Outcomes-Based Finance: Turning Measurable Impact into Win-Win Solutions?
Outcomes based finance – only pay if you create measurable impact. Sounds nice, but how do you structure the finance to make it work for all parties?
That’s where Björn Vennema with Social Finance NL comes in. They build the business case around blended finance opportunities. They are the linking pin between various groups to set these deals up for success.
Tip: keep impact as the objective, not the financial instrument, which is only a vehicle to drive impact.
Want to learn more? Check out – Go Lab at the Blavatnik School of Government, University of Oxford – Government Outcomes lab: https://golab.bsg.ox.ac.uk/
Podcast Transcript
Jacob: [00:00:00] Welcome to Impact Stories. I’m here with Bjorn. Please introduce yourself.
Björn: Hi, Jacob. Thanks for having me. My name is Björn Vennema. I’m one of the co-founders of Social Finance Netherlands. we’re a social enterprise ourselves, based out of Amsterdam, with our main history out of outcomes based finance or social impact bonds. Currently we’re doing three things we advise, we do, and we inspire. So we advise clients on how to measure their impact, how to include social value and capture the financial value of social value into their business cases. When we do is when we build financial structures and sometimes manage those and we inspire as well we sort of disseminate our knowledge. And we’re a social enterprise and we’ve always said, look, we don’t want to become a large consultant or a large fund manager. Our main objective is to build an ecosystem, and to build an ecosystem that is outcomes focused. So our key message always is sort of try to get more structure around outcomes, rather than inputs or activities. We think that regardless of how you structure finance, embedding outcomes as a key focus area, is helpful in helping us achieve more impact together.
Jacob: So give me an example of how that works in real [00:01:00] life.
Björn: One example that we launched not that long ago was around elderly care. So we had this case study in the Netherlands where, elderly are at high risk of falling over. when they’re over the age of 70 or even over the age of 80 there’s a big chance that if they do they’ll end up in the hospital or they end up staying longer at home than you’d like to resulting in high healthcare costs, in increased loneliness in increased pressure on their families to take care of them and all the different systems that are surrounding that. and one of the key challenges. The Netherlands around prevention of those types of activities is that, local authorities are responsible for prevention and health insurers are responsible for paying for health care once that takes place. And as a result, nobody is really doing prevention because local authorities will say, look, you know, I’m saving someone else money. Why would I do that? And the health insurers are saying, it’s not my responsibility, so we’re not doing it.
So what we’ve done is we’ve built a structure that says, look, we’re not going to measure the different individual budgets. We’re going to develop a program where we’re going to measure whether we can reduce the number of fall incidents that take place for this group. And we know that if that happens, that’s going to save money across the board. So why don’t we do that like pro rata or refined, whatever [00:02:00] division works for all of you, and together you’ll pay if we can show that we’re actually reducing those fall incidents are going to create long term value.
So we’ve set up a structure where we brought in impact investors. They pre financed the program. The program runs for five years, 2, 500 elderly. We reduce. Approximately 4,0000 fall incidents across that group that saves 4 million euros. And if we’re successful health insurers and municipalities pay out, but if we’re not successful and elderly do not fall less the investors take that financial risk and, and the municipality will not pay out.
So that’s sort of the structure that is most known as the impact bond structure, but that’s a recent example where we’ve been very active in.
So we’ve had sort of the first cohort come through 500 elderly approximately. So we’re doing 500 every year. So it’s a five year program that we’ll measure. So we’ll track their fall incidents for two years after the program. So we have sort of the first indicators and those look very promising.
Our key role is bringing everyone to the table and setting up the financial structure in this case. So when we were asked to sort of help structure this there was an existing program that was delivering this care. It was through physical therapists around strength and balance and all sorts of [00:03:00] things. they had this program, they knew it worked because they’ve piloted in different regions. We’ve scientifically validated through control groups that this works, but we don’t know how to finance it. We don’t know how to scale it. And we know that this municipality is interested, but also they are saying, look, we cannot finance the whole thing.
So at that point we came to the table to think along, like, how can you build a business case around this and how can you bring all of the different partners together? Some of that is adding sort of financial knowledge to the case and sort of being the linking pin. And many of that is also sort of being the translator, between, a healthcare organization, an academic institutes, a municipality, an investor, all of those speak very different languages. And I think in many cases, we’re sort of the organization sitting in between that and trying to make sense of the one in a way that we can tell the story to the other. And that they will understand that as well.
Jacob: In so many instances, we don’t need to reinvent the wheel. There’s an organization. There’s a program that works. It’s just how do we connect it with everybody that needs to be involved.
Björn: So there’s a couple of examples that are major focal points for the last year. One example is around housing and homelessness. We’re working with this endowment fund that is sort [00:04:00] of a hybrid fund, so they have a grant portfolio every year, they provide grants and then they have an endowment manager and that generates a small return, that return pays for the organization and everyone’s happy. But their key objective was eradicating homelessness but interestingly, they’re not using that investment capital or endowment to support that.
So rather than investing for like a 3 percent return in Unilever or whatever they’re invested in, why don’t you actually invest in real estate and not targeting a double digit return or even a commercial return, you target the same 3 percent return, but you can easily achieve that by just charging slightly lower rents. Rents that they can afford based on housing subsidies and the income they will generate from social welfare when they have a home address.
And you can actually make a lot of impact and provide a lot of people with their basic needs. generate a similar return. And that’s, it feels so obvious. And that’s also a case where we believe there’s a lot of scale to be achieved because suddenly you’re doing impact, deep impact. But you’re doing it in an area that a lot of investors understand because real estate is an asset backed investment. you might even have appreciation of that so all of that makes financially a lot of sense. [00:05:00] And we’re sort of now working with them to set up an investment fund around that.That will allow other Impact investors, and I think on a larger, further horizon even general investors to step in and help that scale.
Jacob: What are the big misconceptions people have about what you do?
Björn: A lot of the work that we do, we front load a lot of the work around, for instance, impact measurement. so again, through the example of outcomes based finance, but even outcomes based policy making or outcomes based contracting, we know that you need to spend a little bit more time upfront to design your metrics, to make sure that they are measurable, to make sure that we’re achieving them, to make, to understand what the value is that you’re creating through all of that.
So there’s more work being done up front, when a program is active, it actually saves you a lot of time and work because you already know how you’re going to measure things? You already know what, what the contracting looks like and how you’re going to be paid. And all of those things are in place. But every time we have a conversation about outcomes with finance, people say, look, it’s expensive. And that’s because they only see the cost and the time they need to spend up front. And they very often don’t realize that if you are receiving a subsidy or if you’re receiving a grant or receiving, even if you’re receiving impact in an [00:06:00] investment that requires. Annual, if not more often reporting, it requires, reapplying for programs. So much work that is sort of continuous and they write it off over the course of seven years and we spend it upfront and then we can save it over the next 10 years. But there’s definitely a misconception that sort of spending costs now it’s sort of a penny wise pound foolish sort of, I think concept that I almost always have to have.
Jacob: So Björn, for you personally, tell me about that moment in your career when you decided to shift towards making a difference in the world.
Björn: Well, there’s two moments and one is by coincidence and one is really by choice. So one is I was doing mechanical engineering as a bachelor of studies. I was studying something completely different. Everyone was getting more excited the more deep we went into the engineering piece and I was getting less excited. So I was the only one that said, well, maybe this is not my place. I was really excited about innovation.
So I applied to this innovation incubator which I only learned during my interview was a part of ABN Amro, a part of the bank. That’s where I was interviewed by and hired by my now co founder Ruben. And we sort of by coincidence ended up focusing on this question where the bank asked us [00:07:00] as an innovation team, this was 12 years ago, we see this thing about a social entrepreneurship and impact investing where people are talking about it, but what does that mean for us as a bank? And that was sort of the first time learning about it and that sort of set us off. We launched our first impact bonds out of the bank in 2013, I worked for the impact investment fund, the VC fund that the bank had initiated. So that was sort of a key sort of, Oh wow, this is very interesting.
And then I spent some time in different places, social finance, UK and London and I went into traditional consult strategy consulting. And it was actually at the time of strategy consulting where I both realized that everyone there was just in it for either money or, you know, a career and we were still doing a lot around impact bonds, but people were starting to treat that as sort of a go in itself. So there was a big hype on impact bonds. Everyone thought it was great, but suddenly you were sort of launching or researching impact bonds just for the sake of launching.
I think that was both me and Ruben we need to be not working from a for profit organization, we need to be a social enterprise and we need to be able to say, no, an impact bond is not the right financing mechanism for this you know, what would be good would be X, Y, or Z. So [00:08:00] really making sure that we’re not taking the instrument as sort of an objective but taking the impact, we’re trying to achieve it as an objective. And I think sort of that realization led to, we need to be what became Social Finance Netherlands.
Every year we launch a report that we write ourselves. So we write reports almost every month but mostly it’s on behalf of a client every year, we write one topic that we really feel passionately about that year. And this year it was around outcomes based contracting and financing. And one of our key sort of takeaways or sort of advice to the sector was to start building an outcomes revolution and really start thinking more in every area of our impact sector, start to think more about the outcomes. So every box we can find, we’ll stand on and try to encourage people to think more about outcomes.
Jacob: In Social Finance Netherlands what are you most looking for right now?
Björn: In line with that sort of outcome resolution, I think our biggest challenge is finding or shifting culture in some cases within government and donors. I think those are the two key institutes where we believe we can make investment cases based out of outcomes structures. We can build very [00:09:00] effective partnerships, but one of the key elements that always needs to be there is someone who bears responsibility for those outcomes and is either willing to pay for it or is willing to incorporate in their ways of funding things. And I think that sits within government or within a donor that is spending billions on trying tot. address a certain topic area. So I think what we most need and what we’re trying to look for is getting organizations like that to work with us and really shift the way that they think and work.
Jacob: I like how you said you both advise, do and inspire and how are you actively working on the inspiring piece?
Björn: We have our own podcast. It’s in Dutch, unfortunately, Money Matters. We do our annual bigger reports, but in between that we do a lot of writing, we do a lot of speaking. So we try to go across the country or across the world sometimes to really find places to speak to this topic. We’ll come, we don’t need to be paid for that. We really just want to encourage people to work with us or think with us and imply it themselves. So it’s sort of speaking, writing sharing.
Jacob: Are you primarily focused on innovations that are happening in [00:10:00] the Netherlands? What is the scope of geographies that you’re working with?
Björn: I would say probably 80 percent work in or out of the Netherlands. So a lot of it is within the Netherlands, then there’s a lot of stakeholders that are working globally, but we’re working with their Dutch offices.
So we work with ActionAid or Save the Children and then we typically would work with their Netherlands. based office, but obviously their footprint and the work that we do is focused on areas across the global South.
We do a lot of work throughout Europe together with European institutions. So it’s really across the globe and we’re part of a social finance global network, as we like to call ourselves. So we have four different countries, I think, across offices, 350 people and if there’s areas where we wouldn’t have expertise, they would have. So together, we cover the world. At least we try to.
Jacob: If the community wanted to find out more about your organization or about the topic of outcomes based financing, where would you point them?
Björn: So organization, I would say either on our website or our LinkedIn pages, I think that’s the best place for organization. On top of our own work, I always encourage people to look at the work of Go-Lab, the Oxford University Government [00:11:00] outcomes lab. Where they have a lot of academics focusing exactly on this topic and providing academic lessons and collecting all of the work globally that’s being done not just by us. And that’s always a very exciting place to look at for this sector.
I’m hoping people will join us in our outcomes revolution.
Jacob: I love that. I wish you all the luck in the world with driving that revolution and being a connector to help make more change happen and focus on the right kind of outcomes. There’s so much that’s focused on the activity and the busyness and checking the green box versus are we having any results on the other end?
Björn: One of our board members always used to say, look there’s a lot of people focusing on busyness, you should be focused on business.
Thanks for letting me share our story.
Jacob: Yeah, thank you. Best of luck with all that you do. Thank you.
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