Social Impact Financing

Cabinet Office UK

A social impact bond (SIB) is a contract with the public sector or governing authority, whereby it pays for better social outcomes in certain areas and passes on part of the savings achieved to investors. A social impact bond is not a “bond”, per se, since repayment and return on investment are contingent upon the achievement of desired social outcomes: if the objectives are not achieved, investors receive neither a return nor repayment of principal. SIBs are increasingly being piloted as additional funding mechanisms to existing government support for improving public health and launching new health promoting initiatives.


SIBs derive their name from the fact that their investors are typically those who are interested in not just the financial return on their investment, but also in its social impact. SIBs are a new mechanism providing investment to address social challenges, including health promotion and disease prevention. The mechanism can be visualised through the social impact bond diagram. In straightforward language, SIBs can be understood as a loan made by an investor, where repayment is linked to the achievement of specific agreed-upon health (or social) outcomes.

There are currently more than 120 impact bonds in 24 countries worldwide, mobilising over €330 million of investment into tackling complex social issues such as refugee employment support, loneliness among older people, rehousing and reskilling homeless youth, and diabetes prevention.


While more time is needed to make an overall evaluation of SIBs' effectiveness, in the right circumstances and developed in the right way and for the right projects, social investment bonds could be a useful tool to boost investment into innovative health promoting projects and enable public authorities to share the risk of such investment with private investors. Investments that directly improve social spaces, the lives of citizens, and improve the quality of social and health services being provided can increase the value of the social investment asset which will attract the interest of investors.


Considering the potential risks of social impact bonds

While social impact bonds are clearly an exciting new avenue to introduce innovations and improvements into the delivery and funding of health promoting services, they do not come without risks. Care must be taken that promising new funding instruments like SIBs do not result in ‘cherry picking’ or ‘creaming', which is targeting the ‘easiest’ participants or results to support to the detriment of the rest of the participants or programme. This type of perverse incentive can be avoided through careful design and service specification.


In addition, SIBs should never replace mainstream public funding and responsibilities of national, regional and local governments. However, they are well placed to pilot actions and interventions in order to demonstrate effectiveness, and secure more traditional funding for the long term and for scaling up. They can also be utilised to boost investment into health promotion and prevention measures by sharing the risk between public and private investors.

More information about Social Impact Financing is available on the Reports & Publications page.

Case studies

As a response to the global displacement crisis which peaked in 2015, the Finnish government decided to establish a social impact bond focused on the employment of immigrants. Unemployment, particularly long-term unemployment, represents a huge risk of social exclusion for immigrants; thus, finding stable and quality employment is a very important part of the integration process. The Finnish Innovation Fund Sitra proposed the idea of a SIB that would offer immigrants work-life oriented training. The subsequent three-year (2017-2019) pilot Koto-SIB for the employment of immigrants kicked off in 2015. The objective was for immigrants to enter the labour market on average four months after the training has begun. The training was followed by further on-the-job training and includes language, culture and professional skills studies.


Outcomes were measured by the following two indicators: unemployment benefits and income tax. The expectation was that the proportion of unemployment benefits paid to the people involved in Koto-SIB was smaller and that they would contribute with greater income taxes in contrast to the control group not involved in the programme. The service providers were first paid based on direct operations costs, but the rest of the payments were based on outcomes. This structure incentivised service providers to do their best to find suitable and quality work for every participating individual.


While this is certainly a promising initiative, it is important to note that not every immigrant is able to participate in these services, due to age, disability, or other conditions that render them incapable of participating in the labour market. This SIB must be complemented by additional services and programming to make sure no one is left behind. This includes strong measures to ensure that reliable, well paid jobs are included and that new arrivals have a voice on an oversight committee to ensure that their voices are heard throughout the process.


Figure. Pilot Koto-SIB for the employment of immigrants


Please find the highlights of the Koto-SIB case study here.

Logo Heart and Stroke Foundation CanadaThe Heart and Stroke Foundation of Canada launched a SIB, the Activate Programme, in 2018. This programme was developed in response to the high rate of heart diseases and stroke. Activate is a lifestyle-change programme to help people at risk of developing hypertension (one of the most important risk factors for heart diseases) to adopt healthier habits to get their blood pressure under control. This is Canada’s first health-related SIB.


The Health and Stroke Foundation selected this instrument as it allowed them to innovate and develop their own governance structures. They approached the Centre for Impact Investing seeking help to establish this bond. The main negotiation involved establishing the rate of return on investment for investors that took place between the Foundation and the federal government. (In Canada, prevention is a responsibility of the federal government while the provinces are mandated to manage healthcare).


The Activate Program

The Activate program is a 6-months community wellness program that was designed to prevent the onset of hypertension (high blood pressure) among older adults. It is funded by a social impact bond through a pay-for-success model over the course of 3 phases from 2018 to 2020.

  • The outcomes of success for the Activate program are measured by the volume of enrolments and the average change in blood pressure between recruitment and a follow-up after at least 6-months of the program.
  • The target for success was set by cardiologists at no increase in blood pressure readings, but an overall decrease is even more desirable. Without intervention, half of pre-hypertensive people in Canada over age 60 will go on to develop high blood pressure within four years.
  • Cohort 1 of the Activate program enrolled 527 participants into the program and we observed an average change in blood pressure of -5 mmHg systolic.
  • As of Week 19 in Cohort 2, there were ~1950 enrolled new participants, and the team expanded the program beyond the initial plan of the Greater Toronto Area to include several other regions in Ontario, Canada.


Hypertension is the number one risk for stroke and leading risk factor for heart disease. Without intervention, half of all pre-hypertensive people over 60 in Canada will develop hypertension within 4 years. Heart disease & stroke are leading causes of death, taking the lives of more than 66,00 Canadians every year. This program is an opportunity to assess the impact of preventative health measures on hypertension. The target for success was set by cardiologists at no increase in blood pressure readings, but an overall decrease is even more desirable.


Funding for Activate comes from a pay-for-success (PFS) model or social impact bond (SIB). Working closely with the MaRS Centre for Impact Investing, Heart & Stroke has attracted philanthropically minded private investors to provide upfront capital. The federal government, through the Public Health Agency of Canada, repays the investors based on successful outcomes. This is only the second time in Canada that this funding model has been used, and the first time for a large-scale chronic disease prevention initiative.


Measuring outcomes

The Activate program uses two main outcome measures to determine its success. The first is volume; how many people are enrolled in the program? So far, 7000 people have been enrolled. The second outcome is blood pressure; were we able to halt the increase in blood pressure over the 6 month journey? Success was defined as a flattened blood pressure trajectory (meaning no increase). A decrease in blood pressure is seen as an over-performance.


Payment for investors

Investors get paid after the recruitment phase of each cohort based on volume, as well as a final payment based on blood pressure reading. The program entails 4 key payments:

  1. Volume Payment 1 - Summer 2018
  2. Volume Payment 2 - Summer 2019
  3. Volume Payment 3 - Summer 2020
  4. BP Payment - end of the entire program, so early 2021 if not the very end of 2020


The rate of return depends on both volume and blood pressure at the end of the program. While the funds come from the federal government, the outcome payments do not come from funds for existing for services (e.g., hospitals).


Find the full case study of the Activate program here.

Commissioners from the health system and local authority adult social care providers in Worcestershire, England introduced a social impact bond in 2014. The different stakeholders came together and decided that the relationship between loneliness, health and service use provided a rationale for expanding services to address loneliness and social isolation in the community. The service commissioners were attracted by the SIB mechanism, under which investors fund the service up front and commissioners only pay if outcomes are achieved. The commissioners were interested to transfer some of the delivery risks in developing the programme and keen to stimulate innovation and adaptation.


The Reconnections programme

Logo Reconnections ProgrammeThe end result of this approach was the ‘Reconnections’ programme. This programme takes a tailored approach to the needs of participants. A volunteer or caseworker supports an identified person in need over a period of six to nine months to re-engage with interests and social relationships of their choice and overcome practical and emotional barriers. Since its launch in 2015, over 1,300 older people have been supported. On average, self-reported loneliness is significantly lower at 9 months and 18 months after entering the service. Early evaluations by the London School of Economics are also positive and the service has been held up as an exemplar by national policy makers on how to tackle loneliness and social exclusion in later life.


Payment for investors

In the case of Reconnections, the social impact being sought is a reduction in loneliness. Investors receive outcome payments for each aggregate reduction in self-reported loneliness using the UCLA self-reported loneliness question (a 12-point scale).


The payment metrics used in the programme are

  • = £740 (c.€850) per point reduction after 9 months after service start
  • = £240 per (c. €275) (sustained) point reduction 18 months after service start.


These outcome ‘tariffs’ were set due to growing evidence on the relationship between loneliness and poor physical and mental health and consequent healthcare and social care usage. A London School of Economics interim evaluation found that reducing loneliness in people who feel lonely most of the time could potentially save up to £6,000 per person in costs to the system over 10 years.


The service costs approximately £330,000 (€380,000) each year to support up to 430 older people a year (c. £750-800 per participant).  At the start of the service, investors provided £650,000 in up-front capital - £565,000 as debt and £85,000 as equity. In the first two years of running, the service was loss-making – however, as impact has grown, and 18 months payments have increased, the service is now making a small surplus.


By April 2020, commissioners are expected to have made outcome payments of around £1 million. The first £175,000 was returned to investors in early 2019 and subsequent payments are expected 2019-2021. However, it is not yet certain that investors will fully recoup all of their initial £650,000 investment given that service costs were more than originally anticipated. This is a clear risk that investors must face when deciding to invest in social impact bonds.


The full Reconnections case study is available here.