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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. A gift from Parliament to the 50-year-old Finland

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Sitra and Impact Investing in Finland - especially use of SIB model 19.5.2016

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  1. Sitra and Impact Investing in Finland - especially use of SIB model 19.5.2016 Mika Pyykkö, Head of Focus Area Impact Investing

  2. 5 + 1 key facts about Sitra A gift from Parliament to the 50-year-old Finland An independent foresight agency:futurologist, researcher, visionary, developer, experimentalist, partner, trainer, networker Funded by returns on endowment capital and capital investments Vision of Finland as a successful pioneer in sustainable well-being Vision includes three themes,6 focus areas and dozens of projects + 1 Building our future together Sitra • 19.5.2016 • Photograph: Erkki Laitila, HS/Lehtikuva 1967

  3. 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 – forming the future Sitra • 19.5.2016 •

  4. Sitra promoting systemic change 3 themes 6 focus areas projects 1 vision megatrends Resource-wise and carbon-neutral society Finland will succeed as a pioneer in sustainable well-being Carbon-neutral industry Circular economy Capacity for renewal Isaacus – Digital Health HUB Social and healthcare financing New working lifeand sustainableeconomy Impact investing Transformations of work Research and foresight Societal training Portfolio companies and funds Sitra • 19.5.2016 •

  5. Sitra • 19.5.2016 •

  6. Sitra • 19.5.2016 •

  7. FromMay 2014 tillDecember 2016 • Focus on well-beingpromotion • Impactgoals • Active impactinvestingecosystem • Impactinvestingmodel (financinginstruments etc.) in use in Finland Sitra’s Impact Investing Focus Area Sitra • 19.5.2016 •

  8. 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 / Director Pentti Pikkarainen, Chairman The Ministry of Social Affairs and Health / Director Veli-Mikko Niemi • LocalTapiola Asset Management Ltd / CEO Tom Liljeström, Vice-chairmanIlmarinen Mutual Pension Insurance Company / Director Esko Torsti • FIM Ltd / CEO Teri Heilala Taaleritehdas Plc. / Investment Manager Heikki Nystedt • Finland’s Sustainable Investment Forum / Board Member Riikka Sievänen Finnish Business Angels Network / Chairman Jaakko 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 The Ministry of Employment and the Economy / Labour Market Counsellor Jussi Toppila • SOSTE Finnish Federation for Social Affairs and Health / Secretary General Vertti Kiukas Valo, Finnish Sports Confederation / Secretary General Teemu 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 Aalto University / Professor Otto Toivanen • Finnish Innovation Fund Sitra / Director Timo Lindholm Finnish Innovation Fund Sitra / Head of Focus Area Mika Pyykkö, Secretary Sitra • 19.5.2016 •

  10. Sitra • 19.5.2016 •

  11. Impact Investing / SIB – focal points • Can beused, when… • thebuyer (publicsector) wants to purchaseoutcome/ impact • investmentshave to bedoneveryup-frontcompared to expectedsocialimpact and financialreturn • there is a verylargeornarrowpopulationgroup • therearepoliticalissuesorpracticalrisks • Strongfutureorientationwithfocus on preventivemeasures • Functional and financialmodeling and impactmeasurement Sitra • 19.5.2016 •

  12. The economic and operational model underpinning SIB-work (1/2) • 1. Determine demand and 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 SIB-work (2/2) – economic perspective With intervention Estimatewithout intervention Sitra • 19.5.2016 •

  14. An example of ongoing project: Occupational Well-Being - project summary Sitra • 19.5.2016 • Implemented as part of Sitra's Impact Investing focusarea (Thefirst SIB in Nordic countries) Objective Provide municipal/state employers with a service packagethatenables them to promote occupational wellbeing and therebye.g. reducesickleaves in their own organisations Parties to the agreement Municipal/state employer and EpiqusOccupationalWell-Being I Fund (Epiqus, socialenterprise managing thefund / 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 participationfee (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 positivedevelopments Service providers Thesubcontractors of TheFund (Epiqus) Aino Health Management Oy, Headsted Oy, Tietotaito Group Oy and Trainers’ House Oyj Envisaged duration of contract per organisation 3 years

  15. Starting point of occupational well-being project: survey and its’ recommendations Sitra • 19.5.2016 • 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

  16. Activities of occupational well-being project - timeline • 3/14 Decision to startImpactInvesting Focus Area and planning of occupationalwell-beingproject • 4/14 Firstmeetingswithpossibleclientorganisations • 9/14 Decisionaboutserviceproviders (coalition) • 10/14 Public inquiry for FundManagerwithinterest to build an occupationalwell-beingSIB (fund) • 12/14 DecissionabouttheFundManager (Epiqus) • 3/15 Firstclientagreementgetsigned • 5/15 Implementationgetstarted in thefirstclientorganisation • 11/15 Firstclosing of EpiqusOccupationalWell-Being I Fund Sitra • 19.5.2016 •

  17. Epiqus Occupational Well-Being I - Structure INVESTORS INDEPENDENT AUDITOR Verify Capital Capital + Returns EUR 175 per Reduced Sick-leave Day CLIENTS (PUBLIC SECTOR EMPLOYERS) SIB (THE FUND) Manages Procurement of Services Reduction in the Numberof Sick Leave Days Delivery of Services Public Sector Employees Sitra • 19.5.2016 •

  18. Directional sample calculation Sitra • 19.5.2016 • The customer organisation has1,000 employees Whenthecontract is signed, customerpays a one-off participation fee: EUR 15 per employee i.e. a total of EUR 15000 TheFund (Epiqus) paysthe service providercoalition for activitiescarried out to promoteoccupationalwell-being; on average EUR 300 per employee per year i.e. a totalabout of EUR 300000 per year After a year, the auditors will verify any changes occurring in the number of days of sickleave Compared to thestartingpoint, the number of days of sick leave fellduringtheyearby an average of two days per employee bonus to TheFund: 1 000 x 2 x EUR 175 or a total of EUR 350000 • Restoration of invested capital EUR 300 000 • Return EUR 30 000 (10 %) • Bonus to serviceproviders etc. EUR 20 000 Afterthefirstyear, the aforementioned verification of changes in the number of days of sick leave will be performed every six months, with the project starting pointas the point of comparison in eachcase Sitra is ready to invest EUR 1,5 million into this SIB; thefirstclosingwas November 10th in 2015 with Me-säätiö (foundation), Sitra and a privateinvestor as anchorinvestors

  19. Cash Flows of the Fund Investors Service providers Clients 30% 70% Base Case IRR ≈ 10% Year 1 Three half-year periods Last half-year period Revenue sharing Fund equity Service Purchases at cost Success fee Service Purchase at cost Success fee Service Purchase at cost Success fee 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 wellbeing Sitra • 19.5.2016 • Goal • Harmonisation of measurement methods (i.e. benchmarking) • Identification of predictive indicators • Diversification of outcome evaluation for performed measures • 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 (”LocalGovernmentPensionsInstitution”) etc. • The Ministry of Social Affairs and Health, the Finnish Institute of Occupational Health andKevawill be involved as partial funders and/or experts.

  21. SIB project to start: Fast employment of immigrants (The Ministry of Employment and the Economy) Sitra • 19.5.2016 • Objective Speedupemployment of immigrants, pilotenewmodels of education and employment and combaineducation and work in a flexibleway Status Project / FundManagerhasbeenchosen and is especially in chargeof • Plannning and managingtheproject • Building upthefinancialinstrument = fund (limitedpartership) Fundraising and managingthefund Organisingaccording to theimpactgoals of theprojecteducation and employmentactivities of immingrants in co-operationwithdifferentserviceproviders Followup, interimreporting and thefinalreporting

  22. 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 12th • 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 • Allpossibleinvestorshaveshown (quite) highinterest Sitra • 19.5.2016 •

  23. 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 INDEPENDENT AUDITOR Verify Capital Capital + Returns Fund / Project Manager Outcome/impact indicators (Euro) Municipality / Government Limited Partnership (THE FUND) Manages Procurement of Services Service Provider B Service Provider C Service Provider D Service Provider A Delivery of Services Beneficiaries / population group(s) Sitra • 19.5.2016 •

  25. Sitra Impact Accelerator 3 monthaccelerationprogram for 10 impactactors (3 x 3 monthacceleratorsduring2015 – 2016) Design phase • Definingthesocialchallenges • Engaging P&P stakeholders and notreinventingthewheel • Activatingprivate and angelinvestors • Curriculum developmentwithselectedserviceproviders Dedicatedmentors@ 3 hours per weekthroughout • Face to facetraining (6 days) – overarchingthemes: • Impactmeasurement: developingframeworks and effectivelymeasuring / projectingimpact as a result • Developing a sustainable business modelper impactactor / service case • Developingtheinvestment-readiness of eachimpactactors and connecting to potentialinvestor(s) • Demo day: pitching to investors • Publishing case studyabouteachimpactactor • Sharinglearning & trainingmaterialspublicly • Kick-offday: importance of communitydevelopment & peerlearningopportunities • Individual, tailoredlearningplanswithconcretegoals • Online platform for virtualcoaching Sitra • 19.5.2016 •

  26. Summary of Sitra’s Impact Investing Focus Area - Spring 2016 • Building SocialImpact Bond pilotstogetpublicsector - to purchaseoutcome / impact - to invest to promotion and prevention in terms of well-being • -> OccupationalWell-Being SIB is up and running and fourmorefunds in themaking • Sitra ImpactAccelerator II • Sustainable business model, economic and operational modelling, measurement • ImpactAccelerator for NGOswiththeMinistry of Education and Culture and theMinistry of SocialAffairs and Health, Finland’sSlot Machine Association and three ”umbrella” NGOs • Interactionwithpossibleinvestors, publicsectorrepresentatives and otherstakeholders • Guidelines for ImpactInvestor • Guidelines of innovativeprocurement, paymentbyresults and SIB model • International co-operation • Communication Sitra • 19.5.2016 •

  27. Activities of Impact Investing Focus Area - timeline • 10/13 Decision to startpreparationof New working life and sustainable economy theme including Impact Investing Focus Area • ImpactInvestingFund of Finland and otherstudies • Interviews of main stakeholders • 3/14 Decision to startImpactInvesting Focus Area and planning of occupationalwell-beingproject • 4/14 Firstmeetingswithpossibleclientorganisations of occupationalwell-beingproject • 6/14 ImpactInvesting Focus Area getstarted • 8/14 Finaldecisionabouttheprojectplan of focusarea • 9/14 Firstmeetingswithpossibleco-operationpartnersincluding breakfast event for investors • 9/14 Decisionaboutserviceproviders (coalition) of occupationalwell-beingproject Sitra • 19.5.2016 •

  28. Activities of Impact Investing Focus Area - timeline • 10/14 Public inquiry for FundManagerswithinterest to build an occupationalwell-being SIB • 10/14 First market study (possibleserviceproviders) • 11/14 Studytour to London • 12/14 DecissionabouttheFundManager of occupationalwell-being SIB • 12/14 Firstnationalimpactinvestingconference • 1/15 FirstmeetingswithMayors • 1/15 Idea challengegetstarted (innovations for promotingchildren’swell-beingetc) • 3/15 Firstclientagreement of occupationalwell-being SIB getsigned • 4/15 Idea challengegetfinished • 4/15 Modelling of thefirst SIB projectconcerningpromotion 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 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 Firstindividualinterviewsof nationaltaskforcemembers • 1/16 Decision to start to developcircumstances for threenewthematic SIB fund (Promotion of Children’s, families’ and youth’s well-being, Support of the elderly’s independence, Advancing employment) • 1/16 Firsttrainingpilot of socialmarketinggetstarted • 2/16 Firstimpactinvestingpitchingevent • 3/16 Second meeting of nationaltaskforce • 3/16 Second pilot of impactaccelerationprogramgetstarted • 3/16 First workshop of thematicSIBs for municipalities • 3/16 Proposal of NGO impactacceleratorprogrampiloting to theMinistry of Education and Culture and theMinistry of SocialAffairs and Health • 4/16 Firstregionalinvestormeeting • 5/16 DecissionbytheMinistryabouttheFundManager of fastemployment of immigrantsSIB Sitra • 19.5.2016 •

  31. Building a successful Finland for tomorrow • sitra.fi • Facebook.com/SitraFund • @SitraFund

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