Presentation given by OPM's Director for Evaluation, Research and Engagement Chih Hoong Sin to the 2015 Social Investing and CSR Forum on 'The Emergence of Social Impact Investment and Transformation of CSR in UK and Japan' Meiji University, Tokyo, 7th March 2015

1. PRESENTATION BY:PRESENTATION BY:
Social Impact Bonds:
UK and some comparative
perspectives
Dr Chih Hoong Sin
Director
OPM
252B Gray’s Inn Road
London WC1X 8XG
Email: csin@opm.co.uk
CLASSIFICATION: RESTRICTED
EXTERNAL

2. Setting the scene

3. Social Impact
Bonds
•What are they, and where they came from?
— Payment by result: focus on outcomes, not delivery or outputs.
— UK brought out the world’s first SIB in 2010:
» The Peterborough SIB aimed at reducing recidivism
— Slow start, but current proliferation:
» 26 known ones worldwide, with at least another 100 in
development (Bank of America Merrill Lynch and Bridges
Ventures, 2014)
— Range of social issues: criminal justice, children and family
support, employment, health, homelessness, etc.

4. Core components of SIB

5. Observations and lessons from UK

6. What we have
noticed
•Initial focus
— Financial instrument; technicalities of setting up SIB.
— Long lead in time, largely on getting technicalities
‘right’, rather than on systems change thinking.
Social impact, for whom?
— The earlier the intervention, the longer term the
outcomes, the more challenging it will be to
commission for social impact
— System-defined outcomes

7. What we have
noticed
•Financial considerations
— Scale of savings is key consideration, not necessarily
the size/reach of an intervention. Inconsistent?
— Possible ‘invisible’ costs.
•Data
— Demanding:
» Encourages stakeholders to jointly define
outcomes & data required

8. What we have
noticed
•Implementation
— Encourages stakeholders to work together to:
» Clarify delivery model ‘on the ground’ (e.g.
referral pathways)
» Clarify definitions and criteria critical to
inclusion/exclusion (e.g. what is ‘edge of care’?)
— Requires buy-in from staff and public.

9. What we have
noticed
•Interventions
— Can favour ‘evidence-based’ interventions:
» What is ‘evidence-based’?
» Evidence on outcomes. What about implementation?
•Capacity building within provider market
— Narrative around SIBs seen as creating opportunities for non-
profit organisations.
— SIB has strong monitoring/evaluation requirements, but…
— …non-profit providers can experience challenges in
monitoring/evaluation. Diversity within these providers.

10. What we have
noticed
•Commissioner
— SIBs force them to ‘get on top’ of their data and analytics
•Service providers
— Organisational change, building capacity
— Need for market development
•Investors
— Early investors’ behaviour akin to venture capital, very
hands-on (which can be beneficial)
» Different returns on investment?

11. What we have
noticed
•What it means to ‘reward success’
— Public: There can be formidable resistance: “opening of the
public sector and of the needs of vulnerable people to
opportunities for private profit.” (the Social Work Action
Network, 2014)
— Commissioner: Potential, if intervention proves far more
successful, of having to pay a lot more than planned; bearing in
mind that this method of financing is not exactly ‘cheap money’.
Common to ‘cap’ payment. What is the ‘right level’ for ‘cap’?
— Investors: Capping may limit extent to which investor market
may develop.
— Providers: Capping may discourage true innovation.

12. What we have
noticed
•Who pays, and who saves?
— Many of the ‘wicked problems’ cross cut different
Departments.
— Not easy to calculate how much of potential savings
accrue to different Departments (and hence who puts
in how much).
— Cabinet Office and BIG Lottery: Commissioning
Better Outcomes Fund and Social Outcomes Fund.

13. What we have
noticed
•What happens during and after an
intervention?
— Failing: There may be statutory duties for provision of certain
services.
— Succeeding: Peterborough SIB example: some concerns
amongst investors
» “Government does have the tendency to change the rules.
Their tinkering with the system is a big risk” (Bridges
Ventures/Bank of America Merrill Lynch report)
— Investors anticipate that once an intervention proven effective,
commissioners will ‘bring it in-house’.
— What is good for investors and what is good for society?

14. From getting going, to proliferation
and divergence

15. Evolution of
SIBs
•Different types emerging
— E.g. commissioner-led v. provider-led
“A provider-led SIB solution would be more responsive to individual
children’s needs…would be simpler in construction, quicker to mobilise,
and more cost effective…having children start to benefit from the
program within 3 months of signing the contract is proof that we
achieved these advantages” (Paul Riley, Core Assets)
“This is a direct and quick to commission model” (Roger Bullen, EBSI)
— E.g. direct, intermediated, managed
•Different emphases emerging
— E.g. US compared with UK/Europe in relation to whether SIBs are
there to back upscaling or to test innovations

16. Evolution of
SIBs
•Size of market
— Still only small proportion of global capital markets, but
growing significantly (Saltuk et al, 2014).
•Type of investor
— Increasing diversity:
» Growing interest among foundations and mainstream
investors. Individual investors (e.g. UK tax relief for individual
social investors).
— Geographic differences:
» E.g. UK still dominated by foundations. Strong drive in US to
appeal to large financial institutions.
» E.g. Developmental Impact Bonds in developing countries.

17. Evolution of
SIBs
•Blend of returns
— ‘Social impact’ and ‘financial return’:
» It is the mix of the blend that will determine
whether we attract new/different investors (e.g.
lower risk-taking investors).
» This may affect the types of SIBs moving
forward.

18. Evolution of
SIBs
•Investor motivation
— Will impact on the nature and structure of future SIBs:
» UK retains enthusiasm for ‘innovation’ and
testing new things.
» US desire for SIBs to become more ‘bond-like’.
Recognisable asset class.
Backing ‘proven’ interventions.
Lower ‘risk-to-return’ ratio.
Transacted at scale.

19. Evolution of
SIBs
•Cultural and socio-political context
— The influence of the welfare state and public service
provision:
» Perhaps explains why UK/Western Europe keen
to test new things rather than aim for maximising
financial returns?
» Perhaps explains mix of investors in UK/Western
Europe?
» Choice between ‘no service’ or ‘service through
social investment’ (e.g. in developing countries or
in US) may partly explain appetite for DIBs/SIBs?

20. Thank you