanthropists. In the past two decades, there has been a growing focus on these metrics in relation to social outcomes. The achievement of social outcomes for the ‘wicked problems’ that present themselves in today’s societies is important from not only an accountability perspective and the target populations themselves but also to unlock private capital for these public problems. In 2010 the first Social Impact Bond (SIB) was implemented in the UK as a way to attract investment from the private sector and reduce long-term spending on the issue of recidivism. Since then they have
In 2010 the first Social Impact Bond (SIB) was implemented in the UK as a way to attract investment from the private sector and reduce long-term spending on the issue of recidivism. Since then, there has been a reverberation of excitement over the potential of this new way of confronting social challenges. Paul Madden of the Social Impact Investment Network South Australia shared his insights regarding the challenges and practical application of SIBs,
“While SIBs have captured national and international attention as a means of attracting private capital to the pursuit of sought after social outcomes, they are only the tip of the iceberg. While they are difficult and expensive to establish, the learning about social measurement that will emanate from that learning will have wide application across a vast range of social investment mechanisms. Every enterprise, whether private or social, requires capital and cash flow to grow and social investment will increasingly become the means for achieving this whether through SIBs debt or equity contributions. The learning about social measurement will also help release funds through government for “payment by results” contracts, as governments will be more prepared to pay when results and savings can be quantified.”
Underpinning the design of a SIB is a rigorous methodology for measuring outcomes, savings for government and a return on investment for the corporate or philanthropist that provides the capital. They demonstrate a long-term commitment to invest significant monies to address specific problems that can plague the landscape of a society. This approach helps to address some of the service delivery issues including siloed approaches to delivering services; patchwork or pilot projects that might work but are defunded. Built in is developing a deeper understanding of the issues and co-design with the target population, to ensure the services will address the problem effectively; and there is the rigour in measurement allowing the interventions to be evaluated effectively.
Often, the ‘wicked problems’ have many underlying drivers that contribute the unhealthy outcomes for the individual, community and society and these drivers are crucial for policy makers to better understand and address. To continue the redundant trajectory of accepting that conditions that impact negatively on the health and development of people is ok, will prevent progress. So too will short-term funding solutions or the ‘myth’ that evidence-based programs are the only answer, they are not. Funding models need to be adaptive and flexible to support the innovations society needs to address the deeply entrenched issues. Social Impact Bonds offer flexibility for innovation in service delivery which can be embedded in the design of the bond. They bring together multiple sectors including government, NGOs, academia and corporate and philanthropic sectors to collaborate and work toward a common agenda with shared measurement system with a long-term investment.
At the nucleus of SIB’s are the outcomes achieved for individuals, the saving for government and return on investment for the investor. There are many methods for measuring outcomes for individuals with the tool used always depending on the intended outcome. In the psychological sciences, disability sectors, early childhood and learning difficulties and, health sciences the validated tools on offer are almost endless. Finding the right ‘fit for purpose’ tool is the challenge. Here the ’how to’ measure the outcome being sought is crucial for all parties involved in the bond. It requires careful identification of the problem it is intended to address and identifying the appropriate population data set. Here the numbers and percentages are key. Regardless of what the bond might seek to address, a number of components require identification. That will include the number and percentage of people experiencing the issue at a population level, and the number of people the bond will aim to target. Also, what contribution will the service make at the population level of the target cohort and what is this target cohort currently costing the government to service including intangible costs.
Next, determining the cost of the problem for any government, followed by the saving’s and linking this to the outcomes for the individual at the population level is where the metrics and ‘brains’ behind the design of the bond become crucial. There exists a number of methodologies that can be utilised for a SIB. Two key methods include social accounting, auditing and social return on investment. The four capital model of social accounting and auditing (SAA) is a process that provides a value on social, environment, human and financial outcomes. These audits can then be represented on the balance sheet of an organisation providing an aggregate picture of assets and liabilities. While it is commonly used at an organisational level, the investment that is allocated to a SIB would benefit from such an approach. The other noteworthy methodology is the Social Return on Investment (SROI). The SROI methodology was first introduced by the Roberts Enterprise Development fund in the late 1990s. The years following its introduction have seen it become one of the most common methodologies for monetizing social outcomes. SROI is based on the principles of ‘accountancy and cost-benefit analysis.’
Both SAA and SROI are mixed methodology approaches to monetizing outcomes from social service activities and interventions. Each methodology presents an option for businesses to establish two balance sheets, one that shows the real assets and liabilities, and a second that incorporates the social, human and environmental assets and liabilities. There would be no expectation in a future application of SIMM that funded organisations would be expected to develop two separate balance sheets, rather, the methodology would be applied specifically to each SIB or funded activity, using a SIMM. One limitation of all of these models includes the potential to exclude smaller organisations. Significant time, expertise and capital are required to be invested to develop processes for impact measurement and to be involved in the development of SIBs, thus creating monopolies in the NGO sector.
Regardless of the methodology, or how governments allocate funds in any region, investors and service delivery agencies need to hold themselves to account, build in efficiencies and demonstrate the outcomes they are achieving and how individuals, the community and society as a whole are better off for their existence. Ultimately, it seems counter intuitive to use a financial product such as Social Impact Bond to address some of the inequalities that exist in society, as a result of market capitalism.