When I started making The Invisible Heart, a documentary film about Social Impact Bonds (SIBs), the concept was relatively new. It was 2015 and there were roughly 45 SIBs globally. Observers had great hopes that this new financing model would revolutionize social service delivery. By making private investment available to social programs, SIBs were expected to bring innovation, more money, and better outcomes for society’s most disadvantaged people. Private investors would be paid a return only if the program achieved predetermined outcomes, such as reducing prison recidivism or improving academic performance.
My film, which premiered on TVO in January 2019, focuses on two SIBs: a Toronto program to house the chronically homeless that was still in the design phase and a Chicago pre-kindergarten program that was entering its second year of implementation and about to deliver its first results. I also highlight a third SIB—a program to reduce hypertension—as a way to chronicle Sir Ronald Cohen’s efforts to promote impact investing globally.
I wanted to document SIBS that represented a variety of issue areas, populations served, investor types, and stages of completion from design to evaluation. Having high stakeholder participation was also a critical factor in deciding which SIBs to feature.
Today there are 151 SIBs in 29 countries, but there is little evidence that they are delivering on their promise. After three years filming the evolution of this financing model, I believe we need to consider that SIBs might be doing more harm than good. SIBs have the potential to undermine democracy and basic human rights, and perpetuate wealth inequality—the root cause of many social problems. Impact investors have an important role to play in building a just society, but the revolution might be better targeted at corporations, 500 of which control about 70 percent of world trade and therefore have the ability to create both positive or negative impact at scale.
Promoting Simplistic Solutions to Complex Problems
Like many impact bonds around the world, the three SIBs featured in The Invisible Hear tare low risk and high return. Instead of funding innovative programs, private capital is backing social programs with a proven track record, often evaluated by publicly funded studies.
In Chicago I filmed a SIB that is paying a premium to investors for financing an early education program. The program is a well-documented success since the mid-1980s thanks to the ongoing federally-funded Chicago Longitudinal Study. The pay-for-success model will cost the City of Chicago more than double the actual cost of putting the 2,618 students through pre-school, if the program hits certain targets. The highest payments are awarded for every year a student does not require special education. The program has been criticized for financially incentivizing service reduction in public schools where special education is already underfunded, and for paying investors a continued return over 15 years for a one-time intervention.