Make social impact bonds tradeable


Ronnie Horesh


It’s now thirty years since I first floated the idea Social Policy Bonds at a meeting of the Australian Agricultural Economics Society in Blenheim, New Zealand. My aim was to inject the market’s incentives and efficiencies into the achievement of social and environmental outcomes. Under a Social Policy Bond regime, bonds are issued on the free market for whatever price they will fetch. The bonds would be backed by any combination of philanthropists and public- or private-sector groups, perhaps swelled by contributions from the public. The bonds would not bear interest and would be redeemable for a fixed sum only when a targeted social or environmental objective has been achieved and sustained. The idea is that the holders of the bonds would form a coalition whose over-arching goal is exactly that of society: to achieve the targeted goal as quickly as possible.

If this sounds familiar, it’s because my work led to the creation of Social Impact Bonds of which about sixty, involving investments of more than $200m, have been launched in 15 countries, aimed at meeting various social challenges. There are 32 in the UK alone, with such goals as reducing recidivism rates, and housing rough sleepers in London.

There’s one important feature, though, about my original idea that differentiates it from Social Impact Bonds: my intention has always been that the bonds be tradeable, whereas SIBs, also known as ‘Pay for Success’ bonds, are not. This is a critical difference. I believe making the bonds tradeable would greatly enhance the range of goals that we can target.

Most importantly, we could target long-term goals. Investors will buy the bonds only if they expect to profit from them. Because SIBs are not tradeable, people have to hold them to redemption to make a profit. That in turn means that would-be investors want any targeted goal to have a realistic chance of being achieved quickly. This narrows the scope of the goals they can target, and so too the opportunities for shifting resources to and from different approaches to solving a particular problem, and varying them over time. Without tradeability, investors have no incentive to research and experiment with innovative approaches that have anything other the shortest lead time or are otherwise almost risk free.

Tradeability means that we do not need to specify in advance who shall achieve our goals nor how they shall do so. The market for Social Policy Bonds would ensure that they will find their way into the hands of the highest bidders for them – who will be those best-placed to advance progress towards society’s targeted goal most efficiently. Our biggest goals will require multiple steps for their achievement. A market for the bonds will allow those who are most efficient at taking the first step to sell their bonds, at a profit, to those best placed to handle the next stage, and so on, until the goal is achieved. At every stage on the way to achieving our social goals, the market for the bonds will favour the most cost-effective coalition of operators.

Another plus of tradeability is that a market for the bonds would generate extremely useful information both for would-be investors and for policymakers. The value of the bonds will rise and fall depending on whether the market thinks the targeted goal will be achieved more or less quickly. These prices, and their changes, will be immensely valuable to those having to decide where to allocate society’s scarce resources, be they in the public or private sector.

My idea was ambitious: to bring the market’s benefits to such vital national goals as improving the health of a population, eliminating poverty or achieving universal literacy. But Social Policy Bonds could target global goals too: the ending of war, civil war, terrorism; the mitigation of climate change (or its negative impacts) or any global environmental problem, such as loss of biodiversity and degradation of the oceans. These broad problems require a long-term outlook that recognises that we cannot identify in advance who will be best-placed to solve them, nor how they will do so. But, under a Social Policy Bond regime, there would be no need to do either: tradeable bonds would encourage the exploration, refinement and implementation of diverse, adaptive, approaches, with the aim of achieving society’s long-term social and environmental goals as efficiently as possible.

For more information about Social Policy Bonds see

Ronnie Horesh is the author of Market Solutions for Social and Environmental Problems: Social Policy Bonds

Comments (2)

Ronnie Horesh

Thanks Jackie, those were good days! All the best, R

Jackie vR

I remember, Ronnie! I just looked you up because I was explaining to someone about your work 30 years ago. I was a junior colleague at NZ's Min of Ag and Fish, and I recall you coming over for 6-month stints. Cool to read your comments here and to reflect on your work now. Go well, Jackie

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