BSC: Structuring Social Change and Paying for Success

Posted on Thu, March 06, 2014 by Carole Gaudet.

By Caroline Bressan T’14

Today I attended the Business and Society Conference panel on Social Impact Bonds. A social impact bond (SIB) is an outcomes-based contract where private investors put money up front towards a social intervention. The government repays investors if service providers achieve the targeted social outcome. SIBs aim to better align incentives towards achieving long-term social goals such as reducing recidivism or homelessness. In the panel, Richard Edwards of Third Sector Partners discussed his work with the state government of Massachusetts’s Pay for Success Initiative. The state recently launched a $27 million SIB targeted at reducing the percent of incarcerated youth that end up back prison.

To understand the project, our session broke into four groups of stakeholders and talked about the project from the perspective of the state government, the non-profit service provider, the bank, and foundations. Each stakeholder had a different set of motivations and concerns that needed to be addressed in order for the project to work. The state government, for instance, is most concerned about the project’s ability to generate future savings. Banks are most concerned about the counterparty risk – whether, with changes in leadership of the government, funding will remain secured for the project. Foundations are focused on impact, and require robust and verified data on the rates of recidivism in the project. Finally, nonprofits providing the program services are concerned about receiving multi-year funding to be able to fully implement and scale their interventions.

Overall, the session gave a great overview of what’s happening in the burgeoning field of social impact bonds. Mr. Edwards closed the session with the prediction that in the next ten years, we will see an overhaul in how governments and nonprofits do business, with the goal of creating a performance driven social sector.

The Business & Society Conference is a two‐day event for the Tuck community, industry leaders and admitted students. Sessions cover everything from social entrepreneurship to climate change to ethics.