Blockchain/AI/IoT | July 28, 2017

Social impact bond pays off, helping Self Help, B Corps for big business, blockchain future

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Hello ImpactAlpha readers!

#Featured: ImpactAlpha Original

Peterborough social impact bond becomes a proof point. Fewer prisoners are returning to prison in Peterborough, England. That represents a success for the city, the ex-offenders, and the investors who backed the world’s first social impact bond, which financed a comprehensive post-release program.

Social impact bonds have so far generated more breathless expectation than actual capital. The success of the high-profile Peterborough experiment bolsters the case for such bonds, in which private investors put up funds for public services, to be repaid, with interest, only if those services deliver results. (Investors lost money on another social impact bond, to reduce recidivism at New York’s Riker’s Island, when results fell short of targets.) All told, 89 social impact bonds have raised $322 million in 19 countries to tackle social issues like homelessness, worker training, education and prison recidivism.

In Peterborough, the One Service program worked with two groups of 1,000 male prisoners to break the cycle of recidivism. An evaluation shows the program cut the reoffending rate of short-sentenced offenders in the city by 9% through 2015, exceeding the target of 7.5%. The 17 investors in the £5 million bond will be repaid, with a return of a little more than 3% per year. (The program was cut short after two, rather than three cohorts, when the government introduced mandatory supervision for all short-sentenced offenders.) “The Peterborough social impact bond captured people’s imagination with the simple premise that it is possible to invest in interventions to tackle difficult social issues,” said David Hutchison, CEO of Social Finance UK, which developed the bond. “We have learned that impact investment can drive real change and harness communities and action to rethink how we resolve the challenges our societies face.”

— David Bank and Dennis Price

#Dealflow: Follow the Money

Closed Loop backs GreenMantra to turn waste plastic into high-value products. Consumer and industrial waste plastics, including films and bags, have been harder to recycle than jugs and bottles made from HDPE #2. GreenMantra will use the $3 million investment to expand the capacity of its Brantford, Ontario factory to convert 7,500 metric tons per year into high-value waxes and other products. Closed Loop has been on a roll. Just this month, the $50 million fund invested in Natural Machines’ 3D printer for food and Rebound Technologies’ speed-freezing technology to cut energy in food storage. Closed Loop is backed by a half-dozen consumer multinationals including 3M, Coca-Cola and Johnson & Johnson.

Self Help gets an $8 million deposit to boost low-income lending. Even cash deposits can have positive social impact. The Silicon Valley Community Foundation is depositing $8 million in Self Help Federal Credit Union, enough to provide financing for 58 mortgages, 3,745 personal loans, 665 car loans, or 11,204 credit-builder loans. From a small community development finance institution in North Carolina, Self Help now has credit unions in four states, with $650 million in assets, and has provided over $6.6 billion in financing. Self-Help supports low-income families, many with limited or damaged credit histories, to obtain “responsible” loan products and avoid predatory lenders. “We dig deep to assess applicants’ true ability to repay a loan, not just their credit scores,” says Self-Help’s Steve Zuckerman. Silicon Valley Community Foundation claims to be the largest in the world, managing $8.2 billion in philanthropic assets. Most of the deposits will support Self Help’s East San Jose branch.

Australian Catholic University issues a sustainability bond. The success of green bonds is spurring interest in offerings targeting projects aligned with the U.N. Sustainable Development Goals. Australian Catholic University’s raised A$200 million ($159 million) with a 10-year bond that is the first to be issued under the new Sustainability Bond Guidelines by the International Capital Markets Association. The bond, which drew A$500 million in bids, will fund “energy efficiency, water conservation, recycling and reuse of its waste” as well as more sustainable buildings, Energy Markets reports. Catholic institutions have been rallying behind sustainable and impact investing, following Pope Francis’ endorsement of mission-driven investing in 2014.

See all of ImpactAlpha’s recent #dealflow.

#Signals: Ahead of the Curve

Why don’t more public companies become B Corps? Etsy, the online handicraft marketplace, is one of the first public companies with “B Corp” status, and it is becoming Exhibit A for why there aren’t more companies certified for their social and environmental performance. After ousting CEO Chad Dickerson for slow growth at the online craft marketplace, investors are pressuring the firm to act more like a conventional company. KKS Advisors explored the obstacles to certification as B Corps for public companies. The biggest barrier is the most obvious: B Corps certification (by the nonprofit B Lab) recognizes companies that take into account their whole range of stakeholders, including employees and the community. That bucks both short-termism and the primacy of shareholder returns. An advisory group of larger companies, including Unilever, Danone, Campbell’s Soup, Natura, Suncorp and Bancolombia (one of the largest banks in Latin America) is trying to square the circle. Their report is due to report by the end of the year.

#2030: Long-Termism

Tired of blockchain? You haven’t seen nothing yet. There are about $20 billion worth of bitcoins already in circulation. A recent World Economic Forum report estimated that by 2027, as much as 10 percent of the entire global GDP could be stored via blockchain, the technology underpinning bitcoin and other cryptocurrencies. There are signs that cryptocurrencies could one day dominate, rather than merely “disrupt,” financial service institutions. (A quick primer: blockchain is a decentralized digital ledger for record financial transactions, or anything of value. Bitcoin is a digital payment system that can be implemented via a blockchain.)

Countries such as Switzerland, Singapore and Estonia are moving to develop frameworks to accommodate blockchain-related tech, and are eager to become hubs for new waves of business financing. South Korea amended a law allowing fintech companies to offer bitcoin international transfer services. Among other things, that will allow fintech companies to compete with traditional banks, with quicker and cheaper money transferring services. While a traditional bank might charge a 5 or 6% fee and take two to three days to transfer money overseas, a Bitcoin remittance service provider might charge only 1% and mere minutes for the transfer to take place.

Other Asian countries are already in the game. Thailand’s Siam Commercial Bank, in collaboration with Japan’s SBI Remit, just started using Ripple to power real-time remittance payments between the two countries. “We are experiencing the third era of money,” said Galia Benartzi, the CEO of Particle Code, at this week’s Nexus Summit in New York. “The first was natural — gold, salt. The second came from government. And now in the third era, money is coming from people.”

Onward! Please send any news and comments to [email protected].