The 10-point plan to grow social impact investing in NSW

By David Donaldson

February 4, 2015

The New South Wales government on Wednesday made a commitment to take 10 actions to increase social impact investing in the state with the launch of its new policy.

The policy builds on the two social benefit bond trials — a form of outcome-focused public private partnership — implemented in 2013.

Under the social benefit bond model, trialled by UnitingCare Burnside and the Benevolent Society in NSW, private investors provide funds to service providers to deliver improved social outcomes. If agreed goals are reached — for example, reduced recidivism or fewer children going into out-of-home care — the government pays back a return on top of the amount invested.

NSW’s plan aims to deliver more social impact investment transaction, grow the market and remove barriers to investment and build the capacity of market participants.

It commits the government to bringing to market two transactions per year. This will not be limited to social benefit bonds, and can also include “other investment models that involve risk sharing among participants”.

The policy will also see NSW publishing a standardised set of government expectations in social impact transactions. The government says this will “help drive capacity, scale and diversification” and create a set of standards in the emerging field.

The first “statement of opportunities” was also released today, identifying managing chronic health conditions, supporting offenders on parole to reduce levels of re-offending among the current priority areas. The statement:

“… is designed to guide market soundings on the next NSW social impact investment transactions and to help interested parties prepare for a formal Request for Proposals (RFP) process later this year.”

The policy paper acknowledges there are barriers to expanding social impact investing, including a lack of quality data to evaluate outcomes, limited proven models to build investor confidence and economy of scale issues. The government plans to:

“… establish a program to make the benchmark costs of key policy areas publicly available via a public database [and] develop a framework of social outcomes that are sought and how they will be measured.”

It’s hoped that publishing more information about government standards will make expectations clearer in the area of shared risk, a subject of perennial problem for government dealing with public-private partnerships. If there is little risk involved, such initiatives end up being an expensive means of delivering policy. If too much risk is placed on private interests, it will become difficult for government to create partnerships in the first place.

There are also plans to hold a series of roundtables and other measures to increase knowledge and readiness among stakeholders of the social impact investment market.

To help bring the policy into being, the government has created an Office of Social Impact Investment as a joint initiative of the NSW Department of Premier and Cabinet and the state Treasury. The unit will be supervised by an interagency steering committee and will guided by experts with relevant experience.

An Expert Advice Exchange has also been launched “to connect interested non-profits and social enterprises with pro bono expert advice from professional services firms”.

The government has reportedly received commitments from law firms for 700 hours of pro bono work related to social impact investing.

The first-year evaluation report on NSW’s two trial social benefit bond programs found they were hitting social outcome targets and delivered a return of 7.5% to investors.

The Newpin bond, a $7 million pilot program run by UnitingCare, aims to create safe family environments to restore children from out-of-home care back to their family, or prevent them from entering care in the first place. It does this by funding an intensive 12- to 18-month course for parents, with strong outcome targets and performance measures guiding returns to investors in the program.

The other trial, run by the Benevolent Society, is a $10 million bond operating over five years to fund intensive work with up to 400 at-risk families to “deal with issues such as stable housing, debt problems, regular income, domestic violence, substance misuse and improved family functioning and relationships.”

Claerwen Little, director of UnitingCare’s Children, Young People and Families program, told The Mandarin in July that currently demand for social benefit investing outweighs supply:

“There’s this pool of money and there aren’t the proposals for it. We need to understand what the market is and what are the public policy spaces for it. I think there’s definitely a market where people are looking at a combination of market and social returns.”

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