Social impact bonds in the Nordics: insights from ‘Copenhagen Impact Investing Days 2021’

By Mikkel M. Andersen and Ferran Torres

◦ 5 min read 

A social impact bond (SIB) is an innovative model for public service delivery characterized by flexible service interventions and an outcomes-based payment structure. SIBs use private investments to drive new types of welfare activities, shifting the risk from the public to the private sector. Today, several SIBs are emerging in Nordic countries, but do rich welfare states even need these financing mechanisms? And in case they do, for what? These questions were discussed by three leading SIB-experts during the ‘Copenhagen Impact Investing Days’ 2021.

During the last few years, the use of social impact bonds (SIBs) and other social finance-instruments has increased dramatically in Nordic countries. SIBs were originally used as financing tools supporting public organizations in the UK experiencing budgetary restraints. Thus, as the model spread into other contexts, the question begged whether this tool would be appropriate for Nordic countries as well. The following piece summarizes some key reflections from the panel discussion regarding this question at Copenhagen Impact Investing Days 2021 (CIID). 

SIBs in the Nordic countries: an emergent but fast-growing field 

While more than 200 SIBs have officially been developed worldwide, they are still an emergent phenomenon in most Nordic countries. Currently, 17 SIBs have been initiated in Finland, Sweden, Denmark, and Norway – primarily within employment, preventive health, and social welfare. Also, at least 7 additional SIB-projects have been announced. The first SIB-evaluations are also starting to come up; for example, the assessment of the first Swedish SIB in Norrköping shows promising social effects, despite not creating a financial return for investors. Finnish intermediary-organizations are also planning to develop SIB-projects within environmental areas, including recycling and energy efficiency in housing.

Overall, Finland seems to be on the forefront in the Nordic regions, followed by Sweden, while Denmark and Norway are a few years behind. On the investment side, significant progression is also being made. A Finnish fund-of-funds is currently being developed with an expected capital of 100 million Euro. In Sweden, work is also being done to set up a national outcomes financing structure to ensure the scaling of future outcome-based initiatives. Last, legislative action to ensure social finance practices has been taken – most recently in Denmark with Børnene Først promising more focus on social investment-practices to ensure preventive social welfare.  

Emerging practices for Nordic SIBs 

Some early experiences regarding the relevance and usage of SIBs in the Nordic countries were discussed during the CIID-conference. First and foremost, SIBs seem to be a part of a much larger trend in public welfare, oriented towards measuring, incentivizing, and resourcing towards long-term social outcomes. While SIBs might constitute effective solutions in themselves, they are also catalysts for evolving social investment practices because they can 1) showcase the benefits of new types of welfare services by linking social and economic outcomes, 2) provide practical solutions for realizing preventive and proactive welfare services, and 3) facilitate cross-sectoral coordination through new procurement frameworks by bringing new stakeholders to the table. 

The SIB can be a useful way to show the municipalities, and the government, how to buy the solutions that actually work. 

Hans Henrik Woltmann, Investment Manager, The Social Investment Fund (DK)

What seems to be critical is also the perception that SIBs in the Nordic countries should not function as a replacement to or a privatization instrument for public welfare services. Instead, SIBs should be understood as a supplement to these, allowing public actors to change how they buy public interventions while testing new welfare solutions through de-risking strategies. Still, the novelty of the method, and its experimental character, makes it challenging to assess its true potential.

Does the SIB really allow us to scale or is it just a fancy way of financing projects? I think the question is still out there 

Tomas Bokström, Project Manager, Research Institutes of Sweden
Looking into the future: necessities for a social finance-ecosystem 

Summarizing the points from the debate, SIBs in the Nordics are on the rise and have the potential to become welfare instruments themselves, and a vehicle for promoting a social investment agenda. Looking ahead, three key aspects will be important for enhancing the Nordic social finance ecosystem: 

  1. Establish more evidence from practice and leverage these actively with public organizations to spark discussions. 
  2. Insist on experimentation and a methodological openness towards the SIB-model. Its value also resides in its ability to test innovative social interventions to later diffuse them through public practices fitting better into specific welfare situations. 
  3. Follow and engage in political discussions regarding the ambitions for SIB-practices. The SIB market is still in its infancy and relies heavily on market-maturement initiatives to develop better infrastructure.

Panelists for the discussion of Nordic Impact Bonds at ‘Copenhagen Impact Investing Days 2021’:  

· Tomas Bokström, Project Manager, Research Institutes of Sweden
· Hans Henrik Woltmann, Investment Manager, The Social Investment Fund 
· Mika Pyykkö, Director, The Centre of Expertise for Impact Investing, Finland
· Mikkel Munksgaard, PhD Fellow, Department of Management, Society, and Communication, CBS (moderator)
· Ferran Torres Nadal, PhD Fellow, Esade Entrepreeurship Institute & Institute for Social Innovation, ESADE (moderator)


About the Authors

Mikkel Munksgaard Andersen is PhD Fellow, at CBS Sustainability, Department of Management, Society and Communication (MSC) at CBS. Through his PhD-project, Mikkel studies the development and implementation of social impact bonds and payment-by-results methods in Denmark. His work centralizes around the distinct characteristics of Scandinavian impact bonds and their role in supporting and financing public services. The research is driven by a participatory research design and is co-financed by Region Zealand. Mikkel has earlier worked in the social finance-field both on an academic and practical level.

Ferran Torres Nadal is PhD Fellow at the Entrepreneurship Institute and the Institute for Social Innovation, ESADE Business School in Spain. His PhD advisors are Lisa Hehenberger and Tobias Hahn. His work is focused on understanding and explaining tensions and paradoxes around complex phenomena. He is particularly interested in studying the challenges and opportunities that come with cross-sector initiatives, such as social impact bonds.   


Photo by Katt Yukawa on Unsplash

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