Frequently Asked Questions
What is a social impact investment?
A social impact investment is a financial instrument that pays a return based on the achievement of agreed social outcomes. Typically, private investors provide working capital to cover the upfront cost of delivering a service to improve outcomes for their clients. Achieving the outcomes should reduce need for, and government spending on, acute services. Part of the resulting government savings are then used to repay investors' principal investment plus a financial return. These payments are performance-based, which means they depend on how much outcomes have improved.
Are they used elsewhere?
Yes. Social impact investments were first developed in 2010 by Social Finance UK with the UK Ministry of Justice to rehabilitate offenders from Peterborough Prison. There are now over 80 bonds in operation worldwide, with many more in the pipeline (source: Brookings, 13 January 2017).
The original NSW social impact investments launched in 2013 are the first in Australia, and among the first in the world. Victoria, South Australia and Queensland launched their first impact investments in 2016 and 2017 respectively.
The potential of social benefit bonds and social impact investment more generally to help address challenging social issues in Australia has also been considered in:
- the 2015 Review of Australia’s Welfare System
- the 2014 Financial System Inquiry
- the 2011 Inquiry into Finance for the Not-for-Profit Sector.
How does a social impact investment differ from traditional government grants and funding schemes?
Most government grants and funding schemes generally pay for the inputs and outputs of social programs. As a result, they are largely commissioned on the basis of cost rather than on the value they provide or the outcomes they achieve. Grants and funding schemes generally provide one-off or recurring cash payments to cover program costs.
A social impact investment is generally based on funding outcomes, like reducing reoffending or the number of children in out-of-home care. They generally leverage private capital and cross-sector partnerships by aligning the interests of multiple stakeholders to achieve positive social outcomes.
This encourages innovation and flexibility to provide services that better achieve outcomes. The requirement to measure outcomes ensures accountability and adds to the evidence base of what works in service delivery.
How is a social impact investment different to a Waratah Bond?
A social impact investment is intended to save the Government money while improving social outcomes. Part of these savings will be used to repay investors commensurate with the outcomes achieved. Remaining savings can be used to fund other services.
The NSW Waratah Bond Program offers low risk, stable income to investors. Money raised through issuing Waratah Bonds is used to fund investment in NSW infrastructure and other public sector activities.
Why did it take so long to develop the investments?
Social impact investments are a new financial model, with many interrelated components. The Government's commitment to social impact investments extends to learning, sharing knowledge, and developing the capacity of all organisations involved in launching the investments. The process to develop the three pilot investments was thorough, to ensure that the Newpin and Benevolent Society bonds and the OnTRACC investment were robust, transparent and financially well-structured.
The development of future bonds and other social impact investments will benefit from the knowledge built and care taken in developing these investments.
How do the NSW social impact investments fit with other government services and programs?
The Newpin investment focuses on restoring children to families and preventing children from entering out-of-home care. The Benevolent Society investment will also work with vulnerable families and their children to keep them safely together, and prevent entries into out-of-home care.
Children in out-of-home care often have poorer outcomes than their peers. These investments are part of a broad range of reforms to improve services and lives for children and young people in care.
Re-offending rates in NSW are high, with the majority of prisoners in the state having offended before. The On TRACC investment aims to reduce adult re-offending and re-incarceration rates among 3,900 parolees. The investment is part of a number of initiatives that will reduce adult re-offending by 5 per cent by 2019.
Nearly half of all Australians aged 16 to 85 will experience a common mental health issue. The Resolve Social Benefit Bond will provide community-based services to approximately 530 mental health patients in Western New South Wales and Nepean Blue Mountains Local Health Districts over seven years. The Resolve program is consistent with and will complement reforms being rolled out through Living Well: A Strategic Plan for Mental Health in NSW 2014-2024
Most people with life-limiting illness would prefer to be cared for at home, in the presence of loved ones and with the necessary medical support readily available to them. The Silver Chain social impact investment will provide enhanced community-based palliative care services to approximately 8,300 patients in the Western Sydney Local Health District. This investment is also complimenting other NSW Government reforms in the area.
Social impact investments are an exciting new way of building innovative partnerships with the non-government sector and investors, to deliver measurable and outcomes-based services. They help raise money for important earlier intervention, and intensive services that otherwise might not receive funding due to limited government resources.