Hello!
I'm Sam, a financial software engineer. For several months I've been researching social impact and conservation financing (you may have seen my other post looking for partners - I'm still looking!).
In short, my developing thesis is that the main constraints for social an conservation funding is a missing financial vehicle to redeem the value conservation creates and close the economic loop - more details below.
Programs like result-based financing (RBF) and impact bonds look to be a good a good approximation and I would like to hear from anyone who's worked with them. Please reply with your experience!
- What was your experience like?
- Are you a fan of them?
- Would you use them again?
- Did they correctly align your incentives with investors?
- Was reporting and impact verification simple and straight forward?
My Observations
Social and conservation organisations create meaningful economic value but have a hard time converting this value into cash flow.
For example, take a homeless charity, if they're able to move someone from emergency housing to stable accommodation for less than the local authority can (and they almost always can) they're generating meaningful savings for the local authority. For example, with some simple numbers:
- It costs a local authority $20k to move one person into stable housing
- A social provider can complete the same outcome for $10k
Result-based financing and impact bonds promise to reward effective organisations and align the correct incentives:
- A local authority can issue a $15k contract for each person moved to stable housing to approved providers
- An investor can advance the social org $10k to render the service
- On completion, the social org can redeem the contract and payback the investor with interest:
- Investor: $10k invested, $11k returned, 10% ROI
- Social org: ($15k - $11k) = $4k profit
- Local authority: $5k saving
There are some critical assumptions here around the cost of service and impact reporting - I'm also skipping over some other critical problems (this paper dives into some of the flaws), but in theory they look reasonable.
What have people's experience been with this kind of financing?