Last year the British Council Germany and stiftung neue verantwortung (snv), a German non-profit think tank, convened a UK-Germany Knowledge Exchange on Social Investment and Impact in Berlin. The event highlighted the potential social impact bonds could have in addressing social problems, and in bringing more rigour to measuring social outcomes.
One year on, Mark T Fliegauf of snv reports on the findings of an inter-sectoral task force analysing the prospects for social impact bonds in Germany.
If Germany’s relationship with social impact bonds were defined by Facebook, it would most likely receive the ominous “It’s complicated” status. On the one hand, impact orientation in social policy and outcome-based procurement have caught on in Germany, Europe’s biggest social marketplace. On the other, policymakers, public administration, philanthropic foundations and social service providers have yet to discover their love for Sozialer Wirkungskredit, the German term for social impact bonds (SIB).
The UK’s Social Finance defines a social impact bond as “a financial mechanism in which investors pay for a set of interventions to improve a social outcome that is of social and/or financial interest to a government commissioner. If the social outcome improves, the government commissioner repays the investors for their initial investment plus a return for the financial risks they took. If the social outcomes are not achieved, the investors stand to lose their investment”. An SIB provides governments with a way of tapping private investment for social impact and to only pay for successful social outcomes.
Why don’t German stakeholders exhibit more affection for social impact bonds? Our project team – Innovative Government | Social Impact Bonds – at stiftung neue verantwortung uncovered four main reasons:
- The SIB concept isn’t yet on the horizon of political decision makers. Most members of the caucus for Labour and Social Affairs in the German Bundestag have not even heard of Social Impact Bonds, nor have their colleagues responsible for families and youth.
- Even though administration officials in related ministries are familiar with Sozialer Wirkungskredit, their understanding of the complex instrument and its mechanisms remains vague – and their enthusiasm limited.
- Philanthropic foundations find it difficult to envision SIB investments due to low return on investments, legal restrictions, and simple inertia. Germany’s only SIB pilot in the Bavarian city of Augsburg offers its investors (three foundations and a social venture fund) an annual return of merely 1%. In addition, German foundations face significant uncertainties about the legal consequences triggered by any SIB investments they might make. Earning a return on investment upon successful completion of the social intervention financed by an impact bond might actually endanger a foundation’s charitable status. Questions also remain about the personal liability of upper management, in case the social action doesn’t meet the stated targets and thus generates no return or even losses for foundations.
- Germany’s six social welfare associations – Caritas, Diakonie, Deutsches Rotes Kreuz, Arbeiterwohlfahrt, Paritätischer Wohlfahrtsverband, and Zentralwohlfahrtsstelle der Juden – remain sceptical about the applicability and usefulness of SIBs in the country – some interested intrapreneurs notwithstanding. They are deeply rooted within the current welfare system and are concerned about large-scale changes that might affect their revenue streams via public procurement.
SIBs in Germany are neither love at first sight nor head over heels affairs. Nevertheless, impact bonds may become more popular in coming years given the dire financial situation of many local governments. The cost of youth services, for example, has risen significantly, with the annual number of families receiving pedagogic and therapeutic assistance tripling to nearly 70,000 cases between 2000 and 2013. Furthermore, the number of children taken into care has also reached an all-time high with 40,000 cases annually. Many local youth welfare offices are desperately searching for alternatives as the status quo has brought immense costs, strained budgets and little bang for the buck.
Local German authorities may therefore be looking towards Essex in the UK, where the county’s social impact bond is funding a programme designed to assist adolescents who are on the verge of being taken into care through early-stage high-intensity interventions. Shifting the focus on such interventions may prove worthwhile in Germany too – for both the majority of affected families and the public purse. According to our estimates, raising the success rate of early interventions for children, adolescents, and their families by five percentage points may save local authorities between €8,000 and €17,000 per capita in follow up costs. Lowering the rate by 10 percentage points is set to generate savings between €14,000 and €29,000.
Sozialer Wirkungskredit, therefore, presents an attractive proposition for local commissioners eager to combine social and financial returns.
The German poet Johann Wolfgang von Goethe once compared his affection for lady-in-waiting Charlotte von Stein to a prospering flower persevering through snow and cold. This might well be an adequate description for the prospects of social impact bonds in his native country: a difficult evolution from bottom up.
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