SNI Group (Caisse des Dépôts Group) and its subsidiary AMPERE Gestion have just set up a €200 million social impact fund to finance emergency accommodation. Although they are beginning to take off, up to now, social impact bonds have only been used for relatively small-scale projects both inside and outside France (of one or two million euros on average)
Therefore, SNI’s operation really does constitute a scaling-up for these types of arrangements which make it possible to get a private sector stakeholder to finance a social programme and to link investor returns to improved social outcomes. We encounter them, for example, in social integration programmes where payments are tied to the number of people who find lasting employment.
Such scaling up reflects, first and foremost, the sheer magnitude of current needs. Even though France is not the worst affected country, the current influx of migrants is putting unprecedented pressure on structures that were already under severe strain from poor and excluded sections of the population. Central Government has been using private hotels to take up the strain but this solution obviously has its limits: it is costly unsuitable from a safety and security perspective, and using hotels makes it difficult to provide essential social support.
So, someone had to come up with an innovative solution: in response to calls for tender put out by central government, SNI teamed up with six institutional investors to raise the funds needed to purchase around 100 low-cost hotels which will subsequently be converted into accommodation centres. Sixty of these will be up and running within six months and operated by Adoma, SNI’s subsidiary specialised in emergency accommodation.
From the Government’s perspective, this is an opportunity to generate savings of 40% and to provide essential social support services. Investors will receive both a fixed rent from Adoma and a variable return based on social outcomes which will be measured by an independent audit: these outcomes include inter alia the number of people who have been placed in permanent accommodation or the proportion of children attending school. Aside from the incentive-based nature of this arrangement, independent evaluation provides an additional guarantee of transparency and efficient management.
Splitting investor remuneration into a fixed and variable portion also helps take social bonds to the next level by guaranteeing investors a minimum return. This is not the first time this model has been used. In concrete terms, this is undoubtedly the only way that social bonds can have a real “impact”, i.e., get beyond experimental non-repayable funding-type initiatives used only by charities and get on the radars of institutional investors who, by definition, cannot risk all of the capital that they invest.
From a theoretic point of view, social impact bonds are different from public/private partnerships which are purely financial arrangements with no provision for rewarding social outcomes. They also go further than socially responsible investments: while such investments do factor in non-profit aspects, the social outcomes are not actually quantified nor incentivised.
This approach can undoubtedly be transposed to other areas of public action. It is already widespread in social integration or child protection programmes – anywhere that social policies require personalised support and not just administrative processes. On a different scale, social bonds could also be used to finance social infrastructure with a major impact on national cohesion or the quality of life, such as social housing.
SNI’s experience shows that investor interest is not a problem. Corporate social responsibility is more than just a fad: it is a long-term phenomenon that undoubtedly reflects the declining role of religion and the relative discredit of the political class but also possesses its own momentum which is being felt at all levels in the hierarchy – from anonymous whistleblowers to the top.
The State has everything to gain from this trend. It gains financially because social impact bonds generate savings, but it also provides a means of rethinking social action by forcing stakeholders to clarify its objectives – it does this through a quantitative approach that cannot be used as the sole basis of assessment, but should not either be ignored. The method employed is also of key importance: in this age of networks, social policy cannot ignore the dynamism of a highly pro-active civil society – both in France and throughout the world – a society of initiative, associations and enterprise.
The Welfare State is an instrument of social solidarity. It is – and will increasingly be – up to each and everyone to make it work.
Vincent Mahe
Corporate Secretary of SNI Group, CEO of AMPERE Gestion
