Scimar explores use of novel financial instrument
In 2017, a group of 17 U.K. institutional investors were repaid in full with a 3% per-annum return on an investment made in 2010. Around the same time, the city of Peterborough reported a 9% reduction of re-offending among short-term prisoners released from Her Majesty’s Prison in Peterborough.
A lovely coincidence? Not at all. It was a win-win by design through an instrument known as a social impact bond (SIB). The Peterborough SIB is understood to be the world’s first large SIB, having attracted £5 million in funding. It is still touted as a model to emulate when trying to achieve social and community change; and it is a model that is being explored for Scimar’s efforts to reduce the incidence and impact of type 2 diabetes through the Wellness Transformation Network.
“At the time, it would have cost the government about $200,000 per year to put someone back in prison,” says Dr. Roy Suddaby of the University of Victoria in British Columbia. The SIB, he explains, funded a program delivered by a non-profit organization to provide people leaving jail with life skills training and other supports, thereby making recidivism less likely. The SIB gave ex-convicts hope and opportunity; made Peterborough safer; and saved the government money, potentially millions of pounds over time. The design of the SIB saw the investors earn their returns from the government. In other words, the government paid for results.
“An SIB gives governments the opportunity to prevent problems as opposed to dealing with them after they arise, and save money in the process,” says Dr. Suddaby, an internationally regarded scholar of organizational theory and institutional change. “It’s a contract that will pay a benefit to the investor when certain results are achieved. An SIB is a market-based solution to problems that governments typically deal with, and that could include health care.”
The terms of the Peterborough SIB were that investors would get paid if the re-offense rate could be cut by 7.5%, a target set by the Ministry of Justice. Dr. Suddaby is currently exploring what metrics would be useful in measuring the impact of Scimar’s work, and what the overall design of a wellness SIB could look like. He is hopeful that Scimar, the Wellness Transformation Network, and type 2 diabetes would form a valuable case study that a government, foundation, or corporation would be willing to backstop. He is confident that there will be willing funders. After all, from a full-cost accounting perspective, it is far more expensive to treat someone with type 2 diabetes than to prevent the condition in the first place.
“We’ve injected tremendous amounts of money into the health care system, but the health care system is really designed to solve problems that already exist, not to prevent them,” says Dr. Suddaby. “Through a wellness SIB, we could identify a community that currently has a high incidence of type 2 diabetes and then introduce some skills and education around prevention, including healthy diets, fitness, and stress reduction. We would then measure the results of these interventions based on metrics agreed upon by all parties.”
The metrics could include fewer people being diagnosed with type 2 diabetes over a defined period of time, or perhaps a targeted average improvement in blood sugar as measured by HbA1c testing. If the agreed-upon targets are met and then verified by third parties, SIB investors get paid while people get healthier.
Dr. Suddaby is excited about social impact bonds in general — and a possible collaboration with Scimar in particular — as the popularity of SIBs increases around the world and new lessons are being learned all the time. And he is confident that the concept of an SIB has appeal across the political spectrum, and can engage corporations, foundations, individual investors and philanthropists, and governments.
“Folks on the right would be interested by a potential role for private companies and the use of market-based, measurable solutions, while people on the left side of the spectrum would be interested in new approaches to social change with key roles for government and philanthropic foundations, and a willingness to experiment,” says Dr. Suddaby. “And if a legitimate third party was involved to monitor performance and outcomes, the idea of the social impact bond can appeal to everybody.”
“We’re eager to explore an SIB for Scimar and the Wellness Transformation Network as a way to accelerate our outreach to communities that need help in the fight against type 2 diabetes,” says Mick Lautt, Scimar’s Chief Executive Officer. “I am also excited that an effective SIB program would provide meaningful data and generate a sound financial return, too. It is important for us to innovate, accelerate, and grow. We’re grateful for Dr. Suddaby’s guidance and expertise.”