What is a Social Impact Bond? (SIB)?
A social impact bond (SIB) is a contract with the public sector or governing authority, whereby it pays for better social outcomes in certain areas and passes on part of the savings achieved to investors. A social impact bond is not a bond, per se, since repayment and return on investment (ROI) are contingent upon the achievement of desired social outcomes. If the objectives are not achieved, investors receive neither a return nor repayment of principal.
SIBs derive their name from the fact that their investors are typically those who are interested in not just the financial return on their investment, but also in its social impact.
What are (5) reasons for the government to issue those SIBs?
- Private sector has more resources
- It is difficult for the government to otherwise ‘get this project through’
- Collaboration: Communication with government & private sector
- Prevention: better prevent it from happening
- Innovation: Allowing investors to take the risk –> Experiment & try new things
Which 3 actors are a must and which 2 are an option?
Must:
1. Commissioner (in example: Ministry of Justice): identifies the social issue, what are the KPI’s?
2. Investors: banks / funds / philantrophic organisations. Provide upfront payment & expertise & experience
3. Service providers (in example: YMCA): Do delivery of the work (volunteers for prisoners f.e.)
Option:
4. Independent assesor: neutral body, what are the expected outcomes?
5. Convening actor: operates between them, such as consultants
Explain in simple words the meaning of input, output and outcome.
input = intervention providers
output = the product from the activity (f.e. families go to service)
outcome = changes that occur (f.e. because they attended the service)
What is an important difference of an SLB and SIB?
with a SLB the risk is for the governance, with a SIB the risk is for the investor. (Professor is skeptical about the SIB, also because of this)
Name the 5 aspects of Evaluation from the article of Social Finance & CIFF (2016).
- Availability of historical data (high risk = no baseline of data)
- Dependence of outcome on external events (high risk = highly dependent on external circumstances)
- strength evidence (causality)
- Scale, small = harder to measure than large scale
- Duration of impact bond, long (5 years) = harder than short (1-2 years)
What is Deadweight?
Would have happened anyway regardless of service (= counterfactual)
What is Leakage / Spillover?
When you are f.e. testing 2 communities next to each other (1 of them is control), but the community that gets a task (f.e. replanting trees), and it might leak to the control community. So measurement = not precise.
What is Displacement / Substitution?
Opposite of leaking: f.e. chopping down trees in another area (because they can’t do it in their own village anymore because of the study). Still no impact.
What is Attribution?
What did YOU do with the project? (not sure but think: what is the impact you made?)
What is Drop Off?
Maybe after 2 years there is no impact anymore, the people of community go away / forget. Impact = less overtime.
What are criticism for SIBs?
Ideological criticism: SIBs are financialising public services, they are an expression of the neo-liberal agenda which involves retrenchment of the state and are subordinating public policy-making and voluntary sector endevours to profit-seeking.
▪The evaluations of SIBs thus far, concentrate on the effect of the intervation rather than the extra efficiancy added by the particular SIB commissioning strategy.
▪SIBs can be complicated to establish, and require commitment and capacity to set up.
What do you know about SLBs (Sustainability Linked Bonds)?
A new sustainable financing instrument for corporations
(first one issued in 2018)
▪ SLBs do not determine the use of proceeds unlike green bonds.
▪ Only two parties involved: firms and investors.
▪ Recent research finds:sustainability premium, ‘free lunch’ -> signalling device for issuers.
Name the 3 metrics we used in the workshop to evaluate investing options
- Impact Reporting & Investment Standards (IRIS): Comparative across many sectors, aligned with many other global standards, large library of metrics to choose to track social, environmental and financial goals. Most complete, better for providing standardised framework to compare projects. Harder to impact wash. CON: Lack of monetisation
- Social Return on Investment (SROI): Intuitive –nice metric to be able to tell a story and easier for investors to understand, comprehensive, can attribute value to social and environmental factors which allow for better financial analysis. Output applies to multiple enterprise and business types. CON: Difficult to compare companies/projects in different sectors, subjective process to decide monetary value, harder to implement and time consuming.
- B-Corporation certification: Good reputation, well-rounded, signalling which helps solve agency problems through certification. Takes a good overview of all stakeholders, allows you to compare against other business and provides assessment of where to improve. CONS: Self-assessed. Looking at the overall label doesn’t give insight to decision criteria. Time intensive application process, smaller companies may not have the capacity to become certified.
