News and Comment

Social impact bonds: a little less theory, a little more practise

Monday 1 December 2014


A few weeks ago OPM played host to a delegation of senior academics from Meiji University, Tokyo, as part of a research project funded by the Japanese Government into social impact bonds (SIBs). The purpose of their visit was to conduct empirical studies of social impact investments, especially SIBs, already implemented in the UK and US. Their aim was the launch of the first Japanese SIB in the hope that the Japanese government will adopt similar social impact investment schemes in the future.

At OPM we were in a unique position of being able to share with our Japanese colleagues what we have learned from evaluating two very different SIB models to date. The first evaluation was of what has now become widely known as the ‘Essex SIB’, based on the delivery of Multi-Systemic Therapy by the charity Action for Children to reduce the likelihood of children going into care. This was the world’s first SIB to be commissioned by a local authority and only the second to be implemented in the UK. The second SIB to be evaluated by OPM was the ‘Peninsula LIST Project’, which although still in its planning stage, is no less ambitious in its desire to experiment the commissioning of public services across geographical and sectoral boundaries in the South West of England.

Social impact bonds, or payment-by-results contracts designed to achieve specified ‘social outcomes’, have been much heralded for their potential to unlock private investment for services that government, and particularly local government, would not otherwise have funded. However, for all the hyperbole championing SIBs as the answer to our most intractable social problems when public expenditure is constrained, there has been a noticeable gap for some between the rhetoric and the reality. The SIB model is still very much in the embryonic stages of development, and given its short history this is hardly surprising.

Much of the narrative so far has been dictated by the unchartered territory that SIBs are exploring. There are 26 self–declared SIBs worldwide, with at least another 100 in development. They are being used in very diverse contexts – around the world and across social issues – in order to unlock better outcomes for vulnerable individuals. The first wave of SIBs have been experimental in nature. OPM’s evaluations reveal that lengthy periods of planning were not only required to focus on the form of financial instrument and the establishment of a robust counterfactual, but also in order to agree sensible outcomes measures upon which payment schedules could be defined. Many others have encountered implementation challenges and invisible costs, while surfacing questions about the scale of potential savings. The approach has also demanded a significant behavioural shift in all parties involved:

  • Firstly in governments and donors, to concentrate on defining and costing their desired social outcomes instead of managing the delivery of activities.
  • Secondly in service deliverers, encouraged to prepare their impact performance for greater scrutiny upfront.
  • Thirdly in investors, who must calculate the financial risk associated with a defined cohort of individuals over a set timeline, given that returns are contingent on the successful delivery of specific social outcomes.

In the beginning SIBs may have appeared as an innovation in public finances driven by government enthusiasm for payment-by-results contracts during periods of austerity, shifting the risk of investment onto a range of funders motivated by a desire, to a greater or lesser extent, to achieve ‘blended returns’ for their capital by uniting both their money and their values. But there are now signs that a future proliferation of the model may be accelerated by a greater variety of social investors and service providers entering the market, each prepared to tolerate different levels of risk in exchange for different levels of financial and social returns.

OPM’s Director of Evaluation, Research and Engagement Dr Chih Hoong Sin was recently invited to speak at the launch of a new Bank of America Merrill Lynch social impact bond report, authored by Bridges Ventures, reflecting on lessons learnt and to provide a set of practical recommendations for government, service providers and investors. This is no coincidence. Financial institutions are beginning to view SIBs as a genuine opportunity to meet the demands of this expanding pool of investors in the market wishing to align their financial returns with social benefits, as crucially, it is their younger clients who are motivated more by social impact and less by financial return.

The momentum behind social impact bonds as a major source of social change funding is building. But for the promise to be fulfilled a proven framework is needed that is built on a robust evidence base particularly for preventative or early interventions, to be of benefit to Government or donor, investor, service provider, and service user. Unlike most of the existing published literature that deals with the aspirations and desirability of SIBs, OPM’s studies highlight the operational issues around procuring and delivering services through an SIB model. This is why these independent evaluation findings are of fundamental importance in contributing to the understanding of what does and doesn’t work for SIB structures and designs.


If you would like to find out more about OPM’s evaluations of the ‘Essex SIB’ and ‘Peninsula LIST’ projects, please contact Chih Hoong Sin, Director of Evaluation, Research and Engagement on or 020 239 7877.