The Social Impact Bond (SIB) is a form of impact investing. In an SIB, institutional and private investors fund services that promote well-being and assume the risks associated with the provision of these services. Projects are given precise, measurable targets, which reflect the desired increase in well-being. The public sector only pays for results that are in line with the set targets.
An SIB agreement is a tool for systemic change. The public sector can use this tool to develop its procurement procedures, moving away from simply purchasing goods and services towards the acquisition of results and impact. Each year, central government and local authorities in Finland make procurements valued at approximately 35 billion euros, so achieving an impact also means the more profitable use of billions of euros of tax revenue.
So far, several SIB projects have been launched in Finland which focus on e.g. wellbeing at work, integration and children wellfare. The fourth project targets on preventing immigrants long-term unemployment is the largest SIB within. More than two years ago, the world’s first SIB project to promote occupational well-being was published in Finland, covering 1,600 public sector employees. Their well-being at work services are financed by funds collected from investors. The results of projects that have already started are not available as they are all still in progress.
For immigrants to find employment as quickly as possible is important in many respects. It facilitates their integration to the Finnish society, eases the shortage of labour faced by Finnish employers, and leads to public savings by increasing tax revenue. The Integration SIB project aims to find employment to 2,500 immigrants within the next three years.
In the experiment, implemented by the Ministry of Economic Affairs and Employment, the employment of immigrants is promoted through private investment, using the SIB (Social Impact Bond) model of impact investing. Funds for the activity are collected from investors who also bear the economic risk. The State only pays for the outcome, which in this case means savings in the public sector.
The Integration SIB project boosts the employment of immigrants by bringing together companies and employees and by customising the training of immigrants according to what is needed at workplaces.
The companies participating in the experiment represent sectors that have difficulties in finding workforce, such as the manufacturing industry, building, trade and services. Jobs in academic sectors may also be found via SIB.
Investors’ willingness to invest in such activities at their own risk allows performance based performance. However, this is not a donation, so the goal is to make a moderate return on the investors by counteracting this risk. There are good examples of this in the world, which is a sign that profitable investment can also do good.