What would happen if a fund granted capital to a social impact organization not on the basis of need, but according to whether its programs actually achieved their mission? 

Sometime this year, the Toronto-based MaRS is planning to launch a $200 million National Outcomes Fund aimed at providing grants to social impact organizations based on how well they achieve a set of predetermined goals. Adam Jagelewski, co-founder and executive lead of the MaRS Centre for Impact Investing, says this fund could be used to reward organizations that meet their targets. 

“If they were to achieve a performance level that is over and above what they’re currently operating on, then they would be given a bonus payment,” he says. Another option is to use private investors through a social finance model — the decision will depend on whatever the partners involved with the project decide.

The model is supposed to offer private philanthropic and corporate donors a sense of transparency that might encourage them to donate more to social impact projects tackling climate change, pandemic recovery, or other major societal issues. On its website, MaRS says a National Outcomes Fund would promote innovative responses by social impact organizations to these issues. 

But outcomes-based funding comes with its own issues. Complex social outcomes like escaping poverty are not easily encapsulated in a performance metric designed to not only produce efficient and timely results, but also offer a return on investment. And a report for the U.K. government found that outcomes-based funding on its own does not promote innovation from social impact organizations per se. 

MaRS points to the U.K.’s Peterborough Social Impact Bond (SIB) as one of the most famous examples of an outcome-based funding model. In 2010, a series of U.K. trusts raised $8.54 million to fund One Service, a program offering immediate “through-the-gate” social support to men who’d been recently released from prison sentences lasting less than a year. The private trusts that funded this program were guaranteed their initial investment, plus a return on investment paid by the U.K.’s Ministry of Justice and the country’s Big Lottery Fund, if One Service successfully reduced the recidivism rate. 

The goal was to cut down on the number of ex-prisoners who returned to prison by 7 percent. Eventually, One Service managed to drop it to 9 percent, meaning it offered a payout for investors. It was also quite popular among prisoners who enrolled in One Service — the program’s final report found that virtually all enrollees interviewed afterwards had good experiences with the program and considered it an improvement over their past experience of post-release support. 

Many of these enrollees said One Service volunteers offered more than just broad social support — they helped them find housing, access benefits, and arrange appointments. Social impact professionals described One Service as an innovative model because its funding was not tied to a fixed outcome — rather, it was adaptable. According to the U.K. government report, investors also said they had a greater degree of engagement with program changes than in other models. 

Was this because One Service was funded through an SIB model? That doesn’t appear to be the case, according to the U.K. government report. “As with the flexibility of funding, it is not possible to ascribe the willingness to adapt the delivery model entirely to the fact that the Peterborough pilot was funded by a SIB,” the report says. “There is no reason why interventions funded through block contracts could not be adapted to better meet [the] need.” The report suggests innovation comes through organizations that are able to look at service delivery through a focus on outcomes and questioning traditional approaches. 

Not all outcomes-based funds are run as SIBs. Jagelewski points out that it is simply one option among several that a social impact organization and investors can use. “The National Outcome Fund is an outcome agreement fund, not a SIB fund,” Jagelewski wrote in a follow-up email to Future of Good. “I’m in the process of testing with individuals, corporates and governments whether they see merit in pooling funds to do more outcome agreements, and at scale.”

It can be tricky to fund projects that tackle broad and complex social issues such as lifting families out of poverty. “Paying for outcomes seems to work best under certain conditions,” reads a post on MaRS’s website about the model. “It helps when a project has a clear variable like a recidivism rate that can be easily and routinely measured.” 

MaRS’s National Outcomes Fund doesn’t have a firm launch date yet — Jagelowski says he’s spent the last four months speaking with dozens of private investors and companies about the idea. There will still be months of work left. But outcome-based funding models appear to be catching on. Jagelewski says 15 countries have adopted them around the world. 

According to MaRS, 190 projects backed by outcomes-based funds have been launched around the world and, in 75 percent of cases, successfully hit their targets. In 2013, Employment and Social Development Canada launched the country’s first SIB with Colleges and Institutes Canada, the Essential Skills Social Finance Project. The following year, Saskatchewan’s government launched Sweet Dreams, the first provincial example. 

190 projects backed by outcomes-based funds have been launched around the world and, in 75 percent of cases, successfully hit their targets.

In 2018, Heart & Stroke’s 2018 Activate program — launched in partnership with MaRS — used $3.4 million in investor capital to teach around 4,600 Canadians at risk of developing hypertension to live healthier lifestyles and ensure their blood pressure didn’t rise. Jagelewski says Activate inspired him to consider an outcome-based fund that could fund a multitude of projects, rather than a bond aimed at a single goal. 

But this model has been criticized by Nadine Penequeza, a filmmaker who spent three years on The Invisible Heart, a TVO documentary about social impact bonds. She argues in a 2019 article for the Stanford Social Innovation Review that the Activate program only measured two metrics — enrollment numbers and maintenance of blood pressure. “The need to return money to investors favours payment triggers that are milestones, not outcomes, which in turn disincentivizes rigorous evaluation and program improvement,” she writes. In other words, she believes the outcomes negotiated as part of these deals are intended to return money rather than achieve meaningful social change. 

In response, Jagelewski says there may be a very good reason for the partners in an outcome-based funding agreement to decide on an incremental goal, rather than a lasting outcome. “It may be the case that they believe the measure serves as a reasonable proxy for a longer term outcome. It could also be because the measure may be performance-linked to an outcome,” he wrote. 

Jagelewski also says it is the government and/or the organization administering the project itself — not the investors — who set the metrics and methodology of an outcome-based fund. He says Penequeza exaggerates the role of investors in controlling these agreements: “While investors act as an important check and balance in this multi-party agreement, they do not have authority (and often a desire) to dictate the term of evaluation,” he wrote.  

Tell us this made you smarter | Contact us | Report error