Social Impact Bonds (SIBs) are an innovative way for organizations to practice Socially Responsible Investing (SRI). Canada joins other jurisdictions like the United Kingdom, the United States and Australia, in investing in SIBs.
A SIB is an agreement between government, investors and a charity or not-for profit, in which the government issues a bond to investors to raise funds to tackle a social problem. Repayment of the principal and any interest depend on whether certain pre-determined criteria are met.
The typical structure of a SIB is as follows:
1. A government body (for example a ministry of education):
- identifies a social problem (for example, low graduation rates, falling below 62%); and
- determines a target for improving the problem (for example, improving graduation rates to 82%).
2. A qualified service delivery agency (for example a school or a charity) agrees to implement solutions which will help to achieve the target.
3. The government body issues the SIB and raises funds from investors (investors may include the private sector or a not-for-profit).
4. At the end of the agreed term, investors receive their principal plus interest, but only if the targets are met. The goal is for investors to receive a return on their investments and the satisfaction of creating a social impact through their investments.
In Canada, Saskatchewan has already invested in SIBs. It announced its second SIB on September 15, 2016 (read the release here).
The Saskatchewan Education Ministry partnered with The Mosaic Company Foundation (Mosaic) and Mother Teresa Middle School (MTMS), with a SIB designed to improve performance and graduation rates for children from economically disadvantaged homes.
Mosaic will provide $1 million over the next five years to MTMS in Regina, which will use the funding to support approximately 88 students with immense family-related challenges, in Grades 6-8 and upon entering high school.
If MTMS achieves an 82% graduation rate for its Grade 12 students, the Government of Saskatchewan will repay Mosaic the principal and interest at 1.3% per annum. If MTMS achieves a 75% graduation rate, three-quarters of the principal is repaid, without interest. If MTMS achieves graduation rates below 75%, no repayment is made. The Ministry of Education will track progress annually.
The agreement is projected to save taxpayers up to $1.7M, based on expected reductions in economic, health, and social services costs over 5 years and the students’ increased earning potential over their lifetimes.
In 2014, the Ontario Government released a call for ideas to address high-priority areas like housing and homelessness, youth at-risk and improving employment prospects for persons facing barriers to entry into the job market. From the 83 ideas submitted by 79 organizations, the Ontario Government selected two ideas which are being tested and validated to determine their viability as SIB pilot projects. Read about Ontario’s SIB pilot projects here.