Why have some foundations chosen to get involved with the new and untested social impact bond (SIB) market? Why are others skeptical? What challenges do philanthropic organizations face in engaging with this sector, and what is their vision of the way forward?

These are the questions that we at Social Finance set out to explore when we began the research that culminated in our recent white paper, “Foundations for Social Impact Bonds: How and Why Philanthropy Is Catalyzing the Development of a New Market.”


We understood that a random sampling of the thousands of philanthropic organizations operating in the United States today would be impossible; as one of our interviewees cautioned, “If you know one foundation, you know one foundation.” We also understood, though, that collecting the early learning of pioneers in this sector would benefit the broader philanthropic community, and others working in the space. So we interviewed several dozen thought leaders at foundations and other organizations at various stages of engagement with the SIB market—from the skeptics to the deeply involved—and sought reviews of early paper drafts from dozens more. We learned that foundations involved with this new sector are engaged for a number of reasons and in a variety of ways, and we learned that many have faced challenges along the way.

In particular, many of our respondents voiced concern over the “hype” surrounding SIBs; one warned that some institutions are rushing into the SIB market without enough data, while another cautioned against overselling the potential benefits of SIBs. Not unexpectedly, we heard that the “SIB” terminology is still contentious—some believe that the term is well-accepted at this point, while another described it as “releasing an apple into the world and calling it an orange.” We heard concerns about silos within government across levels and agencies, silos in foundations between the grantmaking and investing sides, and the long lead time and complexity of early transactions in the United States.

Our research uncovered some observations that we expected—many foundations we interviewed are attracted by the ability of SIBs to “increase the pie” for the social sector and shift funding from remediation to prevention, for example—and also some surprises. While we knew that many organizations were drawn to SIBs’ focus on outcomes rather than outputs, we were struck by the number of interviewees who see SIBs as a lever to improve broader public accountability by pushing government to direct resources to what works. Also, many view early-stage work to develop the SIB sector as a natural part of philanthropy’s traditional role as an “idea shop” that may take on the risk of proving a concept before government can scale it.

Perhaps most surprisingly, our interviews revealed substantial uncertainty about the long-term vision for the SIB market. Several respondents called early credit enhancements, such as Bloomberg Philanthropies’ partial guarantee for Goldman Sachs’ investment in the New York City SIB, “training wheels”—and looked forward to the time when they would be unnecessary. As one of our interviewees remarked, “If foundations are providing very significant guarantees on private investment, then a legitimate question is whether we’ll ever get past this initial stage to very clear-eyed investment.” Others noted that foundations bring much more than capital to the SIB market; they also bring knowledge, integrity, and credibility, and should remain engaged for the long-term.

At Social Finance, we envision a future in which mainstream impact investors, government, and foundations continue to co-fund SIB transactions. As some of our interviewees observed, many interventions offer broad social benefits that are difficult to monetize. For example, we can quantify the cost savings from preventive asthma management services designed to keep children from expensive, traumatic emergency room visits and hospital stays. It is less straightforward, however, to quantify the benefit to child and society from fewer school absences (in Fresno, Calif., for example, asthma is the number-one health-related reason why children miss school).

So perhaps the future of the SIB market is a hybrid model; impact investors will fund the bulk of the transaction, corresponding roughly to the readily quantifiable benefits of the project, while foundations fund a smaller component of the transaction to support the project’s difficult-to-quantify social benefits.

This arrangement underlines the core strength of the SIB model—its ability to facilitate uncommon partnerships in pursuit of a common goal.