Thursday, December 12th, 2013
As reported in Jerusalem Post:
Israel on Thursday made a rare official appearance at a G8 forum, a group representing the world’s eight largest economies, as the leaders of an Israeli social finance group presented an innovative blueprint for tackling type-2 diabetes to the G8 Taskforce on Social Impact Investment.
The group, Social Finance Israel
, developed an outline for preventing the disease using Social Impact Bonds, investment instruments that seek to produce socially favorable outcomes while providing investors a return. In doing so, they hope to attract private funds to a social sphere normally dominated by philanthropic dollars.
”Philanthropy has a paradox in that it’s the first funding source to disappear from the causes that need it most when times are tough, and the last to come back,” Social Finance Israel CEO Yaron Neudorfer said in an a Friday interview with The Jerusalem Post. “Social impact bonds bring in investors who seek a return by tackling social issues.”
Here’s how the bonds work: First, the group that wants to issue the social impact bond identifies an issue that incurs economic cost to society. Examples range from treating Asthma to improving child adoption to decreasing homelessness. The group then develops interventions or seeks out NGOs that have proven methods of tackling the issue, and channels money from the bond investors to the programs. The government (or another body that would shoulder the cost of the particular issue, such as Health Maintenance Organizations), agrees to pay a certain amount if the intervention produces a promised level of results. Those funds provide return to the investors.
If the intervention works, everybody wins in the end: the investors turn a profit, the NGO gets more funds to do its work, the subjects benefit from the NGO’s work, and the government pays out less money than the social ill would have cost in the first place.
“For governments it’s great, because if the intervention doesn’t work they don’t pay anything, and if it does, they save tremendously,” said Social Finance Israel Senior Associate Ophir Samson.
At the G8 Taskforce meeting, Samson presented a paper he co-authored with Neudorfer and experts from Hadassah medical center, Clalit Health Services and Brigham and Women’s Hospital outlining how to develop a social impact bond to fight diabetes.
“Once someone is diabetic, there’s no clinical cure. The only way to deal with it is to intervene with pre-diabetics,” said Samson. In Israel, 11% of the population either have diabetes or are pre-diabetic, but the disease eats up 17-20% of nation’s health care expenditure, and also reduces the patients’ economic productivity over time.
In addition to laying out an intervention plan, the team had to set definitions and metrics for tracking and quantifying every element of the intervention, from defining pre-diabetic to calculating the economic cost of the disease. “That’s a substantial piece of work and we believe that we’ve found the way to do it,” Samson said.
The treatment will put pre-diabetics through an intensive program that includes free access to a fitness center, group exercise, lifestyle counseling advice, and technology to monitor their progress. It will continue to monitor the subjects for two years after the intervention and see how many developed diabetes in comparison to a control group.
“The interesting thing about the diabetes Social Impact Bond is that the clinical evidence is exactly the same whether you’re talking about people from Finland, the Netherlands, the US, China, Japan or Israel,” said Samson. “That means we can build a bond that is very scalable.”
As a result of the presentation, three of the G8 countries are looking to implement the diabetes blueprint at home, but more concrete results will come when the Taskforce issues its report of policy recommendations in September.
Since a 2010 bond to reduce criminal reconviction rates in the UK’s Peterborough prison launched, several Social Impact Bonds have been issued around the world, gaining support from notable investors and even investment giant Goldman Sachs.
But the instrument is still young and experimental. The G8 launched the Taskforce on Social Impact Investment in June, hoping to “help catalyze the development of the global social impact investment market.” At the helm of the Taskforce sits Sir Ronald Cohen, an Egyptian-born Jewish businessman who founded one of Britain’s first Venture Capital funds. He is also one of the foremost leaders in the field of social investment, serving as the chairman of Big Society Capital and, notably, Social Finance Israel.
“Social Impact Investment is a response to the urgent need to achieve innovation and scale in the way we tackle social issues,” Cohen wrote when the Taskforce launched. “It seeks to harness entrepreneurship and capital markets in doing so.”
Why has Israel, of all places, taken a prominent role in developing the new field? Other than Cohen’s personal connection to Israel, it is the country’s knack for innovation.
“You need to think about social impact bonds in this industry today the way people looked at high tech at the end of the 1970’s or beginning of the 1980’s. We’re developing a new industry,” said Neudorfer. “I think we are at the same stage now with social impact bonds. Israel as a start-up nation is really the right place for innovation.”
Social Finance Israel, which was incorporated in June, is also working on Social Impact Bonds to help integrate ultra-Orthodox Jews and Arabs into the labor force and reduce criminal recidivism.
The diabetes bond is still a work in progress. In the coming months, the group hopes to get the government to sign off on the diabetes social impact bond.
“What we presented to the G-8 is a blueprint, a generic model that each country can adapt based on their own particular systems,” said Neudorfer. The bonds are long-term investment, but he believes today’s efforts will eventually pay off, quite literally.
“We are really aspiring for this to become its own asset class,” he said.