Monday was UK-centric, Tuesday US-centric and today is perhaps the most global day since I launched this modest synopsis of the news in the SIB world – with stories from Australia, Bangladesh, Scandinavia and of course the UK and US amongst those mentioned in despatches…
Australia’s Constance On NSW’s Ground-Breaking Social Impact Bonds Policy
Vibeka Mair – Responsible Investor
On February 4 2015, the government of New South Wales in Australia released its Social Impact Investment Policy – the country’s first.
The policy builds on the success of its social benefit bonds (SBB) pilot programme, the Australian version of social impact bonds (SIBs), where private investors financially back social interventions.
The A$7m (€4.9m) so-called ‘Newpin’ pilot is backed by institutional investors including NGS Super and Christian Super – and delivered a 7.5% investment return last year.
The SBB aims to restore children to their families and prevent at-risk children from entering care. Another family-focused SBB is in operation in NSW – the A$10m Benevolent Society Social Benefit Bond, where investors include the Commonwealth Bank of Australia and global insurer QBE, who has earmarked US$100m for SIBs around the world.
This SBB is also showing early signs of success, according to the NSW Treasury. Responsible Investor speaks to NSW Treasurer Andrew Constance about its new policy setting out how the government will grow a social impact investment market, its burgeoning SBB landscape and why it is targeting institutional investors.
UK Launches 7 New Social Impact Bonds, Nordic Countries Gear Up To Follow
Vibeka Mair – Responsible Investor
The UK government has announced seven new social impact bonds to support vulnerable children and launched a charitable foundation to support social investment. The move comes as Sweden is set to launch its first social impact bond later this year, and separately JP Morgan announced two new impact investment funds. The announcements are signs that the social finance market is growing quickly.
Social Impact Bonds For Factories In Bangladesh
Motoko Aizawa (MD USA of the Institute for Human Rights and Business) – Forbes
The two main initiatives established in response to the 2013 Rana Plaza disaster in Bangladesh, where nearly 1,200 garment workers lost their lives from a factory collapse, are wrestling with a critical question: Who should pay for the work needed to ensure basic factory safety standards in Bangladesh?
It turns out that the global economy has enough financial assets, yet funds don’t always flow in the areas where they are needed. The global debt market is around $78 trillion and growing. Every week, an average of $100 billion in investment-grade bonds are issued. There is a huge push to access this debt market for all sorts of pressing financing needs, including combating climate change. At the same time, governments and public-private partnerships are also applying bond proceeds to achieve various humanitarian and social outcomes. For example, so-called vaccine bonds have raised more than $4.5 billion since 2006. More recently, municipalities in the UK and the US are experimenting with social impact bonds to reduce recidivism in prisons, improve foster care, and tackle homelessness. The backdrop for these experiments is the broader social impact investment movement.
Impact Investing: Three Factors To Consider
Tania Carnegie (Leader, KPMG Impact Ventures) – Forbes
Momentum around impact investing continues to build. There is an increase in both investment opportunities and funds committed by impact investors. Last month, BlackRock, the world’s largest money manager, announced a new business unit dedicated to impact investing.
Critical success factors
KPMG interviewed a select group of leaders in venture capital, wealth management, banking and capital markets, and other areas of traditional finance. We wanted to understand their perspectives on impact investing and opportunities for government policy to stimulate the investment of more private capital in achieving positive social outcomes.
Three themes emerged that are relevant to policy makers, financial institutions, investors and ventures.
1. Attention to detail
Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing, recently commented: “If we want this market to really grow, we have to make sure we go into this in a ‘best in class’ way.” Robust implementing agreements and comprehensive due diligence are therefore critical.
Implementing agreements for social impact bonds must address the allocation of commercial risk. However, this does not mean that all risks can be allocated to intermediaries and investors. For example, funding agreements that provide the government with the unilateral ability to reduce its level of funding or terminate the agreement altogether should provide for a minimum reimbursement to investors.
2. Clarity around investor motivation
A number of factors may motivate an investor to enter this space – such as the desire to be an early adopter, to extend existing philanthropic efforts, or to seize a good investment opportunity – as well as the pursuit of financial returns.
KPMG in Australia’s evaluation of the planning and development of the country’s first social benefit bonds revealed that the bonds attracted new impact investors. Over 70% of investors in the Newpin bond indicated they would have otherwise used their funds for commercial investment, not philanthropy.
Investors in The Benevolent Society bond indicated that four factors of equal weight influenced their decision to invest: level of risk, financial return structure, reputation of the service provider, and government involvement.
3. The role of government
Government involvement made a difference to investors in The Benevolent Society bond; our discussions with executives from financial institutions confirmed that the way government engages also influences investor behavior.