We first reported on “social benefit bonds” – the innovative financial instrument that pays a return based on the achievement of agreed social outcomes – in 2012, when the NSW government announced the trial of a $10 million social benefit bond involving the Benevolent Society.
The funding raised from the Benevolent Society bond was set to be channelled into a program (Resilient Families Service
) to support more than 400 at-risk families over five years with the end goal of keeping vulnerable children out of foster care.
Fast forward three years, and the Resilient Families Service has so far seen a 27% reduction in the number of children entering foster care compared with a control group.
While there has undoubtedly been a positive social outcome of the first year of the Benevolent Society bond, what about the financial outcomes? Whilst returns for this bond will only be paid when the five-year bond expires, early reports are encouraging. According to the Benevolent Society’s report, investors in a capital-protected tranche can expect compounded returns of 5% a year, while those who bought into a capital-exposed tranche are on track for an 8% annual return.
The Benevolent Society’s bond is not the only one of its kind in Australia. At around the same time as our article in 2012, the NSW government was also trialling a second bond aimed at preventing children from entering out-of-home care due to abuse and neglect and now, the NSW government is also looking at bonds for homelessness, recidivism and in the health space, South Australia is looking at bonds for homelessness and the Queensland government has announced it will pilot three social benefit bonds in the areas of re-offending, homelessness and issues affecting Aboriginal and Torres Strait Islander people.
Growing interest by State governments in social benefit bonds will undoubtedly inspire further investment. One of the many positives of social benefit bonds is they help direct additional resources provided by private capital towards early intervention in areas of social welfare when limited government resources are usually tied up with acute and crisis services and when sufficient philanthropic funds cannot be raised . If funding early intervention can assist preventing children entering foster care, youth recidivism and homelessness, can it help tackle one of the most distressing and endemic crises that this nation has faced: domestic and family violence?
Domestic and family violence cost the Australian economy A$13.6 billion in 2009, and this figure is expected to increase to $15.6 billion by 2021 without effective action.
These figures include direct costs to the public and private health systems due to medical treatment, costs to employers from victims being absent from work, costs to federal, state and local government due to funding police, incarceration and court systems. They do not include the exponential “second generation costs” – the effect on children witnessing, living with, and in many cases being a victim of, domestic and family violence.
There is an urgent need to address domestic and family violence in a coordinated fashion. This has been acknowledged most recently by Premier Mike Baird as one of his top twelve “Premier Priorities”. Coordination is required in terms of police, child protection, perpetrator accountability, risk assessment, family law, courts, specialist family violence services, law reform and victim safety. Given the huge and multi-faceted nature of this issue, it is unrealistic to expect one government department, one charity or one medical facility to tackle all the causes and effects of domestic and family violence. There must be collaboration among government, service providers and other institutions. Participants in this innovative kind of joint venture would benefit greatly from coming together to share resources, knowledge and synergies.
There is precedent for this in Australia. The Victorian Government’s Peter MacCallum Cancer Centre is a partnership of ten prominent organisations including The Royal Melbourne Hospital, The University of Melbourne
and Murdoch Children’s Research Institute. In the same way the Peter MacCallum Cancer Centre provides a holistic service for cancer patients and their families, a collaboration between multiple public, private and not-for-profit organisations could be the way forward in providing a comprehensive research, education, training, intervention and treatment service for domestic and family violence.
Establishing such a major collaborative joint venture will require significant upfront investment. One potential funding route is via the upfront capital that social benefit bonds can provide. Participants could subscribe for equity in a special purpose vehicle (SPV) which will then enter into a performance-based service agreement with government and issue bonds to investors. As summarised in the diagram below, the equity holders in the SPV may be one each of the following leading organisations in the area of DV prevention: accommodation services provider, legal advisor, education provider, health care provider, research organisation and psychology service provider.
The idea of a collaborative joint venture funded by a social benefit bond is distinctly different to the existing social benefit bonds in the market. Pilot bond issues in the market are primarily issued by a single organisation, rather than a collective of several organisations. In theory, the concept of bringing together multiple parties to pursue a single program could work, practically this could give rise to various unique issues. How are the relationships between all participants regulated? Are they partners, joint venturers, shareholders or something different? Are they jointly and severally liable, or do they take on no responsibility for the actions or omissions of other participants? Who makes the decisions, and how are the governance structures established in an equitable and democratic way? If the venture is successful, how is the benefit shared? If the venture is unsuccessful, how are the costs and risks allocated?
While complex, these issues are not insurmountable. Similar issues are confronted by equity participants in most public private partnerships. The challenge will be whether government agencies, not-for-profit and charitable organisations, private sector intermediaries, and the spectrum of potential investors in social benefit bonds can take a sophisticated and coordinated approach to help solve – or at least minimise the impact – of Australia’s most wicked problem… and how to measure that impact.
The Benevolent Society Social Benefit Bond Investor Report, 30 June 2015
KPMG 2009 report: The Cost of Violence against Women and their Children
By Jeremy King, partner & pro bono chair, Corrs Chambers Westgarth