‘Funding Social Enterprises in Australia and narrowing the knowledge gap - Improving Social Impact Measurement and Social Impact Bonds’

Zoe attended the 2018 OECD Forum in Paris. She is currently studying a Bachelor of International and Global Studies at the University of Sydney Faculty of Arts and Social Sciences and in the near future will be working in Indonesia with the Empowering Indonesian Women for Poverty Reduction Program.

Overview

In order to foster prosperity and fight poverty through economic growth and financial stability, communities need to have confidence in markets and institutions. It is imperative to stress that this growth must be both sustainable and inclusive in order to recreate this sense of security. A relatively new and innovative solution are social enterprises. These are organisations that run like a business, although they have goals and values equal to those of a charity. Social enterprises generate creative solutions to complex social issues, and are, more often than not, driven by the local community. Community-driven change is imperative, and by empowering individuals and local communities to take initiative to create businesses it will lead to greater social reform and recreate confidence in the market.

Although they are a relatively new concept in Australia, the community is rapidly expanding. With this expected growth comes an increase in opportunity for the Australian government to utilize this innovation to achieve the most effective and sustainable social outcomes. Social impact bonds are also growing in popularity around the world, especially in countries where much of welfare is privatised for example the UK and US. There is an increasing body of research that is investigating effective ways of measuring social impact, however, they are not necessarily communicating with enterprises who need effective measurement strategies. Additionally, social impact bonds provide a way for the government to invest in solutions that have proven the intended social outcome. However, for these bonds to be the most effective there needs to be a thorough understanding of the appropriate uses of social impact measurement. 

To productively shape the future for social enterprises in Australia, this paper provides two specific policy recommendations. Firstly, to utilise the wealth of knowledge on social enterprises in Europe by connecting with them through a conference. This conference should focus on social impact measurement and should connect academics, government, and social entrepreneurs. And secondly, to expand the current piolet programs for social impact bonds to create more sustainable funding methods for social enterprises. In addition, with social impact bonds, the government is only paying for programs which have proven results. 

Research aim

This paper presents social enterprises as a policy tool to restore public confidence in markets and institutions. There needs to be a method to narrow the knowledge gap between research and practice in regard to social impact measurement. Additionally, there needs to be further analysis of recent innovations in social impact bonds. 

Context

Currently, there is a gap in communication between researchers on social enterprises and the implementation of effective practices. There is little discussion between social entrepreneurs and academics, which has resulted in academic research that is not relevant to the issues faced by social enterprises (Mason, C. 2017). And for the research that is relevant, there is no space for social entrepreneurs to engage with academics, so they can learn and implement the findings. This is particularly critical when it comes to social impact measurement. It is incredibly difficult to quantify the social impact of a program, particularly when it relies on more qualitative data (Mason, C. & Barraket, J. 2015). However, it is an unavoidable and incredibly necessary part of ensuring that policy outcomes are being obtained.  

Europe is at the forefront of social innovation and entrepreneurship, and there needs to be an opportunity for Australia to utilise this abundance of knowledge. Through an increased connection with the pre-established OECD network, Australia’s capacity to deliver effective impact measurement would accelerate exponentially. This network would provide a space for relevant research findings to be shared directly with the social entrepreneurs who are implementing such measures. 

Acquiring suitable and sustainable funding streams can be difficult for social enterprises. Although the aim for many is to eventually be self-sustaining, this can be almost impossible without the initial capital necessary to scale. Traditional revenue streams for social enterprises, particularly in the early years, struggle to have an emphasis on the results. Social impact bonds have been used in Europe for several years now (Albertson, K. & Fox, C. 2017). These function in a similar capacity to regular bonds, but they are instead driven by outcome rather than cost. Most bonds require the government to pay for both the inputs and outputs of what they are funding. However, with social impact bonds, a private investor will pay the initial cost and the government will only pay if the desired social outcome is achieved. This new financial model ensures that the government is only paying for the intended outcomes (Holt, M. & ProQuest (Firm) 2016). This should, in turn, create a greater sense of trust in our state governments because the money they are investing is only in social programs with proven results. 

Policy Recommendations 

1.     Implementation of Social Impact Bonds: Developing an initiative to encourage all Australian state governments to set up more social impact bonds to support the initiatives of social enterprises. 
 

2.     High-level Conference on Impact Measurement and Social Impact Bonds: This will foster a greater level of communication between research and implementation of social impact bonds and social impact measurement

Social Impact Bonds

Social impact bonds were created in the United Kingdom and have been increasingly successful (Albertson, K. & Fox, C. 2017). To date, the United Kingdom has established more than half of the social impacts bonds in the world.  Social impact bonds have a strong result focus and are incredibly outcome orientated, this could, in turn, strengthen the efficiency and effectiveness of public policy on social issues. These bonds are a relatively new concept in Australia, and there has only been a handful of pilot bonds thus far, largely instigated by state governments. The first two pilot programs were instigated by the NSW government in 2013 and there are currently 8 social impact bonds in Australia, spanning across NSW, Queensland, and South Australia with an additional 2 social impact bonds in Victoria under contractual development. A unique feature of these contracts is that they have remained flexible. Few other countries do this in the same way, and already in Australia, two social impact bonds have made changes after signing their contract to adjust their payment metrics to suit their needs better. Australia has been quite successful in raising funds through private investments which is quite unusual for OECD countries (excluding the US). 

Presently, social impact bonds in Australia are geared towards family care and foster care avoidance, but social enterprises cover a diverse range of social issues. It is important to note that social impact bonds should not replace traditional public service funding, and instead should be complementary to other traditional forms of investing and revenue. An example of this type of social impact bond is the first one trialled in Australia; the Newpin Foundation, which supports children to move away from out-of-home care and back to their families. This involves a comprehensive support network for the family to develop parenting skills and therapeutic support groups. It has been running for 7 years now and had an initial investment of $7million, the detailed process of the bond can be viewed in figure 1 below. For the first three years, Newpin’s restoration rate was 61% as opposed to 25% from similar families, not in the program. The investor returns for the first 3 years was 12.2% which showed a great success for the bond. (NSW State Government 2018) 

 

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Figure 1 Newpin Social impact bond process (NSW State Government 2018,)

The Benevolent Society is a similar organisation that prevents children from entering out-of-home care and they have had a social impact bond with the NSW State Government for the past five years. They have shown a 21% reduction in the number of children who are required to move into out-of-home care. Thus far, there has only been one social impact bond worldwide that has lost its investment which further reinstates that these types of bonds are incredibly effective. (NSW State Government 2018)

Both of the above examples demonstrate huge potential for social impact bonds to create sustainable change in Australia. They have given existing organisations the ability to expand their programs and reach a wider community. It is important to note that social impact bonds are not very suitable in situations where social impact is difficult to measure. Additionally, they are only administered to pre-established organisations and might not necessarily be suitable to a start-up social enterprise. However, it is evident that an increase in impact measurement strategies will in turn give greater funding opportunities for other organisations who are currently secluded from social impact bonds. 

There should be greater emphasis on encouraging state governments to take better initiative. This could be done through pilot programs which should be in line with evidence-based examples and knowledge gained from internationally recognised conferences such as the OECD. Other OECD nations, particularly the United Kingdom and other European countries, have a wealth of knowledge that will be invaluable in assisting the formation of these pilot programs. It is important to note that it might be that each state will have slightly different needs dependent of what social issues are most prominent. With this in mind, it is essential to tailor the social impact bonds to the conditions of each state. 

High-level Conference on Impact Measurement and Social Impact Bonds

This high-level dialogue should be between current social entrepreneurs, university researchers and relevant government bodies (e.g. Department of Industry, Innovation and Science, Department of Jobs and Small Business) and relevant equivalents from the other OECD countries. Existing networks should be utilised, and organisations such as the Social Impact Measurement Network of Australia should be heavily involved in the conference. 

This should further develop a network where social enterprises can achieve sustainable growth and continuing social impact through increased collaboration. This would also bridge the gap between Social Impact measurement methods. As a part of this, there should be specific components that place emphasis on different aspects where improvement is needed. Specifically, there should be a focus on social impact measurement. Experts from countries such as the United Kingdom should be invited to discuss the functionality and feasibility of social impact bonds. 

Evidently a conference can only achieve so much, and it will be the responsibility of each country to implement the outputs from discussions. However, it will provide an essential starting point for further innovation in the area. It will be important to revise policies and programs after the conference to allow for any new knowledge to be implemented. There are also the complicated logistical and financial elements to hosting a conference. This would need to be heavily discussed with the OECD countries and the OECD itself as to specifically how to distribute the burden of the conference organisational logistics. There is also the question of where to host such a conference, this would also be of critical importance. Although Australia might initially seem like an obvious choice, it is important to remember that the majority of OECD countries are located in Europe. This would in turn significantly increase the cost of travel for many of the participants. 

With regards to financing the conference, it would need to be a collaborative effort. It is essential that the benefits of the conference are repeatedly emphasised, as it is safe to assume that cost will be a large barrier. A key element to the conference is engaging with untapped knowledge within universities. Universities are renowned for being at the forefront of such discussions and are incredibly invested in creating spaces for these important dialogues. Australian Universities in particular do frequently fund similar conferences and no doubt would be interested in this one. Governments of participating OECD countries should also be approached for funding; however, this would increase the time needed to prepare the conference as the process is generally much slower that at a university level. 

Considerations and Limitations

There is the concern that social impact bonds might be used as a replacement for other existing government financial support programs and grants for social enterprises and non-profits. However, it should be explicitly stated that this should not be the case. Social impact bonds will not be suitable for every social enterprise, nor should they act as a substitute for other valuable government funding initiatives. This distinction needs to be clearly emphasised to avoid confusion. There is also a fear that the strong focus on results within social impact bonds will change the public service ethos or lead to a narrow mechanical determinism in service delivery. So, it is important that there is a thorough analysis of the types of organisations that are given social impact bonds. 

Conclusion 

There is a lot of potential for Australia to harness social enterprises as a tool to increase effective solutions to complex social issues. The above recommendations have been designed to complement each other: the conference should generate better processes for measuring social impact and suggestions for social impact bonds; and further development in Australian social impact bonds will create more content for comparison at the conference. 

The conference for social enterprises would create a space to connect with experts in the field and to share best practices especially with regards to social impact measurement. The conference would allow for OECD members to broaden their network and evaluate their existing methods for social impact measurement. This should foster a more robust social enterprise community in Australia, and would encourage further innovation within the space. 

Additionally, more social impact bonds would allow the Australian state governments to invest in programs with proven results. This would create greater trust in the government as all funding produces a concrete impact on the community. With an increase in tangible outputs, it will assist in restoring public confidence in our institutions. The success rate thus far has been incredibly promising with all the current social impact bonds are generating returns for investors. In conjunction with the high-level conference, effective methods of implementing social impact bonds in other OECD countries could also be trialled in the Australian context. 

Should both the above recommendations be used in tandem then it will create a better and more sustainable environment for social enterprises to flourish in Australia. Social enterprises have been shown to be an effective form of community driven social change. Community driven change is no doubt one of the most sustainable forms of development and will in turn generate a greater sense of trust in institutions. 

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