BDO Insights: The role of Social Impact Bonds in community sport and physical activity
In the latest insight piece from BDO, Sherv Cheung, Gurpreet Dulay, Max Armstrong, Edward Sell and Arshdip Singh explore how Social Impact Bonds can be used to unlock finance to deliver sport and physical activity provision.
Date: 26th Feb 2025
Author: Sherv Cheung, Gurpreet Dulay, Max Armstrong, Edward Sell & Arshdip Singh, BDO
National Governing Bodies (NGBs), sports charities, and Active Partnerships play an important role in improving social outcomes through community sport and physical activity (CSPA) provision from developing inclusive grassroots sports to creating elite pathways.
Often, delivery relies on working closely with local authorities due to their role as the largest funders of CSPA provision, committing approximately £1.4 billion annually to sports facilities, leisure centres, park services, green spaces, playgrounds, youth services and community initiatives.
However, finances for local authorities continue to be squeezed.
For 2024/25, local authority core spending power is approximately 11% lower than in 2010/11 when adjusted for inflation. As a result of the reduced level of funding, local authorities are expected to direct their spending towards services with defined statutory responsibilities and regulatory oversight, leading to reduced spending on preventative services and prioritisation of reactive, demand-driven provisions. A survey by the Local Government Association echoes this sentiment, finding that many councils have reduced services in 2024/25, with respondents indicating sport and leisure (55%), libraries (48%), parks and green spaces (48%) and culture (34%) as areas cut.
Given the constraints on local authorities’ ability to generate revenue, persisting inflationary and cost of living pressures, this article examines how social impact bonds (SIBs) could be one way in which NGBs, sports charities, active partnerships and local authorities unlock finance to deliver on their mission to improve access to CSPA.
Social Impact Bonds (SIBs)
SIBs are a type of financial instrument that could enable local authorities and other bodies (also referred to as commissioning bodies) to fund community projects, including those in the sports sector, by attracting investment to achieve defined, measurable social outcomes.
Unlike traditional methods of funding, SIBs operate on a pay-for-success model in which public funds are expended only when the bond’s predefined objectives are met. This mechanism is like sustainability-linked bonds (SLBs), which also tie financial outcomes to measurable achievements of specific sustainability goals.
At a high level, SIBs require these four steps:
- Investors provide upfront capital for a project targeting a specific social issue, such as community health or child welfare – finance is typically provided at more favourable interest rates than a commercial loan.
- Service providers, such as charitable organisations, Active Partnerships or private social enterprises, implement interventions designed to address the targeted issue(s).
- Independent assessors, such as professional services firms, can then measure the project’s success against the set metrics.
- If the project meets or exceeds its outcome goals, the commissioning body repays the investors, often with a return on investment; if not, investors may lose their capital, transferring financial risk away from taxpayers. Additionally, SIBs can include a ‘step-up’ mechanism, where investor returns increase proportionally to the level of success in achieving the outcome(s), ensuring that greater impact leads to higher payouts.
SIBs have become a significant component of the UK’s expanding social impact investment market. As of 2023, the market reached £76.8 billion in assets under management, a £19.3 billion increase since 2021.
Since the first SIB was launched in the UK in 2010 to address reoffending at HM Prison Peterborough, the model has been adopted across various sectors, from education to community development. As this growth continues, the sports sector is well placed to take advantage.
NGBs have several potentially significant roles to play in the SIB issuance process. For a given bond, the likeliest areas of NGB engagement would be service provision or act as SIB commissioners (which could be in collaboration with other service providers such as local sports teams or volunteer networks).
The Chances Programme Social Impact Bond
Driven by Sport England, one of the 24 commissioners, the Chances SIB is an example of the use of SIB in delivering CSPA provision in the UK.
The bond raised £1.25 million through the Department for Digital, Culture, Media and Sports (DCMS) Life Chances Fund and Big Issue Invests Outcomes Investment Fund. It aimed to use sport and physical activity to provide new opportunities and alternative pathways for 8-17 year olds living in disadvantaged areas between November 2020 and August 2024.
Children and young people were referred to the programme by a local authority, or self-referred, provided they met the established screening criteria, such as exclusion from school, aged 16-17 and not in education, employment or training, or offended less than three times within the previous 12 months.
The CSPA provision was delivered by a network of youth services providers, which included sports charities, Active Partnerships and football community trusts such as Energise STW, Active Oxfordshire and Brentford FC Community Sports Trust. The youth services providers had full flexibility as to the type of provision offered. For example, sessions could focus on sport and physical activity, martial arts, dance, enterprise and social action projects, cooking, music, art and photography, leadership and personal development qualifications, residential experiences and expeditions. During the length of the programme, it had over 6,000 users.
The 24 commissioners, which included 21 local authorities, Sport England, DCMS and Active Oxfordshire, paid for the youth service providers for the provision once successful outcomes outlined in the SIB framework were achieved. Success outcomes included improved health and wellbeing, employment, education and training, as well as reduced offending.
The Importance of Social Impact Bonds Frameworks
If an NGB serves as a commissioning body for such a bond or supports a commissioner like DCMS by providing services to deliver programmes using funding, it is important that the bond credentials themselves are robust and conducive to delivering their desired outcome(s).
The Social Bond Principles (SBPs) provide a framework that ensures transparency, credibility and real impact in sustainability-focused financial instruments like SIBs. The SBPs, established by the International Capital Market Association (ICMA), outline best practices for issuing bonds tied to social goals and emphasise transparency in the selection of social projects, in addition to how the management of funds and reporting of outcomes are conducted. By adhering to these principles, SIB issuers gain investor confidence through ensuring funds are dedicated to impactful projects, such as gender-inclusive sports programmes or community health initiatives driven by physical activity.
SIBs provide NGBs with an alternative way to unlock finance in pursuit of their mission to increase participation across all levels of sport. In doing so, it creates opportunities for greater collaboration between stakeholders who are key to the delivery of CSPA provision, such as local authorities, communities, investors and service providers. In an era of budget constraints and CSPA provision facing cuts, SIBs can help address issues such as youth offending, unemployment and gender inequality, which in the long run can reduce the pressure on local authority budgets, thereby creating a more sustainable future through sport.
Key questions to consider:
- What initiatives do you have planned to increase participation in your sport over the next 2-3 years? Who will need to be a stakeholder?
- What hurdles are you facing in trying to deliver on these initiatives and how do you plan to overcome them?
- How could additional finance unlock opportunities for people within your sport? Who would be the ideal investor for this type of product?
- What criteria would you consider using to decide whether you are better placed to commission or partner in an SIB initiative?
- Who are your potential collaborators in an SIB initiative?
Sherv Cheung and his ESG Team lead BDO's work in this area.
Contact Sherv to find out moreGurpreet is a partner in BDO's public sector internal audit practice, leading on corporate governance and risk management solutions to a range of public sector clients. Max is a Manager based in BDO’s Birmingham office, managing engagements across the public sector and the Non-Governmental Departmental Bodies (NGDB) sector.
Gurpreet Dulay – BDO Partner
Max Armstrong – BDO Manager
