1. Social Impact Bonds in Nova Scotia
An Innovative Approach to Complex Social Issues
January 2nd, 2013

2. Setting the Context
In October, the Minister of Finance asked a Working Group to perform research on Social Impact Bonds; including:
Existing examples world wide
Opportunities for suitable pilots in NS
Draft wording for inclusion in the 2013/14 Budget
Working Group:
Arthur Bull, Chris Payne , Joanne Macrae, Mike Kennedy, Kathryn Morse, David Upton

3. Setting the Context (Cont’d)
jobsHere
Learn
Innovate
Compete
jobsHere was launched at the Nova Scotia Community College Waterfront Campus on November 23, 2010.
Three priorities in jobsHere
- learning the right skills for good jobs
- growing the economy through innovation
- helping businesses be more competitive globally

4. Setting the Context (Cont’d)
From the jobsHere strategy:
Social enterprises play an important role in Nova Scotia’s economic prosperity.
Work will be done to improve access to capital and small-business support
programs for social enterprises while developing a better understanding of
their impact in the province.
Social Enterprise- businesses or organizations operated for the purpose of tackling social, economic, or environmental challenges (Social Enterprise in Nova Scotia – February 2011). Social Finance is an approach to managing money that delivers social and /or environmental benefits, and in most cases, a financial return. (Social Finance) Social Impact Bonds are a multi-stakeholder partnership in which philanthropic funders and impact investors—not governments—take on the financial risk of expanding preventive programs that help poor and vulnerable people (McKinsey) Here is a short video that explains how Social Impact Bonds (SIBS) work: An Introduction to Social Impact Bonds
Social Impact Bonds (SIBs), aka "Pay For Success" contracts, are an innovative financial instrument that offer a new means for growth-ready nonprofits to scale evidence-based interventions that improve social outcomes and create government savings.
Align the interests of nonprofit service providers, governments, and investors, SIBs (raise private investment capital) fund prevention and early intervention programs that reduce the need for expensive crisis-driven services and safety-net responses.
Government only pays investors a dividend if an independent evaluator determines that the pre-defined outcomes have been achieved, such as reducing homelessness or re-offending rates. If the outcomes are not achieved, the government is not required to repay the investors.
SIBs offers both financial returns and social benefit. Nonprofits benefit from a predictable stream of revenue that enables them to serve greater numbers of disadvantaged individuals, families, and communities.

5. Why Social Impact Bonds?
Difficult, intractable files that need a new approach
Improve the capacity of non-profits to provide service delivery as well as improve their operational capacity
Paying for outcomes… but only if they are achieved
Potential for integrated learning across public, private and not-for-profit sectors
Allows for access to capital outside of traditional budget constraints

6. The case for outcomes-based funding

7. Government department or agency Service delivery organization(s)
How SIBs work…
Public
Responsive and participatory interface between citizens and stakeholders.
Evaluator
Provides objective independent oversight and measurement of whether outcomes have been achieved.
Government department or agency
Defines outcome to be pursued.
Contract for achieving outcomes, including rate of return for achievement of outcomes.
If outcomes are achieved,
Gov. issues payout to investors.
Intermediary
Administers relationship between Gov. and service delivery organization, raises investment capital. $ $ $
Intermediary determines appropriate service delivery organization.
Investors provide start up capital to intermediary.
Service delivery organization(s)
Delivers outcome specified.
Investors
Provides investment in exchange for payout based on achievement of outcomes.

8. Criteria for SIBs partner selection
Role
Criteria
Intermediary
Ability to meet outcomes
Ability to source investors and service delivery organization(s)
Ability to share learning and build capacity across sectors
Ability to integrate with other services and support wider objectives of the Government
Investors
Independence from the project
Evaluator
Independence
Subject Matter Expertise
Service Delivery Organization(s)
Established record for providing innovative, outcome-focused programming
It is essential that any and all partners selected are subject to a timely, open, and transparent procurement process.

9. The First SIB Pilot – United Kingdom
The first Social Impact Bond pilot was launched with the Ministry of Justice, in Peterborough United Kingdom; aimed at reducing re-offending, by working with short term male offenders This six year program began in August of 2010 and is the model for all of the other initiatives being launched in Australia and North America
Interventions
Individuals receive a range of intensive interventions, both in prison and following release
Outcomes
The conviction levels among the target population are compared to a matched cohort; if convictions are reduced by more than a set amount the investors are paid a return
Investors
£5m is being raised from investors; initial investors will be primarily charitable trusts and foundations.
Investor Returns
The maximum financial return to investors is capped; if the services are unsuccessful, the original investment is not returned
Other Areas of Interest
Drugs - Improve recovery from drug addiction, thereby improving life chances for the children of addicts and reducing crime
Children and Young People at Risk- Reduce the time that children spend in care and improve their general wellbeing (such as education outcomes)
Women in the Criminal Justice System- Reduce women’s reoffending and divert low risk female offenders away from custody
Health- An SIB model to reduce the number of emergency hospital admissions. is currently being researched
Short term offenders - (those serving less than 12 months).

10. Potential Application in Nova Scotia
The following Departments have been asked to provide ideas for potential pilot programs:
Community Services
Education
Health and Wellness
Pediatric MRI
Intractable Problem to be solved: All kids at the IWK require a general anesthetic before undergoing MRI, which introduces risk and cost not incurred by adults who undergo the procedure. The anesthetic is a scare resource within the province that can be used toward more acute care.
Goal: Create an immersive "game" experience that can be played in the MRI device that scores kids on their ability to be still and relaxed when images are being taken.
Capital Requirement: $2M
Milestone: x% of kids who undergo MRI no longer require anesthesia while undergoing MRI, removing some of the pressure within the healthcare system on this scare resource
Comprehensive Palliative Care
Intractable Problem to be solved: A shortage of beds in hospitals and high costs due to long term care and palliative requirements of an aging population. Yet while "80% of people want to die at home, 70% are forced to die in hospital“
Goal: Establish a province-wide, comprehensive palliative care program.
Capital Requirement: TBD
Milestone: x% of deaths that would take place in hospital now take place under palliative care at home.

11. The Working Group has developed Criteria to assist in evaluating appropriateness of potential projects… (More in depth criteria and drill down questions can be found at Appendix A)
Criteria
Weighting
Score
Strategic Fit- Is this an issue that is clearly defined and going unaddressed or under addressed?
20%
Impact Measurability- Will we be able to effectively measure the impact of the intervention relative to the status quo on social and financial levels?
Economic Impact- Will the approach proposed deliver greater value for money than alternative means of meeting the outcome or the status quo?
Service Delivery Model- Is a social impact bond the appropriate delivery mechanism for delivering optimal outcomes given current service delivery environment?
15%
Financial- Can we measure the net cost savings related to the intervention and are they sufficient to provide a reasonable return for investors?
Administration- Are there appropriate parties in place to fill the roles of Intermediary, Service Delivery Organization(s), Investors and Evaluators?
10%
Total

12. Next Steps Draft wording on SIBS for inclusion in 2013/14 budget
Add any necessary expertise to Working Group (e.g. Procurement)
Create timeline for SIB pilot
Draft RFP for intermediary

13. Appendix A
Criteria

14. Criteria I: Strategic Fit
Is there an identified and clearly articulated “need” or issue that is not currently being addressed or is not likely to be addressed?
What is the target population for the issue (e.g. volumes, age range, geographic area)?
Does the need represent a gap in existing service provision, entirely new service provision or re-procurement of existing service provision?
What interventions are effective in achieving the desired outcome? How will they fit into existing service provision?
What is the likely time horizon over which the interventions and outcomes they aim to support will occur?
Is this an issue that is clearly defined and going unaddressed or under addressed?

15. Criteria II: Impact Measurability
Is the outcome sought to be address the need capable of being measured and has its measurement been clearly defined?
What metrics can be used as a proxy to evaluate the success of the intervention at delivering the required outcome?
What population size is required to ensure statistical significance?
How can a baseline be structured against which the impact of the intervention can be measured?
Will we be able to effectively measure the impact of the intervention relative to the status quo on social and financial levels?

16. Criteria III: Economic Impact
Do the estimated cost savings generated from an improved outcome exceed the cost of the proposed interventions?
Which public sector bodies would benefit from the outcomes delivered and in what quantum?
What are the anticipated underlying costs of the potential interventions?
Is there appetite from all beneficiaries to share in the funding cost of successful interventions?
What are the existing value for money benchmarks for delivering the outcome?
Consider: Will the intervention generate bankable net savings to government?
Ex. if an investment in early childhood investment reduced justice system interactions, would the given branch of the justice system be reduced, resulting in cost savings?
Will the approach proposed deliver greater value for money than alternative means of meeting the outcome or the status quo?

17. Criteria IV: Delivery Model
Has an options appraisal identified the optimal delivery structure for the outcome to be commissioned?
How does the delivery fit with existing provision?
What (if any) statutory obligations need to be met by the intermediary?
What alternative delivery options are there (e.g. traditional procurement, incumbent providers)?
Is a social impact bond the appropriate delivery mechanism for delivering optimal outcomes given current service delivery environment?

18. Criteria V: Financial
Is the approach to incentivizing the delivery of outcomes through the contract and payment mechanism clearly defined and articulated?
What are likely to be the cashable savings arising from the use of a Social Impact Bond? (e.g. reduced drug costs, ability to reduce other costly downstream interventions)
What are the risks and dependencies in realizing such benefits?
Who are likely to realize such savings? (e.g. departments, agencies, commissions)
Is there the ability to agree and account for differences in the timing of the activity and the benefits realization?
Are the accounting implications of the service to be commissioned fully understood? What are the relevant accounting and budgetary considerations?
Can we measure the net cost savings related to the intervention and are they sufficient to provide a reasonable return for investors?

19. Criteria VI: Administration
Can appropriate parties be identified to fill the roles of Intermediary, Service Delivery Organization(s), Investors and Evaluators?
Has a suitable procurement procedure been selected which is both compliant with necessary procurement regulations?
Has a committed project team been identified for the commissioning and on-going monitoring of the service provision?
Are there any capacity/ capability gaps within the in-house project team?
Has a plan for capacity building of Gov/ NGO been built into the plan?
Are there appropriate parties in place to fill the roles of Intermediary, Service Delivery Organization(s), Investors and Evaluators?