Sitra and Impact Investing, especially SIBs in Finland Mika Pyykkö, Project Director Impact Investing

5 key facts about Sitra +1 Building our future together A gift from Parliament to the 50-year-old Finland. An independent foresight agency: futurologist, researcher, visionary, developer, experimentalist, partner, trainer, networker. Funded by returns on endowment capital and capital investments. Envisages Finland as a successful pioneer in sustainable well-being. Its vision is supported by three themes, six focus areas and dozens of projects.

Key facts about Sitra’s Endowment Capital Government contributions to the Endowment 16,8 m€ 16,8 m€ (Nokia) Total 84,1 m€ Key facts about Sitra’s Endowment Capital Market Value 807 m€ (31.12.2016) Book value of investment 661 m€ (balance sheet) Endowment 235 m€ (balance sheet ) Has to be invested ”profitably and securely” (Law on Sitra 4§) Returns are used to finance Sitra’s operations (~ 30 m€ annually) Investment guidelines Listed Equity (40 - 60%) Fixed Income (30 - 50%) Alternatives (Real Estate, Private Equity) (0 - 20%) Average returns : 20 years 7,8% p.a. 15 years 3,9% p.a. 10 years 4,3% p.a. 5 years 8,9% p.a.

Sitra promoting systemic change FUNCTIONS & THEMES PROJECTS ACTIONS Circular economy Resource-wise citizen RESOURCE-WISE AND CARBON-NEUTRAL SOCIETY Research Trial Pilot Workshop Training Fund Events Foresight Call for ideas Study Strategy Challenge competition Networking Social and healthcare financing Health tools Digital Health HUB CAPACITY FOR RENEWAL NEW WORKING LIFE AND SUSTAINABLE ECONOMY Transformation of work Impact investing Leadership training for sustainable economic policy SOCIETAL TRAINING CONTINUOUS Ratkaisu 100 challenge prize Renewal of state cultural grants Public-sector management FORESIGHT Education for a changing world Vision for sustainable well-being Development of new business ecosystems Megatrends CONTINUOUS

Investing with impact Impact ventures Social Impact Bond (equity...) Social Impact Bond Social enterprises (loan...) Picture from: Investing for Impact: Case Studies across Asset Classes (2010) Bridges Ventures and the Parthenon Group

Sitra and impact investing Impact investing focus area from May 2014 till December 2017 Focus on well-being promotion Impact goals Active impact investing ecosystem Impact investing model (financing instruments etc) in use in Finland Impact investing assistance unit 2018-2019

Why Social Impact Bond (SIB)? In fact not a bond, but “a result based funding agreement” Payment by results -> tax payers money in useful use by support of private capital Upfront investments to well-being and health -> promotion and prevention Foresight -> sustainable well-being Date driven management -> facts, not personal opinion and/or hype Person/ population group in focus -> segmentation, structures and processes for outcome/impact Service design -> co-operation/coalitions

Mid term review of Prime Minister Sipilä’s Government (April 2017) …An impact investing project (Employment SIB) will be launched to employ young people and long-term unemployed jobseekers, and private funding will be used to prevent long-term unemployment…

The economic and operational model underpinning SIB work Determine demand and define target group (preliminary) = segmentation Verify the development of the effect, costs thereof during the past 2-5 years and future trends = compare change in well-being of target demographic group against demand Verify causes for cost development Define root causes for cost development and opportunities to prevent these = customer orientation, insight Define the target results (social and economic) = clear (behavioural) goals Define the activities necessary to affect root causes (service/operational package) = theory, methods mix Select organization(s) to implement service package  Calculate the net execution costs for the service package Conduct a cost-benefit analysis: achievable benefits vs. required investment Final decision on establishing SIB program planning etc.

The economic and operational model underpinning SIB work – economic perspective With intervention Estimate without intervention

Measurement of SIB project – based on modeling Indicators Result/impact metrics for agreement (when money moves) Metrics to lead practical activities (optimising the use of resources) Process metrics (quality of outputs and process) Other metrics (based on interest of public sector as a bonus payer, investors and/or some other stake holders)

Finnish SIB – basic structure

SIB II: Fast employment and integration of immigrants (Koto-SIB) Speed up employment of immigrants, pilot new models of education and employment and combine education and work in a flexible way Objective Commissioner The Ministry of Economic Affairs and Employment Status; has started officially in the beginning of 2017 Epiqus as a Fund/Project Manager is especially in charge of Planning and managing the project Building up the financial instrument = fund (limited partnership) Fund raising and managing the fund Organising according to the impact goals of the project education and employment activities of immigrants in co-operation with different service providers Follow up, interim reporting and the final reporting

Epiqus/Koto-SIB ecosystem Personnel service providers Educational service providers Employers Benefited by managing services Thousands of identified workplaces Managing

Koto-SIB intervention process

Koto-SIB impact indicators Labour market benefit Income tax -> starting point expectation: labour market benefits are paid less to immigrants involved to Koto-SIB and they pay more taxes than immigrants not involved to Koto-SIB -> goverment pays as a bonus to the fund 50 % - of saved labour market benefits - of added tax income -> best possible scenario based on modelling: goverment can save EUR 70 million during 3 + 3 years period; reality about EUR 35-40 million

Koto-SIB – lessons learnt Program/ Fund Manager and The Ministry of Economic Affairs and Employment as a commissioner have to co-operate close enough Local employment agencies play an important role Cultural understanding is important Training etc activities have to be based on needs of labor market /companies Incentive structure has started to change whole business area

Estimation of SIB portfolio by the end of 2017 – altogether 6 (+ 1) different fund process in Finland SIB Status Occupational Well-Being project (public sector organizations as an employer) Up and running since 2015 (Epiqus as a Program/ Fund Manager); the fund about EUR 0,6 million Fast employment and integration of immigrants project (The Ministry of Economic Affairs and Employment) Has started in January 2017, inofficially in October 2016 (Epiqus) ; the fund about EUR 14 million Promotion of Children’s, families’ and youth’s well-being (regions/municipalities) To start (FIM in co-operation with Central Union for Child Welfare and Epiqus) Advancing employment (The Ministry of Economic Affairs and Employment) Procurement process for choosing the Fund / Program Manager (one organization or coalition) is started Support of the elderly’s independence (regions/municipalities) Planning is going on Type 2 diabetes prevention (The Ministry of Social Affairs and Health?) Basic modelling is going on

sitra.fi | seuraavaerä.fi @sitrafund