Social Impact Bonds and Access to Justice
Quin Gilbert-WaltersTuesday, April 11, 2017
There is a new socially innovative initiative, known as Social Impact Bonds (SIBs), whereby the private sector shares in the risk and reward associated with the outcome of social programs. With funding being a challenge for many not-for-profits and stakeholders working to improve access to justice across Canada, SIBs may provide a way forward for many in this area.
SIBs are a “pay-for-success” contract in which the government contracts with a private actor to create a program. The government is only required to pay if the program meets a threshold target. Often, there will be a range of targets with a corresponding payout depending on the level of success. In 2015, the Ontario government committed to piloting SIBs as part of its poverty reduction strategy.
SIBs were first developed in 2014 in Saskatchewan with a program to support at-risk single mothers. The program, a five-year arrangement, was a collaboration between a credit union and a youth centre. To assist with the legal arrangements of the financing – the payment of the bond – a national Canadian law firm was used. The desired outcome of the project is that 22 children and their mothers still be together six months after participating in the program. An independent party will measure the program at the end of the second, fourth, and fifth years. If there were fewer than 17 families still together, investors would receive nothing. If there are 17 families or more still together, investors would then receive their initial investment plus an additional 5%.
SIBs were introduced at the federal level earlier this year through a partnership between the Public Health Agency of Canada and the Heart and Stroke Foundation, with the MaRS Centre for Impact Investing finding the initial funds to support the program. The Public Health Agency will only be required to pay the Heart and Stroke Foundation if the program meets the desired outcome – a reduction in blood pressure levels for a group of 7,000 seniors on the verge of developing hypertension. If the program stops or the target isn’t met, investors, made up of individuals, businesses and charitable foundations will receive a return of 6.7%. If the program is better than expected, and blood pressure decreases further, the investors will receive 8.8%. None of the $3.4 million will be paid out if the program fails.
The process could be said to be a type of public-private partnership (P3). In Ontario, P3 projects have been used to build and finance universities, highways, hospitals, courthouses, light-rail transit, etc. This model is effective because the private sector is often in a better position to take on a significant portion of the risks involved with overseeing a project. Critics complain that this sort of design is more expensive, and to a degree they are right in the sense that private interest rates are higher than government interest rates.
However, in an era when the ability for programs such as legal aid to help clients is directly tied to their funding, there is an opportunity for SIBs to help provide access to legal services and legal professionals to many with limited resources. There is some evidence in the United Kingdom that this sort of investment may work. When programs for newly released inmates were failing to provide support, resulting in more individuals re-offending, an SIB program was developed with the goal of reducing the likelihood of prisoners re-offending.
In the case of this UK project, reoffending rates fell 8.4% but a reduction of 10% was required for investors to be paid out. Still, the results are hardly a failure; the outcome provided a social benefit for the participants as well as the broader community. It appears the UK government is planning to push forward with new initiatives for investment that will target homelessness. The UK government has begun introducing tax relief for people who invest in SIBs.
There are other advantages to Social Impact Bond programs. They also lend themselves to addressing issues that are multi-dimensional. For example, homeless individuals sometimes face substance abuse problems, mental and physical health issues, joblessness, etc. For some individuals experiencing some types of legal problems, many of the same manifestations may occur. Day after day in court can impair the ability of litigants to maintain consistent work hours, volunteer, attend medical appointments, and many other important day-to-day activities. This can lead to tremendous costs, job loss, and immense stress. Organizations and programs like legal aid are only able to address one problem, while collaborative initiatives may not have the resources to support clients for extended periods. SIB programs can offer various programs within the initiative to address the various factors that contribute to the ultimate outcome, e.g. employment, education, and counselling. .
Collaborative law is one area where SIBs could be applied in the law. Collaborative law is a variation of alternative dispute resolution that can take a holistic approach to various legal issues in a dispute, e.g. employment, insurance, divorce, etc. Collaborative processes begin by having the parties sign an agreement to participate completely in the process. The process usually ends with a binding agreement. Typically, facilitators of collaborative law can suggest other forms of aid such as mental health therapy. There are several possible benchmarks for determining the success of this type of program including non-binding agreements, divorce rates for couples.
For access to justice solutions to work they require flexibility and the ability to address a multitude of client needs – collaborative law is a great option for access-to-justice oriented investing in Canada. Social Impact Bonds offer a unique opportunity for private sector businesses and individuals to invest in socially beneficial causes. At the same time, these programs can be managed by groups or organizations that are in the best position to address the particular needs of the clients.
Quin Gilbert-Walters is a third-year law student at Osgoode Hall Law School in Toronto. He has been a research and communications assistant with the Canadian Forum on Civil Justice since 2015. Upon graduating from Osgoode, Quin will return to Infrastructure Ontario, where he spent last summer as a summer associate, to article. Infrastructure Ontario is a Crown agency devoted primarily to improving Ontario’s infrastructure. In particular, IO often uses a special alternative finance and procurement model to complete public-private-partnership (P3) projects.