SDG Outcomes Fund

Support impact bond instruments to help develop the track record of outcomes-based financing, supporting further impact bond-type investments and mobilising further capital in these vehicles. Signposts for success will include successful fundraise for this Fund (short-term) and follow-on Fund, financial and impact returns aligned with BII’s investment thesis (medium term) and the continued scale-up and mobilisation of capital towards the outcome-based contracting segment, including but not limited to fund structures (long term).

Back a Fund investing in 15-20 impact bonds and providing impact performance management services for these contracts.

ODA-eligible countries (we expect up to 10% to be outside BII geographies)

Based on the Fund’s strategy and screening criteria, we expect the underlying impact bonds to focus on vulnerable populations (and therefore the majority of beneficiaries to be low-income). The Fund has also qualified as a 2X Flagship Fund and we therefore anticipate women and girls to be a significant proportion of beneficiaries.

Millions of individuals to be directly reached through the Fund. Each bond will likely have hundreds of thousands of beneficiaries, so with the Fund expected to invest in 15-20 impact bonds, the scale is likely to be in the millions. The Fund aims to achieve direct impact through potential positive outcomes estimated to be worth more than USD 250 million from Outcomes Payers.

The impact is expected to be deep given that the populations reached will (by definition) have great need for the services that an impact bond is providing. However, there is a risk that the effect of the impact ends at the end of the delivery period of each impact bond.

Financial additionality: BII participating in the Mezzanine tranche, which is unlikely to attract sufficient commercial capital, and helps bring the Fund to its minimum viable size. Bringing the Fund to a minimum viable size and the presence of DFIs in Mezzanine tranche may help mobilise further capital including from commercial investors, particularly for the Senior tranche.

Value additionality: We will provide support on E&S and BI systems and processes, as well as engagement on 2X qualification, market-shaping and investee-level TA.

Execution Risk

While execution risks are high, the objective of impact bonds helps ensure that even partial success of the Fund would still deliver significant impact. Selecting the team with the most extensive combination of product and sector experience in the impact bond market is intended to mitigate this risk to the extent possible.

Drop-Off Risk

Pertains to the risk that the positive impact achieved does not endure beyond the lifetime of each impact bond – a systemic risk common to traditional delivery contracts. Due diligence findings indicate that the capacity, visibility, and fundraising traction of Delivery Organisations is durably enhanced by successful participation to impact bonds. The assumption that impact bonds can help reduce drop-off risks within the development sector will be tested through this investment and we note that involvement of local/national governments or stakeholders as Outcome Payers further increases the likelihood of enduring impact.

Efficiency Risk

Pertains to the risk that impact of individual impact bonds could be achieved without the impact bond structure, or inaccurate forecasting of impact and costs at the impact bond level could result in “over-paying” for a given impact. Track record of other impact bonds suggests that these structures can provide a more cost-effective use of public/philanthropic funds, so this risk is deemed low.

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