Iwas fascinated to see the launch of Social Finance and the Ministry of Justice’s social impact bond. This is a bond that funds training and rehabilitation of young men coming out of prison in an attempt to stop them re-offending.
If the re-offending rate drops, the investors get a share of the money that the Government would otherwise have spent dealing with the re-offending. The more successful the scheme and the lower the re-offender rate, the more the Government pays out to bondholders.
I have been aware before that the re-offending rates over the short term are incredibly high and it is too easy to overlook the impact that has on society, not just on a social level but from a financial point of view. It is interesting to look at the potential savings to the public purse that such schemes produce – for every pound invested, you can potentially get a £10 return.
The problem is our clients do not ask too much about ethical or social investing and I think we are fairly typical of the population. We do discuss it but most investors like to keep their investing activities separate from their charitable activities.
With schemes like the social impact bond, you have to place the socially responsible reasons first before the potential for investment return. The out-come is so difficult to control because it is wholly reliant on people and their decisions when they are released from prison and shortly after.
This scheme does have some measurable outcomes but there is no way to accurately predict what the effect the scheme will have. If we were to advise on investing in such a product, we would want to see direct outcomes that can be gauged in advance. Trustees of bigger pension schemes are also going to struggle to see the justification for investment.
It might be that bonds such as the social impact bond will be more appealing to people in the region where the benefits will be more immediately felt. In this case, Peterborough, as the rehabilitation programme is targeting prisoners released from Peterborough Prison. It might even be attractive to corporate investment. If you have a board of directors who are socially responsible and want to make a difference in their local area, products such as this might be attractive.
There are potentials in creating bonds or funds that will help society and will help reduce Government spending but it is all down to structure and what the investment scheme is trying to achieve.
Martin Bamford is managing director of Informed Choice