Social impact bonds

Freshfields is leading the way in innovative finance, developing social impact bonds (SIBs) that are changing how social projects are funded. 

Freshfields aims to harness our specialist skills to bring about systemic, measurable public benefits. Since 2011, we have been at the forefront of delivering pro bono advice on new and innovative funding mechanisms, especially ‘payment by results’ schemes.

These SIBs bring together private finance, public investment and the expertise of the charity sector to fund and deliver programmes that create measurable results. At the core of a SIB is a “payment by results” or “outcomes contract” whereby the contractor is paid for a specific social outcome, such as reduction in homelessness or improvement in education. Existing providers of social services, often charities or not-for-profits, implement a programme designed to achieve these outcomes. An investor will prefund the activities and is only repaid if the outcomes are achieved thus de-risking the provider.

Freshfields has been an early advocate of SIBs’ power to improve society. We identified SIBs as a key innovative funding mechanism with the potential to unlock major new sources of funding to tackle important social problems, as well as a way of engaging the skills of our finance lawyers. 

We started working on our first mandate in 2011 when the market was still very new. Since then we have worked to launch over 50 SIBs and closely related development impact bonds (DIBs). 

We now work with a wide range of clients to help develop SIBs, driving the creation of key contracts and bringing together the sector’s principal stakeholders to deliver established results. Our clients include specialist private investors, development investment banks and foundations. 

Freshfields Associate Daniella Jammes has been involved in the advice on SIBs and says the work has been interesting and pushed her outside of her comfort zone. “SIBs are a fairly new concept so it’s been a huge learning process. These programmes are relatable to individual people’s lives and their stories can be very powerful.”

Daniella’s responsibilities include negotiating with local authorities and clinical commissioning groups. “It’s less precedent-based than some of our work so there’s lots of freedom to invent new solutions,” she says. “You have to really think about the underlying issues and what you’re trying to achieve when setting up new structures and contracts.”

Freshfields’ contribution to the development of the social impact bond market “has been profound,” says Antony Ross, Partner at Bridges Fund Management, specialist private investors focusing on positive social impact. “Their pro bono advice has been essential to the SIBs that Bridges has in place, which has ensured significant investment into social sector organisations. It must also be recognised that Freshfields’ support has also been central to growing the wider sector and contributing to the rapid development of SIBs over the last few years.”

Supporting young people

During 2017-18 we assisted Bridges Fund Management and Social Finance to set up the pan London SIB which invested £6m across six London boroughs in family therapy to assist children in need at the edge of care.

Freshfields has been working on similar initiatives since our initial work with Bridges in 2012 on a £3m bond for children on the edge of care or custody in Essex, which led to advice on the first SIB which invested £7m in funding foster placements for children in residential care in Manchester. We then assisted with similar interventions for £6m funding of foster care services in Birmingham and in Cardiff.

These therapeutic programmes invest additional resource in moving challenged adolescents into stable foster placements where they will enjoy better life outcomes, in the knowledge this will save the local authority substantial sums over time. These four SIBs made available nearly £5m for children’s services.

Improving health outcomes

We advised Bridges in 2014 on its landmark first healthcare SIB aimed at improving health outcomes through self-care and lifestyle change for those with long-term health conditions in Newcastle. The investment agreement with Ways to Wellness and general contract with Newcastle West Clinical Commissioning Group presented challenges in navigating the complex NHS procurement system, although our work has brought more than £1.6m of additional healthcare funding. This programme effectively boosted the use of social prescribing in the UK and we have worked on numerous other social prescribing SIBs since.

We assisted the Elton John AIDS Foundation in 2017-18 in piloting the world’s first SIB designed to tackle HIV with a £2m investment in HIV services in south east London with the aim to dramatically reduce HIV transmission. For further information see our case study on this SIB and its impact here.

Tackling homelessness  

We have also supported several SIBs set up to tackle youth homelessness delivered by specialist charities: Depaul in London and Manchester; Local Solutions in Liverpool; and St Basil’s in Birmingham.

We provided specialist advice to Social Finance on structuring these SIBs, often under tight timescales. Our assistance included setting up the special-purpose vehicle (SPV) and drafting the articles of association, advising on the grant agreement between the Commissioner and the SPV, the delivery body contract and the loan and investor agreements.

Building on this expertise, we also helped Numbers for Good set up of another SIB to reduce homelessness in West Yorkshire with Fusion Housing as the delivery body.

These four social impact bonds SIBs unlocked over £3m of funding to help young homeless people with complex needs (such as substance misuse and mental health issues) that mean they cannot be currently housed in state-supported accommodation.

We have continued supporting SIBs in this area with similar homelessness interventions in London, Greater Manchester and Kirklees to assist rough sleepers off the streets and support them in building a new life.

Growing alternative funding

As well as the direct impact of these SIBs, our pro bono work has helped develop the social investment market in the UK. We have advised on approximately 60 per cent of UK SIBs currently commissioned in the UK. The UK Government has adopted some of our contracts as sector templates to develop the market and we have recently co-chaired a working group with the Government Outcomes Lab to develop a new template for use in the UK.

This model is increasingly being adopted abroad and we are working on SIBs, and closely related DIBs, across different jurisdictions: we helped the European Bank for Reconstruction and Development (EBRD) adopt a results-based approach to provide professional training for more than 1,000 young Palestinians to support their transition into sustainable employment. The project is a test case to assess how private sector investment can tackle the region’s challenges by promoting results-oriented employment services. We also worked with the Education Outcomes Fund (a UNICEF hosted fund) to develop their template for outcomes based funding and are supporting them with the development of programmes in Ghana and Sierra Leone.

“Freshfields’ contribution gave great comfort to internal EBRD stakeholders that risks had been identified and managed effectively,” says Paolo Monaco, Regional Head of SME Finance and Development. “The strong result achieved in structuring the project could not have been accomplished without the tireless, patient and highly skilled work of the Freshfields team.”