We end the week with two interesting discussions of general SIB issues. Enjoy the read.
Incentivizing “Pay-For-Success” Partnerships At The Federal Level
Leonard Gilroy – Reason Foundation
One of the policy innovations receiving major international attention over the past few years has been the concept of “Social Impact Bonds” (SIB) – known variously as pay-for-success contracts and social innovation financing – a new type of public-private partnership that generally refers to privately financed, evidence-based social interventions delivered by nonprofits on behalf of governments.
In a prototypical SIB initiative, philanthropic interests, foundations, financiers and other social investors raise private capital to cover the upfront costs of social interventions – in areas like recidivism reduction or chronic homelessness, for example – to be delivered by nonprofit organizations through performance-based contracts with government agencies. The contracts are designed to shift the financial and implementation risks of these initiatives to the private sector, in that investors only earn their money back if the privately financed interventions hit predetermined outcome targets specified by governments in the contract.
A New Market For Social Good Awakens
While still in its infancy, the field of impact investing is rapidly evolving. The market has moved beyond negative screening to include innovative solutions that generate both financial return and social impact, while connecting investors’ values with their portfolios. And the growth of this field is being driven by investor demand. In a recent survey, 43% of investors cited that their investment decisions are a way to express their social, political and environmental values. This sentiment is even more pronounced among the millennial generation, among which nearly 70% invest with these considerations in mind.
SIB, or pay-for-success programs, are one pioneering form of social impact investing that holds great promise in unlocking much-needed capital that can address pressing social challenges, such as chronic unemployment, education and training, energy, poverty, or HIV prevention. These innovative financing mechanisms can help state and local governments provide funding from private and institutional investors to select social service providers, such as nonprofits with a proven track record of success, to further needed government social programs.