Social outcomes contracts could be on agenda as Finland assumes EU presidency

Finland has just taken over the Presidency of the Council of the European Union and social outcomes contracting – models where investors take on financial risk in social programmes – could be on the agenda.

The Council of the European Union is the body that represents member states’ governments in the EU, defining political direction and priorities. The presidency of the Council rotates among EU member states every six months.

Starting this week, Finland assumes the presidency, for the third time, under Social Democrat Prime Minister Antti Rinne’s government formed in June.

RI understands that for a number of months Finnish civil servants, drawing up plans for the tenure, have been discussing social outcomes contracts as part of a focus on the ‘Economy of wellbeing’ in Europe.

Social outcomes contracts, also called outcomes funding, build on the model of social impact bonds or similar kind of structures – where investors back social projects such as increasing educational attainment, in the expectation of capital preservation and a return tied to the achievement of measured outcomes.

A handful of small outcome funds are up and running, but influential figures such as former UK Prime Minister Gordon Brown are trying to develop billion-dollar outcome funds around the world.

The “outcomes payers” providing returns to investors, are typically philanthropic in the developing world, and public sector bodies in the developed world. They are involved for a variety of reasons, including improving the efficiency of donor spending and a focus on measurement and accountability. For public sector bodies, there is potential for taxpayer savings if social issues are effectively tackled.

The latter is the case for Sitra, Finland’s Innovation Fund set up by the Finnish Parliament more than 50 years ago. It sees the social impact bond model as a way to challenge the public sector to use taxpayer money in a different way and as a tool for systemic change.Talking to RI, Mika Pyykkö, project director, impact investing at Sitra, says: “The new Finnish Presidency feels that one of our goals is to highlight and emphasise the outcomes based approach and to challenge and support different member states in order to implement the idea.”

He says Sitra has conducted a survey with EU member states on the issue. It found 13 were very interested in the approach, but they lacked knowledge and expertise.

RI understands a high-level meeting on outcomes contracting will take place in Finland in September, including interested EU member states and the European Investment Bank.

Domestically, Finland has launched one of Europe’s biggest social impact bond bonds, a €10m deal seeking to support the integration of migrants into the Finnish labour market. Investors include Finnish retail chains and the Orthodox Church of Finland, and the European Investment Fund. Investors’ return is based on how much the Finnish government makes in increased income tax payments and reduced labor market benefits from those employed through the social impact bond’s migrant scheme.

Finland’s social impact bond portfolio also includes one focused on occupational well-being, while ones focused on diabetes prevention, support of the elderly and family well-being are in the pipeline.

Studies by Sitra have found that effectively tackling these social issues could yield big savings for the public sector – nationally even hundreds of millions from type 2 diabetes prevention during next 10-15 years and €40,000 per person per year on costs supporting the elderly not having to go into institutional care for example.

Finland’s presidency of the EU lasts until December in a so-called “trio” with Romania and Croatia.