Social impact bonds: What’s the secret sauce to making them work and are they worth the effort?

Uniting NSW and ACT launched its second bond this week. Deputy CEO Doug Taylor shares the inside story from the perspective of a practitioner organisation.

This week we achieved two significant innovations. Firstly, we opened Foyer Central in Sydney’s inner city. This program will provide much needed housing, employment and educational support to young people who are transitioning out of state care.

This is critical because half of the 1,000-young people who leave care every year experience homelessness, unemployment or incarceration in their first year. The outcome we are working towards is to provide these young people with opportunities to develop confidence, skills and connectedness, so that they can thrive independently.

This exciting initiative builds on the work of many other Foyers domestically and internationally. It’s the result of a great collaboration with Social Ventures Australia and St George Community Housing, with the support of the NSW Department of Communities and Justice and the Office of Social Investment. I’m proud to say this is the only purpose-built Foyer in NSW and the first time a Foyer, anywhere in the world, will be supported by a social impact bond (SIB) and completely focused on care leavers.  

Our second innovation is securing our second SIB – a first in the Australian not-for-profit sector. The original SIB for Uniting, and the second in the world, was for Newpin, a therapeutic program that restored 391 parents to their children and has now matured to a payment by results (PBR)  contract. This has since been replicated in Queensland and South Australia by other Uniting Church agencies. 

All of this means the team at Uniting has learnt a few things about what it takes to get a SIB up from a practitioner organisation perspective, as well as some insights into their “on balance” merit. 

So, what’s the secret sauce?

The four ingredients for the secret sauce below have been identified by my colleagues with years of experience with SIBs. We also note the insights previously shared by former colleagues who made significant contributions and since moved onto new opportunities. 

The first ingredient is the quality of the initiative itself. If you don’t have a proposition that stacks up to the unique requirements of a SIB, it’s just not worth trying. In both instances our SIBs had measurable outcomes, data to support a counterfactual (or equivalent empirical evidence), meaning we can demonstrate clear savings to government that are aligned to the policy priorities of the day. In many ways, the whole endeavour begins and ends with this. The challenge throughout the whole process is ensuring that you keep the voice of the people you are supporting at the centre of everything. 

Our second ingredient is deep organisational capacity and capability. This work invariably takes a long time. Foyer Central took seven years, which means that we needed deep capacity to support the work with the invariable turnover of key people. It also means that you need a high level of expertise in practice, policy, outcomes measurement and economic modelling. Don’t fool yourself – this costs serious money and leadership backing right up to your board. It also required us to strengthen our approach to innovation and increase our appetite for risk. 

Thirdly, in the secret sauce, you need a genuine ability to work in partnerships. Every bond I have seen has been a rollercoaster of hope and despair with a dose of conflict and near deal breakers. This is because the work itself is incredibly difficult and for the model to work, also means you are working across not-for-profit, government and private sectors. Keep in mind that each of these organisations and sectors have very different cultures which requires leaders who can think from the perspective of the other party and build trust.

The final ingredient is luck. We’d like to put it all down to our expertise but acknowledge that, as is so often the case with these opportunities, they come down to the stars aligning with the right combination of people and timing for policy. So, we need to focus on the people as best we can and remember that sometimes policy ideas just have their day. This means initiatives that have not progressed may well get up with different circumstances, so don’t give up! But of course, as every entrepreneur will tell you, you also make your luck (or as one of my colleagues says, you make the magic happen).  

Are SIBs worth the work?

Good question; it depends on what the benefits are, versus the alternative courses of action. 

For Uniting, we have seen several benefits from developing a SIB. The obvious and most important starting point is the impact on people’s lives, followed by the savings for government and the opportunities for further investment this creates. Additionally, we have seen other benefits for our work, like a more rigorous approach to measuring outcomes and rigorous practice, greater transparency, stronger internal collaboration and engagement with funders, the opportunity to prove up developing innovations, as well as access to new data from government. These benefits need to be weighed up against the serious amount of time and resources to develop and implement a SIB. Another point to consider is that we haven’t yet seen an Australian SIB achieve serious scale and tap into the significant institutional wealth. 

So maybe the answer is a qualified yes, depending on your organisation and program but also compared to the other (often scarce) funding options. In short there’s a lot of talk about the benefits of government shifting to a payment by results contract because of the focus on outcomes. This is certainly the case and much less complicated for practitioner organisations, but for government, a SIB is a way to share some risk through the modest investment of the private sector. Read more about this interesting debate through Elyse Sainty’s blog, where she shares some useful insights from the work of SVA.  

So, there are some insights from Uniting’s work with SIBs and some observations about their on-balance value. Ultimately though, a SIB is just a means. The end is the opportunity to make a real difference in the lives of people who in the lottery of life have had the odds stacked against them.