Andrea Phillips of Goldman Sachs Discusses Social Impact Bonds

The social impact bond space is an emerging field within the impact investing space. Social impact bonds are built on the notion of aligning incentives between public sector institutions, private sector implementers and investors to achieve shared social and financial benchmarks.

On February 6, 2013, Andrea Phillips of Goldman Sachs’ Urban Investment Group (UIG) spoke at Yale SOM’s Social Impact Lab about her work on a social impact bond aimed to reduce the recidivism rate among high-risk youth in New York City’s Department of Corrections.

Goldman Sachs’ website described the $10 million bond as a partnership between the bank, the City of New York, Bloomberg Philanthropies and MDRC, a social services provider, to finance a program called Adolescent Behavioral Learning Experience (ABLE) to reduce the recidivism rate for adolescent offenders at the Rikers Island correctional facility.

Phillips spoke at length about why Goldman Sachs is interested in pursuing social impact bonds, remarking that the “goal is to leverage private sector capital to finance public social services.” Goldman seeks a double bottom line return that is both social and financial. Its partnership with the City of New York showcases how UIG has been able to “use private capital to solve pressing social issues,” stated Phillips. 

Currently, almost 50% of adolescents who leave the NYC Department of Corrections return within one year. ABLE’s innovative program aims to reduce this rate by providing what Phillips described as “education, training and counseling to improve personal responsibility skills.”  She explained that the new model will allow private investors to fund the intervention through a nonprofit contractor, with investors receiving a return only if the program meets its goals of reduced recidivism. She clarified each partner’s role: Goldman Sachs provided financing, Bloomberg Philanthropies provided grant support for a partial guarantee, and MDRC oversees project implementation. This system, though called a “social impact bond,” is actually a loan rather than a bond, utilizing the power of aligned incentives to ensure that the parties are accountable for achieving results. In order for Goldman Sachs to break even, the project must achieve a 10% reduction in recidivism; a greater reduction will lead to a profit for Goldman Sachs. Unlike other projects where organizations are paid up-front with no guarantee that they will generate positive social outcomes, social impact bonds create a unique relationship between public and private institutions where participants are held accountable for achieving their stated goals.

When asked about growth within the social impact bond sector, Phillips remarked that she believed that there needed to be more proof points with larger deals. In reflecting on her professional experience, Phillips equally values her years of previous experience in non-profit partnerships and her time leveraging Goldman’s capital and human resources towards social good. Time will tell how successful the social impact bond sector will be, but Goldman Sachs’ pioneering efforts provide a promising start.

By Nate Wong, SOM ‘14