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Bringing Pay-for-Success Mechanisms to France

11 September 2018

Pay-for-success (PFS) mechanisms have existed since the 1980s. Over the last decade, they have regained attention through the launch of Social Impact Bond contracts in the UK, the US, and most recently in France. HEC Paris and Fletcher School alumna, Alexandra Chamberlin, summarizes her capstone thesis to describe the triple role Pay-for-Success mechanisms play in the US to engage French professionals involved in social change: investors, policy makers, intermediaries, and philanthropic actors.

Bringing Pay for Success Mechanisms to France ©HEC Paris S&O

Pay-for-Success and Social Impact Bonds

Pay-for-success (PFS) mechanisms are defined as contracts tying the financing of social services to the achievement of measurable outcomes. Six different types are commonly identified. Social Impact Bonds (SIB) are one of them, for which an outcome payer repays a principal and interest to the investor in case of success.

While the US has moved past the early SIB-only discourse to the broader and more flexible PFS discourse, this transition has yet to happen in France. This article intends to illustrate to French players the promises of PFS mechanisms in achieving social outcomes. 

Similarities and Differences in the French and US Ecosystems

The US ecosystem is definitely more mature than the French one. Launched four years earlier, with the issuance of about 20 SIBs, the US ecosystem boasts a pipeline more than four times larger (about 100 are under development) than France. Out of the 13 SIBs certified by the French central government, only a couple have been implemented. 

In the US, the ecosystem is structured around established intermediaries that are funded for the next couple of years. Even more, a couple of “outcome funds” have been launched (e.g. Living Cities Blended Catalyst Fund, Maycomb Community Outcomes Fund). In France, intermediaries still struggle to demonstrate their worth and find a sustainable operating model.

More interestingly, defendants of the French SIB contracts have had to use very specific terminology for ‘returns’, talking about ‘premiums’ to emphasize social benefits instead of ‘financial returns’. 

The triple role of Pay-for-Success mechanisms in US capital markets

Government programming and spending

PFS mechanisms have created capital markets for government programming and public spending – these capital markets are being used to test new, or scale proven, preventive or corrective programs in specific social sectors (e.g., recidivism, workforce training, foster care, homelessness, early childhood education, and health). They have fostered discussions about the meaning, management and measurement of performance in government contracting, whether it be for procurement or the delivery of social services. Through PFS mechanisms, governments can work alongside private and philanthropic investors to innovate and finance more efficient social services, while coordinating databases to build evidence-based programs.

Philanthropic investing and granting 

Within philanthropic capital markets, PFS mechanisms answer a need from private foundations and donor-advised funds in the US for investment products that are aligned with their mission and values. Such philanthropic actors are a perfect fit for the roles of investors and outcome payers within PFS mechanisms because they have more flexible financial risk/return and impact risk/return requirements. While we are seeing the first steps in this promising match of supply and demand of funds for social outcomes in the US though the involvement of endowments and foundations in PFS mechanisms, France has yet to start. A first step could be to see what can be adapted from US foundations to French fondations and donor-advised funds to French fonds de dotation.

Public capital markets 

Even more promising is the role of PFS mechanisms within public capital markets. Due to their illiquidity, small ticket sizes, and low expected returns, PFS contracts are not traded in public markets yet. However, PFS concepts have made their way into the larger financial markets, especially in relation to the structuring of bonds or notes with variable interest rates which are lowered by meeting specified social or environmental performance thresholds (e.g., sustainable land bonds by The Nature Conservancy and Climate Bond Initiative, Olam revolving credit facility). Demand for such products has been extremely enthusiastic thus far and French leading corporates in sustainability could leverage these new tools.

Bringing Pay-for-Success mechanisms to France

PFS mechanisms reward impact creation ex-post, foster discussion amongst public, private, and philanthropic actors about incentives for impact, bring these actors together by creating a new category of financial actors - the outcome payers, and (iv) open new capital markets for social change for new actors (foundations) and with new functions (testing, scaling, and prevention). 

France could definitely benefit from this cross-sector and multi-player approach to improve social outcomes related to homelessness, mental health, energy efficiency, workforce development or early childhood education.


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