Despite setback, Wall Street pushes ahead with social impact bonds

Social impact bonds funnel private capital into philanthropic projects. Investors receive a return based on whether the project saves public money by addressing the social issue it targets.

|
Brendan McDermid/Reuters/File
Street signs for Wall St. and Broad St. hang at the corner outside the New York Stock Exchange. Wall Street firms like Deutsche Bank, Santander Bank, and Bank of America are interested in backing US social impact bonds, despite the failure of the first such initiative.

Wall Street firms like Deutsche Bank, Santander Bank, and Bank of America are still interested in backing US social impact bonds, despite the failure of the first such initiative.

Social-impact bonds allow private capital to be funneled into philanthropic projects usually funded by governments and charities. Investors receive a return based on whether a project saves public money by addressing the social issue it targets.

Goldman Sachs  helped to fund the first such program in the United States three years ago, a $9.6 million plan to reduce recidivism among teenagers at New York's Rikers Island jail.

Last month, the program's third-party monitor, the nonprofit Vera Institute, pulled the plug. It announced the initiative, originally intended to run for four years, would shut down in August after failing to hit its goal to cut repeat offenses by 10 percent. Goldman lost $1.2 million and Bloomberg Philanthropies – a partner in the project – lost $6 million, which would have been recouped had the program met its goals.

Still, the idea of social impact bonds, also called pay for performance contracts, has appeal for those who continue to participate in and seek deals in that space, officials at the firms told Reuters.

"We are certainly not going to distance ourselves from our explorations into doing social impact bonds because of what happened here," says Gary Hattem, head of Deutsche Bank's global finance group. "This is the frontier of something."

Social impact bonds started in Britain as a product to sell to wealth management clients. There are seven projects in the United States, out of 40 worldwide, representing over $70 million, according to the Rockefeller Foundation's social finance group.

The Goldman prison deal was uniquely challenging because of how difficult it is to make reforms in the disruptive environment at Rikers, says John Roman, a senior fellow at the Urban Institute.

Goldman expects to receive initial results from its second social impact bond, a $4.6 million program launched in 2013 in Utah aimed at helping children from low-income families, in the next few weeks.

Additionally, the firm has helped fund two other programs – a $27 million initiative in Massachusetts intended to keep juveniles who have left jail from returning and a $16.9 million program in Chicago designed to help low-income families prepare their children for kindergarten.

Northern Trust, which is a senior lender along with Goldman in the Chicago program, is pursuing opportunities in the social impact bond space despite the complexity of the transactions, says Connie Lindsey, head of corporate social responsibility and global diversity and inclusion at Northern Trust.

"We hope that transaction structuring will become more standardized and require less time for transactions to close," she wrote in an e-mail to Reuters. Some projects have taken more than a year to implement, executives have told Reuters.

Because each social impact bond program is unique and involves multiple different private, nonprofit, and government partners, they can be complex to set up, says Gwen Robinson, managing director, community development at Santander Bank, which helped fund a $3.5 million social impact bond to address homelessness in Massachusetts last year. It may take some time to standardize the process.

"I wouldn't be surprised if it takes five, six, or 10 years before there is real critical mass," she says.

• Reporting by Jessica Toonkel; editing by Andrew Hay.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Despite setback, Wall Street pushes ahead with social impact bonds
Read this article in
https://www.csmonitor.com/World/Making-a-difference/Change-Agent/2015/0731/Despite-setback-Wall-Street-pushes-ahead-with-social-impact-bonds
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe