trends, performance and challenges of sibs in australiainpms/projects/projectsib/... · •...
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Trends, Performance and
Challenges of SIBs in AustraliaSocial Impact Forum YOKOHAMA 2017
22nd April 2017
2© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Outline of session1) Background and development of SIBs in Australia and examples
2) The distinct characteristics of SIBs in Australia compared to SIBs in the UK and US (for example, governance structure, outcome metrics)
3) Implications of SIBs for finance
4) Key success factors5) Main challenges of SIBs
5) Main challenges of SIBs
1. Background and development of SIBs in Australia
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Development of SIBs in Australia
TIMELINE
Source: NSW Government Office of Social Impact Investment http://www.osii.nsw.gov.au/
2011 2012-13 2015 2013-2017
• Feasibility Study
• NSW Government launched social impact bond trial
• Request for proposals - 2 pilot bonds
• Joint Development Phase (JDP) with three proponents
• First Australian SIBs launched
• KPMG evaluation of JDP
• Launch NSW Government policy on impact investing
• Focus on outcomes, innovation, prevention, partnerships
• Commitment to two transactions per year
• Yearly Statement of Opportunities
• Development of 5 bonds; 8 in development
• SA, QLD and VIC launched bonds
• Federal government released a discussion paper (2017)
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Australia – overview of current state of SIBs development
Source: NSW Government Office of Social Impact Investment http://www.osii.nsw.gov.au/
Topic Stage of Development Target Population
Family preservation (NSW) Launched Family support to avoid 0-5 year olds entering foster care
Family restoration (NSW) Launched Family support to restore 0-5 year olds from foster care to their families
Recidivism in criminal justice (NSW) Launched Prisoners released from custody with the aim to reduce recidivism
Homelessness (SA) Launched People who are homeless
Family restoration from out of home care (QLD) Launched Aboriginal children in out of home care (0-5.5 year olds)
Managing mental health hospitalisations (NSW) Negotiation phase Mental health -specific target population in development
Young people leaving out of home care (NSW) Negotiation phase Young people leaving care
Homelessness (VIC) Negotiation phase People who are homeless - specific target population in development
Young people leaving out of home care (VIC) Negotiation phase Young people leaving care
Managing Chronic Health conditions (NSW) Negotiation phase Chronic Health – specific target population in development
Improving outcomes through early childhood education (NSW)
Negotiation phase In development
Homelessness (QLD) Negotiation phase In development
Youth reoffending (QLD) Negotiation phase In development
Addressing youth unemployment (NSW) RFT phase In development
Increasing permanency through Open Adoption (NSW)
RFT phase In development
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Queensland
1 bond launched: 2 bonds in progress (homelessness, reoffending)
Western Australia Not gone to market
Commonwealth
Discussion paper released early 2017
Early work – SEDIF Funding ($20m), Goodstart Early Learning, Great Barrier Reef Foundation Bond)
New South Wales
3 bonds launched (OOHC, recidivism)
Multiple bonds in developmentSouth Australia
1 bond released (homelessness) Victoria
2 bonds in process (Young people leaving out of home care, homelessness services) Tasmania
Not gone to market
NT Not gone to market
NZ1 bond – Feb 2017
Stage of the market in Australia and New Zealand – traffic light report
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Size of the Australian marketThe Australian impact investing market is still in the early stages of development but with strong potential, and is estimated to grow to a $32 billion market by 2022.
VIC; 54%
NSW & ACT; 33%
QLD, NT, WA, SA, Tas; 13%
2017 2022
Growth in the Australian market is strong:
The Impact Investing Australia 2016 Investor Report shows that in Australia….
Active impact investors aim to triplethe size of their impact investment portfolios over the next 5 years
Non-active investors expect to consider social and environmental impact in investment decision making over the next 5 years
The majority of active impact investors will likely be in Victoria and New South Wales based on current trends
Source: Impact Investing Australia 2016 Investor Report, Impact Investing Australia, 2016: https://impactinvestingaustralia.com/wp-content/uploads/Impact-Investing-Australia-2016-Investor-Report.pdf
8© 2017 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Example 1 – Newpin Social Impact Bond, NSW
Area Design
Intervention
• Newpin is a long-term, intensive support program that works with families to improve parenting so children can live safely with their families
• Australia’s first social benefit bond• Designed to support children and young people in foster care to be safely returned to their families
Target population • 700 families (with at least one child under five years of age in foster care)
Outcome metric• The restoration rate of children who enter the program. Baseline is 25% of children return home within one year.• Results- three year average 61% restoration rate; 130 children returned home up until 30 June 2016, 47 prevented from
entering care.
Evaluation method • Matched control group
Capital raised • $7m; 7 year term
Principal repayment• 50% guaranteed to be repaid at the maturity date• 100% repaid if the restoration rate reaches 55%
Investors • UnitingCare Burnside; high net worth individuals; Family Foundations; Superannuation Funds
Interest• Minimum interest rate is 5% p.a. over the first 3 years; maximum interest rate is 15% p.a. over the full term• Target is 10-12% p.a.• 2017 – delivered 12.2% return to investors
Source: SVA Investor report can be found here http://www.osii.nsw.gov.au/initiatives/social-benefit-bonds/
Source: SVA Investor report found here http://www.osii.nsw.gov.au/initiatives/social-benefit-bonds/
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Example 2 – Recidivism SIB to prevent reoffending
Area Design
Organisations • ACSO, arbias, and National Australia Bank (NAB)
Intervention• On TRACC (Transition Reintegration and Community Connection),
an intensive support program that will provide individualised support to parolees, particularly in the first 16 weeks of parole
Target population
• Up to 3,900 adult parolees with a medium to high risk of reoffending, released to supervision in selected Sydney metropolitan areas, over five years
Outcome metric
• Reduced rate of re-incarceration in the 12 months post release• Reduced financial costs to government of parolee reoffending with
reduced pressure on criminal justice system
Evaluation method• Matched control group; outcomes measured by NSW Bureau of
Crime Statistics and Research
Upfront finance • National Australia Bank and ACSO
ACSO-arbias joint venture (Australian Community Support Organisation and Alcohol Related Brain Injury Association)
Source: NSW Government Office of Social Impact Investing. http://www.osii.nsw.gov.au/news/2016/07/12/new-social-impact-investment-to-reduce-parolee-reoffending-and-re-incarceration/
2. The distinct characteristics of SIBs in Australia
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Comparing Australia/ UK/ USA
• Maturity of impact investing funds varies (Social Innovation Fund in USA; Big Society Bank in UK)
• Driver of the market varies (government or combination of market led and government)
• Place of not for profits in social policy varies
• Specific method for measuring success varies (use of random control trial or comparison group)
• Use of consortia to deliver the results (eg: UK and USA has examples of large consortia)
• Similar bond designinvolving three parties (not for profits, government and investors)
• Rigorous measurement of outcomes using scientific methods (usually a comparison group)
• Government driving and sponsoring impact investing; government initiated governancestructures
• Strong not for profit tradition for human services in all three countries
• Calculation of savings through economic cost benefit analysis
Similarities Differences
Source: KPMG Australia
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Comparison of Australia/ UK /USA SIBsInitiation of bonds
Level of government involved
Investor landscape
Familiarity with pay for success in social policy areas
Governance
Australia Government initiated and driven
State (Federal government is considering its role
Emerging impact investment funds
Yes (although more limited experience than UK)
• Government structures
• Government agenda for policy priorities (NSW)
• Treasury and Department of Premier and Cabinet
• Expert Advisory Committee
UK First bond market driven; now governmentdriven
Local StateFederal
Big Society BankKey funds established
Yes • Government structures
• HM Treasury
USA Federal government and state government led
State Federal government fundSocial innovation fund (2014)
Emerging impact funds
Yes • Government structures
• Social innovation fund exploratory work
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Comparison of approaches (continued)Success rates and design
Outcome metrics –establishing attribution
Calculations of savings
Australia Structure of bond based on known evidence base and level of complexity of the client
• Comparison groups; Matched group or random control trial
• High standard of scientific evidence
Economic cost benefit analysis; calculation of future savings to government
UK Structure based on evidence base where known otherwise test and revise approach adopted
• Comparison groups (matched group) or historical baseline
• Varying standard of evidence employed
Economic cost benefit analysis; calculation of future savings to government
USA Structure of bond based on known evidence base and level of complexity of the client
• Comparison groups; Matched group or random control trial
• High standard of scientific evidence
Economic cost benefit analysis; calculation of future savings to government
3. Implications of SIBs for finance
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For Government - shift in types of contractingThe shift towards payment by results contracting
Source: KPMG NZ
Current position
Potential position
Outcomes (medium to long term)
In-house Contracting focus for provision of services
Own staff Contractors Input basedOutput based
Impact(short term)
OutcomesPayment for
success
OutcomesSocial Bonds
Shift to the right
More complex
Simpler transactions
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Implications of SIBs for governmentBrings new money into government services
Evidence based policy making; value for money
SIBs are an example of a payment by result transaction and should be seen as one form of impact investment
New partnerships with NFPs and investors
Caution should be applied – SIBs should not be used in every circumstance; but be seen as part of a suite of a variety of impact investing transactions. Suitable for social policy area with strong evidence base; outcomes that are amenable to measurement; and intervention with known success rate. Area ‘stacks up’ with savings for government.
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Social benefit bonds are part of a suite of social, environmental and development finance instruments. Globally this includes:
SDG Bonds (issued by World
Bank)
Social Impact Bonds
Green Bonds (labelled)
Impact funds
Other instruments are not included which finance impact but do not necessarily require rigorous measurement of outcomesor link payment to outcomes measurement.
Social enterprises
Climate-aligned bonds
Development Impact Bonds
Blue bonds (water)
Global impact investing
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The Sustainable Development Goals (SDGs) as an organizing platform
SDGs are defined by UNDP as “a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity”. Source: Sustainable Development Knowledge platform https://sustainabledevelopment.un.org/topics/sustainabledevelopmentgoals
SDGs are a useful framework to identify, design and deliver impact investing opportunities:
• Built on a global language that was developed by and is applicable to developed and developing countries.
• Sets ambitious targets that presuppose an active role for private industry and investors.
• Inclusive with seven targets for vulnerable populations
• Provides universal goals and a framework to unify and align approaches of disparate actors.
• Focuses agenda with potential for local partnerships, civic engagement and co-benefits from targets
4. Key success factors
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Success factors for SIBsSuccess in establishing the market
Success in negotiating the contract
Transaction success
• Government champion (to lead government departments and bureaucrats) • Joint support within government• Strong governance structures including advisory committee • Take stock of lessons learnt – take time• Feasibility study
• Pre-work – detailed work by government up front before RFT• Project management • Simplify transaction and contracts as far as possible• Time frames (6 months)
• Strong evidence base to the program with a known success rate• Well defined cohort• Robust measurement and strong scientific method
5. Challenges
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Challenges for market development for SIBs
Scale and scope
Bespoke transactions with large transaction costs
Speed of market development
Risks
Maturation of NGOs
Mismatch – funds are available but lack of transactions
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Next steps in Australia
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SIB work over last four years has been reviewed and stock taken of progress
New states are learning from more mature states and are entering the market; Federal government considering its role
KPMG concentrating on SIBs as one form of social investment; in parallel designing other impact investment transactions
Scale up SIBs, ‘industrialise’ and increase deal flow
Impact Australia concentrating on two functions establishing an impact investment fund (Impact Capital Australia) and assisting organisations to develop capability (Impact Investment Readiness Growth Grant)
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Liz ForsythPartnerGlobal LeadHealth, Ageing and Human ServicesT: +61 (2) 9335 8233M: +61 418 659 857E: [email protected]
Dr Ruth LawrenceAssociate DirectorLead, Impact InvestingT: +61 (2) 9346 5554M: +61 427 664 988E: [email protected]