How investors can banish social ills by putting money in state-backed bonds
Social impact bonds let you help ex-prisoners or former patients – and maybe see a good return
DOES INVESTING in a scheme to keep repeat offenders out of prison sound like a good punt? What about one that would provide a Wii Fit to help stroke victims?
Welcome to the world of social impact bonds – and with a healthy government-backed return of up to 7.5 per cent, it’s an investment that might not be as barmy as it sounds. Just as “bondholder” was becoming our byword for all that was filthy about lucre, there comes a scheme that might just rejuvenate its reputation.
The idea of a bond where private investors get paid a return by government for successfully tackling social problems is sweeping through political manifestos on both sides of the Atlantic, Ireland included.
With Barack Obama committing $100 million to the idea in the US and David Cameron already out of the traps with Britain’s first social impact scheme, it’s no surprise the concept now appears in our own programme for government.
“It’s a way of financing social change,” says social impact bond expert Toby Eccles. Eccles was in Dublin this week to meet people from the Departments of Finance, Health and the Environment, as well as the Atlantic Philanthropies-funded Centre for Effective Services to explore such a scheme here.
Eccles is a development director with Social Finance, a UK not-for-profit social investment bank that brings together the skills of ex-investment bankers and social sector experts.
“If there’s an area where you’d like to see more investment to bring about an improvement in society, a social impact bond is a structure we’ve designed to make that happen.”
The company is behind the UK government’s first social impact bond, a scheme that aims to reduce reoffending rates among those at a Cambridgeshire prison. The scheme has 17 investors who between them have invested £5 million to fund rehabilitation work by voluntary organisations to help 3,000 prisoners expected to leave Peterborough prison over the next six years.
“Sixty per cent of short-sentence offenders go back to prison within a year,” says Eccles. “This is a model for trying to reduce their reoffending.”
Providing education and the skills to help them integrate into the community and continuing to support them once they are out, the scheme’s target is to achieve a 10 per cent reduction in convictions that offenders attain in the year they leave prison.
So what’s the payback for investors? “We expect to see a 7.5 per cent per annum return to investors,” says Eccles, and if reoffending is reduced by over 10 per cent, returns will increase subject to a cap of 13 per cent.
Paid in parts by the justice ministry and the UK’s national lottery, it is a healthy return that should please do-gooders and the more money-minded alike.
“The contract is that if we are successful, the government pays a return . . . because the reduction in re-offending is obviously saving them in prison places and court time,” says Eccles.
If the target isn’t achieved, however, investors get nothing.
So what type of investor is the social impact bond appealing to? “At the moment, they are almost entirely people who want to see social change – foundations and some high-net-worth individuals,” says Eccles. “It will broaden the range of investors brought in, including men and women on the street.”
Though citizens might well tut-tut that their taxes should already be enough to tackle social ills, there may be satisfaction for some in investing in charities or bodies they know can fix an issue the state has failed on, while getting rewarded for doing so.
Refreshing too is the fact that the administrator of your social impact bond investment isn’t getting a cut of your profits by way of commission.
Might it appeal to those wanting to ensure their pension investment smells of roses?
“At the moment, the ethical investment movement has been more about passively removing the things you don’t want to invest in than rather than actively investing in things that are positive for society,” he says.
Obama’s social impact bond promise is seeing about $50 million of public money and $74 million from philanthropic investment given to some of America’s most successful non-profit organisations to expand their work with youth, creating jobs and tackling homelessness.
Social investment bonds have potential in the healthcare arena too, says Eccles, particularly for keeping people out of expensive hospitals and at home. “For someone who’s had a stroke, and you need to incentivise them to do physiotherapy, why not give them a Wii? That has lots of games and structures to motivate people and it can measure your weight and success indicators and relay this data back over the internet.”
Clann Credo, a body founded by the Presentation Sisters, has pioneered the concept of social finance in Ireland for 15 years, investing €26.4 million in funds from social investors towards change.
“In a way, government is prevented from being inventive by the system,” says Paul O’Sullivan, chief executive of the Clann Credo. “How do you justify having this idea if it fails? Social investors say, ‘We’ll put the money in, we’ll buy the Wiis. If it doesn’t work, it doesn’t work – no taxpayer money is spent. But if it does work, taxpayers’ money pays for a successful intervention,” he says.
He and Eccles agree that tax breaks should be considered.
“There’s a tax break for giving to charity and there’s a tax break for investing in small business but there isn’t something in between for social investment,” says Eccles. “So there’s an anomaly.”
Tapping in to the ingenuity and the funds of the private sector to transform how social problems are tackled with the potential to bring both financial and social dividends sounds like a win-win.
With Government coffers under strain, social impact bonds might just be the “big idea” that Ireland needs.