Three lessons from the field for outcomes finance in Canada

Last year was a big one globally for outcomes finance, with 12 new projects launched in 2015. The model was applied in new areas, such as healthcare and higher education, and strong results came from the U.K. and Australia.

With such a fast moving field, it’s crucial we take time to reflect on how we can best harness the potential of this approach domestically.

With the new year upon us, it seems an appropriate time to consider some of the lessons we have learned as we move towards more outcomes finance deals in Canada.

In September, an important leadership gathering took place at which many of the key themes were aired. Social Impact Finance at the Municipal Level (pdf) was an executive education summit hosted by the Ontario Municipal Social Services Association for its members and partners. More than 35 senior executives gathered at the Art Gallery of Ontario in Toronto to learn more about tools such as outcomes-based contracting and social impact finance and to understand where these tools could enable program and policy opportunities in their jurisdictions.

The Art Gallery of Ontario in Toronto. Photo by Rick Ligthelm / Creative Commons

At Finance for Good we were excited to present the summit in partnership with OMSSA and the Province of Ontario because it was an opportunity to engage deeply with an audience that has so far been relatively absent from the conversation regarding social finance and human services in Canada, namely municipalities and other local authorities.

The participants represented quasi-municipal governments that administer housing, childcare and employment services across Ontario at the regional or municipal levels. They work in both funding and planning while also being close enough to the ground to really understand the needs and opportunities in their communities.

This network has a focus on learning and professional development, so policy experiments within it have a good opportunity to be mobilized across other jurisdictions where they can achieve similar impact.

Completing this gathering, we were joined by a remarkable set of speakers, including June Draude, the legislative secretary for social impact bonds for the Province of Saskatchewan, and Joe Schmidt of IFF Chicago, the project coordinator for the Chicago child-parent centre pay-for-success program, as well as guest speakers from VERGE Capital, Ontario’s Ministry of Economic Development, Employment and Infrastructure, and the MaRS Centre for Impact Investing.

Looking forward at the ongoing development of outcomes finance deals in Canada, here’s a few key takeaways from this gathering.

1. We need champions

Many of the speakers — and our own experience — reflected the importance of champions in pulling projects together. Often, a commissioning champion is the key player, especially when these tools are new to a commissioner (that is, the body committing to pay for success). While there are some jurisdictions, such as Salt Lake County in Utah, that are returning to these tools with experience under their belts, in most places championing leadership is necessary to generate the organizational focus needed to go through a project’s development process.

At the summit, we heard that the involvement of the Chicago Mayor’s Office under Rahm Emmanuel had been an essential factor in securing the fiscal authority for that city to engage in these new tools. Similarly, we heard that in Saskatchewan the Premier’s Office has been a key champion in building the multi-departmental collaboration and leadership needed to address projects such as the Sweet Dreams social impact bond, which created supported living for at-risk single mothers in Saskatoon, that affect many departments’ budgets. It was exciting to hear that Saskatchewan’s experience has been positive and has motivated the province to explore new projects that it intends to launch.

2. Engage early with stakeholders, especially investors

Speakers from the MaRS Centre for Impact Investing and VERGE Capital, as well as June Draude, all emphasized the collaborative mentality that social finance projects require. While this provides opportunities to bring expertise from a number of sectors together in designing projects, it also presents a challenge because currently there are limited structures through which routine cross-sector collaboration can occur. Investors in Sweet Dreams, for instance, were long-time supporters of the service provider and were essentially at the table from the beginning, helping to inspire leadership and focus attention.

We also heard the importance of understanding your investor audience: many investors value participating in the development of projects, but it’s essential that enough work has already been done that they can meaningfully engage with a formed idea — not just an early concept — in order to inspire confidence. Actors such as VERGE in London, Ont., have been building local capacity to engage the social investment community more collaboratively in their strategies and decision-making by building structures that enable their partners to work together. This may point the way to a future in which projects in smaller communities can be efficiently developed.

3. Focus on value, not just on savings

Finally, we heard from our audience and their questions that making these opportunities accessible requires them to be sized appropriately with a focus on the overall picture of social value, not just on financial savings. We explored how the public sector, as commissioner, is truly the driver of these projects by setting scope and priorities that will be reflected throughout their development, including what it is willing to pay for in broader social benefits or purely cashable savings.

Until better structures are developed to enforce fiscal rigor and capture savings from projects supported by outcomes finance, as well as address the “wrong pocket problems” that inhibit many beneficial social projects, it is important to create space for public sector leaders to commission based on social benefits and value, and not just fiscal impacts. By understanding the value a commissioner places on the desired outcomes, both financial and social, projects can be right-sized in the design phase and can better manage the expectations of partnering service providers and investors.

The summit was a great opportunity to engage with leading municipal executives and local leaders in Ontario, and real experience and lessons learned were brought forward by both participants and speakers. Heading into 2016, with great projects nearing launch in Canada, we’re looking forward to seeing outcomes finance advance and reporting back with these learnings from the field.

This article was also authored by Justin Bertagnolli. 

Main photo: Clouds reflected in a glass building on University Avenue in Toronto. Image by Eduardo Zárate  / Creative Commons.

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