Social Impact Bonds - Thinking Outside the Box

Sinéad Pentony: At a time when public and private investment is badly needed it’s important to think outside the box and look at different investment vehicles and the outcomes we want to achieve.

Investment tends to be equated with upgrading and improving our physical infrastructure - such as better roads, school buildings, health centres, and energy and communications infrastructure. Investment in human capital is also essential because economic growth in the 21st century is likely to be built on the exploitation of new knowledge and technology.

While investment in physical and human capital is essential for a sustainable and job-rich recovery, it’s important that investment which is ring-fenced for better social outcomes also forms part of the mix of investment. Social impact bonds (SIBs) have the potential to provide much needed investment in the areas of unemployment, health, housing, etc.

A SIB is a defined as “a contract with the public sector in which the public sector entity commits to pay when significant improvements in social outcomes for a defined population are achieved.” Private capital is raised to fund interventions that aim to deliver these improved social outcomes. Financial returns to investors are dependent on the degree to which these interventions improve the target social outcomes. If the interventions fail, the investors may lose their money. If the intervention succeeds, the public sector pays the investors a return financed from a share of the public sector benefit and/or exchequer savings made as a result of the improved social outcomes.

Further details on how the SIB works is provided by Clann Credo, which is a social investment fund and they have recently put out a call for ideas to identify social issues and interventions that may fit the criteria for SIBs in Ireland. The UK has taken the lead in this area and Social Finance, a non-profit organisation, launched the first SIB in 2010, to reduce re-offending among short-sentence offenders. Social Finance is developing SIBs across a number of other areas including children’s services, drug rehabilitation and health. SIBs are also being developed in the USA and Australia.

At a time when the community and voluntary sector has been decimated by cuts and our public services are being starved of investment, creative responses to financing initiatives that focus on social outcomes are more important than ever.

Guest post by Gerard Doyle and Tanya Lalor: Getting more bang for your buck

In this guest post, Gerard Doyle and Tanya Lalor of TSA Consultancy make the case for social enterprise to be part of any future stimulus programme.
For the past two years, economists and commentators have drawn attention to the urgency for a stimulus to re-invigorate the ailing Irish economy. With the exception of a small number of economists, this line of argument usually assumes that the private sector will be the only source of employment creation and should therefore be the focus of State resources.

Is this really the most effective use of limited resources?

We would argue that there are 65,000 reasons for including social enterprise in any future stimulus package - the Social Enterprise Task Force (The Social Enterprise Task Force (2010) ‘Adding Value Delivering Change – The Role of Social Enterprise in National Recovery’ Dublin) forecasts that 65,000 jobs could be created if the Government invested in a social enterprise strategy.

Social enterprises have a unique contribution to make because of a their differences to the private sector - the latter’s principle concern is with creating a return on investment for its shareholders, while social enterprise, in contrast, is motivated by a combination of social and economic objectives.

Social enterprises aim to enable communities to provide services that respond to community need; they are a mechanism for communities to have a greater level of control of their economic development; they provide employment and training opportunities for people out of work for a long time. These aims of social enterprises mean that they can serve as a catalyst for the economic regeneration of disadvantaged communities.

Because social enterprises are democratically controlled businesses, they do not wreak havoc on society - unlike the recent behaviour of our banks and many developers who have made woeful business decisions driven by greed. Indeed, social enterprises can play in important role in providing an example to private businesses that they have social as well as environmental responsibilities to society.

There are a number of sectors with particular employment potential for social enterprises.

For example, Ireland exports the bulk of its waste to Asia and mainland Europe for recycling and then purchases the recycled material back - this is crazy economics. If there was a change of mindset and waste was viewed as an asset, thousands of jobs could be generated. Waste could be handled by social enterprises already in existence, such as Sunflower recycling, which also provides training and a career path for long-term unemployed living in Dublin’s North Inner City.

Another sector is renewable energy. Ireland has some 6% of EU wind resources, and we are one of the richest countries in the world in terms of wind energy potential per capita. The renewable energy sector has the potential to generate thousands of jobs. One only has to look at Denmark to see the potential role social enterprise could play in providing employment an income for rural communities. Over 60% of Danish wind energy is generated by wind guilds - which are similar structures to cooperatives. There is no reason why this could not happen in Ireland - if social enterprises were to receive a contribution towards capital costs and increased prices for electricity supplied to the grid. Also, with a large dairy and beef industry, social enterprises could be formed in rural areas to generate energy from anaerobic digestion.

In urban communities, botched attempts at regeneration via public/private partnerships have left thousands of households living in substandard accommodation. Rather than repeating the same mistake by engaging in property developers, local authorities should support community organisations to become partners in the economic transformation of inner city areas. This is not a unique or alien concept - there are numerous examples of this approach being successful in the UK as well as North America - hardly bastions of alternative economics.

There has been a paralysis amongst policy makers when it comes to social enterprises - at a time when we appear to be bereft of ideas about where jobs may be created and sustained, surely the time has finally come for the potential of this sector to be acknowledged.