Sitra and Impact Investing in Finland especially use

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Sitra and Impact Investing in Finland especially use of SIB model 19. 5. 2016

Sitra and Impact Investing in Finland especially use of SIB model 19. 5. 2016 Mika Pyykkö, Head of Focus Area Impact Investing

5 + 1 key facts about Sitra 1. A gift from Parliament to the

5 + 1 key facts about Sitra 1. A gift from Parliament to the 50 -year-old Finland 2. An independent foresight agency: futurologist, researcher, visionary, developer, experimentalist, partner, trainer, networker 3. Funded by returns on endowment capital and capital investments 4. Vision of Finland as a successful pioneer in sustainable well-being 5. Vision includes three themes, 6 focus areas and dozens of projects + 1 Building our future together Photograph: Erkki Laitila, HS/Lehtikuva 1967 Sitra • 19. 5. 2016 • 2

Sitra – forming the future We engage in foresight, research and experiments enabling Finland

Sitra – forming the future We engage in foresight, research and experiments enabling Finland to succeed as a forerunner in sustainable well-being. Our vision of a sustainable future forms the basis for practical action all the way down to the details. Sitra • 19. 5. 2016 • 3

Sitra promoting systemic change megatrends 1 vision Finland will succeed as a pioneer in

Sitra promoting systemic change megatrends 1 vision Finland will succeed as a pioneer in sustainable well-being 3 themes 6 focus areas Resource-wise and carbon-neutral society Capacity for renewal projects Carbon-neutral industry Circular economy Isaacus – Digital Health HUB Social and healthcare financing New working life and sustainable economy Impact investing Transformations of work Research and foresight Societal training Portfolio companies and funds 5 Sitra • 19. 5. 2016 •

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Sitra’s Impact Investing Focus Area • From May 2014 till December 2016 • Focus

Sitra’s Impact Investing Focus Area • From May 2014 till December 2016 • Focus on well-being promotion • Impact goals • Active impact investing ecosystem • Impact investing model (financing instruments etc. ) in use in Finland Sitra • 19. 5. 2016 • 8

Activities • Scoping the Finnish market; defining social challenges, seeking impact actors to tackle

Activities • Scoping the Finnish market; defining social challenges, seeking impact actors to tackle these challenges and increasing awareness & interest among private investors • Collecting and creating publicly available comprehensive benchmarking data • Developing and setting the industry standards for measurement • Supporting the development of impact investing fund in Finland • Launching and building Social Impact Bond pilots • Organizing workshops and events to enhance cooperation among relevant stakeholders • Coordinating the development of a common definitions and terminology • Supporting the development of using social marketing as a tool for behaviour change Sitra • 19. 5. 2016 • 9

National Impact Investing Taskforce • Members and Deputy Members • The Ministry of Finance

National Impact Investing Taskforce • Members and Deputy Members • The Ministry of Finance / Director Pentti Pikkarainen, Chairman Veli-Mikko Niemi The Ministry of Social Affairs and Health / Director • Local. Tapiola Asset Management Ltd / CEO Tom Liljeström, Vice-chairman Director Esko Torsti Ilmarinen Mutual Pension Insurance Company / • FIM Ltd / CEO Teri Heilala • Finland’s Sustainable Investment Forum / Board Member Riikka Sievänen Salminen • Me-säätiö (foundation) / Managing Director Ulla Nord Kone Foundation / Vice-chairman Ilona Herlin • Finland Chamber of Commerce / CEO Risto E. J. Penttilä Arvo Finnish Association of Social Enteprises / CEO Kimmo Lipponen • The Association of Finnish Local and Regional Authorities / Special Advisor Jari Vaine Labour Market Counsellor Jussi Toppila • SOSTE Finnish Federation for Social Affairs and Health / Secretary General Vertti Kiukas Valo, Finnish Sports Confederation / Secretary General Teemu Taaleritehdas Plc. / Investment Manager Heikki Nystedt Finnish Business Angels Network / Chairman Jaakko The Ministry of Employment and the Economy / Japisson • The Prime Minister’s Office / Head of Unit Sirpa Kekkonen The Prime Minister’s Office / Ministerial Advisor Taina Kulmala • VATT Institute for Economic Research / Director General Anni Huhtala • Finnish Innovation Fund Sitra / Director Timo Lindholm Finnish Innovation Fund Sitra / Head of Focus Area Mika Pyykkö, Secretary Aalto University / Professor Otto Toivanen Sitra • 19. 5. 2016 • 10

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Sitra • 19. 5. 2016 • 11

Impact Investing / SIB – focal points • Can be used, when… • the

Impact Investing / SIB – focal points • Can be used, when… • the buyer (public sector) wants to purchase outcome / impact • investments have to be done very up-front compared to expected social impact and financial return • there is a very large or narrow population group • there are political issues or practical risks • Strong future orientation with focus on preventive measures • Functional and financial modeling and impact measurement Sitra • 19. 5. 2016 • 12

The economic and operational model underpinning SIBwork (1/2) 1. Determine demand define target demographic

The economic and operational model underpinning SIBwork (1/2) 1. Determine demand define target demographic group (preliminary) 2. Verify the development of the effect, costs thereof during the past 2 -5 years and future trends; compare change in wellbeing of target demographic group against demand 3. Verify causes for cost development 4. Define root causes for cost development and opportunities to prevent these 5. Define the target results (social and economic) 6. Define the activities necessary to affect root causes (service / operational package) 7. Select organization(s) to implement service package 8. Calculate the net execution costs for the service package 9. Conduct a cost-benefit analysis: achievable benefits vs. required investment 10. Final decision on establishing SIB à program planning etc. Sitra • 19. 5. 2016 • 13

The economic and operational model underpinning SIBwork (2/2) – economic perspective With intervention Estimate

The economic and operational model underpinning SIBwork (2/2) – economic perspective With intervention Estimate without intervention Sitra • 19. 5. 2016 • 14

An example of ongoing project: Occupational Well-Being - project summary Implemented as part of

An example of ongoing project: Occupational Well-Being - project summary Implemented as part of Sitra's Impact Investing focus area (The first SIB in Nordic countries) Objective • Provide municipal/state employers with a service package that enables them to promote occupational wellbeing and thereby e. g. reduce sick leaves in their own organisations Parties to the agreement • Municipal/state employer and Epiqus Occupational Well-Being I Fund (Epiqus, social enterprise managing the fund / project) Service funding and pricing • Service will be produced on the basis of SIB funding • The customer organisation will be automatically liable only for its own participation fee (EUR 15 / person) • As the actual outcome-based service payment, the customer organisation will pay a separately agreed proportion of the cost-savings generated by the reduction in sick leave and any other measurable positive developments Service providers • The subcontractors of The Fund (Epiqus) Aino Health Management Oy, Headsted Oy, Tietotaito Group Oy and Trainers’ House Oyj Envisaged duration of contract per organisation 3 years Sitra • 19. 5. 2016 • 15

Starting point of occupational well-being project: survey and its’ recommendations • Support for development

Starting point of occupational well-being project: survey and its’ recommendations • Support for development of holistic occupational well-being service approach: - Baseline survey - Plan for enhancing occupational well-being - Health management system - Services for hole organization and individuals • Development of leadership (including an idea of early support) • Development of working conditions • Way of life interventions • Support for scoping at work (recovering etc) • Use of technology • Etc - Occupational health services - Evaluation • Service - Will be implemented by outcome based contract and useing SIB model, if necessary - Will be offered first ”only” to public sector organizations Sitra • 19. 5. 2016 • 16

Activities of occupational well-being project - timeline • 3/14 Decision to start Impact Investing

Activities of occupational well-being project - timeline • 3/14 Decision to start Impact Investing Focus Area and planning of occupational well-being project • 4/14 First meetings with possible client organisations • 9/14 Decision about service providers (coalition) • 10/14 Public inquiry for Fund Manager with interest to build an occupational well-being SIB (fund) • 12/14 Decission about the Fund Manager (Epiqus) • 3/15 First client agreement get signed • 5/15 Implementation get started in the first client organisation • 11/15 First closing of Epiqus Occupational Well-Being I Fund Sitra • 19. 5. 2016 • 17

Epiqus Occupational Well-Being I - Structure INVESTORS Verify Capital Manages INDEPENDENT AUDITOR Capital +

Epiqus Occupational Well-Being I - Structure INVESTORS Verify Capital Manages INDEPENDENT AUDITOR Capital + Returns SIB (THE FUND) EUR 175 per Reduced Sickleave Day Procurement of Services CLIENTS (PUBLIC SECTOR EMPLOYERS) Reduction in the Number of Sick Leave Days Delivery of Services Public Sector Employees Sitra • 19. 5. 2016 • 18

Directional sample calculation • • • The customer organisation has 1, 000 employees When

Directional sample calculation • • • The customer organisation has 1, 000 employees When the contract is signed, customer pays a one-off participation fee: EUR 15 per employee i. e. a total of EUR 15 000 The Fund (Epiqus) pays the service provider coalition for activities carried out to promote occupational well-being; on average EUR 300 per employee per year i. e. a total about of EUR 300 000 per year After a year, the auditors will verify any changes occurring in the number of days of sick leave Compared to the starting point, the number of days of sick leave fell during the year by an average of two days per employee Ø bonus to The Fund: 1 000 x 2 x EUR 175 or a total of EUR 350 000 Ø Restoration of invested capital EUR 300 000 Ø Return EUR 30 000 (10 %) Ø Bonus to service providers etc. EUR 20 000 • • After the first year, the aforementioned verification of changes in the number of days of sick leave will be performed every six months, with the project starting point as the point of comparison in each case Sitra is ready to invest EUR 1, 5 million into this SIB; the first closing was November 10 th in 2015 with Me-säätiö (foundation), Sitra and a private investor as anchor investors Sitra • 19. 5. 2016 • 19

Cash Flows of the Fund Investors Service providers Clients 30% 70% Base Case IRR

Cash Flows of the Fund Investors Service providers Clients 30% 70% Base Case IRR ≈ 10% Year 1 Fund equity Service Purchases at cost Three half-year periods Success fee Service Purchase at cost Success fee Last half-year period Service Purchase at cost Success fee Revenue sharing Equity + interest 20% share for the services providers Profit sharing Sitra • 19. 5. 2016 • 20

Occupational well-being project - Additional service: development of outcome measurement for promotion of occupational

Occupational well-being project - Additional service: development of outcome measurement for promotion of occupational wellbeing Goal • • • Harmonisation of measurement methods (i. e. benchmarking) Identification of predictive indicators Diversification of outcome evaluation for performed measures Ø Practical tools at different levels of each organisation • Make use of information generated by the project in question or, where appropriate, existing data belonging to the Finnish Institute of Occupational Health, Keva (”Local Government Pensions Institution”) etc. • The Ministry of Social Affairs and Health, the Finnish Institute of Occupational Health and Keva will be involved as partial funders and/or experts. Sitra • 19. 5. 2016 • 21

SIB project to start: Fast employment of immigrants (The Ministry of Employment and the

SIB project to start: Fast employment of immigrants (The Ministry of Employment and the Economy) Objective • Speed up employment of immigrants, pilote new models of education and employment and combain education and work in a flexible way Status • Project / Fund Manager has been chosen and is especially in charge of - Plannning and managing the project - Building up the financial instrument = fund (limited partership) - Fund raising and managing the fund - Organising according to the impact goals of the project education and employment activities of immingrants in co-operation with different service providers - Follow up, interim reporting and the final reporting Sitra • 19. 5. 2016 • 22

Estimation of SIB portfolio in 2016 – 1+3 funds more in the making in

Estimation of SIB portfolio in 2016 – 1+3 funds more in the making in Finland • Occupational Well-Being project up and running • Fast employment of immigrants -> Program / Fund Manager has been chosen on May 12 th • Promotion of Children’s, families’ and youth’s well-being - 10 -40 municipalities • Support of the elderly’s independence - 3 -30 municipalities • Advancing employment - 6 -10 municipalities -> Procurement process for choosing the Program / Fund Manager (one organization or joint venture) to start • All possible investors have shown (quite) high interest Sitra • 19. 5. 2016 • 23

Lessons learned • Neutral coordinator is valuable • Concept has to be introduced more

Lessons learned • Neutral coordinator is valuable • Concept has to be introduced more than once and from certain perspective to all stake holders - Often have to start from very basic questions - Practical guidelines help to understand • Main stake holders have to sit at the same table soon enough and create a common language • Intermediators have a very important role • In terms of SIB - Itself is not the issue, but a very good excuse - Needs and desire of public sector is crucial - It is very much (also) new kind of co-operation - Modelling makes also measurement possible in a reasonable way Sitra • 19. 5. 2016 • 24

Finnish SIB – Structure INVESTORS Verify Capital Fund / Project Manager Manages INDEPENDENT AUDITOR

Finnish SIB – Structure INVESTORS Verify Capital Fund / Project Manager Manages INDEPENDENT AUDITOR Capital + Returns Limited Partnership (THE FUND) Outcome/impa ct indicators (Euro) Municipality / Government Procurement of Services Service Provider A Service Provider B Service Provider C Service Provider D Delivery of Services Beneficiaries / population group(s) Sitra • 19. 5. 2016 • 25

Sitra Impact Accelerator Design phase 3 month acceleration program for 10 impact actors (3

Sitra Impact Accelerator Design phase 3 month acceleration program for 10 impact actors (3 x 3 month accelerators during 2015 – 2016) - Defining the Dedicated mentors @ 3 hours per week throughout social challenges Face to face training (6 days) – - Demo day: - Kick-off day: - Engaging P&P pitching to importance of overarching themes: stakeholders 1) Impact measurement: investors community and not developing frameworks and - Publishing development & reinventing effectively measuring / projecting case study peer learning the wheel impact as a result about each opportunities - Activating private and 2) Developing a sustainable impact - Individual, angel business model per impact actor tailored learning investors / service case - Sharing plans with - Curriculum 3) Developing the investmentlearning & concrete goals development readiness of each impact actors training with selected - Online platform and connecting to potential materials for virtual service investor(s) publicly coaching providers Sitra • 19. 5. 2016 • 26

Summary of Sitra’s Impact Investing Focus Area - Spring 2016 • Building Social Impact

Summary of Sitra’s Impact Investing Focus Area - Spring 2016 • Building Social Impact Bond pilots to get public sector - to purchase outcome / impact - to invest to promotion and prevention in terms of well-being -> Occupational Well-Being SIB is up and running and four more funds in the making • Sitra Impact Accelerator II - Sustainable business model, economic and operational modelling, measurement - Impact Accelerator for NGOs with the Ministry of Education and Culture and the Ministry of Social Affairs and Health, Finland’s Slot Machine Association and three ”umbrella” NGOs • Interaction with possible investors, public sector representatives and other stake holders - Guidelines for Impact Investor - Guidelines of innovative procurement, payment by results and SIB model • International co-operation • Communication Sitra • 19. 5. 2016 • 27

Activities of Impact Investing Focus Area - timeline • 10/13 Decision to start preparation

Activities of Impact Investing Focus Area - timeline • 10/13 Decision to start preparation of New working life and sustainable economy theme including Impact Investing Focus Area - Impact Investing Fund of Finland other studies - Interviews of main stake holders • 3/14 Decision to start Impact Investing Focus Area and planning of occupational well-being project • 4/14 First meetings with possible client organisations of occupational wellbeing project • 6/14 Impact Investing Focus Area get started • 8/14 Final decision about the project plan of focus area • 9/14 First meetings with possible co-operation partners including breakfast event for investors • 9/14 Decision about service providers (coalition) of occupational well-being project Sitra • 19. 5. 2016 • 28

Activities of Impact Investing Focus Area - timeline • 10/14 Public inquiry for Fund

Activities of Impact Investing Focus Area - timeline • 10/14 Public inquiry for Fund Managers with interest to build an occupational well-being SIB • 10/14 First market study (possible service providers) • 11/14 Study tour to London • 12/14 Decission about the Fund Manager of occupational well-being SIB • 12/14 First national impact investing conference • 1/15 First meetings with Mayors • 1/15 Idea challenge get started (innovations for promoting children’s wellbeing etc) • 3/15 First client agreement of occupational well-being SIB get signed • 4/15 Idea challenge get finished • 4/15 Modelling of the first SIB project concerning promotion of children’s, families’ and youth’s well-being get started Sitra • 19. 5. 2016 • 29

Activities of Impact Investing Focus Area - timeline • 5/15 Implementation of occupational well-being

Activities of Impact Investing Focus Area - timeline • 5/15 Implementation of occupational well-being SIB get started • 6/15 SIB workshop for municipalities • 8/15 Decision to call a national impact investing taskforce • 9/15 Modelling of a fast employment of immigrants SIB get started • 9/15 First orientation discussions with taskforce candidates • 10/15 SIB guidelines for public sector get published • 10/15 First pilot of impact acceleration program get started • 11/15 First closing of Epiqus Occupational Well-Being I Fund • 11/15 New Non-Profit program (Start Ups and NGOs) beside Slush event • 11/15 First meeting of National Impact Investing Taskforce • 12/15 Second national impact investing conference • 12/15 Procurement process of Fund / Project Manager of fast employment of immigrants SIB get started Sitra • 19. 5. 2016 • 30

Activities of Impact Investing Focus Area - timeline • 1/16 First individual interviews of

Activities of Impact Investing Focus Area - timeline • 1/16 First individual interviews of national taskforce members • 1/16 Decision to start to develop circumstances for three new thematic SIB fund (Promotion of Children’s, families’ and youth’s well-being, Support of the elderly’s independence, Advancing employment) • 1/16 First training pilot of social marketing get started • 2/16 First impact investing pitching event • 3/16 Second meeting of national taskforce • 3/16 Second pilot of impact acceleration program get started • 3/16 First workshop of thematic SIBs for municipalities • 3/16 Proposal of NGO impact accelerator program piloting to the Ministry of Education and Culture and the Ministry of Social Affairs and Health • 4/16 First regional investor meeting • 5/16 Decission by the Ministry about the Fund Manager of fast employment of immigrants SIB Sitra • 19. 5. 2016 • 31

Building a successful Finland for tomorrow sitra. fi Facebook. com/Sitra. Fund @Sitra. Fund

Building a successful Finland for tomorrow sitra. fi Facebook. com/Sitra. Fund @Sitra. Fund