New development: From social impact bonds to impact bonds—an outcomes-based framework

IMPACT

This article presents a classification of impact bonds (IBs) that has practical implications for practitioners designing IBs. The framework shows how the nature of the targeted outcomes can affect the financial structure of an IB and influence the capacity to design workable business plans for the projects being financed. Given the reconsideration of cost savings in the newer IB models, the authors recommend that public sector managers and policy-makers question the relevance and advantages of IBs over other types of financing.

ABSTRACT

Since their emergence in 2010 as social impact bonds (SIBs), impact bonds have significantly evolved from the prototype model. For example we now have ‘development’ impact bonds (DIBs) funding programmes in developing countries and ‘environmental’ impact bonds (EIBs) dealing with environmental challenges. Acknowledging this change, this article presents a framework to classify impact bonds according to the nature of the outcome pursued by the intervention. The article’s main contributions are expanding the concept of cost saving and identifying three types of IBs by analytically linking outcomes to quantifiable gains.

KEYWORDS:

• Evidence-based policy
• impact bonds
• impact evaluation
• outcomes-based contracting
• public innovation

Acknowledgments

The authors want to thank Maha Keramane, Thomas Haudecoeur, Cyril Gouiffès, Marion de la Patellière, Mathias Guerineau, Julien Kleszczowski, Emilia Tshimanga and Maxime Baduel for taking the time to provide constructive feedback on the relevance of the framework.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Vincenzo Buffa

Vincenzo Buffa is a PhD student from Audencia Business School and Angers University, France. His focus is on public management and innovation in the public sector and the implementation and diffusion of outcome-based contracts such as social impact bonds.

Maya Tira

Maya Tira is a PhD student from Audencia Business School and Angers University, France. Building from sustainable finance and public management perspectives, her research project explores the use of outcome-based contracts such as environmental impact bonds (EIBs) in order to fund environmental public policies. As part of her PhD project, Maya participated in the launch of the first EIBs in France and continues to follow the project very closely. Prior to academia, Maya worked as a management consultant in financial services and in the public sector.

Benjamin Le Pendeven

Benjamin Le Pendeven is Associate Professor at Audencia Business School, France. His main research areas are entrepreneurial finance (venture capital, crowdfunding) and sustainable innovation financing (impact investing, social impact bonds, discrimination in funding entrepreneurs). Before joining academia, Benjamin was an entrepreneur (Softcorner) and impact investor (Citizen Capital). He continues to work with private and public organizations as an advisers, especially in the sustainable innovation financing area.