Social impact bonds are not a Russian invention, but a borrowing of foreign practice. They require adaptation to our realities.
"This is a new tool, there is little practical application experience, the regulatory documents are still to be worked out, so understandably mid-level officials are quite alarmed about it. Preparing the paperwork to launch the project proved to be a complex and time-consuming job, and we must give credit to the persistence and professionalism of VEB.RF specialists, the procedure becoming more and more streamlined with each new project launch", says Tatiana Burmistrova, co-founder and Chair of the "Toward Change" Foundation Board.
Judging from the available progress reports on the projects nearing completion, another major challenge is developing a system for monitoring the interim results of the project.
"Since the project conditions change all the time, it is vital that the contractors are flexible and focus on the end results. In general, it would be very interesting to do case studies of social impact projects, including the factors that influence the success and difficulties", Tatiana Burmistrova added.
Social impact projects require constant close interaction between the customer and the contractor. In case of the project "Improving the Educational Performance of Students in the Republic of Sakha (Yakutia)", the customers are the Ministry of Education and Science of the Republic of Sakha (Yakutia) and the National Research University — Higher School of Economics. Hence the first difficulty related to communication: the Republic of Yakutia is 5,000 kilometers and 6 time zones away from the contractor, NRU HSE — by the time Moscow gets to the office, the working day in Yakutia is almost over. At the same time, it is impossible to have the specialists from HSE to be permanently present in Khangalassky ulus.
"Therefore, the key to project implementation is delegation of responsibilities, high mutual contractor discipline, coordination of the positions, and reliance on local staff. Equally difficult is to develop a unified vision of the works aimed at achieving the planned results. Trust between the customer and the contractor is a very important part of success. NRU HSE has made some effort to jointly chart a development path for the municipal education system. Horizontal methodological interactions between schools in the district have been created and are sustained solely by the teachers’ enthusiasm. In the future, when implementing social impact projects, it is necessary to create special conditions for the experimental areas. As our experience has shown, the workload of the municipal project coordinators increases considerably", says Olga Balabkina.
In addition, external factors were also in action during the project period. The epidemiological situation in 2020–2021 influenced the change in the format of many project activities, most of which had to be carried out remotely.
In October 2021, the "Toward Change" Foundation initiated a round table "Social Impact Bonds: the Potential for Social Innovation in the Regions" at the Civic Chamber of the Russian Federation. The participants noted that the SIB model is very relevant for Russia. However, its expansion would rely on the regional authorities being ready to take action that is different their traditional work formats, to move from the "spending budget" to purchasing social effects. Further, it is also necessary to develop a methodology for evaluating the effects of SIB projects, calculating the return on investment and the training a sufficient number of qualified evaluators. It is important to keep the business investors involved in social projects. Given scarce resources, the SIB model may become more popular as part of Corporate Social Responsibility programs, done with the hope of getting the investment back in a few years.
"The growth points include raising awareness of the businesses, finding the balance between the social effects and commercial returns in impact investment projects, a fair risk assessment and active involvement of the state in developing the instruments and making such investment attractive", says Tatyana Burmistrova.
According to her, the underdeveloped social investment mechanisms and the difficulty of assessing the effectiveness of social spending are the main constraints for the development of public-private partnerships in achieving the goal of positive social change. The preparation of the contractors, namely socially oriented non-profit organizations and social entrepreneurs, to successfully address such large-scale tasks also raises concerns. Given the potential for the development of social impact projects in Russia, the term of the pilot testing of this financial instrument should be extended, as for now it is defined until the end of 2024.
Given the pilot nature of SIB implementation, its mechanics need to be formalized and substantiated, says Vladimir Vainer, director of the Positive Changes Factory.
Expansion would rely on the regional authorities being ready to take action that is different their traditional work formats.
"This starts with the actual project passport submitted for consideration. Right now, it barely details the outcome evaluation methods. The main focus goes to the most formalized external data of immediate actions and immediate results. The reasons for this are clear, but the work to improve documentation is not enough. The reference to an independent examination and evaluation of projects based on the results, without detailing the mechanisms of this evaluation, allows only the official statistics to exist, without any research before and after, or specific development to match the project monitoring methods", Vladimir Vainer explains.
Secondly, we can distinguish problems at two levels at once. At the level of the implementation efficiency, it should definitely focus on stimulating the growth of investment, but now there is more reliance on the registration of existing CSR programs of the large corporations, which are invited to move their existing programs into the new format.
"On the other hand, like any investment, SIBs must be appropriate for the market conditions — this applies to the conditions of return on investment, which are dependent on achieving the social target, unlike in ordinary investment contracts. Currently, this question is not raised at all", Vladimir Vainer notes.
The concept of "social impact" does not currently exist in Russian law, which also imposes a number of restrictions.
"There are always questions with its definition, measurement, its stretch in time. If you think in terms of "customer — contractor — subcontractor", there is a service provided and the result of that service. Since it is not defined in the Budget Code of the Russian Federation or in any bylaws, no one understands how to work with this, everything is quite complicated. SIB projects are usually expensive, they are more difficult in implementation and achieving social impact than ordinary social projects. In each specific case, the risks of the project participants must be insured, which is especially difficult in case of large investment amounts. These difficulties will likely prevent SIBs from becoming really widespread", says Yakov Samokhvalov, General Director of the Yugra Center for Civic and Social Initiatives foundation.
Here is an example. All social projects are aimed at improving the quality of life of their beneficiaries, in one way or another. Take the area of smoking prevention. Let’s say the project authors claim that 300 students participating in the project will stop smoking after five years. That is, the social effect will be achieved over a span of five years. But from the point of view of the Russian law, the project should be closed and reported on after one or two years in implementation. Also there is no norm that would allow a social project to be recognized as unsuccessful if the social effect is not achieved, the technology does not work, or the results are affected by some external factors, like deteriorating social and economic situation. You can go ahead and criticize the project, saying that there is no proof that the respective social effects were achieved as a result of the project. If the targets are not reached, however, then the supervisory authorities will certainly have questions as to why it happened.