Social impact investments
Improving the lives of the people of NSW is a key priority for the NSW Government. Social impact investment enables government, non-government organisations and private investors, to work together to address some of the biggest challenges that face our community.
In 2013, the NSW Government pioneered Australia’s first two social benefit bonds, seeking to deliver better services and results for families at risk. Building on the successful launch of the initial bonds, the NSW Government is committed to finding other opportunities to use social impact investment to deliver better services and results.
Social impact investments bring together capital and expertise from the public, private and not-for-profit sectors to achieve targeted social outcomes. Investments can be made into companies, organisations or funds, whether they be not-for-profit or for-profit.
Where investors are involved, they will expect their investment to be repaid and, potentially, to earn a return. Returns usually depend on the level of social outcomes achieved.
Social impact investments in NSW
The NSW Government now has five social impact investments and is working to develop more. The process and timeline for our investments outlined below.
In 2010, the NSW Government commissioned the Centre for Social Impact (CSI) to determine the feasibility of social benefit bonds in NSW. CSI concluded juvenile justice and parenting skills for at-risk families were suitable policy areas for a pilot.
Request for proposals (RFP)
An RFP for up to two pilot social benefit bonds was announced in September 2011. Applications closed in November 2011.
We received 11 proposals in the areas of out-of-home care and recidivism. Most proposals were made by not-for-profits from NSW.
Joint development phase (JDP)
Three proponents were selected to enter the JDP in March 2012:
- UnitingCare Burnside (out-of-home care)
- A consortium of the Benevolent Society, Westpac and the Commonwealth Bank (out-of-home care)
- Mission Australia and Social Ventures Australia (recidivism).
The purpose of the JDP was to work with the proponents to develop the financial instruments and service arrangements for each bond. We expected them to take six months, but they took closer to 12.
KPMG independently evaluated the JDPs for the two out-of-home care bonds at the end of 2013. The evaluation report outlines the planning and development of both bonds and the lessons learned by participants.
The recidivism bond did not proceed beyond this phase and is not included in the evaluation. The decision not to proceed was based on the aggregate challenges and risks of the proposed model, including the evolving nature of the justice and corrective services policy environment. The NSW Government appreciates the goodwill and efforts of Mission Australia and Social Ventures Australia in developing the model. We all learned a lot from the experience and these lessons have continued to inform our other activities.
Implementing the Newpin bond
We signed a contract with Uniting for Australia's first social benefit bond in March 2013. Social Ventures Australia marketed the bond, which was fully subscribed and closed earlier than expected.
In the three years to 30 June 2016, Newpin restored 130 children to their families. This is a cumulative restoration rate of 61% compared to 25% for similar families that were not part of the program. The program also prevented children in 47 families from entering care.
Investors received a 12.2% return in 2016.
Implementing The Benevolent Society bond
We signed contracts for our second bond in August 2013. The bond was marketed by Westpac and fully subscribed by October when The Benevolent Society began delivering services.
The success of the Benevolent Society's Resilient Families Service will be measured at the end of the five year bond when payments are due to investors.
We are evaluating both the structure and services of each bond. All evaluation reports are made available on this website as they are produced.
Social Impact Investment Policy
NSW Government’ Social Impact Investment Policy outlines 10 actions the Government will take to:
- deliver more social impact investment transactions
- grow the market and remove barriers
- build the capacity of market participants
A key commitment in the policy is to aim to bring two investments to market each year
1st Request for Proposals
The NSW Government opened the 1st request for social impact investment proposals to deliver better social and financial outcomes for individuals and communities in NSW.
The request for proposals identifies two preferred policy areas:
- supporting offenders on parole to reduce their levels of re-offending
- preventing or reducing homelessness among young people
Proposals focusing on other policy areas where also accepted.
16 proposals were received during this request for proposal round.
Joint Development Phase
The NSW Government selected two proponents to enter a joint development phase from its request for social impact investment proposals.
A proposal addressing each of the preferred policy areas in the request for proposals was selected. The policy areas were:
- supporting offenders on parole to reduce their levels of re-offending
- preventing or reducing homelessness among young people
The NSW Government worked collaboratively with each proponent to further develop the proposals during the joint development phase.
2nd Request for Proposals
NSW Government opened the 2nd request for social impact investment proposals to deliver better social and financial outcomes for individuals and communities.
The request for proposals (RFP) identified two preferred policy areas:
- managing chronic health conditions
- managing mental health hospitalisations.
21 proposals were received during this request for proposal.
2016 Statement of Opportunities
Building on the momentum and progress made in 2015, the NSW Government released the 2016 Statement of Opportunities. The statement identified policy areas the NSW Government believes social impact investment can achieve better outcomes for NSW communities.
May 2016 – Joint Development Phase
The NSW Government will work with two proponents to develop new social impact investments that will improve health outcomes. The two proposals were in two policy areas:
- managing mental health hospitalisations
- managing chronic health conditions
On TRACC Investment Launched
The NSW Government signed a contract to implement Australia’s first social impact investment to reduce parolee reoffending and re-incarceration in July 2016.
The success of the On TRACC investment will be measured regularly throughout the contract.
3rd Request for Proposals
The NSW Government opened its third request for social impact investment proposals to deliver better social and financial outcomes for individuals and communities in NSW.
The request for proposals identified three preferred policy areas:
- increasing permanency for children in out of home care, particularly through open adoption
- improving outcomes through early childhood education
- addressing youth unemployment.
The request for proposal was also open to proposals in other policy areas.
The Newpin bond
Newpin is an intensive program delivered by Uniting that helps parents build positive relationships with their children and break the destructive cycle of family relationships that lead to abuse and neglect. It has a solid evidence base and track record of successfully restoring children in out-of-home care to their families.
A social benefit bond was jointly developed by Uniting, Social Ventures Australia (SVA), NSW Treasury and the NSW Department of Family and Communities (FACS) to fund an expansion of the Newpin program in NSW.
SVA and Uniting raised $7 million from investors for the bond. Uniting is using this finance to deliver the program from four existing centres and open new centres over the life of the seven year bond.
FACS will refer clients in need of support that could benefit from the program. More information on the structure and details of the bond can be found in the Newpin information memorandum.
The bond’s key performance indicator is the restoration rate of children who enter the program. This rate is the proportion of children referred to the Newpin program that are returned from out-of-home care to their families. Returns to investors are determined by this rate.
The Newpin bond targets a financial return of 10-12% per annum. In the three years to 30 June 2016, Newpin had successfully restored 130 children to their families and supported another 47 families to prevent their children from entering out-of-home care. The cumulative restoration rate is 61% over three years compared to 25% for similar families that were not in the program. In 2016, this delivered a 12.2% return to investors.
All family restorations are independently decided by the NSW Children’s Court. Neither Uniting nor investors make these decisions.
For more information on the Newpin bond, please contact:
Social Ventures Australia (investment information)
+61 2 8004 6729
+61 407 673 759
+61 2 9407 3228
The Benevolent Society bond
The Benevolent Society bond is a joint venture of the Benevolent Society, Westpac Institutional Bank and the Commonwealth Bank . The $10 million bond will operate over five years to deliver the Resilient Families Service to up to 400 families and their children in NSW. The service will be delivered by the Benevolent Society.
It works with at-risk families for up to nine months, with an initial six week intensive period where staff build trusting relationships and address immediate crises in a family. Together, staff and families will deal with issues like:
- unstable housing
- debt problems
- regular income
- domestic violence
- substance misuse
- family functioning and relationships.
Over the long term, they work together so that changes will last, and families are able to cope with future challenges and use other community services to help them.
The Benevolent Society uses a Resilience Practice Framework, which incorporates professional practices and approaches that have been proven to be effective. In addition, the initial phase of the service has strong similarities with the successful US model, Homebuilders. Research shows Homebuilders has achieved significant improvements for families whose children had previously been in care or who had prior substantiated child protection reports.
Returns will be calculated when the five year bond expires, based on the performance of the program. Progress reports to investors are made periodically. For more information on the structure and details of the bond, read the information memorandum or the presentation to investors, which summarises the memorandum.
For more information on the Benevolent Society bond, please contact The Benevolent Society or:
Westpac Institutional Bank (investment information)
+61 2 8254 9116
+61 419 268 691
On TRACC Investment
The On TRACC (Transition Reintegration and Community Connection) is a social impact investment that supports parolees to successfully reintegrate into the community following their release from prison.
It complements and builds on existing support services for parolees provided by Corrective Services NSW.
On TRACC will work with up to 3,900 parolees over five years, and will be jointly delivered by Australian Community Support Organisation (ACSO) and arbias. The program provides participating parolees with enhanced support and referral services for up to 12 months following their release.
The social impact investment portion of the On TRACC program is jointly financed by ACSO and NAB, with government payments contingent on program performance. The On TRACC social impact investment is aa ‘payment by results’ model supported by a joint investment by the National Australia Bank and ACSO.
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 NSW social impact investments are the first in Australia, and among the first in the world. Victoria and South Australia launched their first impact investments in 2016 and 2017 respectively. Pilots are being developed in Queensland and New Zealand.
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 benefit investments 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 need to measure outcomes ensures accountability and adds to the evidence base of what works in service delivery.
How is a social benefit investments 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 initial bonds. 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 Newpin and The Benevolent Society and On TRACC 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 investments 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.
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.