POLICY AND POLITICS: How are social impact bonds created and implemented?

POLICY AND POLITICS: How are social impact bonds created and implemented?

Toby Lowe, Jonathan Kimmitt, Rob Wilson, Mike Martin & Jane Gibbon

This section of Discover Society is provided in collaboration with the journal, Policy and Politics. It is curated by Sarah Brown.

In 2010, the UK’s Ministry of Justice established the first Social Impact Bond (SIB) – a new policy tool, designed to link the outcomes of social interventions to payments. The idea was that the financial risk of these interventions would be borne by a private investor rather than public funds.

These tools work by bringing together public commissioners with (typically) socially oriented investors and particular organisations who deliver social interventions (e.g. to reduce unemployment). This private investment is then used to facilitate the work of these organisations. If or when the outcomes of that particular intervention are attained then public commissioners repay investors at an agreed rate of return. These outcomes are typically evaluated by a third party and the process managed by a Special Purpose Vehicle which provides managerial oversight and acts as a key intermediary in the process. Undoubtedly, SIBs represent a complex policy multi-stakeholder policy tool.

In our recent research article published in Policy & Politics, we set out to offer one of the first detailed accounts of how these mechanisms are created and implemented. Current understanding of SIBs is somewhat polarised. On the one hand, some have discussed them as an innovative public policy tool that allows the state to fund ‘what works’ through a focus on outcomes. Ultimately, this should benefit the state by preventing seemingly intractable social problems through interventions that are shown to work. For example, health interventions which keep people out of hospital should reduce the burden on the state in already stretched hospitals. Prior research has also indicated that SIBs could be beneficial to such organisations by pushing them to capture and report social impact, which is valuable in an increasingly competitive funding landscape. In the context of austerity in the UK, it has also provided an additional stream of funding for a stretched social sector.

On the other hand, research has criticised the focus on outcomes because of how it narrows the scope of what can be funded i.e. one can only fund what can be measured and proven. This is problematic as funding needs and outcomes may not always be aligned. This strand of research generally discusses the pitfalls of ‘payment by results’ approaches which may significantly distort the behaviour of those involved. For example, the ‘gaming’ of outcomes has been identified in a number of public sector contexts when it is the central factor in that organisation and/or individual’s performance. Criticisms of SIBs also exist at a more ideological level. For example, a number of authors have argued that they further the trend of marketization in the delivery of public services, with some deeming the financial reward for investors from public funds as controversial.

Despite the prior research and clear interest in SIBs, little empirical detail exists regarding their creation and implementation. Our results highlight three levels of analysis (macro, intermediate and micro) where tensions and congruencies can be found. Our analysis of key stakeholders within an emerging SIB based in a northern city in England demonstrated two underpinning ‘discourses’ and ‘institutional work’ associated with their creation and implementation. (1) a discourse associated with delivering a social intervention (2) a discourse associated with the SIB mechanism. Across the two year period of study, our findings show that these discourses can be closely aligned or at odds with one another depending on the level of analysis.

When analysed at a macro policy-making level, our findings show congruence between stakeholders as they plan to develop new mechanisms for funding and developing capacity in the voluntary sector. In the former, the SIB is used to highlight the need for better funding mechanisms for a sector which helps to tackle the social determinants of health, typically not funded by public commissioners. In the latter, there is a similar desire and a focus for a cultural change regarding the kind of work that commissioners view as valuable.

In addition, we identify significant tensions and conflicts at an intermediate and micro level. At an intermediate level, managing the complexity of the SIB contract and the performance of those delivering social interventions creates tensions as a result of the contract’s outcome-oriented targets. Here, individuals involved in the SIB begin to experience the pressure of performance-driven targets and the need to report the ‘right’ evidence for the contract, which is not always aligned with their important care work. At a micro-level, where the care work of the social intervention takes place, the SIB mechanism appears to elicit a set of conversations around producing the right data for the contract rather than care for the beneficiary. Therefore, whilst the discourse of change may be closely aligned at a policy level, it appears at odds at the intermediate and micro delivery levels.

Our study contributes to research in this area in two important ways. Firstly, it provides one of the first detailed accounts of SIB formation and implementation. Developing this account required a micro-level understanding of decision-making among the main actors involved. Secondly, it shows that the discourses associated with the “work” of setting up a SIB can be in conflict. If such tensions and conflicts are apparent in other SIB programmes then this has serious implications for how those contracts work and potentially the type of care received by beneficiaries.

This empirical research also now forms the basis for a future project investigating SIBs in a new context. With their growing popularity, SIBs are now seen as a potential method for financing poverty initiatives in the developing world. These have been dubbed ‘Development Impact Bonds’ but follow the same general idea of a SIB. There are now a number of these impact bonds in emerging economies which focus on a range of issues from coffee production in Peru to girls’ primary education in India. The latter has received notable attention for reporting promising results on enrolment and learning outcomes.

Through our work, the idea behind SIBs has gained notable attention in the emerging economy of Chile. In 2016, we published a report on the state and development of Chile’s social enterprise industry. In that report, we identified that the Chilean social economy suffers on four fronts: business models, investment, collaboration and impact measurement. Our data highlighted the lack of serious investment in the Chilean social economy and evidenced limited collaborative efforts to coordinate approaches to serious social problems. Most Chilean social enterprises also do very little in terms of measuring the social impact outcomes of their work. SIBs are a policy tool that relate to all such challenges and therefore hold some promise for the sector: (1) they allow organisations to potentially grow and develop their business models (2) they are a source of substantial long-term investment (3) they require collaboration with multiple stakeholders and (4) they focus on outcomes through impact measurement.

Our key task now is to consider how the learning from our recent research article can help shape a Chilean SIB and its broader social economy; we will provide insights and ideas into this in a forthcoming report on SIBs due out early 2019. We identified the congruencies and tensions across multiple levels of discourse. This raised the question as to how those tensions might be resolved to enable the actors to focus on the most important aspects of their work. If the SIB phenomenon continues to grow at its current pace then it is likely crucial that their future design considers how to mitigate some of the tensions we show at the intermediate and micro levels. Similarly, not all SIB contexts will show the macro-level policy congruencies our article shows. In short, understanding the “work” needed to create and implement a SIB across multiple levels is likely critical to its efficacy.


Toby Lowe is Senior Research Associate,  Jonathan Kimmitt is Lecturer in Entrepreneurship, Rob Wilson is Professor and Visiting Researcher, Mike Martin is Professor of Social Informatics and Jane Gibbon is Senior Lecturer in Accounting.  All are at the in Newcastle University Business School