This has been circulated by Kalbir Shukra as one of the possible issues to focus on at the next TAG event “What’s Not so Positive for Youth?” on Wednesday March 14th 12 noon- 5pm at Oasis College, 75 Westminster Bridge Road,London SE1.
What might the implications be for youth and community work in England?
Bang for the buck
By Ravi Chandiramani Tuesday, 07 February 2012
Social investment is set to become a growing source of finance for public projects. Ravi Chandiramani examines how it works, the principal challenges and how the children’s sector could reap the benefits
Investors want a ‘social return’ in the form of improved outcomes for young people. Image: Baseline on the Broads/Archant Norfolk
Social investment is very much in vogue. In this age of spending cuts and rising demand for services, it is emerging as a source of finance with the potential to address many of society’s deep-rooted problems.
But a number of studies caution that it is also the subject of much confusion; and many children’s sector organisations, whose purpose is to improve young lives, have precious little time or resource to get to grips with complex trends in the financial world.
So what, exactly, is social investment? Lighting the Touchpaper, a report by Boston Consulting Group and the Young Foundation, defines it as “the provision and use of finance to generate social and financial returns. It can be the provision of loans or direct equity investment”. Crucially, investors expect not only to recoup their financial outlay, but also to achieve a “social return” – such as through a programme of support demonstrably improving outcomes for young people at risk of offending. And social investment has to be repaid by the recipient; it is no substitute for grant funding or charitable donations and should never be regarded as such.
The think-tank New Philanthropy Capital has produced a guide to social investment for charities. Explaining how investments are repaid, it states: “Put simply, an investor provides a charity with capital in the form of social investment, which the charity might use to develop a new income stream or expand an existing one. This income stream covers the costs of generating the income in the first place and generates a surplus. The surplus is used to repay the investor the original capital and make interest payments.”
But the UK social investment market is in its infancy. According to the Boston Consulting report, it was worth £165m in 2010/11, a miniscule figure when set against the £35.5bn income of voluntary sector organisations.
The vast majority of social investments have thus far taken the form of loan agreements. Of the social investments that carry more risk, social impact bonds are the financial instrument attracting the most attention. This is despite the fact that such bonds themselves form a minuscule portion of the market, although they are beginning to be tested in some ambitious schemes targeted at young people and families.
With social impact bonds, service commissioners – usually central or local government – pay up according to the achievement of certain agreed outcomes and milestones, which are calculated to generate savings to the public purse. Social investors would reap the financial rewards of their investment meeting these social goals, but risk losing their investment if a programme they back fails to deliver the agreed outcomes.
Social Finance Ltd, which acts as an intermediary between investors and service providers, developed the first social impact bond to reduce reconviction rates of prisoners in Peterborough.
A spokeswoman for the organisation explains: “If longstanding social needs are to be better addressed in a difficult financial climate, it is critical to ensure that services are more focused on the social outcomes they seek to achieve and are given more flexibility in determining how to deliver these outcomes. Many social sector organisations could excel in meeting these challenges. But in the past, they have often been held back by a lack of capital and a commissioning focus on delivering activity rather than outcomes. Social impact bonds are a response to these challenges.”
In the Peterborough case, the St Giles Trust is contracted to provide intensive support to 3,000 short-term prisoners over a six-year period to reduce their likelihood of reoffending upon release, generating savings for the Ministry of Justice in the process. Investors will receive a share of the long-term savings if reconviction rates are cut by a minimum of 7.5 per cent.
Social Finance Ltd is now working on feasibility studies with local authorities in Essex, Liverpool, Manchester and Havering to explore the potential of social impact bonds to fund preventative services for adolescents on the edge of care.
Although currently small, the social investment market is set for major growth with the imminent arrival of Big Society Capital (formerly known as the Big Society Bank). According to its website, it “aims to develop a market for investment made on the basis of positive social impact as well as financial returns”.
Set up by the government, the organisation will contain an investment pot of around £600m – including an estimated £400m from the unclaimed assets of dormant bank accounts and £200m from the so-called “Merlin” big four UK high street banks. It is awaiting authorisation from the Financial Services Authority, but will be “open for business at the end of March”, says head of communications Alastair Ballantyne.
It will not fund programmes directly. Rather, it will be a “wholesaler” of capital, supporting organisations that invest in the wider social sector. During its embryonic phase, projects will be supported through a Big Society Investment Fund. This includes programmes in Merseyside and east London to help get vulnerable young people into training and employment. Ultimately, Big Society Capital aims to encourage diverse sources of funding, and Ballantyne confirms it wants to see the market develop to embrace more outcomes-based contracts as opposed to straightforward loans.
The growth of social investment will depend to a large degree on intermediary organisations. Their role is to identify appropriate investors and delivery organisations and bring them together; to devise specific investments; and to manage the performance of service providers who are delivering the intervention programmes.
As Ballantyne puts it: “In a normal investment market, you have investors and businesses that need investment. There is a whole global system and mechanism to introduce investors to investees. It is a massive undertaking to match people up.” The key actors in a social investment market are outlined in the diagram above.
So who are the actual investors? Toby Eccles, development director at Social Finance, says: “The investment community is either charitable foundations or high net worth individuals [who provide finance] through their own charitable foundations.” While it is natural for such groups to have a keener interest in social issues, he wants to “engage with a broader range of investors – to engage the mass affluent. Local people want to engage in improving services in their local area”.
Edward Hickman is director at A4e Insight, the consultancy arm of welfare-to-work provider A4e. It is advising four local authorities on establishing social impact bonds to finance intensive help for families with multiple problems. “The challenge for government is to attract more than the philanthropic capital,” he says, adding that traditional financial institutions often appear to be interested in getting involved at the initial stages of a project, but can be tough to pin down: “The financial community will never say ‘no’ at the beginning.”
One of the biggest challenges for service providers and commissioners in attracting investment is to show evidence of impact; in that sense, you are only as good as your data. But there is a broader debate about how you define that impact or “social return”. The Lighting the Touchpaper report argues that commissioners should focus not merely on “cashable savings” achieved by an intervention, but on its “value for money” unlike many of the existing initiatives.
“For example, when determining the price it is willing to pay for a reduction in reoffending, the Ministry of Justice considers the savings to its budget, such as those achieved by closing a prison, but not the savings to other government budgets such as reduced policing levels or, more broadly, the benefits to society of a reduction in crime.”
Moreover, a prescribed outcome might not necessarily be in the interests of some service recipients. Kate Fitch, senior policy analyst at the NSPCC, argues: “Success cannot be defined by cost saving alone, but should in part be looking at the impact on the service user’s wellbeing”. For example, a local authority might be diverting a child from care to save money, when in fact becoming looked after would have been a better option for the child.
Social investment requires an agreed timescale to achieve its returns. With early intervention programmes for children, the long delay between investment and returns could be problematic. Graham Allen MP, whose second independent report to the government on early intervention looked at the financing of such schemes, says: “The Peterborough example is wonderful, but we need thousands of such schemes. We need to measure outcomes for early intervention and be able to convert and monetise those outcomes to attract investors. We need to make this work even more now in straitened economic times.”
Allen recommended last year that the government set up an Early Intervention Foundation guided by the strongest possible evidence base, which would eventually connect investors, providers and funders. He says the Prime Minister gave the go-ahead to this last July, but that the Department for Education has yet to issue the necessary tender document.
He says: “There is a tiny minority in Whitehall whose motto is ‘mañana mañana’. The whole community in early intervention is exasperated and frustrated that we can’t get on and do this.” To staff the foundation, he reveals: “I am looking at an excellent experienced CEO and four or five red-hot analysts who can convert good evidence into a powerful case for investment.”
Allen has also called on the Treasury to introduce tax breaks and other incentives to encourage investors to back early intervention programmes. But despite government rhetoric, the early intervention grant to local authorities is smaller than the totality of the grants it replaced.
Youth charities, too, have been hit particularly hard by spending reductions, and many have been heavily reliant historically on project-based grant funding. The Young Foundation has been driving efforts to establish a “social investment retailer” to stimulate social investment in the youth sector in partnership with the Catalyst consortium, the government’s strategic partner on youth affairs.
Susanne Rauprich, chief executive of the National Council for Voluntary Youth Services, which leads the consortium, says the aim is to raise £5m for the social investment retailer; it will approach Big Society Capital, charitable foundations and philanthropists.
Collaborations and shared services
In a report that explores the potential of social investment in the youth sector, The Young Foundation has recommended that such a retailer should “seek out and support innovative organisations with potentially strong social impact”. It also calls on youth organisations to consider collaborations and shared services in order to attract investment.
But understanding social investment can be daunting, particularly for charities focused on immediate survival. And there are legal, audit and governance issues to consider.
With this in mind, Catalyst is running an “investment readiness” programme for youth charities consisting of online briefings; introductory seminars for trustees, directors and fundraisers; half-day workshops on individual aspects of investment readiness; and tailored support for organisations perceived to be six to 12 months away from investment.
However, Rauprich cautions: “We have a big problem in that social investment is meant to be the answer to all sorts of things. Expectations are being raised which capital funding can’t solve. It is about enabling organisations to consolidate and to grow.”
Indeed, social investment is not a panacea for society’s toughest problems. But one thing is for certain: it is set to grow significantly. It is up to social investors and service providers to embrace the concept, so much will depend on building bridges and forging connections between the two. Mistakes will undoubtedly be made, but the rewards for children, young people and families could be considerable. There is plenty at stake.
ACTORS IN THE SOCIAL INVESTMENT MARKET
They seek both social and financial returns. Government is currently the largest investor, but other investors include banks, trusts and individuals. Some social investors invest directly in frontline social ventures, but most make their investments via intermediaries.
Attract money from social investors and use it to make direct investments in frontline social ventures. They include organisations whose primary activity is social investment, as well as organisations for which social investment forms part of a wider portfolio of activity.
Frontline social ventures
Recipients of investment that they use to directly finance their operations rather than lending it on to anyone else. Social ventures include charities, co-operatives and social enterprises, and are the organisations that actually create the social and financial value.
They pay investors once returns are achieved. Commissioners are generally central and local government, but they also include philanthropic foundations or individuals.
The ultimate beneficiaries of the services provided and the social value created.
INVESTMENT PIONEERS: PROGRAMMES FOR YOUNG PEOPLE AND FAMILIES
Improving educational, training and employment outcomes for vulnerable young people in Merseyside
Greater Merseyside Connexions Partnership (GMCP) is spearheading a three-year programme to boost the educational and employment opportunities of 3,900 young people, many of whom will be young offenders, have learning disabilities, or be in or leaving care.
It will use a blend of interventions including one-to-one coaching to improve resilience to individuals. GMCP will deliver the programme in partnership with a small group of other local providers. It has joined forces with Triodos Bank to raise £2m to fund the programme in the form of a social impact bond. The programme is commissioned by the Department for Work and Pensions as part of its Innovation Fund.
The DWP will pay up to £4.5m based on the programme achieving outcomes such as improved school attendance and placing young people in jobs. Triodos is lead adviser on the deal and manages the scheme on behalf of investors. The Big Society Investment Fund contributed £500,000 of the £2m, with the remainder coming from a syndicate of undisclosed investors.
Support for young people at risk of becoming Neet in Shoreditch, east London
The Private Equity Foundation (PEF) is behind a programme to help young people who are most at risk of falling out of education, employment or training. The ThinkForward programme, delivered in partnership with the charity Tomorrow’s People, will see “progression coaches” provide sustained support to 14- to 19-year-olds across 15 schools for a five-year period.
A total of 950 young people will get a personal action plan and be introduced to workplace mentors. The programme is funded with £450,000 from the Private Equity Foundation, plus £450,000 from the Big Society Investment Fund, through a social impact bond. It has been commissioned by DWP as part of its Innovation Fund. DWP will pay up to £3.1m for a range of outcomes achieved for each year group including improved school behaviour, achievement of qualifications and entry into sustained employment (26 weeks).
Intensive help for families in Birmingham; Leicestershire; Hammersmith & Fulham; and Westminster
Four local authorities are preparing to pilot social impact bonds to fund intensive help for families blighted by multiple problems including antisocial behaviour, crime, addiction and poor education.
A4e Insight, the consultancy arm of the company A4e, has secured a £300,000 contract to investigate how the social impact bonds might work, help the councils design interventions and secure investors. However, the investors, providers, outcomes and timescales are yet to be confirmed. According to the government’s Office for Civil Society, up to £40m could be raised by the four social impact bond pilots.
Multi-systemic therapy for young people on the edge of care in Essex
Essex has been researching the feasibility of a social impact bond with Social Finance Ltd to help adolescents on the edge of care. It would involve multi-systemic therapy teams providing intensive treatment, taking into account their family, school, neighbourhood and friends.
“We are now working to further develop the social impact bond model with a view to deploying it subject to satisfactory development and full agreement,” says a council spokeswoman. Similar feasibility studies have taken place in Liverpool, Manchester and Havering.
Main article can be found at http://www.cypnow.co.uk/Management/article/1115731/Bang-buck/