Social Impact Bonds – what do the providers think? | Big Society Capital

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Social Impact Bonds – what do the providers think?

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A few weeks ago Big Society Capital hosted a roundtable with a range of providers involved in a variety of Social Impact Bond (SIB) programmes over the last 5 years.

These included delivery bodies in Peterborough, Department for Work and Pensions (DWP) Innovation Fund, DWP Youth Engagement Fund, Ways to Wellness, Department for Communities and Local Government Fair Chance Fund, Essex Children in Care and others. The aim was to better understand provider's early experiences when engaging with social investors through SIBs, the investor behaviours that are working and the ones that are not.

Far from being viewed as a panacea, the providers discussed some of the challenges from their perspective, and suggested a number of key design principles that will need to be embedded in these programmes if they are to truly capitalise on providers’ skills and experience in their respective delivery areas.  

We outline a few themes that emerged from the conversations.

What has gone well?

One of the things that was thought to be valuable was the focus on outcomes and the different perspective investors brought. For many charities and social enterprises, investment into data infrastructure has been lacking as a result of resource constraints. In many instances, the approaches to outcome measurement and monitoring is helping develop the providers’ interventions further, and take advantage of future market opportunities. This is especially true where the data systems developed are incorporated within a provider’s own infrastructure and used beyond the life of the outcomes contract.

To innovate or to scale?

The discussion strongly highlighted the tension between SIBs being seen as the vehicles for innovation, as opposed to SIBs being a different mechanism of commissioning what works. Providers value the flexibility to innovate through a SIB structure. However, in many cases the risk appetite of investment capital is lower than that required for true blue-sky innovation, leading to tensions around appetite for failure.

That’s not to say we can only use outcome-based commissioning for what’s been proven to work. We just need to be clear from the onset on what the risks are and align those risks with the risk appetite of the investors. For example, if a charity or a social enterprise is trialling an entirely new intervention with no track record, and the payment is 100% on outcomes, the investment capital needs to be able to bear more risk. This may lead to specialist investors with greater risk tolerances support SIBs that develop innovative solutions to solving social issues.

In the future, once a track record is developed, providers will often seek to finance some or all of the investment required as part of an outcomes contracts themselves - taking on more risk but conversely benefiting from the potential financial returns in the contract’s successful delivery.

Are investors too involved?

One of the commonly cited benefits of Social Impact Bonds is the involvement of investors (and intermediaries) in the operational management of the programme for performance management. But while often the involvement of investors has had a positive impact on results, there were many examples cited where the level of performance management was a significant burden to the charity or social enterprise. The time and resources providers allocated to the management of SIB programmes far outweighed the investment in other contracts of a similar size. For providers that have actively flagged this to their investors, the amendments have normally been made.

There will always be a disproportionate investment of time in new programmes as both investors and providers learn where these resources need to be focused. However, in the future, this level of engagement is unlikely to be sustainable and further thought is needed on how to balance the value of the investor’s involvement and the potential reduction in value through over-management. Expectation management is key, with investors and providers likely to benefit from agreeing the levels of reporting requirements at the onset to ensure those requirements work for both parties.

Bridging the understanding gap

The discussion also demonstrated the gap in understanding between investors and providers. Social investors sometimes don’t have a background in the social issues that the SIB is trying to address, and will need support from the provider to gain that understanding. Similarly, investors should make an effort to inform charities and social enterprises about their organisation’s background, objectives and activities.

Correcting the power balance

Due diligence should not be a one way process. Of course investors are putting money at the risk of not achieving social impact or getting it back. However, providers are similarly investing into the programme through other means and should be confident the investor will bring value. Investors should also consider involving providers in the selection of the chair of the SIB board to ensure they can develop a strong partnership with that individual going forward.

Feedback is vital. Each SIB board should create opportunities to provide feedback in order to improve relationships and develop better approaches for working together.

Exit strategy

The lack of clarity on what is coming next from the market was a key concern. Neither central nor local government have provided visibility on future outcome-based programmes, which leaves the provider market unclear about whether this is an area for continued investment. Many programmes have been commissioned for a period of 3 years without a clear strategy for what happens after that point. Some providers have been successful in identifying new commissioners, but that is not the case across the board. The skills and experience built within providers is in danger of being lost as delivery personnel move on to their next contracts.

What next?

So what does this all mean? We as social investors need to make a more concerted effort to listen to providers and ensure the programmes are not only delivering outcomes for the target beneficiaries, but also building capacity in the organisations delivering those interventions.

Commissioners need to provide greater clarity on what’s in the pipeline and what providers need to do in preparation.

And lastly charities and social enterprises need to speak to one another to share experiences, discuss what works and what doesn’t, and develop ways of feeding back into the design cycle.

It’s still early days. SIBs are an entirely new way of working between commissioners, providers and investors with many teething (and some more substantial) problems. But we’re all learning. And the early experiences, albeit sometimes painful, will enable us to adapt the models going forward and deliver even greater social impact. 

Last updated | 
18 November 2015


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