Impact investing, Program Related Investment, Pay For Success and Social Bonds

If you have not heard of these terms, perhaps it's because they are relatively new concepts. But if you are in the non-profit world or have a social enterprise, or are a mission-driven business, or in fact are a business that cares about the location you are in, they are important concepts.

Impact investing is a relatively new way of viewing how capital can be used not just to grow value neutral businesses, but for good business that has a positive impact beyond the bottom line. There are many financial vehicles that fit impact investment criteria. There are also many metrics that measure the outcome of these investments. Thankful Gleaner can help you here by developing solutions which could attract impact investment money.

Program Related Investments are one vehicle that can increase investors impact. As a colleague put it:

"Program Related Investments are based on IRS rule that allows private foundations to treat PRIs as a distribution that counts toward their annual 5% distribution requirement even though they are not grants, but investments.

PRIs have to relate to non-profit goals and their mission. They are often, but not always expected to yield financial returns below market rates. However, they should yield a financial return.

Social Bond's on the other hand, are a slightly different vehicle. They are based on a Pay For Success model of funding where an investor will put money into a non-profit program and receive their investment returned after the life cycle of the program through the maturation of a social bond. That is if the program was a success. These investment returns are most often guaranteed by the government, but need not be exclusively so. What makes a Pay For Success model? The bond is only paid if the program was a success. What then is success?

Non-Profits set goals that are often measured in the form of outputs (e.g., how many clients were seen). The PFS model is based on longer term outcomes that show a change in the problem the non-profit is trying to address (e.g., jobs preparedness programs that not only help somebody find a job but also help them keep it and increase their earnings in the longer term). Of course, this can take a longer time to implement and measure. Non-profits need funding to implement programs that can then show longer term success. Enter the social bond. Measuring the impact of such investments is, of course, harder than showing outputs, but truthfully, such outcomes are far more valuable, particularly if the program helps a client. Success is often verified by a third party.

We work with non-profits and for-profit businesses that want to have an impact beyond short-term financial indicators. Let's talk if you are interested in working with us.