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Sustainability Bond with Impact-linked Return (SBIR)

Sustainability bond with impact-linked return (SBIR) is an innovative funding model to unlock social impact investing which advances the potential to drive public sector change and to attract a broader range of investors, while also financing social infrastructure. The overall goal is to expand investor base for impact investing and build public sector capacity to tackle various social challenges.

Innovation Summary

Innovation Overview

Building on the concept of Social Impact Bonds (SIB), the previous Swedish iteration of a SIB in the local authority of Norrkoping as well as experience of social investment strategies in Swedish local authorities and regions, the Swedish Association of Local Authorities and Regions (SALAR) initiated in January 2017 a project with the advisory support of the European Investment Bank (EIB) to design a new form of delivery and implementation support model for investment in preventative interventions, including a structured financial instrument.

The social challenge in focus was occupational health in public sector as this is a strategic issue in Sweden affecting public sector ability to address other societal needs and policy areas. The aim was to develop a model that also can be used for other social challenges. Working with three local authorities, patterns of sick-leave among employees and the status of occupational health in the organisations was analysed with the aim to identify service gaps and assess the business case for interventions. An important part of the SIB model is the intermediary organisation which supports stakeholders to define the social need, outcomes, business case and intervention models.

In the implementation phase of the SIB, the intermediary may transform into the procuring organisation responsible for contracting and managing service providers. The intermediary may also take on the responsibility to ensure continuous improvement of the intervention to reach desired outcomes. In Sweden, the public sector is large with wide ranging responsibilities including as a service provider. A crucial issue is thus the relationship between an intermediary and the public sector organisation involved. Not least when the provision of services with potential to improve outcomes is a shared responsibility between public and private. Close involvement of the public sector actor is also a key factor for knowledge sharing and achieving long term change.

From a national policy perspective, the ability to scale successful services and pay-for-performance (P4P) models can become an important role for the intermediary organisation. Existing SIBs have risk profiles like equity which, together with the small investment volume, have made investment from institutional investors impossible. From a financial perspective, the aim of the project was to find a funding model combining the impact linked return of a SIB with a traditional social (infrastructure) bond to reach an acceptable risk-return ratio and volume of investment attractive for a broader spectrum of investors. The sustainability bond with impact-linked return (SBIR) model has the possibility to overcome some of the limitations of previous SIBs.

The key components of the new model are listed below:

-By issuing a minimum of EUR 100 million SBIR with a 10% share being a SIB, the required volume and risk level for institutional investors is achieved. With Kommuninvest as issuer, an established actor in organisation with credible track record of providing financing to its members, local authorities and regions, continues the path it started with the green bond framework to support and develop sustainable investment.

-By creating an intermediary organisation as a joint venture between SALAR and the Research Institutes of Sweden (RISE), an actor is formed that draws on current expertise and networks while having the flexibility to effectively support local authorities in procuring, implementing, monitoring and evaluating outcomes as well as providing information to investors. SALAR, which is owned by all local authorities and regions has well established links to and credibility from its members. RISE, a state-owned enterprise of researchers and experts in areas of measurement, technology and computer science, provides additional expertise to the intermediary. The intermediary is formed and tested with this first SIB for occupational health but can be used for upcoming initiatives and is a new entity in the Swedish innovation landscape.

-By combining investment in the internal HR services and changing their practice to pro-actively working with a risk group of individuals and work places and in external services commissioned with a P4P- contract, the pre-study has identified a case for reducing costs for the employers (public sector) while at the same time improving occupational health of employees. The new model is now being implemented together with seven local authorities. Establishment of the joint venture between SALAR and RISE, procurement and contracting with local authorities and service providers, investor dialogue is ongoing with the aim of having an operative SIB in April 2018.

The objectives of the SIB are to

1) improve occupational health and lower sick leave costs in local governments,

2) test the institutional innovation – the joint venture between SALAR and RISE,

3) set an example of a sustainability bond with a strong impact focus.

Innovation Description

What Makes Your Project Innovative?

Two perspectives on the innovation are provided here, from the public and financial sectors. From a public-sector perspective, the innovation will establish a change management vehicle within established institutions with the capability of collaborating with both local and national actors and expertise. The model is also acknowledging the connection between public and private sector, and the need to find cooperative models that incentivise both parties to reach better outcomes and save public expenditures. Most examples of SIBs around the world outsources service provision and thereby techniques for improved outcomes to private organisations (for-profits or non-profits). The model we developed increases the chance for network effects, bringing a wider transformation of the public sector towards strategically supported innovation focusing on better outcomes. Innovation in public sector is not new, but the strength in the SIB model is the systematic approach in defining and focusing on outcomes together with implementation support and performance management, which is often lacking in public sector. In addition, the use of carefully designed P4P contracts between involved actors is a powerful tool to align incentives.

The external investment is important for risk sharing and not least to focus all involved parties to work towards improved outcomes. From a financial perspective, a sustainability bond with a SIB component is something entirely new. While SIBs have been proven useful to drive innovation and focus on outcomes in the public sector their overall impact has been limited due to the size of contracts. At the same time, the rapid development of the green bond market shows that the investors are interested in impact investing, once the issues of complexity and scale have been overcome. The SBIR model provides the basis for an innovative financial instrument and investment platform to finance both preventive and early intervention projects in various social domains together with larger social infrastructure investments. This allows for the instrument to be scalable and attractive to a wider and larger group of potential investors, including institutional investors, who have not considered SIBs as an investment opportunity until now. The SBIR is therefore a structured product combining the elements and security of a green bond with the opportunity for slightly higher financial returns coming from the SIB component.

What is the current status of your innovation?

The project team is now working together with involved actors to implement the innovation and make it operational by April 2018. The implementation phase includes the following key components: - Working with the seven participating local authorities to perform analysis and prepare for a final decision to be included in the SIB (decision deadline end of November 2017). This includes analysis of sick leave patterns to verify the business case locally for authorities that were not part of the initial project and procuring the part of the intervention that will be provided externally.

- Finalising the P4P contracts between investors and the project organization and the project organization and local authorities

- Preparing the formal decisions at SALAR and RISE to set up the joint venture (preliminary known as the Project organization)

- Setting up the financial instrument and defining a social infrastructure investment

- Investor dialogue

The path to this stage in the innovation process has required utilization of accumulated knowledge in several fields. This includes experience from the first Swedish SIB in Norrkoping, from working with innovation and development in local government, financial markets and financial instruments. An important source of inspiration for parts of the model has been through contacts with the Finnish innovation agency SITRA and with Social Finance in the U.K. The fundamental driver for developing this innovation comes from experience of the challenges for the public sector when it comes to reaching better outcomes, and a belief in the potential of more stringent intervention logic as well as implementation and evaluation support as means to that end. The methodology to develop the innovation was to put together a team of different competences and to work iteratively under a tight time frame with clear project management to keep up the pace. The results of the pre-study has been presented in conferences and video presentations as well as through written reports. As the project enters the next phase and becomes operational, the results will be spread continuously through relevant channels. The aim is to both address professionals and policy makers. Through a Nordic informal SIB network and other European as well as international contacts, it will be possible to spread the results to an international audience.

Innovation Development

Collaborations & Partnerships

The project that resulted in the innovation was led by SALAR and the EIB but also included Kommuninvest, RISE and consultancy firms Lumell Associates and Impact Invest Scandinavia and the local authorities Botkyrka, Kungsbacka and Nynashamn. Each party contributed with its specific competence in a truly complementary manner. SALAR was key in communicating with local authorities and regions, while the EIB and Kommuninvest provide knowledge and advisory support in financial instruments and contacts in financial markets. RISE, as a state-owned network of research and technology organization, took the role as guarantor for robustness of needs assessment, evidence base of services and evaluation model. As a long-time collaborative partner to SALAR, Lumell Associates performed the analyses and acted as co-project managers with SALAR. Impact Invest Scandinavia arranged investor meetings to ensure that the product met market demand and standards.

Users, Stakeholders & Beneficiaries

To ensure approval from various stakeholders both interviews and more in-depth regular dialogues and workshops were carried out. Starting the project, several interviews with researchers, experts and employees were carried out to assure that, primarily the intervention design, rests on the prime current state of knowledge. Throughout the project, regular dialogues with representatives from the occupational health services sector were held. Separately, investor meetings and workshops were conducted. Among the goals of these meetings was to secure interest from parties which will become vital later on. Due to these dialogues, the stakeholders will be very much informed when it comes to finding investors and service providers. Feedback regarding procurement and model design were also considered.

Innovation Reflections

Results, Outcomes & Impacts

The results and insights from the initial project includes:

- In-depth knowledge of drivers of short term sick leave in three local authorities in Sweden

- Identification of key barriers for institutional investors to make SIB investments

- Decision on (publicly funded) follow-up study in seven health care regions on long-term sick leave with method that mimics the analyses carried out in this project

- Preliminary decision from SALAR and RISE to participate in the establishment of a joint intermediary organisation - Preliminary decision from two institutional investors to participate in the new SBIR

- Preliminary decision from seven local authorities to participate in the new SIB

- Draft documentation for the proposed financial instrument - Draft documentation for the proposed procurement of services from external provides

The results and impacts that are expected going forward includes:

- First large scale Social infrastructure/SIB platform (>€100m) that is backed by institutional investors

- Introduction of new services for proactive sick leave management in the public sector in Sweden

- Lowered sick-leave prevalence and sick-leave costs in seven local authorities in Sweden

- Positive financial outcomes for local authorities, private providers and investors

- A model for testing, evaluating and scaling new interventions with external investment.

Challenges and Failures

The major challenge in this cross-sector project was to balance demands from the public and private sector (i.e. investors from the finance sector and the private welfare companies). This type of cooperation is not common in Sweden and was novel for all participating parties. Apart from adjusting communication and holding common meetings to bridge the differing viewpoints, the key towards solving this issue was to coalesce the two sectors’ approaches and methods to innovation. The private sector are more used to incentives based on profitability. They also have a larger risk appetite and are more experienced in valuing risk. On the other hand, the public sector are more used to incentives based on quality and are less experienced dealing with financial risks and risk valuation. Hence, both approaches to incentives were included in the model to assure both parties of the robustness of the model.

Conditions for Success

A necessary condition for highly innovative projects of this considerable scale within this sector is to have clear-cut support from well-known institutions within the field. As stated above, the respect within and knowledge of the public sector (SALAR) and financial sector (the EIB and Kommuninvest) gives the project a seal of approval and facilitates all contacts. The inclusion of RISE lends credibility in terms of evaluation of the effects and legitimacy towards the state level. Due to the large scale of this project, it was also necessary to have previously performed smaller pilots in order to establish a track records towards all parties and gaining valuable experience. The SIB in Norrköping was designed and implemented by SALAR and Lumell has been running for two years with thorough evaluation. Lessons from this project has been enormously important when performing this project. The 3 pilot municipalities within this project also served a similar purpose.


As the model is generic, it should be useful for many different social challenges in many countries. Areas that are considered in Sweden includes enhanced education and work place training for immigrants, interventions for the long term unemployed to name a few. Having the intermediary organisation in a national model with a connection to all major stakeholders in national and local government should facilitate both scaling of successful examples and developing interventions in new areas. The financial model is also expected to be useful in many different situations. In contrast to the model of the intermediary organisation, which is adapted to the Swedish context, the concept of a sustainability bond and the methods of creating one are more easily adopted to countries with different and less developed welfare systems.

Lessons Learned

A key success factor when working in a multi-sector project such as this one is to make sure that the intermediary/project team include competences from all concerned sectors. This team should then constitute a clear core working group, drawing the best from each party’s knowledge and experience. This has been key when putting together all different sector specifics, using and interpreting various language and term and, above all, in order to have factual knowledge deep enough to really grasp the issues. Of course, working together in such a multi competent team is not without complications, as issues with understanding can arise in the team. This is why it is even more important to put in sufficient time in learning to understand each other and each other’s specialist language and terms and expectations. If not, the benefits from the multiple competencies are harder to take advantage of.

Year: 2017
Level of Government: National/Federal government


  • Implementation - making the innovation happen

Innovation provided by:

Date Published:

15 March 2017

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