Experts in financing social investment initiatives say New Zealand is in a prime position to tackle social issues via a social investment approach.
Finance Minister Nicola Willis confirmed a new fund, managed by a Social Investment Agency, would begin investing next year.
Design for the fund would begin soon, with a range of financing options considered, including social bonds.
Social Ventures Australia Impact Investing director Kirsten Armstrong said there were many ways the promised social investment fund could be structured, and while a social impact bond was a common outcomes-based financing tool, there were others.
“Sometimes it’s just a straight deal that is done around the acquisition of something important, sometimes it’s setting up a fund, like a managed fund, so bringing investors from a whole range of different areas, people with capital to invest from a whole range of different areas, to put that into a managed investment fund.
“Another example is a diversified impact fund. So that’s where you might have a range of different social impact initiatives. So we’ll catalyse capital from a whole range of different investors, sometimes institutional investors like banks or superannuation funds, and individual, smaller investors, and then we actually allocate that funding to organisations and programs that need capital.”
Social Ventures Australia currently has one diversified fund and five bonds in motion. Problems being targeted include truancy, and reunifying children removed from their homes, with family.
Across Australia there have been 17 social impact bonds and about double that in broader “outcomes-based” contracts.
But despite the financing environment being far more mature than New Zealand’s, Armstrong said this country held an ace card when it came to deciding where those efforts should be directed.
“New Zealand has got a really strong data framework here – the IDI – you’re in a much better position than Australia has ever been around having that strong backbone of data.
“So, New Zealand’s in a fantastic position to be able to understand priorities, measure outcomes, and then also see what works for you.”
A social impact bond to target people living in emergency housing was a National Party policy before the election.
Government confirmation of that bond has not been announced, but is likely to be worked on as part of the new fund.
Social impact bonds include the Government, private investors and a delivery partner. The Government will pay out when the agreed outcomes are achieved by the delivery partner.
The pressure on the agency providing the service – for example an iwi group or other government organisation – is heightened, because investors want to see it successful.
In the case of Genesis Youth Trust which was the first major social bond to be realised in New Zealand, investors were active.
Feedback from that social bond noted investors could attend board meetings, look at performance and contribute to discussions.
An evaluation of the bond, which was completed in August last year, found this helped the organisation to be nimble and adapt when things weren’t working.
An example included a decision to pay social workers more, in order to keep them.
Synergia partner Paul Stephenson helped design the Genesis bond and was a part of its evaluation when it finished.
He said it was the perfect blueprint for the Government to turn to.
“We know all the bits, we know all the parts, we know how they need to fit together. My comment to Government on the announcement of the social investment fund would be ‘don’t overcomplicate it’.
“In the time leading up to the Genesis bond, I think it took about four years from the first discussions to when it was actually signed. It was a very cumbersome process and there should be no reason why our next round of social bonds have to be like that. We could get going right away.”
He said a social bond tended to work best when it addressed a “turning point” or juncture in someone’s life.
“Genesis is a really good example. One of the critical issues around that bond was the ability to reduce reoffending itself but also reduce the number of young people who would go on to become lifetime offenders. So it’s an example of an inflection point in life – you can go this way or that way.
“Another example could be something like truancy. A really successful intervention around truancy could change the life path of that person in that they go back to school, start attending regularly, and doing a bit better academically so that’s another example of an inflection point.”
He said social impact bonds also had the potential to be effective when groups of people were between multiple agencies.
“I’m going to use an example here of people with high and complex mental health needs who have a high level of relationship with the mental health system, with the justice system, with social services, with police – they are very expensive to society because of the multiple services they draw upon and each of the agencies only deals with a little bit of that person. So no one thinks about the whole.”
He said the fund would allow those who had solutions to problems to get involved, in particular Māori.
“There is an opportunity for Māori to identify issues they want to address – if the outcome is something the Government wants to purchase – then there is an opportunity for Māori-led innovations to deliver the outcomes.
“There is also opportunity for Iwi to be co-investors in social investments.”
Armstrong said that was how the approach worked in Australia.
“The most common way these initiatives begin has been government putting a call out for tender to say, we think there’s a problem in this area, whatever that might be, and we’d like some innovative ideas in that and they can be very specific exact about things in that sort of area they’re looking at.”
She said some groups would feel comfortable putting together their own tenders in that case, other groups would come to Social Ventures Australia where they could work as partners.
She said there was no silver bullet to solving complex social issues, but social impact bonds did work.
“The idea of a social impact bond is it’s meant to be trialing or innovating or a scale-up of an innovation and not every innovation is going to work and I think that’s important to understand.
“Solving complex social problems is by its very nature, hard. So, not every innovation is going to achieve what it meant to. But most of the social impact bonds we’ve been involved in have achieved positive outcomes.”
National will favour the ‘big’ over the ‘small’. That may be Auckland over the North? Or it may be ‘private equity’ (profit oriented) over community oriented.
Actually Richard the politics is the opposite. Labour favour large agency delivery regardless of results and moved against innovative small scale delivery. The national govt has shown interest at least in allowing non govt entities have crack at long running challenges
I don’t agree with that given that budget services throughout NZ have had their funding cut by the current government and those of us who were funded have three years to find private sponsorship before we too are cut off. Our services are overwhelmed right now with volunteers working almost full time and our cases becoming more complex and more time consuming every week. The desired outcome from our work is for people to gain enough financial literacy to manage on their own. As FInancial mentors we work alongside them to assist this transition. However, as the cases become more complex we have to undergo significant additional training in consumer law and other areas and offer more than mentoring acting as advocates, working with the DRS companies and the Commerce Commission to achieve the desired outcomes for the hundreds of victims of irresponsible lending practices. Another thing that this government has acted to weaken are the provisions of the CCCFA law and make it easier for the lenders and harder for us.
So we have heard from those seeking to profit from what is essentially privatising the welfare state – how about an article from experts who do not have a financial interest in promoting this social investment?
A start may be to interview the authors of this 2017 book ‘Social Investment A New Zealand Policy Experiment’.
I explored social investment in this article last month: https://newsroom.co.nz/2024/04/24/can-social-investment-shift-the-dial-on-welfare-and-wellbeing/
Thanks
I have yet to see an independent evaluation showing that this approach can work and has worked. By definition we are tackling hard-to-fix problems like recidivism and homelessness. If you look at the Genesis example, the only published evaluation I have seen is what is called a “process” evaluation. Genesis got something out of the work required to set up the investment. They learned something from this. That has to be good, but it is odd that such a learning required a major financial system to do so. Although there is a quote that there was a better recidivism rate, it should be noted that this was after a good number of the original candidates fell away for one reason or another. So, what was the counterfactual? In normal circumstances a recidivism rate would be calculated on all candidates, not just those lasting to be counted after numbers had fallen away either by refusal or departure or lost to follow-up. In principle one should be open-minded about trying this system, but I have yet to see a properly evaluated intervention that shows it to be superior to normal practice – and cost-effective. One of the major problematic design issues is that those risking their money in such interventions have a very strong incentive to make sure that they work and they get their money back (with interest). While this might seem to be a good motivator, it could also encourage design principles that bring a positive financial outcome, but are actually not proving greater effectiveness because of a preference for certain accounting methods (like not counting drop-outs and difficult cases, preferring process over outcome evaluation and short-term outcomes over longer ones etc).