Why aren’t there more social impact bonds?

It’s hard to go to a charity conference these days without seeing some reference to social investment bonds.  They are presented as an innovative solution to the voluntary sector’s lack of capital (which they are) and many charities struggling for income therefore latch on to them as a potential fundraising opportunity. Why then do we have less than 50 SIBs operating across the whole world?

It certainly isn’t for a lack of investors. Impetus-PEF and Big Society Capital, who invested in our SIB three years ago, are often on the lookout for investible organisations.  As a result of BSC’s market building activities, a growing market of other investors, from grant-making trusts wanting to dip their toes in, to more commercial investors and private banks looking to add a social product to their range, are similarly searching for opportunities to invest their capital.

It also isn’t for a lack of good programmes.  While many charities need some preparatory support, there is a healthy supply of organisations rolling off of so-called ‘investment readiness’ programmes.  You might quibble about whether these programmes could focus more on helping charities refine their delivery model and evidence their impact, rather than just on building their organisational capacity and getting their business plan in shape, but nevertheless a lot of energy has gone into building both their interest and capacity to engage.

The major challenge is really the lack of the commissioning opportunities that provide the outcome payments that enable charities to pay back social investments.  Although in the 2015 summer budget, the government set out their intention to expand support for social impact bonds, particularly around youth unemployment, homelessness and mental health, this can’t happen until suitable commissioners come forward to fund services in these areas.

SIBs are perhaps most useful when they can fund early intervention services in areas where there are savings to be made from preventing higher future public expenditure.  In the case of youth unemployment, this is reducing the number of young people who go on to be not in education, employment or training and ultimately claiming employment benefits (as well as a range of other costs associated with unemployment).

Yet there is no national framework for youth employability services (or indeed either of the other two priority service areas).  Historically much of this work was funded through Connexions Partnerships and later local authorities.  However, the reductions in public spending over the last five years, and specifically the reduced funding for local government, means that in many areas theses services have disappeared.  Where they still exist they are largely propped up by a combination of European Social Fund grants, small contracts with individual schools or colleges and philanthropy.  The DWP’s Youth Engagement Fund, while welcome, has only supported four relatively small programmes around England.

So a prerequisite for more SIBs, in any sector, is developing an established market for services.  As much effort needs to go into supporting commissioning as it currently does the investors and deliverers.  In the year of a comprehensive spending review there is a role for central government to lead the way.



Understanding the SIB’s success by looking at the (right) numbers

As we analyse the results from the social impact bond, it has made us think afresh about our understanding of success in relation to social investment.

Much coverage of the first SIBs has focused on their financial achievements.  In many ways this isn’t surprising, as it is the ability for small charities to deal with payment-by results contracts, by taking on an investment and then paying it back with a return, which makes them usual.

In the case of ThinkForward, we are proud that we have been able to pay back our investors, Impetus-PEF and Big Society Capital, not just the initial capital they invested in us, but also a small return.  As social investors they will recycle that money and it will be used to help other similar social initiatives in the future.  However, making a positive financial return, as good as it is, doesn’t necessarily mean that a long-term social impact has been achieved.

In part, measurement of social impact is down to the outcomes specified by commissioners.  In the case of ThinkForward’s SIB, that was the Department for Work and Pensions (DWP), who have a menu of payable outcomes, based on known predictors of future employability.  These range from improving young people’s attitude to school, through to helping a young person sustain employment for six months.

On these measures, ThinkForward does well.  While Statistics Authority rules mean we can’t share any data on the SIB before the DWP’s official release next year, ThinkForward has more generally in 2014/15 helped:

•    85% of 14-16 year olds to improve their behaviour or attendance at school;
•    60% of 16 year olds to achieved good GCSEs – twice as many as their schools initially predicted; and
•    96% of 16-18 year olds to progress into further education, employment or training.

There is no doubt that our staff worked hard to support young people and that these results are fantastic for the young people concerned.  Nevertheless, we often ask ourselves questions about how socially significant they really are.  Do these outcomes have any correlation to their likely future employability?  Would they have happened anyway?

The first of these questions is easier to answer.  Not participating in education, employment or training is associated with negative outcomes later on in life, such as unemployment, low pay and depression, while participating and gaining qualifications has a positive impact in terms of employment and income.  DWP recognises that many of these long-term outcomes could take several years for the benefit and wider fiscal and social savings to accrue. They therefore pick intermediate outcomes that are most clearly linked in evidence-based research to effective longer-term employment outcomes.

The second question is harder.  Every programme inevitably includes some ‘deadweight’, young people who might have got into work anyway.  The only way of measuring this is to establish a counterfactual using an approach such as a Randomised Control Trial.  We are fortunate that the Education Endowment Foundation has been supporting us to conduct one and we look forward to seeing the results next year.  In lieu of these, the onus is on all organisations like ThinkForward to ensure it working with those displaying the greatest ‘at risk’ indicators and who need our support the most.  In our case, 50% of the young people we support have lower than average academic attainment and are not predicted to get the five GCSEs A*-C that makes them seven times more likely to get into employment.

Perhaps most of all, charities need to measure their impact in the context of their mission – what they say they will do, and for whom.  For ThinkForward that means we will keep tracking young people’s progress for at least 18 months after they leave our programme; far longer than DWP require, but for us a proper measure of whether their employment is sustained.  In this, the social impact bond was a means to an end, not the end itself.

What did we learn from ThinkForward’s SIB?

Delivering the social impact bond over the past three years has been an insightful learning experience, throwing up sometimes difficult challenges, which in the end helped us to develop as an organisation and deliver greater impact. Now at the end of this journey our minds inevitably turn to the learnings we have picked up along the way. What did we get right? And what did we get wrong?

Firstly, here are three things I think we got right:

1)  Picking the right investors:  investors don’t just provide the upfront capital, many expect to join your board and play an active part in the development of the organisation.  You therefore need to select partners that share your vision and who you know you can work with.  In our case, both Impetus-PEF and Big Society Capital provided much valued input into programme design, operational management and future business planning.

2)  Getting performance management right:  if you are only paid for your outcomes, you need to be really sure that you can produce them.  That begins with making sure that frontline staff understand the requirements, refining your programme design so that it can be delivered reliably and being able to regularly track progress.  For us it also meant investing in a business analyst who could help frontline staff with data collection and analysis; beefing up our IT and case management systems; and embedding a more data-driven culture into our meetings.

3)  Cherish your staff: funding is vital and systems help, but ultimately the achievement of impact comes down to the work of our amazing staff.  From investing in their learning and development, to celebrating their successes (and commiserating when things didn’t go so well), we try to never forget that in a social organisation like ours, people are our biggest asset.

That all sounds good right?  Well, there were a bunch of other things which didn’t go quite as planned.  Our top three lessons were:

1)  Don’t borrow more money than you need: we went for a very simple SIB structure, taking in all of the capital at the beginning and not paying any of it back until the end.  Capital can be expensive; taking the time to do a very thorough cash-flow model will literally pay dividends later.

2)  Don’t assume like-for-like results when you take pilot delivery to a larger scale:  in our case we found that there were fewer young people than we expected who required support to improve their attendance at school, but more than needed support to improve their academic attainment.  These require different approaches and we had to adapt our delivery model as we went along.

3) Don’t overestimate the capacity of delivery staff: in an effort to maximise outcomes we initially asked our staff to work with more young people than in our original business plan. As a result some of our initial results were lower than we expected.  Our socially-minded investors agreed to some tweaks to make the caseloads smaller, giving our coaches a bit more time with each young person.

Overall, delivering the SIB has been good for us.  From the frontline staff through to our board, we are a more impact-focused organisation than before.  But we also learned that while ambition is good, it needs to be tempered by realism and backed up by sound planning.