Thank you, Sunil.

Our second recommendation is that governments must invest in the supportive infrastructure needed to build capacity among both public servants and service delivery organizations.

For not-for-profit organizations involved in complex arrangements, like social impact bonds, there is a need to further develop both financial and evaluation literacy and supports to ensure they're able to participate effectively in these processes. Service providers who have been involved in social impact bonds note that they represent a significant capacity challenge in financial and evaluation skills, but also on organizational resources. Consequently, smaller but more innovative partners in the not-for-profit sector may well have been excluded.

The committee has already heard examples of funds established elsewhere to make organizations impact ready. As well, independent “what works” institutes can play a valuable role in synthesizing and disseminating advice on proven interventions, and similarly, technical assistance labs can offer training, advice, or analytics to support impact evaluation. For example, the U.K. government is currently establishing a network of “what works” centres to offer advice in areas including education, crime reduction, early years intervention, and aging populations.

Governments will also need to examine their internal organizational capacities to enter into and implement outcomes-based funding schemes, developing supports where needed. Shortages of in-house evaluation specialists and lack of independent organizations that can offer advice on evidence-based interventions are challenges that many governments face.

Finally, there is a need to ensure that stakeholder and system incentives are aligned to ensure that models work for the public benefit. These new financing mechanisms involve many moving parts and are attempting to tackle complex, entrenched social issues. New funding models based on outcomes can only be effective if the incentives for all stakeholder groups, government, not-for-profit service delivery partners, investors, and clients are aligned.

For government, these models often engage multiple areas and orders of government and success depends on effective coordination. As a response to this issue, some jurisdictions are developing central outcome funds or joint investment agreements based on particular cases.

Failure to properly negotiate agreements is a significant risk that can lead to over- and underpayment, system-gaming, and non-cooperation among partners. These risks are particularly acute when outcomes models are introduced into poorly coordinated social support systems, where provider capacity is low, trust is lacking, roles poorly defined, and risk is unevenly distributed.

Creating the right conditions for negotiation and having all partners at the table is critical. There is a need to ensure that outcomes' metrics chosen reward real impact. Indicators that incentivize gaming and short-term outputs that do not serve as long-term proxies for impact are detrimental to the community, investors, providers, and policy-makers.

In conclusion, government has a key role to play in supporting social finance by promoting a strong, enabling environment. This includes establishing quality baseline information, strengthening internal and external stakeholder capacity, and establishing the right mix of incentives. These models are complex and to benefit the public, they must be accompanied by an equally strong commitment to making the changes needed for them to succeed.

Thank you.

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