For the second year running, the Turnbull Government has provided funding for the growing ‘social impact investing’ market. Scott Morrison’s second and third budgets have now promised a total of $28.5 million over ten years for this emerging area of policy interest.
Here is the spending breakdown over the forward years of the budget:
As you can see, not all of the promised funding hits over the coming four years - $8.3 million is pushed into the ‘out years’ (aka the ‘Never Never’), while the bulk of the funding falls in the coming three financial years and for the trials themselves.
What’s the money for?
While there are bureaucrats perhaps asking themselves a similar question now, we can get an indication by looking at the language in the budget papers themselves. Budget Paper 2, 2017/18, said that ‘social impact investing’ “…is an innovative, outcomes-based approach … to deliver a range of social and environmental outcomes.”
The use of the word ‘outcomes’ in the above would seem to indicate a preference for the types of outcomes-based contracts of which Social Impact/Benefit Bonds form a major part here in Australia. That said, the Government’s ‘principles for social impact investing’ released early in 2017 also talk about ‘debt and equity financing’. Our assessment, however, is that the Government has a very limited appetite for and interest in getting involved in these existing capital markets.
Which leads us back to outcomes-based commissioning….
What about the ‘measurement’ bit?
You may remember the publication of the Government’s ‘principles for social impact investing’ early in 2017. The ‘impact framework’ will be developed to align with the principles. You can refresh yourself on the principles, here:
In other words, watch this space.
Budget Paper 2 – 2017/18: https://www.budget.gov.au/2017-18/content/bp2/html/
Budget Paper 2 – 2018/19: https://www.budget.gov.au/2018-19/content/bp2/index.html
Australian Government principles for social impact investing:
Social Impact Bonds (SIBs) are a powerful new tool to align the interests of social organisations, governments and investors around proven social impact. While this form of funding is still in its early stage, there are some principles that are emerging. It is clear that a SIB will not be appropriate for all social programs - the need for robust proof of impact attributed to the intervention, and the involvement of investors and multiple government departments makes SIBs complicated instruments.
We encourage social organisations to think about the future of outcomes-based funding for programs. With new SIB funding rounds opening up, social organisations are asking - do I have the right kind of program and support to be successful in applying for a SIB?
There are several key dimensions to consider before beginning your application for a SIB.
> A vision
What is it that you are trying to achieve and for whom? A SIB is a long, challenging process, so your senior management need to have a clear and unified vision of why you want to proceed. While this will help sustain you when the complexity is greatest it will also help you convince Government that your organisation – your intervention – is ready to be taken through this process.
> A clearly defined problem
SIBs allow you to create, fund, measure and adapt an existing or new service response to a specific health or social need and for a specific cohort of people. The organisation needs to be very clear about the target cohort for the program. Develop a view on why, where and how the existing sets of services are inadequate. Demonstrate (ideally with existing evidence) how your proposal will solve the problem. Ideally, you have an existing intervention that you wish to ‘scale’ through a SIB, although this is not essential.
> An ‘investable’ opportunity
Most SIBs work by paying upfront for an intervention that can be proved to reduce existing government costs, say in delivering health care or running prisons, or delivering intensive social services. They help prevention based solutions to get funded that might not otherwise have a clear pathway to sustainable funding. But they also need to attract investors, which may include the social organisation itself, philanthropy or other social investors. As a result, the financial case needs to stack up for these investors, and the risk profile needs to suit their investment strategy. Not all programs have the characteristics to appeal to investors, and not all social organisations are willing to take on the risk of having potential funding ‘at risk’ should the program fail to deliver its objectives.
> Organisational commitment
The typical stages of a SIB negotiation are:
1. Your application in response to a tender opportunity - this requires building a high level financial model and clarity on the outcomes you plan to deliver.
2. Successful shortlisting to the negotiation phase (also known as ‘Joint Development Phase’).
Each of these phases requires the right team and the right response. Latitude's approach is to work with you to make sure the budget is right for the stage – only spending what you need to at any particular time and getting the best value advisors in the process.
> Right mix of expertise
While you will need to draw upon in-house expertise to navigate the SIB application and negotiation process, SIBs require you to bring those skills together in different ways. They also stretch you to consider things that you will not have had to previously. So, you will need a guide – a Sherpa – to assist you to navigate the process (sometimes known as ‘intermediaries’). We can work with you to pick a team that meets your organisation’s, your intervention’s and your transaction’s specific needs, matching the need with the best possible advisor. We can also take into account any preferences you might have to use existing advisor relationships.
> Being proactive
In some parts of the SIB world service ‘commissioners’ (Government, typically) welcome unsolicited social and health outcomes-based bids for partnerships. We are not yet at that level of maturity here in Australia and so we need to wait until each State instigates a formal tender process.
Like all tender processes though, they are short, intensive and competitive and so you need to conclude and enunciate your plan quickly. This means that being prepared for a tender round is the best approach. We work with organisations year-round to help them plan for, and access, outcomes-based financing opportunities.
Contact us for assistance with a SIB application or design of an outcomes-based project.
Latitude Network was the advisor to Sacred Heart Mission in the negotiation for Victoria's first social impact bond announced in December 2017. The article below first appeared in Pro Bono News.
Sacred Heart Mission (SHM) will deliver the state’s first SIB with the Victorian government, expanding the welfare not for profit’s successful Journey To Social Inclusion Program (J2SI).The Victorian government allocated $1.2 million for a targeted program in March to end long-term homelessness following a pilot of J2SI, agreeing to contribute a third of the overall $3.69 million cost of the three year program.
A SIB is a partnership with government, the social services sector and investors to create positive change for communities and individuals and has been used worldwide to address complex social issues. SHM said unlike traditional SIB capital raising, a portion of the funds would be sought from philanthropy. SHM general manager of business, Catherine Harris told Pro Bono News that the SIB was “departing from the standard capital raising process”.
“So we are going out to philanthropists over the next three months to see what we can do to raise guarantees,” Harris said. "Whatever we don’t raise from guarantees, we will look to a traditional bond raise [to meet the shortfall]. The focus for us for the next three months after Christmas is going to be seeking guarantees.” She said the partners went down the non-traditional path because SHM had “a real commitment to ensuring that we can invest back into homelessness, so we are looking to seek guarantees to keep the cost of the transactions as reasonable as possible… We want to put as much money as we can into the intervention”.
A recent SHM study showed 75 per cent of J2SI participants remained in stable housing after four years, 80 per cent had seen a decline in the need for health services and the study offered savings to government of up to $32,080 per participant. “We ran the pilot and we had great social outcomes from that and we are running a second version of it now and we are seeing really good results and really promising results coming out of it. There is a significant amount of demand for an approach to addressing chronic homelessness and J2SI seems to be working the second time round,” Harris said.
“We are quite confident it will continue to work. It just unlocks a kind of innovative approach to resolving social issues. If it wasn’t for the social impact bond we wouldn’t be able to run this program again.” SHM CEO Cathy Humphrey said confirming the next stage of the J2SI vision, would “increase the mission’s capacity to make a real impact by significantly contributing to ending chronic homelessness in Melbourne”. “SHM has been developing, piloting, modifying, evaluating and scaling J2SI for over 10 years,” Humphrey said.
“This has been achieved through extensive research by SHM and others on the causes and consequences of long-term homelessness, and the rigorous testing of the J2SI intervention though randomised control trials to ensure people can escape the cycle of chronic homelessness.”
SHM said it expected service delivery to commence in August 2018 for 180 participants (60 per year for three years), who will each receive support for three years. Under the SIB structure SHM and investors would receive payments from government if specific outcomes were achieved, which were evaluated throughout the intervention. Humphrey said the project was “delivered using a trauma-informed model with intensive support including helping to build skills for pathways to employment, training, education and volunteering, and ultimately fostering independence”. “Housing has been negotiated as part of the service delivery and will be provided through head leasing arrangements with housing providers,” she said.
Minister for Housing and Disability Martin Foley said: “Sacred Heart Mission has been working on an innovative way to tackle homelessness in St Kilda and we look forward to helping them expand this project.”
A lead external advisor to SHM, Russ Wood from Latitude Network told Pro Bono News: “One of the interesting things about Sacred Heart’s approach here is that they haven’t gone with a full suite of service consultancy. “They have used advisors for the key strategic negotiations, realising some internal resources for the financial modelling and then some external [advice] for the capital raising,” Wood said.
“This could be a future direction that SIBs might be taking, where service providers start to build capacity in-house around some or all of the skills and capabilities that are needed. My personal view is hopefully they do because I think we will need more of these ‘outcomes’ approaches.The more service providers can take these things on and require less external involvement the better.”
Wood said the process was reasonably intense. “My perspective, as an intermediary here, is that the fact that they were negotiating based on an intervention, the J2SI model that they had developed over 10 years, [and] because they were very clear about their own mission, they were able then to be in negotiations [and be] very clear about what they could and couldn’t do, and would and wouldn’t do,” Wood said.
“Having researched SIBs overseas, my sense is that service providers that are negotiating based on existing interventions are going to have a head start against those organisations that start with an idea or a concept. It makes intuitive sense really.”
Australia’s first social impact bond, the Uniting Newpin Social Benefit Bond (SBB), recorded positive growth for the fourth year in a row in 2017, with more than 200 children returned to family care, while 55 families were prevented from having their children enter the out-of-home care system. The Newpin SBB was a financial partnership between the NSW government, Uniting, and Social Ventures Australia (SVA), which “works with parents to create safe and nurturing family environments so children can be restored from out-of-home care, or prevented from entering care in the first place”.
SVA raised $7 million of capital to first fund the SBB in 2013, which allowed for the maintenance and expansion of Uniting’s Newpin Program.
In March 2017, South Australia’s first social impact bond, also targeting homelessness, raised $9 million in less than a month from its launch. The Aspire bond, a partnership between SVA, the South Australian government, and not-for-profit organisations Hutt St Centre and Common Ground Adelaide, supports up to 600 people experiencing homelessness
Latitude Network is excited to announce that we are supporting Sacred Heart Mission in negotiating one of Victoria’s first Social Impact Bonds (SIBs). Sacred Heart Mission was one of two organisations successful in applying to the Victorian Government to enter negotiations to conclude SIB contracts this year based on expanding its Journey to Social Inclusion program, which is setting a new benchmark for addressing long-term homelessness in Australia.
Social Impact Bonds are being explored by commissioning agencies around the world in an attempt to find more effective ways of funding social and health services. SIBs (also known as ‘Pay For Success’ or ‘Payment by Results’ contracts) are part of an emerging set of funding mechanisms which aim to pay for service outcomes instead of service outputs – something the Productivity Commission discussed in depth in its recent report into competition, contestability and informed user choice.
Russ Wood is leading this work for Latitude, and is acting as strategic adviser and project manager through the ‘Joint Development Phase’ of the SIB which is expected to run until the end of 2017.
If your organisation is interested in exploring which programs might be suitable for outcomes-based commissioning such as Social Impact Bonds, then let us know - we'd be happy to share our learning. Just email us.
Should social organisations pursue growth, and if they do, how should they do it?, asks Dale Renner. (First published Pro Bono News 13 June 2017)
“Growth” can be a controversial word in the social sector. Social service leaders sometimes say “our job is eventually to go out of business”, implying that in some unspecified way, social problems will be solved and will remove demand for assistance. Yet, as the sector moves from grant-based to individualised funding, it becomes important to have a view on what growth means to social services organisations.
The ethical case for growth
Growth in this context doesn’t mean growing the amount of money spent on social programs in the aggregate. The focus is on growth at the program, or possibly organisation, level.
To understand the case for growth, agreement is first needed on what outcomes the community desires – many are obvious such as reducing crime, family violence, homelessness and Indigenous disadvantage. It is also important to understand what programs are proven to achieve that outcome for a certain cohort of people (noting there are levels of proof from anecdote through to randomised controlled trial). Growing the reach of those proven programs to benefit a greater number of people is surely an ethical pursuit as it reduces human suffering and harm. So at first blush, if a program is successful, for example, in helping to improve universal child literacy, it has a prima facie case for growth.
The Prime Minister, Malcolm Turnbull, had some advice for CEOs attending the Business Council of Australia dinner recently: “You’ve got to ensure that you’re always testing existing practices… the old phrase ‘not invented here, we’ve always done it that way’ is disastrous”.
And we might add this addendum to that quote: “We also have to bust the myth that only large organisations or special or creative people can innovate.”
This is sage advice, not only for corporate CEOs, but for CEOs of social service organisations. Large parts of the sector are moving from the ‘block funded’ process of winning multi-year funding contracts to the ‘consumer-directed’ process of winning each customer.
In many ways, the transition to consumer-directed funding for the aged care, disability and community mental health sectors is demanding more change, more quickly than commercial businesses usually face. For example, energy and mining companies have known for years that governments would eventually take action on climate change — this is not a surprise, it is a factor that any strategic planner would have had in their sights at least ten years ago.