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

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

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  European Investment Bank ThePotential for Social Impact Bonds to Attract Investors in the Delivery of Social Services New Products and Special Transactions Department June 2012 European Investment Bank 1 1
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  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. European Investment Bank 2 2
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  Potential Payment byResults 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 European Investment Bank 3 3
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  Existing UK HousingExamples • 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 European Investment Bank 4 4
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  Payment by resultsinvestment model ESF Other investors resources (public or private) Fund of Funds Government Make payment invest for results (national, regional SIFIs SIFIs or local) Social enterprises Deliver results/impact - providing local training, job creation, housing, care, etc European Investment Bank 5 5
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  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. European Investment Bank 6 6
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  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 European Investment Bank 7 7
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  Why combine withthe 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. European Investment Bank 8 8
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  Using ESF inSocial 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 European Investment Bank 9 9
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  Social impact investmentmodel ESF Other investors ERDF resources (public or private) resources Larger Fund of Funds institutional investors Government Make payment invest for results (national, regional SIFIs Housing or local) providers New housing as well as Social enterprises improving energy efficiency Deliver results/impact - providing local of existing housing training, job creation, housing, care, etc European Investment Bank 10 10 10
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  In summary • Potentialto 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 European Investment Bank 11 11 11
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  Contact New Products and Special Transactions JESSICA and Investment Funds division European Investment Bank 98-100 Bvd Konrad Adenauer, L-2950 Luxembourg www.eib.org Frank Lee Head of Holding Funds and Advisory, Northern Europe Tel: +352 43 79 83062 Mob: + 352 621 459 249 [email protected] European Investment Bank 12 12 12