Valuing Change Financed by Social Impact Bonds

Social Impact Bonds (SIBs) are a new tool being explored to finance the social innovation agenda, but to be a real opportunity for investors, the full picture of value created by SIBs needs to be acknowledged. Written by Stephanie Robertson, President of SiMPACT Strategy Group, this report explores SROI methodology as a tool to value social outcomes in a more complete form.

Abstract
Social Impact Bonds (SIBs) are a new tool being explored to finance the social innovation agenda. One key challenge is the design of payment mechanisms that are to be based on the achievement of social outcomes. If the valuation underpinning the payment mechanism is only based upon perceived future cost savings, a significant portion of the value created will be overlooked.

The SROI methodology is a tool to value outcomes in a more complete form. SROI encourages investigation of the multiple forms of value created through social innovation, and inclusion of the material value experienced by the target stakeholder. Including this value will enhance the service provider’s ability to achieve agreed outcomes, enable government bodies to engage in a cross‐departmental conversation about horizontal value achieved, and decrease risk for the investor. As illustrated by the recent legislation passed in the UK, acknowledging more than perceived cost savings has become a key element of effective pay‐for‐performance contracting.