Social Impact Bonds

Social Impact Bonds

Social Finance
09.09.10

 

A Social Impact Bond is a contract between a public sector body and Social Impact Bond investors, in which the former commits to pay for an improved social outcome. Investor funds are used to pay for a range of interventions to improve the social outcome.

 

By enabling non-government investment to be utilised, Social Impact Bonds will lead to greater spending on preventative services. These interventions can have a direct impact on costly health and social problems.

 

Social Impact Bonds are a unique funding mechanism, in that they align the interests of key stakeholders around social outcomes:

 

Government – the public sector pays only for positive outcomes by releasing a proportion of savings to Social Impact Bond investors. Success payments are calculated such that, if Social Impact Bond-funded services improve outcomes, these payments will cover the costs of the interventions. This enables investors to make a return. Investors carry the risk that funded interventions may fail to improve outcomes.

 

Social investors – investment in Social Impact Bonds by trusts and foundations, commercial investors, and high net worth individuals offers an opportunity to generate a blended social and financial return on investment. The social and financial imperatives are aligned; investors receive greater financial return as the social return improves.

 

Social service providers – Social Impact Bond investment is used to pay upfront for the delivery of services. This enables providers of all sizes to participate in generating success. Providers are encouraged to innovate in order to achieve the best possible outcomes for the target population. The focus is on the social value that service providers can offer, rather than on the cost of services alone.