Mar 19, 2013 7:04 PM GMT
Interesting approach with a lot more potential than what exists today... the key being finding objective metrics.
Paul Solman: In an upcoming PBS NewsHour report, we focus on a potentially breakthrough cognitive therapy program for young offenders at New York's Riker's Island jail, which holds 88,000 prisoners every year as they await trial. The program is being financed by a new financial instrument known as a "social impact bond."
One of its champions is Judith Rodin, president of the Rockefeller Foundation. In a recent interview with her, she explained the workings of this new piece of financial engineering.
Paul Solman: What is a social impact bond?
Judith Rodin: A social impact bond is a new way of bringing financing into social and environmental support issues. And [it's meant to help finance] either preventive or rehabilitation services that the government is providing and paying for.
What [society] does is look for very well-proven, well-demonstrated, data-driven social interventions. Then it looks for private sector financing to support those interventions [that have been proven effective] based on performance.
So it's a triple win because the government gets a proven intervention, the organization giving the intervention gets to take it to scale, and the investor -- the buyer of the bonds, whether it's an individual investor or an endowment or some kind of private wealth fund -- gets a chance to have a double bottom line investment: something that can produce quite a significant financial return, but at the same time produce social returns as well.
So there's a financial return on the social impact bond, but there's also a social return because they are supporting a proven intervention, they are helping the government to deliver more effective services at lower costs.
Paul Solman: What's in it for me as an investor?
Judith Rodin: In the U.K., it was young investment bankers who were talking to wealthy clients who didn't want to separate their philanthropy from their investing. The bankers wanted to respond to what they saw as a potentially growing market where affluent individuals wanted to do well and also have a financial return.
The individuals were asking: "Isn't there anything innovative? Isn't there a new way that I could fulfill both my social concerns and my financial obligations?"
So that led to the creation of the social impact bond. It's like any other debt. It's a bond paying between 2 percent and 9 percent. The payback is based on the performance of the social organization.