Social Impact Bonds and the death of sweet charity...

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This weekend I was engaged in an intense debate with a well respected practitioner concerning his development of Poverty Impact Bonds on one of the many online social networks in which to which I regularly contribute. 
Poverty Impact Bonds is a sister concept of Social Impact Bonds which is defined by Social Finance "a contract with the public sector in which it commits to pay for improved social outcomes. On the back of this contract, investment is raised from socially-motivated investors. This investment is used to pay for a range of interventions to improve the social outcomes. The financial returns investors receive are dependent on the degree to which outcomes improve". 
It is proposed that investments by private sector entities e.g. Pension Funds in the early stages of a project will yield a return to society via the achievement of a tangible social outcome e.g. school leavers completing five GCSE's the US equivalent of a high school diploma. This lowers the government's overall public sector cost with a proportion of the projected public sector spend on social intervention being rewarded to Social Impact Bond investors. 
Poverty Impact Bonds which is still in its conceptual stage of development will use a similar methodology however its prime purpose will be to direct private investor funding to alleviate child and family poverty.


The use of Social Impact Bonds is being pioneered in the United Kingdom with a pilot project initiated at Peterborough Prison investing £5M from private investors to reduce re-offending rates by 7.5% over a six year period. Investors will receive a payment representing a proportion of the cost of re-offending. This approach to social intervention is supported by esteemed organisations such as the Young Foundation whose track record in the development of innovative approaches in the social sector e.g. The Open University is unquestioned.
In the United States the current administration is proposing to spend $100M on seven pilot projects using Social Impact Bond which they have re-branded as pay-for-success bonds.


The Social Impact Bond model appeals to my rational instincts but I am concerned of the application of market instruments to social issues. I am also skeptical as to its validity as an instrument to measure or reward social performance. Market instruments have not had a marvelous recent history with our recent financial crisis fueled by the use of sophisticated financial instruments such as derivatives which may be applied to Social Impact Bonds as its use is normalized within financial markets. Market forces are by nature impersonal with social intervention by nature involves personalization the two approaches are philosophically independent. 

That aside many charities exist due to the goodwill of volunteers that provide their time and talent to contribute to the greater good of society. In my own case I raise funds for Help for Heroes  a UK based charity that is growing, effective and transparent, established by individuals seeking to relieve the social, physiological, psychological impact of war. Help for Heroes to date has raised over £87M in funding without recourse to financial markets. This has been achieved by identifying a need and capturing the latent energy of the public to commit to an inspirational program. 
This is of course not a new phenomenon the volunteers past and present at the real army the... Salvation Army who save lives every moment via through counselling, shelter and a hot cup of soup since 1860's.


Aristotle in his writings in Politics on the nature of man surmised that rational men do have an invested interest in the greater good of society that transcends the imperative of wealth creation: 


"Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property."


Being a rational economic man I perceive an underlying danger of the proposed use of Social Impact Bonds will contribute to a withdrawal of individuals seeking to volunteer and spontaneous charitable giving for the following reasons:

1. Is it the intention to monetize the "free labour" of volunteers? 
2. Will individuals who make charitable donations receive suitable ROI if the project is successful? 
3. If therefore the "free labour" of volunteers is now monetised are they not due a ROI for their effort?

Whatever happened to sweet charity...

ISO 26000 Standard - defining good corporate governance

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Public concern over the increasing disparity amongst the rich and poor, gender inequality, human rights, climate change and environmental degradation has elevated sustainability and corporate social responsibility from the realm of public relations to the core of progressive business strategy. The recent BP oil spill in the Gulf of Mexico is testimony to the financial and reputational risk that can befall CEO’s and their organisations that fail to put sustainability at the heart of business decisions.

Historically the International Organisation for Standardisation (known by its French acronym ISO) efforts have been focused on issues surrounding quality, product specification and information technology management. Therefore it was late in understanding the shift in the debate as to the role of business in society from being catalyst of economic growth to also enablers in the development of society as a whole. This concept of the role of business beyond profit making was crystallised in the Brundtland Commission’s definition of Sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. This definition subsequently influenced the development of the “triple bottom line” approach whereby business performance can no longer be viewed exclusively from the lens of economic performance but must also include social and environmental performance criteria as part of any evaluation of its effectiveness (Elkington 1999, Savitz and Weber 2006).

In 2002 sensing the growing need for comprehensive guidance on social responsibility the International Organisation for Standardisation began work on developing the ISO 26000 standard. To ensure that all stakeholders’ views and concerns were included in the developmental stages of the ISO 26000 standard its working group included well known non-governmental organisations such as the Consumers International and the International Organisation for Employers. Support was also enlisted from other sustainability initiatives such as the International Labour Organisation (ILO), the Organisation for Economic Co-operation and Development (OECD) and the UN Global Compact whose sustainability framework established a decade earlier includes over 8700 participating organisations. Well known NGOs such as Amnesty International and the World Wild Life Fund (WWF) International also contributed to the development of the ISO 26000 standard, however both organisations have since refocused their attention to other initiatives.

The ISO 26000 standard builds on the Brundtland definition of sustainable development by defining social responsibility as the responsibility of an organization for the impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that

• contributes to sustainable development, including health and the welfare of society
• takes into account the expectations of stakeholders
• is in compliance with applicable law and consistent with international norms of behaviour; and is integrated throughout the organization and practised in its relationships

This definition confirms the interconnectedness of social responsibility and sustainability as core operational concepts with the ISO 26000 standard. To incorporate social responsibility and sustainability within its business operations organisations are required to define their priorities in respect of the following core subjects:

• Organisational governance – the systems, structures and processes whether formal or informal by which an organisation makes decisions in regards to social responsibility and sustainability.
• Human rights – are accepted norms regarding the sanctity of life such as civil, political, economic, and social rights which it is implied that an organisation should actively support and respect.
• Labour practices – are policies and procedures regarding the selection, recruitment and retention of labour including subcontractors and their ability solicit the assistance of external bargaining or develop their own bargaining mechanism within the organisation
• The environment – the ISO 26000 standard encourages organisations to review its impact on the environment from a global perspective by improving the its environmental performance using the precautionary approach, sustainable procurement techniques, environmental risk management, climate change adaptation, adoption of clean technology and eco-efficiency programs.
• Fair operating practices – this core subject encompasses the ethical values of the organisation in respect of its dealings with other organisations e.g. competitors, suppliers and government authorities in areas such as anti-corruption and fair competition.
• Consumer issues – are all activities that communicate and reduce risk, improves product performance and longevity, increase sustainable consumption of products and services during all stages of its lifecycle from material extraction, manufacturing, marketing, distribution and recycling or disposal.
• Community involvement and development – are activities in which the organisation participates that strengthens the civic institutions from which the organisation gains its wealth but also builds a bond between the organisations internal stakeholders i.e. owners, shareholders, employees, suppliers, subcontractors and its external stakeholders in the community and the wider society.

The ISO 26000 standard does not provide a prescription for social responsibility by highlights key areas which define corporate social responsibility excellence. Organisations should adapt the standard to suit its size, mission, values, cultural and regulatory environment. This tailored approach ensures that stakeholders are engaged for their opinions using communicative means that are beyond mere consultation on issues regarding the centrality of social responsibility to the organisational strategy but importantly their as stakeholders role in implementing sustainability and social responsibility within the organisation.

The interdependence of each core subject is embodied in the holistic approach to social responsibility and sustainability espoused by the ISO 26000.

The holistic approach to sustainability also implies that any organisation embarking on implementing the core subjects of the ISO 26000 must conduct a gap analysis of its existing performance regarding social responsibility and the requirements of the standard to determine the relevance of the each core subject to the stakeholders within its competitive environment. Therefore also ensuring that the relative emphasis placed by the organisation on each core subject will vary regionally e.g. businesses that operate in Bangladesh and India that are implementing social responsibility may place greater emphasis on issues surrounding Labour practices and Community involvement and development due to the socioeconomic environment that exists on the Indian sub continent.

The organisation having understood which core subjects are relevant to its stakeholders then proceeds to integrate social responsibility into the fabric of the organisation through policy development, the establishment of sustainability targets, sustainability awareness raising campaigns, transparent reporting of the organisational performance in a manner that is timely and balanced.

The use of social responsibility reporting as tool for benchmarking and communicating sustainability performance is another key requirement of the ISO 26000 standard. Recently there has been a proliferation of corporate social responsibility reports by companies in the United Kingdom which has spurred the creation of various reporting schemes such as the Global Reporting Initiative – a voluntary scheme that seeks to measure an organisations sustainability performance facilitating comparisons within and across sectors. The ISO 26000 standard has cross referenced its framework across existing corporate social responsibility initiatives such as the GRI thereby ensuring its applicability to all organisations irrespective of reporting requirements.

Safety and Environmental practitioners are already burdened with the management of ISO 14001 Environmental Management Systems; ISO 9000 Quality Management Systems and OSHAS 18001 Safety Management Systems may view the ISO 26000 standard as an unwelcomed distraction from other technical issues. As with any organisational change initiative senior management commitment and support is paramount as the implementation of social responsibility policies may be in direct competition for resources with other business initiatives at a time where budgets are constrained. Therefore the business case for sustainability and social responsibility must be developed, however despite these challenges using the ISO 26000 standard as a template for implementing sustainability and social responsibility can provide organisations with following benefits:

• No certification costs - the ISO 26000 standard is not yet a certifiable standard
• Easy integration with existing standards e.g. ISO 14001 and OSHAS 18001 using the holistic approach to sustainability social responsibility
• Reduced reputational risk arising from poor labour practices and unethical conduct
• Enhanced brand and product image
• Incorporates the criteria of existing corporate social responsibility schemes such as the GRI and UN Global Compact
• Facilitates good corporate governance ensuring that senior management adopt a long term outlook to decisions making
• Develops and improves stakeholder engagement and building trust with the organisations immediate community
• Improves environmental efficiency and resource use within the organisations supply chain
• Improves organisational safety and builds employee morale
• Facilitates organisational innovation

The parallel concepts of sustainability and social responsibility are evolving areas of management taught and practice, this is reflective in the rather broad approach of the ISO 26000 standard. The ushering of the ISO 26000 on the global stage has not been without its controversy with some nations viewing the new standard as a potential barrier to free trade or a threat to their national sovereignty in terms of its support for human rights. Organisations that do not subscribe to such myopic views will use the framework of the ISO 26000 standard to create new competitive models and produce products and services that not only sustain corporate growth but contribute to the development of society.