Measuring social impact of SIBs and B Corps

Using social impact bonds (SIBs) to fund preventative social programs has potential to improve quality and reduce costs of costly programs for job training, drug rehab, early childhood education, prison recidivism, child abuse prevention, and many other challenging social issues.

Like SIBs, Benefit Corporations (B Corps) such as Etsy, which adopt a social mission alongside their pursuit of profit, could eventually re-write the consumer-producer social contract in such a way that employee welfare and company ethics become a marketable commodity rather than a red line on a balance sheet.

SIBs and B Corps may be relatively new ideas, but they come with the same set of challenges faced by philanthropists, social entrepreneurs, and impact investors. First among those challenges is measuring social impact.

The four complexities identified in the Stanford Social Innovation Review article “Measuring Social Value” are equally present in SIB and B Corp efforts to make an impact:

1. Human behavior is not always predictable. There are too many variables influencing human decisions to draw sound conclusions about a causal relationship between the government or an organization’s efforts to address a social problem and the results of those efforts. SIBs that are effective in one context may not produce the same result in another, and investors may be turned off by the risk associated with such uncertainty. Similarly, B Corps that go public could face lawsuits for failing to carry out a social mission that they actually have very little control over.
2. People do not agree about what desirable outcomes are. As Mulgan points out in his article, “the public argues not only about social value, but also about social values.” While the government may issue an SIB to reduce incarceration rates, some members of the public may be of the opinion that criminals deserve to spend time in jail as punishment, regardless of the cost. Likewise, a B Corp’s social mission may have a religious aspect that requires workers to dress a certain way or denies employees certain health benefits for religious reasons.
3. Social value metrics are arbitrary. Estimating costs and paybacks of investments intended to have social impact is not a rigorous enough process to give policymakers the necessary information to evaluate the effectiveness of SIBs with much accuracy or specificity or compare results with alternatives. B Corps also face this issue when attempting to scale – should scaling be measured by organizational growth, more product sold, changing behaviors of consumers, etc.?
4. Short-term costs vs. long-term benefits. It is difficult to determine the value of making a future generation better off, especially because traditional commercial discount rates don’t necessarily apply to social benefits. What should the return be for an investor that funds a social program that will decrease obesity rates in 25 years? Does it make sense for a B Corporation to introduce company policies that benefit the children of their employees in 18 years? Would the corporation be neglecting their fiduciary responsibility if they didn’t implement that policy? These questions do not have clear-cut answers.