At its core, social investment is a concept that resonates intuitively with most people. Who doesn’t want to invest in the society they are living in now, for a better future? However, the approach to social investment and how it is implemented has changed over time. In this article, we discuss the history of social investment in New Zealand, the current Government's "Social Investment 2.0" approach, and opportunities for the private and NGO sector to work with this systemic policy framework.
Background to social investment in New Zealand
In the mid-2000s, a desire arose for more data-informed policy advice. In 2011, the creation of Stats NZ's Integrated Data Infrastructure ("IDI") improved the Government's ability to collect, analyse and share detailed, individualised, anonymised data about its citizens.[1] This development allowed data to play a greater role in policy development and delivery – eventually leading to New Zealand's first formal social investment approach being introduced in 2015 by then Finance Minister Hon Bill English.
Under English, social investment largely involved large government agencies including the Ministry of Social Development, Accident Compensation Corporation, and Oranga Tamariki taking an 'actuarial' approach. At a high-level, this approach involved government agencies identifying cohorts most likely to be at risk of long-term benefit receipt and then implementing measures to mitigate this risk.[2] The Social Investment Unit (replaced by the Social Investment Agency in 2017) was responsible for implementing and co-ordinating the social investment approach.
Alongside these measures, "social bond" programmes were trialled as a mechanism for funding social investment. These programmes provided for private and not-for-profit organisations to invest and partner to deliver Government-approved programmes with agreed outcomes, with repayment and the return for investors depending on the level of results achieved.[3]
The 2020 Labour-led Government then changed the remit and role of the Social Investment Agency and changed its name to the Social Wellbeing Agency, with a reduced focus on data as the primary driver of social services investment priorities. The changes were made to expand the approach to look at "the wider impact on people" in funding social services delivery, including by taking into account feedback from programme participants on the stressors impacting the outcomes.[4] It was also aligned to the then Minister of Finance, Hon Grant Robertson's wider approach to the Crown framing up at the "Wellbeing" approach to its wider budget process.
Social Investment 2.0
The formation of the current National-ACT-NZ First Coalition Government has resulted in what has been dubbed "Social Investment 2.0". Drawing on the approach developed by Sir Bill English, this broadly involves using data to calculate the groups of people that cost the Government and taxpayers the most over a lifetime, and identifying which policies and services targeted at those people are most successful in reducing that cost (for example, by transitioning people from welfare dependency into the workforce). The idea is that the earlier the intervention occurs, the more costs are saved throughout a person's lifetime.
The key elements of Social Investment 2.0 are:
- Data-driven social services delivery: Data, evidence and analytics are used to identify the needs, influencing factors and outcomes of different groups, individuals or families, which the Government can use to inform investment priorities.[5]
- A focus on outcomes: Social investment involves contracting with providers to deliver outcomes (what is achieved) rather than outputs (what is done).[6] This gives social services providers flexibility to adapt their services to the needs of individuals and to develop new and innovative solutions.[7]
- Feedback loops drive future investment: As the social investment approach is implemented, data from different services and providers creates a feedback loop to inform future investments, whereby the Government will allocate funding towards the most effective services in achieving the desired outcomes. Creating such a feedback loop will allow the long-term scaling and refining of existing services, encourage risk-taking in commissioning new innovative services, and lead to more accurate and comprehensive data relating to social services delivery.[8]
The benefits of successful social investment are multifaceted: it improves the lives of individuals, their families and communities, and provides long-term fiscal benefits to New Zealand.[9]
The key architecture of Social Investment 2.0 comprises:
- Social Investment Agency: A central agency with a mandate to support the Government with delivering social services using a data-driven, outcomes-focused social investment approach. The functions of the Social Investment Agency include setting the standards for the social investment approach, advising on and facilitating the creation of the social investment data and evidence infrastructure (which will make use of Stats NZ's Integrated Data Infrastructure), working with other agencies to apply the social investment approach, and leading an ongoing review of social sector spending to measure outcomes.[10]
- Social Investment Fund: A fund which will commission social services for outcomes and support the devolution of social services to community, NGO and iwi providers. The Government expects it to operate similarly to a traditional investment fund, with "a portfolio of investments ranging from innovative, more experimental investments to more conservative investments".[11] The Social Investment Fund is expected to begin investing in 2025 with an "initially modest envelope", however the Government expects that it will eventually partner with other funders to scale up investment in social services.[12]
- Social Investment Board: A Ministerial Advisory Committee appointed to provide independent advice and assurance to the Minister for Social Investment, and guidance to the Social Investment Agency, on the implementation of social investment. They are expected to draw from their collective experience and connections with vulnerable communities to provide a practical perspective on the priorities, design, implementation, risks, and progress of social investment.[13] The membership of the Board is intended to contribute to a bipartisan commitment to social investment, chaired by former Treasury Secretary Dr Graham Scott.[14]
- Social Investment Ministers: A group of Ministers led by Social Investment Minister Nicola Willis to govern and coordinate the cross-agency social investment work programme.[15]
Private funding of social investment
Internationally, social investment approaches have been implemented whereby private investors partner with Government to fund social services and are repaid only if the contracted outcomes are achieved, with the financial returns depending on the level of achievement. This approach provides that taxpayers are only liable for services that are effective in achieving their outcomes.
While the initial focus of New Zealand's Social Investment Agency seems at this stage to be primarily on the delivery of publicly funded social services, we expect that it will follow overseas trends by providing scope for the private sector to participate. As discussed above, social bonds have already been trialled in New Zealand by the previous National Government. We expect that social bonds are likely to be relaunched under Social Investment 2.0 and informed by international approaches and the trials already undertaken in New Zealand. The Government has already indicated that it is considering using social bonds to provide transitional housing and mental health services.[16]
We expect more clarity regarding how the social investment approach and architecture will operate in practice will be provided in 2025, including as part of Budget 2025. We will continue to monitor developments in social investment including opportunities for social services providers and investors.