Financial Innovation with a Social Purpose: The Growth of Social Impact Bonds

The triple bottom line is an accounting framework with social, environmental and financial factors. This Handbook examines the nexus between these areas by scrutinising aspects of socially responsible investment, finance and sustainable development, corporate socially responsible banking firms, the stock returns of sustainable firms, green bonds and sustainable financial instruments. The Sustainable Development Goals (SDG) signed in 2015 call for a closer collaboration between the public and private sectors to solve social and environmental issues. This follows a gradual evolution in aid and policy-making that has resulted in the emergence of a body of research focused on public-private partnerships in both developed and developing countries, as well as a current of the literature looking at financial innovation as a tool favoring development. In this chapter, we analyze the emergence of social impact bonds – innovative financial instruments that join private risk-taking with public funding in a pay-for-outcome structure. SIBs bridge the gap between private capital markets and public agencies to deliver a social outcome. After taking stock of the existing literature, our contribution consists in an in-depth analysis of the financial structuring of SIBs, a theme not well covered in the literature. We make recommendations to grow the sector.