Pay For Success – Practitioner Perspectives on Deal-Making, Incentivizing and Re-Engineering a Global System
Just under a year ago S3IDF published the blog post Standardize the Work, Don’t Lose the Nuance: Can The New ‘Pay for Success’ Models Replicate Into Functional Utility?, which sought to respond to the frontier trend broadly known as the
Standardize the Work, Don’t Lose the Nuance: Can The New ‘Pay for Success’ Models Replicate Into Functional Utility?
The social impact sector in developed and developing countries needs to innovate their financing structures so that the rising demand for social intervention programming is matched by an expanding supply of capital. The ‘pay for success’ Social Impact Bond (SIB)
In recent years there has been an explosion of interest from both the international development and business communities in “impact investing,” an umbrella term for efforts and approaches that share the specific goal of bringing about social and environmental benefits through investment mechanisms that, at minimum, aim to return investors’ principle. The actual expectations of groups that self-identify as impact investors can vary significantly, however, with some investors expecting commercial-rate returns and others expecting a return of principle or nominal, below-market returns. The vast differences in expectations, among other factors, have led to an intense and ongoing debate on “impact investing tradeoffs” - the idea that you cannot have both significant social impact and significant financial returns on investment simultaneously. In other words, achieving significant social impact through investment deals means that financial return expectations must be reduced (often significantly), while investors seeking higher financial returns must settle for lower social impact resulting from their investments. This tradeoff is captured by the now widely used terms “Financial First” Investors and “Impact First” Investors.