Les Social Bonds : quand la finance et le social se rencontrent

Social Bonds, Social Impact Bonds (SIBs), or even social impact obligations: all these terms refer to the same type of financial instrument. But it’s a unique one, sitting at the intersection of private investment, public policy, and social action. The fact is, they address social and societal issues while remaining a financial tool. In short, they’re a hybrid instrument that blends a performance contract with a financial bond. Still not well-known in France but widely used in other countries, SIBs are attracting the attention of institutional investors, governments, and social sector players. Here’s what you need to know.

Social Impact Bonds: A Unique Mechanism

What is a Social Impact Bond?

A Social Impact Bond isn’t a bond in the classic sense. Instead, it’s a contract involving several parties with distinct but complementary goals:

• A public sector entity—a local authority, a ministry, or even the state—looking to solve a social problem.
• Private investors who provide the necessary funding for the project.
• A field actor—such as a social association, an NGO, or a foundation—tasked with implementing the program.

The operation of Social Bonds, specifically Social Impact Bonds (SIBs), is based on the issuance of a bond by a public entity seeking to solve a social issue.

The main difference from traditional bonds? The payment of interest to investors only happens if, and only if, the pre-defined objectives are met. What's more, if the objectives are not met, or are only partially met, the interest paid is less than what was planned.

In short: the principle of Social Bonds is based on payment for results—the social results achieved on the ground.

The Three Pillars of Social Bonds

Social Impact Bonds (SIBs) are built on three fundamental principles:

1. Identifying a social problem to solve: for example, youth unemployment, re-offending by former prisoners, exclusion and isolation of the elderly, or lack of access to housing.
2. Setting measurable objectives: a 10% reduction in re-offending rates, a 20% increase in professional integration for young adults, a 30% increase in the number of doctors in medical deserts, and so on.
3. Evaluating the outcomes by a third-party organization.

A World Tour of Social Bonds

While Social Bonds are not yet particularly developed in France, they are already in use in over 44 countries. Let’s take a look at some of the first projects in pioneering countries.

The United Kingdom: The Cradle of SIBs in Europe

The first Social Impact Bond was launched in 2010 in Peterborough, England. The goal? To reduce the re-offending rate among prisoners serving short sentences. At the time, no social policy was in place in the UK to address this issue. A Social Bond was issued by the state—via the Ministry of Justice—with the objective of achieving at least a 7.5% reduction in the re-offending rate. A group of social associations received the necessary funds to finance professional reintegration programs for released inmates. The funding came primarily from private foundations.

The experiment was a success: investors were repaid, while the state saved on the costs associated with incarceration. Since then, the UK has multiplied these projects in education, health, and social housing, positioning the country as a pioneer in social finance.

The United States: The Rise of SIBs

Across the Atlantic, SIBs have emerged for many causes: helping the homeless in New York, improving access to education in Utah, or funding medical prevention programs in many states. These projects, financed by large banks like Goldman Sachs and Bank of America, have been successful and, at the same time, demonstrate the growing interest of the financial sector in these social bonds.

France: Still Limited but a Promising Field

In France, the first Social Impact Bonds were initiated in 2016. Specifically called "Contrats à impact social" (Social Impact Contracts), they were the very first of their kind in the country. The Ministry of the Economy and Finance, along with the Ministry of Commerce, Crafts, Consumer Affairs, and the Social and Solidarity Economy, were behind them. These SIBs enabled social sector organizations to get their on-the-ground actions financed by private investors. They focused on social issues such as professional integration and non-discrimination in hiring.

International and Emerging Countries

As proof of the interest and enthusiasm for Social Bonds, more than 40 countries worldwide are now experimenting with SIBs, from Australia to South Korea, including Portugal and Canada. In developing countries, they take the form of Development Impact Bonds, funded by international donors, to support health, education, or poverty reduction projects.

The Benefits of Social Impact Bonds

Social Impact Bonds are a win-win investment for all parties involved.

Benefits for Private Investors

• Portfolio diversification: SIBs offer exposure to an innovative asset class, halfway between philanthropy and investment.
• Results-based return: Risk exists, but returns, while modest, can be attractive in a low-interest-rate environment.
• Measurable social impact: Investors combine financial performance with social utility, which strengthens their image as responsible actors.

Benefits for Public Authorities

• Risk transfer: The state only pays if the results are achieved.
• Social innovation: SIBs allow new approaches to be tested without immediately burdening the public budget.
• Potential savings: If the program succeeds, the savings made (fewer incarcerations, less unemployment, better health) largely offset the cost of repayment.

Benefits for Civil Society

• Financial support for social sector actors: On-the-ground associations benefit from significant and regular funding.
• Positive outcomes: better employability rates for certain groups of people, reduced re-offending, etc.
• Leverage effect: SIBs attract private capital to sectors traditionally funded by the public sector.

Social Bonds: Challenges and Limitations

The Difficulty of Measuring Social Impact

One of the main criticisms of SIBs lies in the quantification of social impact. In other words: how do you precisely measure the social value created? What social indicators should be used? The risk is that easily evaluated actions are prioritized at the expense of more complex but equally essential issues.

The Financialization of Social Action

Some observers decry a withdrawal or retreat of state responsibility, which prefers to have its sovereign duties financed by the private sector. By entrusting the management of social objectives to private entities, the state could be delegating what should be a public responsibility to investors.

Nevertheless, these limitations are minimal in light of the positive outcomes that SIBs generate.

Challenges to Overcome

• Improve the measurement of impact with reliable indicators.
• Reduce contractual complexity to make SIBs accessible to a greater number of private actors.
• Ensure that projects truly serve the public interest.

How to Invest in Social Impact Bonds

For an individual investor, even though Social Impact Bonds may not seem intended for them at first glance, solutions still exist for participating in the financing of social projects.

In France, several indirect channels are accessible to individuals to participate in social or societal impact financing, particularly through solidarity funds, specialized asset management companies, or crowdfunding platforms.

Innovative Funds (SIB or CIS type) in France

The Fonds B. is a French endowment fund that invests in projects with a strong social impact. It is based on a results-based payment mechanism, only repaying projects if they achieve the expected social results. Called a "Contrat à Impact Social" (Social Impact Contract) in this case, it is simply the French version of SIBs. This fund brings together philanthropic investors, public authorities, and social organizations.

Solidarity Funds and Social Impact Financial Products

France Active offers individuals various solidarity savings products, such as solidarity mutual funds, "livrets de partage" (savings accounts where a portion of the interest is donated to one or more humanitarian organizations), or solidarity-based life insurance policies. These products invest a part of the savings in social enterprises, particularly in social housing, employment, or local development projects.

Social Impact Crowdfunding Platforms

Several platforms allow individuals to invest directly in projects with a strong social or environmental impact. While not all are formally SIBs, these tools are part of a social impact finance approach.

• LITA.co is a platform that allows individuals to invest in shares or bonds of companies selected for their social or environmental impact.
• Other platforms such as Enerfip, Lendosphere, Feedelios, or J’adopte un projet allow for financing projects related to energy transition, social innovation, or positive impact territorial initiatives.
• Other solutions also exist. This is the case with Blue Bees, for example, a platform dedicated to financing the agro-ecological transition.
• Tudigo supports companies that want to strengthen the economic and social dynamism of their territory.
• MyMoneyHelp prioritizes projects with strong social utility, related to people and the environment.
• Others opt for a broader positioning but are still focused on impact: Solylend finances initiatives that generate a positive social or environmental impact.
• Finally, some platforms target specific themes: Miimosa supports agricultural and food projects.
• La Nef is a cooperative society for solidarity finance. It collects savings from individuals to put them towards projects with an ecological, social, and cultural dimension.

Social Bonds: A Bright Future Awaits!

The global social bond market has grown exponentially, literally exploding last year with a +130% increase worldwide! They amount to a total of nearly $660 billion in 2024.

The fact is, during the Covid-19 pandemic, SIBs demonstrated their relevance. They mobilized more than $10 billion to finance health services, support small businesses, and provide medical equipment. Their ability to intervene quickly in times of crisis is an undeniable asset.

In France, the future of SIBs will depend on the evolution of the regulatory framework and political will. In 2016, the government created a first framework conducive to their development with the CIS (social impact contracts). Better integration into public policies could give them a more significant place. At the European level, the European Union could play a decisive role by offering a framework of trust for investors.

What the Investor Needs to Remember

Social Impact Bonds represent a unique opportunity for investors who want to combine returns with social responsibility. However, they involve accepting significant risk, linked to the results actually obtained and observed on the ground.

Before investing, it's essential to ask three key questions:

1. What is the targeted social problem and its economic relevance?
2. Which actors are involved and what is their credibility?
3. What are the impact indicators and how will they be measured?

Social Impact Bonds are an innovative, positive financial tool capable of mobilizing private capital to serve the public interest. For an investor, they offer a new hybrid asset class where return, risk, and social impact are combined. With such interest in social development, SIBs could well establish themselves as one of the emblematic instruments of tomorrow's finance.