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

Innovation Development

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Year: 2017
Level of government: National/Federal government


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