The Potential for Social Impact Bonds to Attract Investors in the Delivery of Social Services

111European Investment BankEuropean Investment Bank 1

European Investment Bank

The Potential for Social Impact Bonds to Attract Investors in the Delivery of Social

Services

New Products and Special Transactions Department

June 2012


Background

• EIB currently manages 19 JESSICA funds across Europe, these are ERDF funded, with investment predominantly focused on physical interventions in urban areas

• JESSICA involves the use of ERDF and national match funding to provide debt, equity and guarantee investments in urban development projects.

• The nature of the investment, should enable projects to repay investment, creating revolving and financially sustainable regeneration funds.

• There is scope augment socio economic impact by combining and integrating ESF in urban investment strategies

• This would also support the concept of integrated urban development, where investment should be functional urban area focused and holistic in terms of physical, economic and social investment.


Potential Payment by Results Programmes

• Local level training and employability programmes linked to capital works proposed

• Early pre-employment ready intervention programmes, that would benefit from a localised approach and knowledge and locally dedicated service providers, could include services to support:• Drug Users• Homeless• Troubled Families

• Baseline and performance monitoring and measurement metrics are critical to the overall payment by results model

• If the interventions are successful the payment received from Government/Municipalities can be used to repay investors and/or be recycled to be used again for further intervention


Existing UK Housing Examples

• Broadway Property Fund – Broadway is a London based Homeless charity which has recently launched a new fund, which:• aims to address the shortage in available social housing for homeless

people by purchasing properties in bulk from developers and landlords• is managed by a financial intermediary and comprises a range of private

investors with social objectives – envisaging a 5% return on investment• The Social Enterprise arm of Broadway, guarantees rental income to the

Fund and provides management and maintenance support to tenants

• Impact Housing, Cumbria which:• is using ERDF grant to undertake external wall insulation programmes• alongside the Greenways to Work ESF programme which is:

• providing on site training and accreditation to construction workers• providing full time college training courses for residents on external works,

timed so that residents will be trained in time for the next phase of the capital programme


Payment by results investment model

ESF resources

Social enterprises - providing local training, job creation, housing, care, etc

SIFIs

Fund of Funds

Government (national, regional or local) SIFIs

Other investors (public or private)

investMake payment for results

Deliver results/impact


Social Impact Bonds

• Social impact investment is still in its infancy, but nevertheless has sparked huge interest in countries like the UK and US

• The social impact approach aims to improve social outcomes at reduced tax payer’s expense, transfer performance-based risk from governments to investors, and reward higher-performing non profit social enterprises with long term growth capital to scale proven innovations

• Social impact bonds raise private investment capital to fund prevention and early intervention programs that reduce the need for more expensive “crisis” responses

• These innovative financial instruments need public ‘’seed’’ funding to prove concept, develop track record and eventually mainstream in the capital markets.


Existing UK examples

• The UK government (DWP) recently launched its ‘’work programme’’ which includes the use of ‘’payment-by-results’’ model

• Social Finance plc launched first social impact bond in 2010, targeting repeat offenders in the UK criminal justice system.

• Allia has issued numerous bonds, investing to “guarantee” capital with interest provided as grant to charities and other social enterprises

• Big Society Capital was recently created to grow a sustainable social investment market in the UK. It does this by investing in social investment finance intermediaries (SIFIs), developing their capacity to provide social sector organisations with access to new, appropriate and affordable sources of finance to increase their social impact


Why combine with the affordable housing sector ?

• In old Member States at least, social housing sector represents a regulated and well organised grouping. They are generally area focused, with a primary interest in social impact. • In New Member States, housing associations in various forms are

also being formed, and ESF/ERDF resources could be used to accelerate the development of this sector.• Social businesses are often local in their focus and the

involvement of an intermediary who has extensive knowledge and experience of operating in a certain location, should enable a more holistic approach to neighbourhood development proposals. • Allows for significant leverage of EIB and institutional

investment, particularly in complementary social infrastructure – social enterprises often too small to attract significant investment in isolation.


Using ESF in Social Impact Bonds

• The draft regulations for the 2014-2020 structural funds programme, place much greater focus on the use of financial instruments – incentivised by 10% extra EU co-financing

• Potential to use ESF in social impact bond investment approaches and as a new form of financial instrument

• ESF could be used to share or reduce the risk profile of potential private sector investors – with the aim of increasing private investment in the social impact market

• Targeting the policy areas and service providers that are not able to access the required level of funding from commercial sources to add maximum value

• Potential to combine physical investment by affordable housing providers with investment in complementary social and community enterprises through deploying both ERDF and ESF resources


Social impact investment model

ESF resources

Social enterprises - providing local training, job creation, housing, care, etc

Fund of Funds

Government (national, regional or local) SIFIs

Other investors (public or private)

investMake payment for results

Deliver results/impact

ERDF resources

Larger institutional

investors

Housing providers

New housing as well as improving energy efficiency of existing housing


In summary

• Potential to combine social enterprise investment with larger capital funding used for the construction and renovation of affordable housing.

• ERDF and ESF funding can be used to pilot/catalyse this investment model, to prove track record and attract institutional investors.

• ERDF can be used to incentivise the uptake of energy efficiency and renewable energy interventions by affordable housing owners – either by way of grant or preferential funding terms.

• Some or all of the interest yield on such investment can be ‘’put at risk’’ to support social enterprises involved in payment-by-results programmes, either directly related to the housing capital works or linked to wider community strategies.

• ESF can be used to either:• - support public authorities who need to make payments at the end of social

service contracts• - co-invest in the ‘at risk’ investment made into social enterprise activities• - top up/augment the yield paid to institutional investors


Contact

New Products and Special Transactions

JESSICA and Investment Funds divisionEuropean Investment Bank

98-100 Bvd Konrad Adenauer, L-2950 Luxembourg

www.eib.org

Frank LeeHead of Holding Funds and Advisory,

Northern EuropeTel: +352 43 79 83062

Mob: + 352 621 459 [email protected]

The Potential for Social Impact Bonds to Attract Investors in the Delivery of Social Services

Investor Relations

Transcript of The Potential for Social Impact Bonds to Attract Investors in the Delivery of Social Services