Uncharted Territory - Essential Skills Ontario

NEW MODELS FOR A NEW WORLD4.5.2 Social Impact BondsRooted in the broader efforts to improve the performance and outcomes ofsocial service delivery and to find innovative ways to control costs, SIBs, bydesign, offer incentives to improve outcomes while transferring some or all ofthe financial risk from governments and taxpayers to private investors. Theconcept of social impact bonds was developed to help enhance social benefitsthrough investments in preventative as well as early intervention services, andto facilitate innovation through cross-sectoral partnerships that generatesavings for government (Langford, 2011). SIBs work by identifying potentialgovernment savings through a restructuring of traditional relationshipsbetween government agencies, third sector organizations and the privatesector. Once these savings are identified, capital can be raised from privateinvestors to pay for action to address social problems before they arise orbecome unmanageable.Three elements of Social Impact Bonds:• Start-up investments are made by commercial investors, foundations and trusts, and high-net-worthindividuals in interventions that prevent future problems• Outcomes, rather than the means, are the focus of the investment. These outcomes are clearly definedin a set of targets. Providers are free to develop the most effective means to meet their targets• If the programs are successful, payments by the government cover the costs of the interventions andenable investors to make a return; if the desired outcomes are not achieved, investors are unrewarded(Moynagh, 2010. p. 11).Although originally conceived of as simple bonds, SIBs operate more like anequity investment in that investors will be paid based on outcomes achievedrather than automatically. In this sense, payments depend on tangibleimprovements in people’s lives. Investors initially buy into an equity fundthat is scheduled to be wound up on a pre-determined date. Returns thendepend on how the bond is structured and how the program performs basedon the pre-established targets (Moynagh, 2010).22 • Uncharted Territory: Can Social Innovation Revitalize Literacy and Essential Skills Programs?