Public Safety Committee on May 29th, 2014

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Are you saying investors are willing to assume greater risks when investing in social finance arrangements like social impact bonds?

[Gianni Ciufo]

Yes, I believe they are taking a significant risk. In many cases, they're accepting more risk than they would for a similar return in the commercial marketplace, but it's because they're socially motivated and concerned about generating positive social outcomes in their communities.

[Denise Hearn]

If I could just add one thing, it's that we're seeing, at least for private high net worth individuals, an interest in.... Because there's a bit of donor fatigue, they don't want to strictly do philanthropy any more. They want a way to invest their money such that they can earn their money back, potentially, and then repurpose that capital back into another social objective. So it's a way for them to actually be generating interest on their capital to multiply the impact they're having in the community.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Is the investor accountable to you, as the intermediary, or to the government directly?

[Lars Boggild]

Investors as participants in a social impact bond are governed essentially by the terms of the contracts they sign in engaging in a social impact bond.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Who monitors the process? Is it you, as the intermediary, or is it the government? Is it more you?

[Lars Boggild]

The monitoring in the interim, as a social impact bond is being implemented, is usually done by an intermediary such as ours. However, when we actually think about the payment of outcomes, outcomes thresholds that would trigger payment, that's almost exclusively done by third parties. So we get an independent firm to essentially audit what went on to validate what occurred—so non-government, non-us, non-investors.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

This is a question I often ask witnesses. You said that, in your field, a certain amount was allocated to public safety. Various programs exist. Witnesses told the committee it was possible to invest in public safety through social impact bonds and social finance, in general.

Are there limits to that? Are there certain aspects of public safety to which social finance should not be applied?

[Lars Boggild]

Just to briefly respond, as an organization we actually do have internal policies, in fact, to tell us and to guide us, to serve as a guide to the idea that there are areas, particularly in areas of emergency service of various sorts, where we feel that this sort of kind of greater risk tolerance may be inappropriate just to the severity of potential damages for the vulnerable population.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

What do you mean? Could you give us some examples?

[Lars Boggild]

Sure. For example, we think it would be inappropriate perhaps to use a social impact bond to deliver emergency room care. We'd want that service handled in a very standardized way, so that we know and can have great confidence that it will be there when people need it. Inasmuch as these are more risk-tolerant and innovative approaches, there are areas where it may not be as appropriate.

[The Chair, Conservative, Daryl Kramp]

I thank you very much, Madame Doré Lefebvre.

Now Mr. Maguire, please, you have five minutes.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you, Mr. Chairman.

Thank you for your presentations again here as well.

The whole purpose here is to look at crime prevention—to deal with crime prevention, to reduce crime, and to deal with at-risk individuals.

Where do you think it's the most applicable in Canada? Where would we get the maximum bang for the buck, I guess, in regard to what sectors of crime prevention you would look at?

[Denise Hearn]

Obviously, I think some of the acute services offered, to which you can attach sort of the highest economic proxies, would be the costs of incarceration, which has international precedent, as we have mentioned multiple times. In fact, the very first social impact bond in the U.K. and in the U.S. was in that particular area of focus, so I think that is an easy and obvious first area.

I don't know if you would add to that, Lars.

[Lars Boggild]

I would add to that, just with some more specificity, that we are seeing organizations come to us equally, and we recognize the rigour of the cases they're bringing forward in areas such as substance abusing offenders. Offenders who are incarcerated due to substance abuse have very high rates of reoffending, partly because of the nature of their addictions in many cases, so potential supports and programming in that area for rehabilitation oriented towards their particular unique needs would be good.

Equally, as Denise mentioned before, there is the context of youth leaving foster care or institutionalized environments and their very steep transition from those environments to non-controlled environments and the likelihood of them reoffending. We've also looked at things like domestic violence and opportunities to reduce the likelihood of that in communities where it has, in some cases, been quite epidemic.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Thank you.

The question came up regarding who monitors your role as an intermediary in these processes. I wonder if you could just touch on not so much who monitors and who's in control there but whether you think having intermediaries such as you involved in that whole process expands the opportunities to look at investors who might want to invest in the whole social impact bond program in the first place. They might have an idea of what they want to do or what they want to invest in, but you may have a much broader view of where they could be a bigger help.

[Lars Boggild]

I would add that certainly I think it's true that having an intermediary in place can provide the confidence for investors that the upfront case that's been developed has been so certainly with rigour and with some semi-independence, at least, as that case itself has developed and has moved forward. I think it's equally important to note that the ongoing governance associated with an implemented social impact bond and the validated reporting that would flow from the actual operations in the life cycle of the social impact bond, up to investors and government as well actually, are being done by an organization whose interests are not exactly the same as those of the service provider. There is some ability to manage key performance in the interim in the life cycle and actually to help rapidly procure and support with other organizations that might also need to be brought in. Maybe an organization realizes that there are other services that would be really complementary to what's going on, and an intermediary could very rapidly help bring those together.

[Larry Maguire, Conservative, Brandon—Souris, MB]

I'll just say quickly that you seem to be very specialized in the social impact bond, but what other areas have you looked at? Are you looking at other mechanisms? We've talked about other mechanisms here in committee, and I'm assuming you're familiar with them. Have you had a role in them as well?

[Denise Hearn]

We were originally founded to be unique curators of this model in Canada, because we recognized a gap in this area. There is no other functioning organization at this point filling this very specific need that we identified, so we have started with social impact bonds as sort of a proof-of-concept within the broader social finance landscape. We have had various involvements in other projects within social finance, but social impact bonds have been sort of our flagship project at this point.

[The Chair, Conservative, Daryl Kramp]

Thank you very much.

Mr. Rousseau, your turn. You have five minutes.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

Thank you, Mr. Chair.

I'll be speaking French, if you don't mind, anyway.

[Voices]

Oh, oh!

[Jean Rousseau, NDP, Compton—Stanstead, QC]

When all is said and done, we are in the midst of creating a new market and inevitably we want it to yield a return. Regardless of the nature of the project, be it for social, community or other purposes, we want it to yield a return. Whether that return is 5%, 10% or 15%, investors want a return.

For the projects already under way, what rate of return do your investors expect, as far as interest and benefits go?

[Lars Boggild]

That varies pretty strongly by the specific issue. For any social impact bond, when we think of the economic implications of the outcomes that are produced, there's an understanding that the value of those outcomes will very much be divided between government and the private investors that have forwarded the capital.

In cases where there is a very cost-effective intervention—something that can produce very strong outcomes for very little upfront capital—the returns are inherently higher, and vice versa. However, to be a bit more specific, we've seen broadly a sense of tolerance and understanding that it's anywhere between 5% to around 12%. That is the general understanding.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

That's about the same rate for other bonds and instruments that generate returns.

In my region, in my riding in particular, social and community groups that are running programs, including social workers and street outreach workers, are concerned about investors imposing performance requirements. They worry that could put pressure on an already difficult working environment.

What do you make of those concerns?