Impact is the answer for cash-strapped governments
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In 2009, Social Finance co-founder Toby Eccles and former director Emily Bolton came to my office.
“We’ve been working on prisoner reoffending,” they said. “What do you think if we connect the reduction in the number of prisoners going back to jail to a financial return for investors?”
I said: “You have found the key to capital for social entrepreneurs.”
Today, we’ve turned this into a very sophisticated mechanism.
There are over 300 Social Impact Bonds in 40 countries across the world, dealing with over a dozen social issues. Together they have raised $750 million dollars in capital, but they remain relatively small.
To help bring them to scale, we’ve created outcomes funds, which pay for the outcomes achieved.
The British government is now scaling outcomes funds by establishing the Better Futures Fund (BFF) with £500 million from central coffers, plus an expected £500 million from local authorities and philanthropists.
This builds on the achievements of Better Society Capital (BSC), the social investment bank recommended in 2000 by the Social Investment Task Force.
To its great credit, BSC’s efforts have helped create a £10 billion impact sector in the UK.
Most surprisingly for many people, financial markets are showing they are capable of grasping the importance of impact at least as much as any other stakeholder.
$30 trillion of capital has sought to balance risk, return and impact through ESG investment (Environmental, Social and Governance), which at its peak represented 15% of the world’s investable assets. Social Impact Bonds have inspired a $1 trillion pool of sustainability-linked loans and bonds where companies pay interest that falls if they achieve targeted social or environmental impacts.
At a time when environmental damage threatens the existence of our planet and social inequalities threaten the stability of our democracies, we must act.
For cash-strapped governments to deliver social progress, impact is the way forward. It provides the means to pay less later while achieving better lives for people in need.
That’s how entrepreneurs and venture capital have brought the tech revolution. By thinking big and by raising finance in a completely new way. That’s how all of you can help advance the impact revolution.
When I met with the head of the homelessness charity Shelter some years ago, she was helping 7,000 homeless people in southern England. I asked her: “How many people would you like to help?”
Never having been asked the question, she asked what I meant.
I said, “Well, if you had the money available, how many people would you like to help?”
Social delivery organisations can now ask themselves the questions: how many people would we like to help? And how do we best go about helping them?
If you can put a plan together that says, ‘I will grow an organisation with so many people, working locally in so many areas, to deal with children in care, early learning, homelessness, or any other social issue that is a high priority for the country’, the money is now available to you.
What you need to do now is to attract the best skills to your organisation so that it can scale like a business. Some of the BFF’s money could fund innovative ideas with potential to grow to real scale. The rest is likely to be invested in organisations that have already established a model for improving people’s lives and show a path to scale.
‘The impact economy’, as the government calls it, is where the whole economy is going.
We can now measure businesses’ environmental and social impacts in monetary terms, providing investors and governments with accurate impact accounting for the first time, which is comparable with accounting for profits
Governments can use this data to incentivise or discourage corporate behaviour, through taxation and credits.
The arrival of impact accounting marks a watershed between risk–return and risk–return–impact economies.
Impact is the future – and you are its leaders.
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Social Finance has deep experience of outcomes funds like the Better Futures Fund. We also support Social Outcomes Partnerships in a range of ways, including raising capital, designing services, managing performance and working with investors. Our financial design and data and digital capabilities are enablers to human impact and that’s why we also have a human-centred design practice underpinning all of our work. If you want to find out more about Social Finance can help you, please get in touch.
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