A plea for more transparency in the world of social impact bonds. By Ruben Koekoek, co-founder of Social Finance NL and involved in 10 Social Impact Bonds.
In November 2014 the Bill & Melinda Gates foundation, among other foundations, made an important announcement. All results from the biomedical research they were funding needed to be freely available. Not only should the research be published in a journal which is freely accessible, the underlying data should also be openly accessible. With this single decision the 40 billion dollar endowment fund revolutionized the way how research was published and enabled scientist to accelerate their fight against the most lethal diseases.
It sounds completely logical. An outcome payer (Gates foundation) demands complete transparency from the researchers (service providers) and their funders (investors) in order to accelerate their impact. However, in the social impact bond market we too often see the complete opposite. Although we hear claims that social impact bonds bring rigor into the equation, we often don’t show how the exact outcomes matrix looks like. We only share high level results. Contracts are often not disclosed.
This is a major problem. Without transparency, social impact bonds lose their raison d’être. However, there is a clear reason why transparency in most social impact bond markets is minimal and there is a very easy solution. In social impact bonds three worlds interact, the world of investors, service providers and outcome payers. Two of them are used to low levels of transparancy. During the negotiations, often the party that demands the lowest level of disclosure gets its way.
First, the investors. Most investors are used to private-private deals. Naturally, only little information needs to be disclosed. However, this is different in a private-public deal, where the public partner is accountable to its constituency. This means that investors need to realize that in a public-private deal, like a social impact bond, they should comply with the transparency standards set by the public entity.
Another partner in a social impact bond deal is the service provider. Ofcourse an ambitious service provider is very eager to show positive results and gain a stamp of approval from an independent researcher that their intervention is successful. Often, their intentions are good and they really do want to know their impact, but they scare away from the prospect of rigorous evaluation in the public eye.
So, it is up to the third party involved, the outcomes payer, to set the standards of transparency. They act on behalf of the government and owe it to the taxpayer to explain, in detail, how the outcomes are achieved and why the government pays out a return to investors.
As I was, and for some still am, involved in 10 social impact bonds, I saw first-hand what happened during the negotiation phase. Often, civil servants interact with investors for the first time in their careers. They try to do their best to understand the investors point of view. Consequently, procurement rules and other procedures are adapted to comply with the demands of the investors. This often leads to less disclore than desirable.
If we, as a market, are able to lift the bar of transparency, we;
But foremost, civil servants owe it to their taxpayers.
Taking everything together, commissioners should continue to attract investors to solve social issues. They can do this by making them a true partner, provide fair risk return profiles and comply, to a certain level, with the investors' procedures. But, if we really want to deliver on our promise, more rigorous solutions to deliver social change, we need to provide the proof. We must raise the bar of transparency. Please commissioners, give us our Bill Gates moment.