SiG_SIB Paper_June2010 by JoannaReynolds


									Social Impact Bonds:
Potential Applicability for Canada

Tim Draimin, Robin Cory, Adam Jagelewski

Prepared for Human Resources and Skills Development Canada (HRSDC)

Spring 2010

                    Social Innovation Generation |
Produced by:

Social Innovation Generation
101 College Street, Suite 100
Toronto, ON
M5G 1L7

For inquiries contact:

Adam Jagelewski

Draft Version - March 17, 2010

Draft Version – March 31, 2010

Draft Version – April 12th, 2010

Latest version – June 10th, 2010


With thanks to Social Finance UK for sharing their thinking and advice with us. Information on
Social Finance UK is found on page 13.
1|        Introduction ........................................................................................................................ 4
2|        The Social Impact Bond ....................................................................................................... 6
3|        Examining the Criteria and Risks ......................................................................................... 9
          SIB Criteria ........................................................................................................................... 9
          SIB Risks ............................................................................................................................. 10
4|        Evolution of the SIB in the United Kingdom ..................................................................... 11
          The First SIB: Peterborough Prison Pilot............................................................................ 11
          History of the SIB in the United Kingdom .......................................................................... 11
          Antecedents of the SIB Model ........................................................................................... 12
5|        Insights from the Initial Development of SIBs .................................................................. 15
          Insights for Government: .................................................................................................. 15
          Insights for Service Providers: ........................................................................................... 16
          Insights for Funders/Investors:.......................................................................................... 16
6|        Opportunities for the SIB in Canada ................................................................................. 17
7|        Conclusions and Next Steps .............................................................................................. 20
          Critical Issues to Address ................................................................................................... 20
Building the Enabling Ecosystem for Social Impact Bonds ........................................................... 21
Scenario for Piloting the First Social Impact Bond ........................................................................ 22
Acknowledgments......................................................................................................................... 23
Appendix A: Creating an Enabling Environment ........................................................................... 24
Appendix B: Introduction to Social Finance .................................................................................. 27
          The Current State of Social Finance in Canada ................................................................. 28
Appendix C: Social Metrics: An Indispensible Ingredient of SIB’s ................................................ 29
Appendix D: Glossary .................................................................................................................... 31
    Social Impact Bonds (SIBs) are a financial tool being developed in the UK to provide a new
     way to invest money in social outcomes. Under the model, government agrees to pay for
     measurable outcomes of social projects, and this prospective income can then be used to
        raise bond financing from commercial, public or social investors. This is possible where
                       outcomes are measurable and lead to tangible public financial savings.“

                                                 - The Young Foundation Definition of Social Impact Bond

1 | Introduction
This paper provides a practical overview of           The large multi-year deficits and heavy debt
the Social Impact Bond (SIB) model. This              loads facing most governments in the wake
new tool can be used to marshal resources             of the recent global economic crisis, and
to tackle the root causes of social                   long-term trends such as an aging
problems. The SIB is a financial vehicle that         demographic profile, serve to increase the
brings    in    private,     non-government           demands on all players to address these
investment to pay for services, which, if             challenges.
successful, deliver both social value and
public sector cost savings1.                          At the same time, the non-profit and
                                                      private sectors, governments, and the
Discussion of the SIB model comes at an               academic community in Canada and
opportune time in Canada. Trends are                  internationally   have    been     working
converging that will change long standing             productively in recent years toward the
assumptions about the roles of government             development of innovative approaches to
and its service provider partners to manage           more effectively address persistent
deeply rooted social ills. Social challenges          community problems and needs. One area
and unmet community needs in areas like               of focus has been on new ways for social
poverty,        social       marginalization,         purpose organizations to attract and access
homelessness, inadequate labour market                more capital. The SIB is an example of a
skills, environmental degradation, physical           financial vehicle that could serve this
and mental disabilities, and crime tend to            mandate.
be serious, complex, pervasive, and
persistent.                                           This vehicle is significantly different from
                                                      the ways governments currently tackle
                                                      social problems. Specifically, the SIB:
  Social Finance, (2010): Towards a new social          Focuses on measureable results and

                                       Social Impact Bonds: Potential Applicability for Canada |4
  government’s role in commissioning                This paper describes:
  verifiable outcomes                                What a Social Impact Bond is, how it
                                                       works in aligning incentives, the criteria
 Shares the risks and rewards among                   for when to deploy it, how it is funded,
  change partners                                      its reliance on social impact metrics, and
                                                       why it is gaining attention globally as a
 Encourages competition and diversity                 social investment vehicle
  amongst service providers, rewarding
  the most effective                                 The UK experience in developing the
                                                      concept and moving to implementation
 Aligns reward incentives with results
                                                     The Canadian context to the Social
 Applies a problem-solving approach                  Impact Bond reviewing potential policy
  involving a range of community actors               implications, criteria for adoption,
  and resources collaborating together                potential risks, likely opponents and
  across sectors (government, non-profit,             other considerations
                                                     A scenario of next steps for developing
 Fosters an open environment             of          Social Impact Bonds in Canada as well as
  collaboration and learning                          consideration of how to improve the
                                                      enabling ecosystem for social impact
 Leverages private and philanthropic                 bonds
  capital, and importantly

 Is a catalyst for fresh thinking to
  overcome the root causes of complex,              We welcome your feedback on the paper
  multifaceted problems                             and the ideas it illustrates.

This paper introduces a new and, as yet,
untested idea. It is not a detailed blueprint
for implementation of a Social Impact
Bond. Rather it profiles the opportunity to
employ new thinking, explains how an SIB
might work, identifies issue areas where it
might be applicable, and situates it in the
context of the broader challenge of
stimulating an enabling ecosystem.

                                       Social Impact Bonds: Potential Applicability for Canada |5
  The success of social innovations is based on their ability to create value for society. In turn, a
   dramatic social innovation often disrupts the existing marketplace or environment in which it
       takes root. Referred to by Austrian economist Joseph Shumpeter as ‘creative destruction’,
     innovation creates new ventures and a state where existing products, services and business
                                                                               models are obsolete.

                                                                           - Roger Martin and Sally Osberg,
                                                         “Social Entrepreneurship: The case for definition”
                                                                  Stanford Social Innovation Review, (2007)

2 | The Social Impact Bond
In Social Finance, (2010): Towards a new
social economy - Social Finance UK defines
the SIB as a financial vehicle that brings in        An investor may be:
non-government investment to pay for
services which, if successful, deliver both           A foundation;
social value and public sector cost savings.
                                                      A collaboration of foundations and grant-
There is an inherent assumption that social
outcomes will be enhanced through
increased funding for prevention and early
intervention around targeted social
problems that will lead to cost savings to
government (i.e. tangible savings can be
realized by implementing a preventative
model). Rather than finding room in
increasingly tight budgets, government pays
only when cost savings and outcomes occur.
Rather than capitalizing the entire project
upfront, government shares in the risk of
alternative approaches to outside investors.
                                                     Figure 1: Based on illustration from Social Finance (2009) Social
The mechanism is depicted at a high level in                                    Impact Bonds: Rethinking finance for
Figure 1 below.                                                                                       social outcome

A Social Impact Bond is structured around a
set of well-defined outcomes between the
three main parties involved: government,
the service provider and the investor. It is
facilitated by an intermediary, which acts on
behalf of the group.

                                       Social Impact Bonds: Potential Applicability for Canada |6
   making trusts;                                     The investment is used to fund or expand
                                                      organizations with the expertise to
 Socially-oriented individual investors or           effectively manage the intervention
  financial organizations;                            programs. Reliable and adequate funding
                                                      will foster an innovative environment and
 Public institutions, municipalities, etc.           enable service providers to explore new
                                                      processes based on validated pilots to serve
It is useful to point out that the tool has           the target population. Service organizations
been termed a bond yet does not follow                are defined by competency to achieve the
conventional bond investment properties.              task at hand and could include non-profits,
                                                      for-profits, government departments or
By standard definition, a bond offers a fixed         agencies (municipal, provincial, federal),
return to investors over a period of time.            and educational institutions.
SIBs act more like an equity product in
terms of associated risk. With an SIB, the            All stakeholders rely on the accuracy and
bondholder (or investor) will receive a               availability of measures that adequately
payment if outcomes are achieved, while               reflect the performance of the initiative,
the investor risks not receiving a return if          usually against benchmark comparisons.
the intervention does not meet its                    Investors are looking for demonstrated
performance targets. The contract between             value, efficiency and cost savings to satisfy
government and the investor will form the             Government endorsers. Bond dividends
terms of the bond. The existence of a                 only occur if these criteria are satisfied.
contract obligation from government to pay
for outcomes enables the bond creators to             Social/environmental change determinants
more easily access

At     the     outset,
appropriate outcomes
and success metrics
are negotiated and
agreed upon between
the        contracting
parties. The investors
take      the      risk
associated with the
type of programs and
receive     a     pre-
determined or scaled                   Figure 2: From Social Finance (2009): Towards a new social economy
return proportional to
the related reduction in
government spending          from     baseline

                                        Social Impact Bonds: Potential Applicability for Canada |7
must be well understood for the target
population and be represented in a simple
and measureable outcome metric. In some                         Social Metrics: An
cases (i.e. recidivism) the metrics are easier
                                                             Indispensible Ingredient
to identify and relatively easy to measure
and track.                                                           for SIBs
                                                            Detailed        social        impact
However, it is understood that as the model                 measurement is needed to create
is explored further in more complicated                     and apply stakeholder contracts in
socio-economic issues, there will likely be                 the development of a bond
more effort required to design the                          agreement.              Performance
                                                            measurement         is      complex,
measurement framework.           Regardless,
                                                            especially in the social sector.
careful consideration must be given to:                     Explaining             measurement
                                                            approaches is not the paper’s
 The use of comparison control groups to                   purpose, but a brief overview is
  identify the influence of exogenous                       provided     because       of    the
                                                            significance of the concept to the
  factors and bias                                          model.

 Baseline measures that articulate the                     The challenge is that a robust
  current status quo from a social and                      social investment marketplace
  financial   perspective for    simple                     requires reliable social impact
                                                            measurements       to    motivate
  comparison                                                investors to explore new financing
                                                            mechanisms. Historically, there
 Proper measurement systems to provide                     has been no consistent approach
  transparent data for third party review                   to using social impact metrics
                                                            however, this may be changing.
  or audit.
                                                            This sidebar continues in:
                                                            Appendix C: Social Metrics
SIBs as an Innovation

SIBs represent an important innovation in
how society tackles persistent, complex                Clarifies government’s role in paying
social problems that cannot be handled by               only for results backed by performance
any one sector or institution. The SIB                  measurements.
                                                    The box on page 22 Building the Enabling
   Has constructed a way to involve the            Ecosystem for SIBs, and Appendix A on page
    three sectors while both separating out         25 Creating an Enabling Environment both
    the required activities and assigning           offer more background on how government
    them to the appropriate player.                 policy can strengthen the enabling
                                                    ecosystems for social finance and social
   Helps manage risk while generating              innovation.

                                       Social Impact Bonds: Potential Applicability for Canada |8
3 | Examining the Criteria and Risks
SIB Criteria

When considering where best to apply the SIB            the initiative. If cross- sector or cross-
there are specific conditions that increase the         departmental savings are achieved, the
likelihood for successful implementation:               breakdown of savings is clearly outlined;

 Strong social need – the area is
  recognized by funders, service providers            Clear value proposition for stakeholders
  and the general public to be a priority              – there is a tangible value proposition for
  area for reform;                                     investors, demonstrated benefits to the
                                                       target population, and support from the
 Tackles root causes of social or                     spectrum of elected officials;
  environmental ills – the intervention
  benefits the public by reducing or                  Available data – there is a way to obtain
  avoiding     downstream  costs   and                 clear and accurate measurement. The
  enhances the lives of program                        data provides a benchmark by which to
  participants;                                        measure success.        Metrics align to
                                                       outcomes based on objective criteria and
 High public cost – the social need                   can be computed. There is a high degree
  warrants substantial investment. The                 of certainty and trust in the data;
  potential return based on cost savings to
  government justify the risks inherent to            Known intervention environment – a
  the intervention;                                    control group is available to track the
                                                       impact of exogenous factors that could
 Reduces or avoids government costs –                 affect the desired outcomes;
  Potential benefits reduce demand on
  public sector budgets. Cost savings are             Reasonable timescales – both outcome
  clear, measurable, and attributable to               achievement and investment payout

                                        Social Impact Bonds: Potential Applicability for Canada |9
   occur within a realistic timeline;                  Speed of implementation is slower than
 Increased innovation - leverages
  learning and adapts to meet the needs of            Externalities risk:
  the social sector. The model promotes
                                                       Potential for new model to displace or
  systems-changing initiatives to tackle the
                                                        negatively impact current services to
  most entrenched social problems.
                                                        target populations
SIB Risks
                                                      Measurement risks:
In developing an SIB, the approach needs to            The metrics are not easily obtainable or
carefully address some key inherent risks.              accurate enough to record performance
Political risks:
 Could be viewed as government off-                   The population or sample is not large
  loading responsibility for social services            enough to control for variation
  or only stepping in when traditional
  markets fail. It could be perceived that             Exogenous factors      influence     the
  government is abandoning historic fiscal              outcomes or have biases that generate
  obligations                                           positive     outcomes,        triggering
                                                        undeserved performance payments
 Could be perceived that government is
  more concerned about investor benefits               Key stakeholders lack confidence in the
  rather than public benefit                            metrics

 Loss of direct public control for delivering        Investor risks:
  public benefit services                              The risk-reward ratio for potential
                                                        investors may be too high to attract
 Could be opposed by organized                         adequate investment
  workforce associations if their members
  have not been engaged.                               Insufficient investment to achieve
                                                        desired efficiencies or economies of
Implementation risks:                                   scale

 Declining participation by stakeholders
  over time

 Model does not deliver on outcomes

 Model does not appropriately forecast
  social benefits or cost savings

                                        Social Impact Bonds: Potential Applicability for Canada |10
     “The creation of Social Impact Bonds to fund preventative work like ours is a ‘win, win, win’
     situation. Society wins as there are fewer victims of crime, the tax payer wins as less
                                        money is spent on prisons and clients win because they
                                                     have the chance to turn their lives around”

                                                              - Rob Owen, Chief Executive, St. Giles Trust

4 | Evolution of the SIB in the United Kingdom
There is significant learning to draw from           that works to reduce crime and social
the UK experience contributing to the                exclusion has proven that its preventative
launch of the first social impact bond. Their        approach (counseling, training, employment
work began three years ago and the profile           services, etc.) reduces the re-offending rate
they have built around this new vehicle for          by 10% and successfully reintroduces this
improved social outcomes has aroused                 population back in the community.
curiousity of governments and investors
globally.     This section will provide an           The pilot will provide support to 3,000
overview of their pilot and provide the              short-term prisoners over a six-year period
historical context for its launch.                   through experienced social sector providers
                                                     such as St. Giles Trust.          The upfront
The First SIB: Peterborough Prison                   investment will be up to £5m from private
Pilot                                                investors. If this reduces re-offending by
                                                     7.5% or more, investors will receive from
On March 18th, 2010, the UK announced the            Government a share of the long-term
launch of a Social Impact Bond pilot. The            savings up to a maximum of 13%. It is
UK entity, Social Finance, is acting as the SIB      calculated that for every £1 invested in St.
delivery agency. It facilitated a contract with      Giles Trust, the state will save over £10.
the Ministry of Justice to reduce re-
offending rates at the Peterborough prison.          History of the SIB in the United
Re-offending costs the state a minimum of            (Adapted from Council on Social Actions: CoSA
£143,000 per offender, per year, not                 papers: Community Links, 2008; Loder, John et al.
including the cost to victims of the crime.2 It      “Financing social value: implementing Social Impact
                                                     Bonds: Winter 2009; Interviews)
is estimated that at least 60% of adults on
short term sentences will re-offend within a         Politically, much of the success of the
year of being released, costing taxpayers at         concept development of the SIB was
least £85.8m for every 1000 prisoners.               attributable to the involvement of the UK
However, St. Giles Trust, an organization            Prime Minster and a council he formed.

2                                                    In 2007, Prime Minister Gordon Brown
 From CoSA white paper: Commentary on year one.
2008.                                                announced the creation of the Council on

                                       Social Impact Bonds: Potential Applicability for Canada |11
Social Actions (CoSA) through two year             of a “contingent revenue bond” developed
funding from the Office of the Third Sector.       by Arthur Wood, was the Social Impact
The group of 14 leaders, practitioners, civil      Bond.
servants and business people served as an
independent advisory group. Their task was         Preventative and/or early intervention
to generate ideas and initiatives through          service funding from government can be
which the government and other key                 contentious because a government benefits
stakeholders could catalyze, develop and           if the concept works out but government
celebrate social action. CoSA was set up to        look fiscally irresponsible if it does not. This
serve as a symbol of the power of ideas and        makes       risk-taking    and       innovation
to play an important role in the effort to         challenging.
build the good society.
                                                   Antecedents of the SIB Model
The convening power of the council had
immediate        effects.      Associations,       One of the first models of exploration with
government departments, and local public           linkages to a Social Impact Bond model was
services came together and discussed the           the International Finance Facility for
same agenda. Cross-sector activity was             Immunization bond (IFFIm). IFFIm raises
catalyzed with shared involvement from             funds/capital by issuing bonds in the capital
government. The Council submitted 44               markets and so converts the long-term
recommendations for consideration to the           government pledges into immediately
Office of the Third Sector within the first        available cash resources. The long-term
four months of its establishment.                  government pledges will be used to repay
                                                   the IFFIm bonds. The World Bank acts as
The quick progress of the council                  financial adviser and treasury manager to
highlighted what impact a focused advisory         IFFIm.3
group can have when there is active
participation and oversight from the               The appeal of the model was clear for CoSA.
Minister.                                          If outside investment could be used for
                                                   preventative services, then funds would be
Alternative funding models were a pressing         more reliable and predictable over the long
topic of exploration of this group.                term. Government could endorse the risk
Governments globally are wary of the risks         of paying for future benefits and use the
associated with spending money in the              cost savings to compensate investors. The
present to achieve potential savings in the        leverage opportunity was clear, focusing on
future. Innovative solutions, particularly         enhanced social benefits.
alternative forms of financing social actions
are needed to explore potential upstream
intervention opportunities. The Prime
Minster challenged CoSA to focus on cross-
sector collaboration opportunities to fund
prevention and early intervention. One
recommendation, originating with a City
Leaders group and building on the concept          3

                                     Social Impact Bonds: Potential Applicability for Canada |12
CoSA and Social Finance UK (see box) then             undertaking       the       first-ever     SIB
began to examine areas where expensive                implementation. This in turn has enabled
services     predominately       deal    with         organizations like Social Finance to flourish.
consequences of social issues rather than             In other words, government support has
looking at their root cause. Examples                 stimulated and helped grow the needed
include criminal justice, health care, mental         innovation ecosystem.
health, schooling, and foster care. As the
model relies on multiple stakeholders for             The following page illustrates the history of
implementation, a significant amount of               the SIBs’ development in the UK.
effort was made to consult and collaborate
with Treasury, investment managers, senior
civil servants, and third sector organization
leaders to advance the concept.

The SIB work done to date is gaining profile,                 About Social Finance UK
awareness and momentum in the UK. With
                                                          Social Finance UK is a London-based
the recent announcement of the first pilot,               organization created in 2007 by Sir Ronald
Social Finance is looking to take advantage               Cohen with the express aim of developing
of the support from political parties4, the               an effective social investment market in
Third Sector, and the Social Enterprise                   the UK.
Coalition among other stakeholders. SIB use
                                                          The organization provides access to capital
is being examined in the following areas:                 advice to investors and social sector
                                                          entities interested in delivering significant
 Health Impact Contracts                                 social impact.
 The Department for Communities and
                                                          Social Finance was founded after the
  Local Government                                        Commission      on    Unclaimed      Assets
 Local authorities, in areas such as health              demonstrated the pressing need for long-
  care and criminal justice                               term capital and financial innovation in
                                                          support of the UK social sector. Chaired by
Learning and case studies will be a certain               Sir Ronald Cohen, the Commission
                                                          recommended that a Social Investment
outcome of the work.             With the                 Bank be established with a base of £250
government’s Office of the Third Sector and               million and additional receipts of £20
both main political parties firmly behind                 million pa for four years.             The
these initiatives, the UK stands as the                   Commission’s aim was to maximize the
thought leader on the SIB. Most interesting               social impact of releasing capital from
                                                          dormant accounts.
has been the role government has played
from the outset – from forming an advisory                A subsidiary of Social Finance will be
think tank, to funding the research, and                  responsible for the facilitation and
                                                          negotiation of Social Impact Bonds acting
                                                          as an intermediary between government,
4                                                         investors and service organizations.
  Social Finance’s work was recognized in the
announcement      of    pilot  endorsements   in
government’s “Smarter Government” white paper in     
December 2009. The Labour government confirmed
its endorsement in the 2010 budget.

                                        Social Impact Bonds: Potential Applicability for Canada |13
Social Impact Bonds: Potential Applicability for Canada |14
5 | Insights from the Initial Development of SIBs
Although the SIB is in its early stages of            Government can highlight the value of
development, the promise of the concepts               specific improved social outcomes
underpinning the model will create                     against the status quo. Returns or
widespread appeal. Shared insights to date             dividends benchmarked on success can
can help advance community, provincial, or             be based on specific targets met
national SIB-related initiatives, and help
understand and mitigate risks.                        Government bodies, whether provincial
                                                       or federal, need to be internally
Insights for Government:                               organized to develop a bond
   Government plays an important                      mechanism. For example, detailed
    enabling role in the implementation of             agreements must be made between
    the model (i.e. encouraging discussion             governments/departments on baseline
    and collaboration, providing service               data and measurement approaches,
    providers access to target populations,            outcome targets, outcome payments
    leading pilots, etc.)                              and the delegation of departmental
                                                       responsibility  for     performance
   Successful pilots, administered and                payments
    carried out by cross-sector partnerships
    in targeted areas will create the                 The SIB can be structured to align
    necessary track record to stimulate                incentives   between   government
    scaled implementation                              departments in addition to the
                                                       standard     model   with    other
   Government      can    employ     early            stakeholders
    incentives to help encourage SIB
    participation by a variety of                     Partnerships with foundations can
    stakeholders (e.g. upfront risk sharing            allow government to test new ideas,
    by government). Over time, tax                     growing the R&D environment (an
    incentives can lead to increased                   important foundation role). Such
    investment                                         partnerships have the ability to engage

                                    Social Impact Bonds: Potential Applicability for Canada |15
    new players and raise the profile of          Insights for Funders/Investors:
    change initiatives                                The model assumes that there is a
                                                       surplus value to be realized with the
   To best succeed, an SIB approach                   implementation of an intervention
    requires champions in all sectors to be            program. If outcome-based reward
    open and supportive of crossing                    levels are sufficiently attractive, a range
    traditional boundaries to solve social             of private investors could be persuaded
    challenges                                         to take on implementation risks that
                                                       have previously been borne by
Insights for Service Providers:                        government
   A bond will allow service providers to
    gain access to multi-year income over             Local community or municipal funds
    operating costs, allowing resources to             could be used to support local SIB
    be allocated to their own in-house                 initiatives
    research and development and
    innovation capabilities                           Foundations (private, community,
                                                       corporate) could be particularly
   The SIB is a creative idea that could              interested with this shared investment
    lead to discussion of other outcomes-              model and enter into cross-sector
    based funding models or incentive                  partnerships
    systems (i.e. social venture financing,
    tackling    root-causes,    innovation            Foundations’ encouragement of early
    exploration, building organizational               stage innovation supports a ‘fail-safe’
    capacity by reorienting learning and               environment for organizations to
    education, etc.)                                   explore solutions

   Innovation risks associated with an SIB           Government and foundations can
    may outstrip individual organizations              leverage grant-making dollars in the
    but partnerships may reduce risks to a             form of ‘first-loss’ or high risk capital to
    manageable and feasible level and                  encourage         private       investment
    encourage greater shared innovation                participation by lowering risk to them.

                                    Social Impact Bonds: Potential Applicability for Canada |16
                   “There is scarcely an area of social or health care policy where prevention or
                               early intervention isn't both cost effective and socially desirable.”

                                                                                      David Hutchison
                                                                                       Chief Executive
                                                                                        Social Finance

6 | Opportunities for the SIB in Canada
In Canada the model has utility in a                 and disease prevention as part of the
spectrum of fields. Examples of policy areas         national lung health action plan. 5 The
where the SIB could be explored are:                 outcome could be a reduction in the
                                                     number of people affected by lung disease,
   Healthcare                                       which is currently 1 in every 5, and a
   Childcare                                        reduction in the associated health care
   Fostercare                                       costs pegged at $154 billion.6 A portion of
   Elderly care                                     the long-term savings to government could
   Home care for the chronically sick               be used to provide a return to investors
   Single room occupancy (SRO) housing              based on outcomes achieved.
   Youth employment                                 Because lung disease encompasses illnesses
                                                     stemming from a variety of systemic
The following are a few examples that could          factors, attempts to reduce its impact
have significant implications for Canadian           require coordination of many levels of
policy:                                              government, agencies and private sector
                                                     players. An SIB could provide a framework
Reducing Respiratory Disease Through                 for shared accountability and shared
Prevention                                           outcomes.

An SIB could be designed with Health
Canada and the Lung Association to reduce            5
the number of people affected by                       For more information regarding the framework,
                                                     please see
respiratory disease.
                                                       According to the Lung Association, it is estimated
Private capital could be raised to support           that respiratory disease costs the Canadian economy
and expand the promotion of lung health              $154 billion per year.

                                      Social Impact Bonds: Potential Applicability for Canada |17
Tackling the Root of Mental Health and                   The most effective mental health and
Addictions                                               addiction prevention efforts use multiple
An SIB could be designed by Health Canada                government policy levers. This approach
and CAMH (Center for Mental Health and                   would have inter-related policy implications
Addiction) to target a reduction in the                  in areas of criminal justice, social housing,
number of people suffering from mental                   job readiness and employment and poverty
health and addiction-related diseases.                   reduction.

Private capital could be raised to support               Improving          the    Socioeconomic
and expand programs and services that                    Conditions       of Canada’s Aboriginal
provide      youth     health    promotion               Peoples
interventions. The outcome would be a                    An SIB could be designed with Indian and
reduction in the number of mental health or              Northern Affairs Canada (INAC) and the
addiction related cases and/or early                     Post-Secondary Student Support Program
identification of addiction symptoms. Cost               (PSSSP) to target improvements to
savings to CAMH and government could be                  education opportunities for Aboriginals.
used to provide a return to investors based
on outcome targets met.                                  Private capital could be raised to support
                                                         and expand programs and services that
Health promotion and prevention play a                   promote and provide better education
central role in mental health and addiction              opportunities. The outcome could be a
strategy but are implicated by income                    reduction in Aboriginal unemployment,
inequality and poverty, lack of affordable               improved socioeconomic conditions, and a
housing and weak labor force attachment.                 reduction of support payments from
There is strong evidence that locally                    government.      Cost savings related to
available mental health services that                    Government’s      $314    million   annual
provide early identification of problems for             contribution could be used to provide a
children and youth are effective                         return to investors.
interventions. 7     One program, called
Strengthening Families for the Future, a                 Existing federal dollars and new Economic
collaborative program between CAMH, the                  Action Plan stimulus dollars have been used
City of Toronto and other community                      to fund two Aboriginal employment
partners has successfully proven that early              programs, the ASEP (Aboriginal Skills and
intervention can reduce the likeliness of                Employment Partnerships) and ASTSIF
substance abuse, depression, violence,                   (Aboriginal Skills and Training Strategic
delinquency and school failure in children.              Investment Fund). After six years and $465
An SIB could provide the necessary capital               million in funding the programs have
upfront to scale this program, which is                  reported 4,841 interventions and 2125
considered a Canadian best practice.                     jobs8. The cost per job placement in the

                                                           According to Treasury Board of Canada (2007-
                                                         2009). Statistics for the ASEP program. For more
  Chief Justice Roy McMurtry. Roots of Youth             info, see
Violence Report (2008)                                   bdih/initiative-eng.aspx?Hi=37

                                           Social Impact Bonds: Potential Applicability for Canada |18
ASEP program is $20,141               and     per      changing     approach    to    Aboriginal
intervention is $8,490.                                employment includes reducing the financial
                                                       and social barriers to formal education
Despite this intervention, however, the                completion.14
Aboriginal population still suffers from
higher unemployment, lower levels of                   Opportunities in the disabilities sector
education, below average income and many
                                                       An SIB could be formed with Community
other indicators of limited socioeconomic
                                                       Living British Columbia (CLBC) and
circumstance compared to the rest of the
                                                       disabilities service providers in British
Canadian population:9
 The unemployment rate of Aboriginals is
                                                       CLBC is a crown agency responsible for the
  14.8% compared to 6.3% for the rest of
                                                       delivery of funding, supports and services
                                                       for adults with developmental disabilities.
                                                       They are planning for a future service
 In Ontario and British Columbia, levels of           delivery environment characterized by
  unemployment are 2.4 and 2.6 times                   growing social needs and funding pressures
  that of the general population; in                   and are exploring financial innovation and
  Manitoba and Saskatchewan it is over 3               setting a strategy that focuses on sector
  times higher. 11                                     sustainability. Broadly, they are looking to:

 The 1996 Royal Commission on                          Better leverage funding committed to
  Aboriginal Peoples estimates the annual                attract additional financial partners
  expenditure and foregone revenue due
  to the depressed employment status of                 Better integrate government funded
  Aboriginals is $4.6 B to government and
                                                         programs     with     the    community,
  $2.9 B to Aboriginals. These figures are
                                                         philanthropic and business sectors
  expected to rise to $11 B by 2016 due to
  demographic reasons alone12
                                                        Move from “charity” models providing
                                                         social service supports, to a social
There is ample evidence that educational
                                                         investment    model     that requires
attainment leads to greater opportunities of
                                                         demonstration of success
employment and income.13 A systems
                                                       This approach intends to expand the
 Mendelson, Michael (2006). Aboriginal Peoples and
                                                       services to the community while becoming
Post Secondary Education in Canada. Ottawa:            more self-sustaining.
Caledon Institute on Social Policy
   As calculated by HRSDC, (2009)
  Mendelson, Michael op. cit.
12                                                     14
   Canada (1996). Royal Commission on Aboriginal          In 2006, the high school completion rate of
Peoples. People to people, nation to nation:           Aboriginals compared to non Aboriginals was 56.3%
Highlights from the report of the RCAP.                to 76.9% (Vital Signs 2009). Barriers are both
    Hull, J. (2005). Post-secondary Education and      financial (costs) and social (community and family
Labour Market Outcomes Canada, 2001. Winnipeg:         expectations, mistrust of education, discrimination,
Prologica Research Inc.                                cultural insensitivity). (Mendelson, 2006).

                                         Social Impact Bonds: Potential Applicability for Canada |19
7 | Conclusions and Next Steps
The development of Social Impact Bonds in            Building a Cross-sector Support System
Canada will be both a stimulus for the                Introduction of the SIB concept to key
continuing expansion of the country’s                 stakeholder constituencies in ways that;
innovation and social finance ecosystem                a. Builds knowledgeable interest in
and will be dependent on that ecosystem.                   how the SIB and its underlining
                                                           concepts could contribute to solving
Given the nascent nature in Canada of both                 serious social issues
social finance and cross-sector innovation             b. Connects sectors and stakeholders in
collaboration, the first SIB initiative will take          ways that could lay the groundwork
significant leadership, lead-time, and effort              for subsequent collaboration on
to get underway successfully.                              implementation
                                                       c. Enhances knowledge within each
The areas of next-step-initiatives outlined                sector of their respective roles,
below, and in the 2 following boxes, are                   assets, and current weaknesses in
more informed by social finance and                        being effective SIB partners
innovation   expertise    than     detailed            d. Cultivates the interest of potential
knowledge    of   internal      government                 social investors
                                                     Building a National Community of
Critical Issues to Address                            This community should be networked
Any strategy on next steps needs to address           into global SIB leadership institutions
the following issues:                                 developing core knowledge, lessons
                                                      learned, and best practices
 Researching        SIB     opportunities
  Identification of the best opportunities           Supporting Canada’s Innovation Eco-
  to apply the SIB in Canada                          system
                                                      Support the building of Canada’s
 Catalyzing leadership across all sectors:           innovation eco-system, and its ability to
  public,     private    and      non-profit.         promote community innovation and
  Identification and support for a                    cross-sector solution generation. (See
  leadership institution or civic partnership         Building the Enabling Ecosystem for
  capable of convening and coordinating               Social Impact Bonds on Page 22.)
  the key stakeholders for implementation
  of an inaugural SIB                               On the next two pages, this report
                                                    concludes with suggestions for how
 Creating an infrastructure for the SIB            government policy can strengthen the
  Tasking and supporting appropriate                enabling ecosystem for SIBs and suggests a
  institutions and partnerships with the            possible multi-stage scenario for how an SIB
  creation of the core instruments to be            could develop a focus, initiate a partnership
  brought together to implement the SIB             framework, be convened, implemented,
                                                    and evaluated.
Building the Enabling Ecosystem for Social Impact Bonds

 Invest time, resources and policy in the enabling terrain for social innovation

 Government can play a critical role in                       training and generate knowledge about
 speeding the broad development of the                        cross-sector partnership building
 innovation and social finance ecosystem in
                                                             Pilot nesting an Innovation Lab outside
 a variety of ways:
                                                              government in a aligned non-governmental
                                                              agency (e.g. at an innovation hub) that
     Participate in the existing innovation and
                                                              overcomes the “innovator’s dilemma” and
      social finance networks that support
                                                              permits greater risk-taking
      communities of practice
                                                             Participate in cross-sectoral learning tables
     Remove barriers to non-profit innovation by
                                                              on innovation and innovation processes in
      a) modernizing the four heads of charitable
                                                              partnership with business, charitable, non-
      purpose (e.g. borrowing the expansion of
                                                              profit, academic and social enterprise
      charitable purposes from the UK), b)
      introducing a “destination test” for non-
      profit earned income (i.e. making it more
                                                             Expand, support, and align incentives for
      flexible for charities to pursue earned income
                                                              departmental innovation activity and
      activities as long as surpluses are earmarked
                                                              knowledge building; consider creating
      for mission, using a proven UK policy
                                                              positions of “social entrepreneur in
      framework), and c) broadening foundation
                                                              residence” who could coach and mentor
      endowments’ use of program related
                                                              departmental        intrapreneurs leading
      investments (PRIs)
                                                              innovation initiatives
     Enable new hybrid structures and tax
                                                             Guide the evolution of existing government
      incentives for organizations like a
                                                              supported business development programs
      “Community Enterprise Company”
                                                              to include clients working on innovative non-
                                                              profit social enterprises and for-profit social
     Consider a government office of innovation,
                                                              venture businesses
      which working across departments would
      highlight, incubate, support and policy enable
                                                             Encourage the expansion of financial
      different key aspects of an effective
                                                              intermediaries serving the social finance or
      innovation and social finance ecosystem
                                                              impact investing capital users (e.g. a “non-
                                                              profit finance fund” providing working capital
     Expand funding for innovation initiatives,
                                                              to non-profits, mutual funds holding non-
      pilots, multi-funder consortia, exploring new
                                                              profit or affordable housing mortgages, etc)
      funding models and new ways to collaborate
      with private and public foundations,
                                                             Endow a specialized innovation program
      promoting cross sector partnerships and
                                                              embedded in an existing institution (e.g.
      collaborations, incubating models for
                                                              Public Policy Forum) that would allow for
      collective action and coordinating activity
                                                              cross-sector     experimentation   around
      organized around responding to priority
                                                              innovative public policy solutions
      needs (e.g. aging, overcoming employment
      barriers, etc.)
                                                             Develop cross-departmental initiatives that
                                                              help overcome silos and build an inside-of-
     Support development of business school
                                                              government community of practice
      based “Partnership Centres” to provide

                                           Social Impact Bonds: Potential Applicability for Canada |21
 Scenario for Piloting the First Social Impact Bond
            STAGE ONE                               STAGE TWO                                STAGE THREE                              STAGE FOUR
 Task a consultant to develop             Bring the consultant report back         Commission an institution to            The SIB has completed its mandate
  potential SIB issue areas for a first     into the department for review            convene and support a multi-             and the contract is fulfilled with
  pilot; this process would include         and for short-listing most likely         sectoral SIB partnership, develop        government’s payment for results;
  research and focus groups on the          areas to proceed to feasibility           the needed components of an SIB          government could continue to
  applicable SIB domains identifying        stage; leverage knowledge gained          ranging from developing the              support an SIB model, decide to
  opportunities and challenges for          for outreach to other government          opportunity intervention, drafting       fund the intervention itself or do
  implementation, identifying               departments;                              the contract with government,            both
  potential next steps, and                                                           developing the contracted metrics
  researching and identifying the          In parallel, work to identify and         for performance outcomes that           The developmental evaluation is
  outside-of-government                      build relationships with likely          provide the incentives needed to         used to guide incorporation of
  institutions capable of supporting         private sector, non-profits and          encourage investors for the model,       lessons learned for future
  the different phases of SIB                foundations or other levels of           etc.                                     generations of SIBs and/or help
  development, implementation                government that potentially could                                                 with the expanded adaptation of
  and monitoring; review how the             be partners on the bond;                Link an ongoing developmental            the underlining concepts of an SIB
  underlining SIB concepts have              Ministerial participation would be       evaluation of the SIB to support for     into other forms of commissioning
  already been used in                       necessary to successfully convene        the national community of practice       outcomes by government
  departmental funding programs              an all-sector knowledge-and              on SIB’s. Innovations are by their
  and how they could be expanded             relationship-building Roundtable         very nature iterative. A companion
                                             on the SIB; an alternative to a one-     developmental evaluation
 In parallel, develop an informed           time Roundtable would be the             throughout the SIB process (as
     constituency inside the                 appointment of a Ministerial             opposed to an end-of-pipeline
     appropriate department about            Expert All-Sector Advisory Group         evaluation) would strengthen its
     the SIB and its potential through       to help map a multi-step process         implementation and track insights
     educational forums and invited          leading up to the first SIB              and lessons relevant for future
     speakers                                                                         adaptation

                                                                                     In parallel, help coordinate
                                                                                      government program and policy
                                                                                      support for the longer term SIB
                                                                                      market infrastructure

  For more on developmental evaluations see Jamie A.A. Gamble, A Developmental Evaluation Primer, The J.W. McConnell Family Foundation, 2008.
Downloadable at:

Many people and institutions have generously shared their time and expertise contributing to
our knowledge used in preparing this paper. They include: Toby Eccles and Emily Bolton of
Social Finance UK; Tim Brodhead, Al Etmanski, Frances Westley, Allyson Hewitt, Stephen
Huddart and Cheryl Rose of Social Innovation Generation; Charmian Love of Volans; The Young
Foundation; Arthur Wood; Antony Bugg-Levine at The Rockefeller Foundation; Nora Sobolov;
Karim Harji and Bill Young at Social Capital Partners; draft reviewers at HRSDC and Stacey
Corriveau; and our colleagues at Causeway. Any errors are the responsibility of the authors.

                                   Social Impact Bonds: Potential Applicability for Canada |23
Appendix A: Creating an Enabling Environment
Social innovation continues to gain                       Specifically, some of the factors impeding
international recognition as a means to                   innovation are:
solve the most complex social challenges. It
is used either because traditional                         FUNDING – Chronic underfunding erodes
approaches have been ineffective, or                        key strategic assets including R+D
because changed circumstances call for new                  budgets and spending
understandings or approaches.16
                                                           KNOWLEDGE – Lack of knowledge on
Given the current economic downturn and                     how to develop, pilot and scale new
the prospect of increasing public sector                    innovation; lack of governance familiarity
deficits and budgetary cutbacks, Canadian                   with managing innovation risk
non-profit organizations are compelled to
find new and more sustainable sources of                   CAPITAL – Lack of seed capital for
capital to fund their innovative practices.                 innovative social entrepreneurs
Government is well positioned to support
these initiatives through policy, increased                CAPACITY BUILDING – Lack of access of
funding for innovative ideas and through                    non-profit organizations to business
fostering more public-private partnerships.                 support programs or hubs17

Innovation can expand and deepen an                       Social problems are increasingly complex
enabling environment in various ways:                     and outstrip the capability of any one
                                                          organization or single sector to address.
 Creating a new financial mechanism to                   Successful innovation in the social realm
  increase the speed and scale of                         relies on broad-based civic alliances to
  initiatives by leveraging external                      generate, build and implement solutions.
  resources                                               The most transformative innovations tackle
                                                          systems and mobilize all four sectors –
 Exploring ideas through collaborative                   business, government, non-profits, and
  partnerships;    encouraging    action                  households. Success depends heavily on
  through multi-sector engagement                         grass root, community-led initiatives that
                                                          are then taken to scale using a phased
 Building out a supportive ecosystem                     approach and cross-sector collaboration.

 Mitigating the risk of unproven initiatives             Figure 3 describes a bottom-up, phased
  by partnering with new stakeholders                     approach to scaling innovation.

 Leveraging cost savings

                                                             Two exceptions are the advisory services available
  Brodhead, Tim “On not letting a crisis go to waste:     through Toronto’s MaRS Discovery District and a
an innovation agenda for Canada’s community               different model of services available through
sector”, The Philanthropist: Volume 23, 2010.             Waterloo’s Accelerator Centre.

                                            Social Impact Bonds: Potential Applicability for Canada |24
The Vital Role of Non-profit Organi-                         services outstrips supply and organizations
zations in our Economy                                       are continually expected to ‘do more with
                                                             less’. 18 Earned revenue, the sale of
Non-profit organizations recognize that                      products, memberships, and fee-for-service
they have a growing set of options to meet                   offerings are growing as a percentage of
their financial needs – government support,                  core non-profit revenue19 but organizations
foundation       contributions,    personal                  remain constricted by limited funding
donations or by creating an enterprising                     options. As demographics change and
arm of business to generate revenues.                        government deficits force grant reductions,
Notwithstanding, demand for non-profit                       there is a need for more or better access to

 Figure 3: Financing Social Innovation – A Phased Approach
                                                                A Nonprofit Finance Fund survey of non-profit
                                                             groups found that 80% expect demand for services
                                                             to increase while 65% have reported a decline in
                                                             funding over recession period
                                                                According to Imagine Canada, core non-profit
                                                             services earn 43% of their revenues, while 36%
                                                             comes from grants and contributions, with another
                                                             11% from individual donors

                                               Social Impact Bonds: Potential Applicability for Canada |25
different capital sources to support new                  Prominent examples in the US include the

              Civic society will have a crucial role in this third generation of public service as social
         enterprises and not-for-profit providers so often ensure that public service meets people’s
                                                needs, especially those of hard to reach communities

                                                                                            - Gordon Brown
                                                                             Prime Minister, United Kingdom

and evolving business models.                             Nonprofit Finance Fund21 and Calvert
                                                          Foundation’s      Community      Investment
Some social sector organizations have the                 Note.22 Both models have successful
equivalent of for-profit seed capital through             financial track records while also build the
philanthropic support and grants, but                     organizational capacity of non-profit
almost no working capital or venture                      organizations. In Canada, the Canadian
financing.20                                              Alternative Investment Cooperative23 has
                                                          been financing charities and non-profits for
A market-based investment approach to                     almost three decades.
non-profit capitalization has been studied
and tested in varying contexts globally for               Investment tools and vehicles are emerging
many decades.                                             that have multiple goals: combining
                                                          financial dividends with measurable social

                                                             See for more
                                                             See for more
20                                                        23
     Brodhead, Tim, op cit                                   See for more information

                                           Social Impact Bonds: Potential Applicability for Canada |26
Appendix B: Introduction to Social Finance
Traditional investment capital is being                   A bridge loan to a non-profit
repurposed and a new investor class is
emerging; individuals, institutions, privately            A financial asset raised from private
held     organizations and        commercial               investors with repayments distributed
investors are exploring the realm of social                based on social impacts and cost savings
finance.     By definition, a social finance
approach is a sustainable means of                       The myriad of financial vehicles with a social
managing money that takes into account                   motivation noted above have subtle
social and environmental considerations in               differences but the takeaway is the same: a
addition to the financial bottom line. The               growing amount of investment capital is
approach contemplates the investment                     being repurposed to achieve blended value
actions of        investors/funders    (social           returns.
investors) as well as blended value
enterprise (BVE)24. BVEs include both for-               In each of these models, blending the value
profit social purpose business and non-                  of social, environmental and financial
profits or charities.                                    returns will create a holistic calculation of
                                                         return on investment, sometimes referred
Broadly, social finance includes a continuum             to as social return on investment (SROI).
of finance mechanisms:                                   This type of return (double or triple bottom
                                                         line) has become increasingly important for
 A grant to cover program costs and a                   investors seeking to invest in organizations
  loan to cover operational costs for a                  that provide the best opportunity for
  charity                                                positive outcomes in addition to a financial
                                                         return. One result, non-profit organizations
 Start-up venture capital from an impact                are expected to demonstrate their value in
  investor   for    a    budding    social               ways that they have not been asked to
  entrepreneur/enterprise                                before. These forces are moving social
                                                         capital in a competitive direction,
 Equity or quasi-equity program-related                 resembling the dynamics of a traditional
  investment (PRI) by a foundation for a                 market.
  social enterprise
                                                         What returns can social investors
 Microfinance (small loans)               for    a      expect?
  community partnership
                                                         Similar     to    traditional    investment
 Community development investment                       methodologies, investors will choose an
  from a socially responsible investment                 investment strategy that satisfies their
  (SRI) fund                                             capital return expectations within their risk
                                                         parameters. The key difference is that
                                                         social investors will factor in social
24                                                       outcomes as part of their anticipated
  Adapted from Love, C et al. “Building the Case for
Social Finance in Canada”: Causeway, (2009).             return.

                                           Social Impact Bonds: Potential Applicability for Canada |27
                                                                     Figure 4: Expected Return by Finance Vehicle

The financial return in a social investment               The Current State of Social Finance
context could be market rate return,                      in Canada
charitable or zero return, or a mix between
the two25. Figure 4 offers an illustration of             Canada’s social finance market is nascent.27
the spectrum of investments and expected                  Efforts to expand capital for blended value
returns.                                                  purposes remains uncoordinated28 but
                                                          there are pioneering examples, such as
As competition for investment dollars                     Fiducie du Chantier de l’economie sociale in
becomes increasingly tight, the differences               Quebec, Edmonton Social Enterprise Fund,
between      non-profit    and     for-profit             and Vancity Credit Union in British
organizations become more relevant. The                   Columbia, that are paving the way for
tension between the two sectors is largely                expansion.     The development of new
due to a lack of level playing field.                     models and financial vehicles are
Significant barriers - legal, tax and fiscal              contributing to the emergence of this
policies, and organizational and societal                 market.29
cultures - currently work together to
emphasize the differences between non-
profit, for-profit, philanthropy, and
government.26 It is largely understood that
the unfavourable economics surrounding
non-profits force their hand in relying on
grants and non-repayable contributions.

Social finance does not seek to displace
grant funding or to imply that all
organizations should move beyond grants.
The management of some non-profits are
not conducive to an enterprising approach
to revenue generation.

25                                                        27
   Golden, K et. al. Social Entrepreneurship: Part 1:        Love, Charmian. Op cit
Social Venture Finance. MaRS Whitepaper Series,              Monitor Impact Investing Report (2009)
2009                                                         For an overview of the current social finance
   Bishop, M et al. “The Capital Curve for a Better       discussion, see, the thought
World”. Innovations: MIT Press, January 2010.             leadership platform in Canada

                                            Social Impact Bonds: Potential Applicability for Canada |28
  New methods and approaches are disruptive. If we believe we face short-term strains, we will
    respond in traditional ways, tightening belts, and getting on with it; but if we believe we are
   now in a world of constant, accelerating change, we must become leaders in making Canada
  and Canadians more resilient, adaptable, and creative in finding sustainable solutions to long-
                                                                       standing social challenges.

                                                                                       Tim Brodhead
                                                                          McConnell Family Foundation

Appendix C: Social Metrics: An Indispensible Ingredient of SIBs
Detailed social impact measurement is               Foundation Center project30, an initial scan
needed to create and apply stakeholder              found over one hundred and fifty
contracts in the development of a bond              approaches to measuring and analyzing
agreement.     Measurement is complex,              social impact for programs and investment.
especially in the social sector. Explaining         A matrix depicting some of the popular
measurement approaches is not the paper’s           measurement toolkits and standards used
purpose, but a brief overview is provided           globally is found in the figure below. It is
because of the significance of the concept          important to note that measurement
to the model.                                       approaches to date are heavily biased
                                                    towards quantitative metrics.
In a broad, socio-economic context,
measurement approaches have been                    Historically, there has been no consistent
developed to fit the needs of individual            approach to using social impact metrics.
initiatives or themes. For example, REDF’s          There has been incremental advancement
(formally Roberts Enterprise Development            in the field but there is demand for systemic
Fund) pioneering work on Social Return on           change. A common argument against social
Investment (SROI) was initially conceived to        impact measurement is that the resources
measure the benefits of employment                  needed to track and measure initiatives
programs. SROI is a way to measure non-             outweigh the benefits; particularly in cases
financial value and communicate the                 where social impact is challenging to
analysis to relevant stakeholders.                  quantify.

Depending on the availability of funds and
time constraints, organizations have either
adapted the SROI methodology to meet
their needs or they have developed their
own measurement models altogether.
According to TRASI (Tools and Resources for
Assessing Social Impact) a McKinsey and
                                                      For more information on TRASI and each of the
                                                    toolkits in the diagram, see

                                      Social Impact Bonds: Potential Applicability for Canada |29
                                             Figure 5: Matrix comparing common measurement toolkits in use today

The challenge is that a robust social                 The goal is to build on sector-specific efforts
investment marketplace, one that will                 to create a common language that will
motivate investors to explore new social              allow comparison and communication
finance mechanisms like Social Impact                 across the breadth of organizations that
Bonds, requires reliable social impact                have social or environmental impact as a
measurements. To address this need, a                 primary driver.31 Like all previous
dedicated, high profile initiative has been           approaches, it is recognized that the
rolled out called IRIS (Impact Reporting and          ultimate success of the measurement
Investment Standards) to mirror the quality           initiative will depend on the endorsement
of standards in traditional, fully functioning        of a critical mass of organizations in
capital marketplaces.                                 addition to these early adopters.

IRIS stems from the initial efforts of the
Rockefeller Foundation and is now
supported by a host of partners in the
United States including Pricewaterhouse-
Coopers, Deloitte, and B Lab. It is a shared
framework for defining, tracking and
reporting on the performance of impact
capital in a standardized way.                        31
                                                         IRIS is endorsed by major private institutions and
                                                      investors such as The Bill and Melinda Gates
                                                      Foundation, Acumen Fund, and The Global Impact
                                                      Investment Network

                                      Social Impact Bonds: Potential Applicability for Canada |30
Appendix D: Glossary
Blended Value: refers to a business model that combines a revenue-generating business with a
component which generates social-value. The term is usually attributed to Jed Emerson, and
sometimes used interchangeably with triple bottom line and social enterprise.

Community Enterprise Company: typically defined as a specialized form of community-based
organization that has both commercial and social aims and objectives.

Social Impact Bond: a financial vehicle that attracts non-government investment to pay for
services which, if successful, deliver both social value and public sector savings. Investors
receive a financial return from a portion of the cost savings delivered.

Social finance: the deliberate, intentional application of tools, instruments, and strategies to
enable capital to achieve a blended value return (i.e. social dividends and an economic return).

Social innovation: the successful application of new ideas in ways that produce positive social,
environmental, and cultural outcomes.

Social Investor: an individual, private funder or financial institution that actively deploys capital
seeking social and/or environmental benefits.

Social Return on Investment (SROI): the total social, environmental, and economic value of an
activity undertaken by a non profit organization or business.

Office of the Third Sector: housed within the UK Cabinet Office, the Office of the Third Sector
(OTS) leads work across Britain’s government to support the environment for thriving voluntary
and community groups, social enterprises, charities, cooperatives and mutuals.

Program Related Investments (PRI): an investment made by a foundation to further its exempt
activities, in which the production of income is not a significant purpose.

Recidivism: relapsing into delinquent or an undesired behaviour.

Root Cause: term used to describe the depth in the causal chain at which an intervention could
reasonably be implemented in order to change performance and prevent an undesirable

                                       Social Impact Bonds: Potential Applicability for Canada |31

To top