11 Social Benefit Bonds, Australia
Social Benefit Bonds, Australia
Review and Refine Policy
Toolkit step: Review and Refine Policy
In Brief: The Australian experience in New South Wales to adapt the United Kingdom’s Social Impact Bond (SIB) model demonstrates the need to review and refine policy throughout the process – from planning, design and implementation to evaluation. SIBs have been highlighted as a new product to fund social enterprise and an alternative approach to the government’s provision of social services.
However, for the purposes of demonstrating the Framework component of review and refine, this case study does not focus on specific SIB innovations. Instead the case seeks to understand what is required to adapt and iterate such a policy, providing several insights for policy-makers in other countries, including:
- Strive for simplicity but recognize that often the “devil is in the details”
- Set distinct milestones, continually creating opportunity for review
- Acknowledge the risks associated with being the first
Policy Goals and Development
A Social Impact Bond (SIB) or Social Benefit Bond is a partnership in which private investors provide capital for non-profit organizations and social enterprise to achieve desired objectives. Government agrees to repay investors dependent on the realization of specific, previously agreed upon social outcomes. Through this partnership model, SIBs provide cost savings to government and present enormous opportunity for social enterprise.1
In 2010, the first SIB was launched in the United Kingdom with the goal to reduce the recidivism rate of prisoners at a jail in the city of Peterborough. The financial advisory group Social Finance UK managed the investment of private, primarily philanthropic funds into three non-profit entities working with prisoners. The UK Government committed to repay the initial investors only if the non-profit programmes achieved specified targets to reduce the rate of recidivism. Enormous interest in this new model led to exponential growth of the county’s SIB marketplace. Today, 28 SIB projects are under way in the United Kingdom and the Government has since created a new Centre for SIBs.
Interest in the new funding model has not been contained to the United Kingdom; since 2010, SIBs have been considered or developed in the United States,2 the European Union,3 Israel,4 Canada5 and Australia. The development process began in Australia after the New South Wales (NSW) Government commissioned the Centre for Social Impact at the University of New South Wales to conduct a feasibility study for SIBs in their jurisdiction. With a successful track record in cross-sector convening and thought leadership around social enterprise, the Centre for Social Impact was well positioned to conduct this initial study.
In partnership with several organizations familiar with SIBs (including the United Kingdom’s Young Foundation) and with the input of Social Finance UK, the Centre for Social Impact published the feasibility study in February 2011. The study identified appropriate conditions for a SIB in New South Wales, drawing heavily on the experience in the United Kingdom and identifying where the model could be replicated or modified.
Certain components, such as identifying a third-party assessor to measure the success of the programme and the target sectors in which to use a SIB, were determined to be replicable in the Australian market. However, the Centre for Social Impact recommended several alternatives for other components of the SIB. For example, in the United Kingdom the investors were only repaid if the social goals were met. However, many potential SIB investors in New South Wales did not have the same philanthropic motivations as the original UK participants. Therefore, the Centre for Social Impact proposed that the NSW Government create a more attractive investment opportunity by guaranteeing some return to investors.
The study concluded that SIBs would be viable in New South Wales, but that developing a “deep and iterative engagement between the host non-profit organizations and NSW Government is a critical step in the development of the pilot SIB”.6
Policy in Action
In September 2011, the NSW Government released a Request for Proposals for the design and development of “Social Benefit Bonds”7 – the Australian name for Social Impact Bonds. In March 2012, following a “healthy response to the Request for Proposals”, the NSW Government announced that it would work to develop proposals submitted by three partnerships of non-profit organizations and investors as part of a Joint Development Phase.8
Throughout the Joint Development Phase, the NSW Government has collaborated with each partnership to negotiate various investment structures and divisions of risk and return. The NSW Government also appointed a Social Investment Expert Advisory Group, composed of industry leaders and policy-makers, to provide guidance and feedback throughout the development process.
As the first Social Benefit Bonds (SBBs) in Australia, this Joint Development Phase has allowed each of the partnerships to explore innovative and out-of-the-box solutions. However, coming to an agreement on final SBB structures has proven to be complex and time-intensive, given the level of detailed and careful work necessary to develop feasible SBBs.
In September 2012, almost one year after the Request for Proposals, the Centre for Social Impact hosted the inaugural Social Finance Forum with a focus on Social Impact Bonds.9 The investors and non-profit organizations working to develop SBBs participated along with members of the Social Investment Expert Advisory Group, the NSW Government and representatives from the United Kingdom. At the time of the Forum, no finalized SBB was presented, as negotiations between the NSW Government and Social Benefit Partners were still under way.
Instead, the Forum provided the opportunity for the various stakeholders to share their experiences, maintaining momentum and formally documenting the conversations occurring throughout the development process. Forum participants recognized the importance of such a process, noting, “We are not slavishly following the examples of the UK or the US. We are developing a proposal that suits our particular opportunity. There are no rules in this area, we are making this up as we go.”10
Impact to Date
In March 2013, the NSW Government announced that the first Social Benefit Bonds Agreement in Australia had been executed with UnitingCare Burnside (for details see the “Social Benefit Bonds on the Ground” box in this section). In addition, the NSW Government is continuing its negotiations with the other partnerships. While the negotiation process has been lengthy, delivery of such a new product takes time. In addition to developing the first SBBs in Australia, the Joint Development Phase has allowed for new collaborations between the public and private sectors.
The activities in New South Wales have also been an important contribution to the national conversation in Australia around social enterprise. In June 2012, in response to recommendations made by a Senate Economics References Committee report,11 the Australian Government released a document describing where they see opportunity in the Committee’s recommendations. In response to the recommendation that government examine the plausibility of creating SIBs in partnership with state governments more broadly, the government stated it is “closely monitoring the social impact bond pilots in New South Wales. These pilots provide an opportunity to test the factors likely to be associated with successful social impact bonds in Australia”.12 Many governments throughout Australia are awaiting results in New South Wales to determine what role SBBs will have in supporting the non-profit and social enterprise sector.
Finally, the experience in New South Wales has informed future iterations of SIBs around the world. The lessons learned through the Joint Development Phase have guided subsequent requests for proposals and development processes in the United Kingdom and New Zealand. By exploring the various structural and risk-sharing options through the New South Wales process, it is now easier to identify a standard set of SIB components (such as areas of definition, measurement and accountability for results), which can significantly shorten what otherwise can be a lengthy negotiation process.
Policy Recommendations for Scaling Social Innovation
The Australian experience in New South Wales to adapt the SIB model provides several insights for policy-makers exploring ways to review and refine policy:
Strive for simplicity but recognize that often the “devil is in the details”
Many involved in the New South Wales process have stressed the importance of keeping the structures developed for SIBs/SBBs as simple as possible. As observed in the Joint Development Phase, however, negotiating the small details such as the percentage of risk each party is willing to take or the key metrics for success can take longer than originally anticipated. Reflecting on the need to be mindful of details, one participant at the Social Finance Forum stated, “Innovation has become one of those sexy terms…It’s about getting the small things right – that’s innovation.”
Set distinct milestones, continually creating opportunity for review
While the process in New South Wales has been prolonged, several milestones have provided the groups involved with opportunities to reflect and maintain momentum. For example, the Social Finance Forum set a fast-paced timeline for progress and provided an important opportunity to exchange ideas and discuss challenges. The materials resulting from the Forum also provide important resources for others to reference as they undertake their own activities to develop SIBs.
Acknowledge the risks associated with being the first
Anticipating the challenges that will be encountered when developing and establishing an entirely new idea is difficult. Short-term results may be disappointing because project infrastructure is not yet fully formed. In these developmental phases, recognize and manage the risk associated with these initial challenges.
Social Benefit Bonds On the Ground
Announced on 27 March 2013, the NSW Government signed a contract with UnitingCare Burnside for Australia’s first Social Benefit Bond. Funding from the SBB will help expand an already successful programme to support families with children in foster care and group homes. If the UnitingCare Burnside programme performs as expected, the NSW Government will reach approximately AUD 80 million (US$ 83 million) in reduced expenditures. When announcing the SBB, NSW Treasurer Mike Baird explained, “Not only are we tapping into a new source of funding by partnering with social investors, but we have the potential to create better social results, while providing cost savings for the NSW Government and delivering for investors.”
UnitingCare Burnside, in partnership with Social Ventures Australia which will attract and manage investors, was selected by the NSW Government through the Request for Proposals process. The two organizations worked with the NSW treasury to develop the final bond structure. The AUD 7 million SBB (US$ 7.3 million) provides financial terms (including a guarantee to return 75% of any given investment) intended to appeal to a broad array of private and institutional capital providers.13