A social impact bond (SIB), also known as pay-for-success financing, pay-for-success bond (US), social benefit bond (Australia), pay-for-benefit bond (Australia), social outcomes contract (UK), social impact partnership (Europe), social impact contract (Europe), or simply a social bond, is a form of outcomes-based contracting. Although there is no single agreed definition of social impact bonds, most definitions understand them as a partnership aimed at improving the social outcomes for a specific group of citizens. The term was originally coined by Geoff Mulgan, chief executive of the Young Foundation. The first SIB was launched by UK-based Social Finance Ltd. in September 2010.
By July 2019, 132 SIBs had been launched in 25 countries, and they were worth more than $420m. , 23 countries use SIBs, with () 276 projects in place and capital raised to the value of $745m.
History
The social impact bond is a non-tradeable version of social policy bonds, first conceived by Ronnie Horesh, a New Zealand economist, in 1988. Since then, the idea of the social impact bond has been promoted and developed by a number of agencies and individuals in an attempt to address the paradox that investing in prevention of social and health problems saves the public sector money, but that it is currently difficult for public bodies to find the funds and incentives to do so.
The first social impact bond was announced in the UK on 18 March 2010 by then Justice Secretary Jack Straw, to finance a prisoner rehabilitation program. In the UK, the Prime Minister's Council on Social Action (a group of ‘innovators from every sector’ brought together to ‘generate ideas and initiatives through which Government and other key stakeholders can catalyse, celebrate and develop social action’) was asked in 2007 to explore alternative models for financing social action. The group began to develop the idea of a social impact bond, and the work is being taken forward by a number of organisations including Social Finance, an organisation committed to increasing investment in the third sector, the Young Foundation, the Center for Social Impact in Australia, and other NGOs and private firms. In the UK, the Government Outcomes Lab was set up through a partnership between the UK government and the University of Oxford to investigate evidence around the use of social impact bonds and outcomes-based contracting approaches more broadly.
The idea of a social impact bond has generated significant interest from across the political spectrum in multiple countries, including U.S., UK, and Australia. Social impact bonds have generated a particularly large amount of interest in the United States. In February 2011, Barack Obama’s proposed 2012 budget stated that up to $100m would be freed up to run social impact bond pilot schemes. In August, 2012, Massachusetts became the first state in the nation to create a policy which encourages the creation of Social impact bonds, called "Social innovation financing". The state legislature authorised spending up to $50 million on the initiatives. In Australia, the intention to trial social impact bonds was announced in New South Wales in November 2010 by Premier Kristina Keneally of the Australian Labor Party. The policy direction was continued by the Coalition after a change in Government in 2011.
In November 2012, Essex County Council became the first local authority in the UK to commission a social impact bond in Children's Services, with the aim of providing therapeutic support and improving outcomes for adolescents at risk of going into care. Nick Hurd, the minister for civil society, commented: "Social impact bonds are opening up serious resources to tackle social problems in new and innovative ways. This is about communities, businesses and charities all working together to change people's lives, whilst at the same time making savings for the taxpayer."
In February 2013 Allia, a charitable social investment organisation, announced the first public opportunity in the UK to invest in a social impact bond. Although the product was later withdrawn from sale due to lack of investors, the Future for Children Bond combined a relatively low-risk ethical investment into affordable housing to provide the funds to repay capital to investors, with a higher risk investment into a social impact bond with the aim of delivering a high social impact and providing an additional variable return. It would have invested into the social impact bond for Essex County Council to ‘improve the life outcomes’ of children aged 11–16 at risk of going into care.