There are a range of ways in which an outcomes orientation can be incorporated into public services, to focus on the overall improvements in the life of people or environment, rather than individual services. Outcome contracting and impact bonds are ways of achieving this, by linking payments directly to the achievement of outcomes.
The counterpart to outcome contracting is often impact investing. Impact investing involves making investments to help create beneficial social or environmental effects while also generating financial gains. In addition to the traditional outcome contracting with the public sector, these can be designed also for b-to-b and b-to-c operations.
Outcome contracting and impact bonds transfer risk partially or completely from public sector to private sector, which enables financing proactive and preventive actions in a new way. Although preventive action is usually the most cost-effective way to act in the social and health sector, there is usually not enough money for it when funds are spent on corrective actions. Even if preventive measures were self-financing, there is no money. By leveraging private money, we can build self-financing projects that increase well-being and pay for themselves without risk.
GOLAB offers more in-depth article on outcome contracting in social and health sector.
In Finland, several Social Impact Bonds (SIB) has been launched with Our recent works and payment mechanism:
Koto-SIB provided a fast employment program for immigrants in Finland and yielded 6,8 M€ net profit for government (and yield continues to grow with high probability). A case study can be downloaded from here and external evaluation form here (only in Finnish)
Työ-SIB provides personalized services for the long-term unemployed. The ministry pays success fee based on salaries. Several price segments which consider the employment probability of different individuals.
Lapset-SIB (only in Finnish) provides preventive and long-term support for children and young people and their families. 9 contracts with different target groups and payment mechanism and indicators, we were involved in contracts with cities of Hämeenlinna, Tampere, Jyväskylä (2 contracts) and Vihti and Karkkila municipalities.
Outcome contracting and impact bonds can be applied also in many other applications, like diabetes and other noncommunicable diseases or other health and lifestyle issues, over-indebtedness, crime prevention, functional capacity of the elderly and so on.
Outcome contracts are typically smaller than SIB projects (less than 1 M€), but they are built on the same principle as SIB projects. So far they have all been employment projects.
Environmental projects have not yet been implemented as impact bonds, but rather as result-based financial support for operators, like the transfer of phosphorus from areas with surplus to areas with deficit (prevention of eutrophication). Several projects are under work.
Saaristomeren vaikuttavuusinvestointiselvitys by Virve Viertiö, Fanny Suominen, Anna Kortesoja and Mikko Halonen from Gaia and Petri Hilli from QSA.
Only in Finnish.
The report identifies and illustrates impact-based financing solutions to improve the ecological state of the Archipelago Sea. Only in Finnish.
Tulosperusteiset rahoitusmallit kalastonhoidon vauhdittajina by Petri Hilli from QSA and 9 other authors.
The preliminary study examines what kind of objectives and measures would be such that performance-based financing and procurement models could be used to improve the status of the fish stocks. The study also includes an assessment of how the new kind of financing models could increase private financing or investment capital for fisheries restoration measures. Only in Finnish.
Esiselvitys kasviproteiinialan vaikuttavuusinvestoinnista Read more here by Santtu Hakola from Motiva and Petri Hilli and Oskari Kantanen from QSA.
The report examines whether impact investing can be used to promote the use of plant protein products and increase the self-sufficiency of production. Only in Finnish.
Innovative finance solutions to accelerate sustainability transitions by Petri Hilli from QSA.
This scoping report discusses the feasibility of the impact bond approach in tackling labor shortages in wind power development in Finland, at a moment in early 2022 when ambitious climate neutrality targets are being accompanied by increasing national and international discussions on how to best secure sustainable energy provision.
