Pay-For-Success: The Newest Model of Corporate Social Responsibility

Corporate social responsibility seems to be the in thing nowadays. Many businesses have turned to this type of social initiative to support local charities and give themselves a more positive image. But is it helping, and what type of impact does it have with the community?

Sure, money always helps, but does the money bring about a better result, such as fewer people homeless, more people who can read, etc.? There are dozens of scholarly articles that describe its effect on buyer behavior and corporate profit; however, it is time to start measuring its actual good in the community.

Thanks to a new model of corporate social responsibility, we are finally able to make this measurement.

Understanding the Pay-For-Success Model

Some companies are turning to a pay-for-success model as a way to measure the impact of their donations. Instead of just throwing money at an organization, companies are staying involved to ensure they are making a difference with their giving.

Here is how it works.

A private company enters into an agreement with a program that would otherwise be funded through public donations (e.g., grant funding from the government). The company puts up the money for the initiative and when the desired result is achieved, it is then repaid by a public entity that would normally have issued a grant for funding.

Pay-for-success is something that has been supported on many levels, including the federal government.

“Since our first major award of federal funds in 2012, and with bipartisan support in Congress, we’ve dedicated nearly $100 million in funding to advance PFS through eight federal agencies. These federal dollars are leveraging at least $65 million in philanthropic, state and local funds for PFS.” — Office of Social Innovation and Civic Participation

Image demonstrating the Pay for Success Model as shown by The James Irvine Foundation

Pay-for-success programs have also proven successful which makes them attractive for companies wanting to engage in corporate social responsibility.

“Our research shows significant potential for [pay-for-success] to address the social determinants of health and wellness,” writes the Stanford Social Innovation Review.

Seeing Pay-For-Success in Action

I first learned about pay-for-success at the QBE Shootout, an annual PGA Tour event held in Florida. I’m a golf fanatic so I only planned on being there to enjoy the event; however, I wound up learning a new concept that I believe is likely to catch on globally.

QBE North America is a specialist insurer and re-insurer. Sponsoring PGA events is only one leg of their corporate social responsibility. The program that relates to impact investments is called their “Premiums4Good” program.

Under the program, a percentage of premiums are invested in impact investments like The Reinvestment Fund’s Pay-for-Success Fund. The Fund invests in social programs in low income communities. This includes programs related to education, healthcare and housing.

“This Premiums4Good program has no additional risk for the policyholder,” says Harpreet Mann from QBE North America. “The investment risk is assumed by QBE. Investments are made through QBE’s internal investment team and must meet the team’s risk and returns objectives, including social return”

Since the investments are not charitable giving, QBE gets to see a return on their investment as well as reuse the money for future projects. According to Mann, in addition to the financial return, the return comes by way of “social return” as well.

“We use a commercial perspective to achieve a financial and social return and share the social and environmental stories with our people and customers.”

A question that needs to be answered is what type of impact does pay-for-success, along with other corporate social responsibility initiatives, have on company culture and customers. It’s QBE’s firm belief that such initiatives positively benefit company culture, customers and community.

Impact on Company Culture and Customers

The impact on those receiving the funding is obvious. Organizations will be funded either way (through PFS it is through the private investment). The impact on participants is also the benefit of the social program (they receive housing, jobs, education, etc.). But what about the impact on the investor?

Mann believes that it has a positive impact on business and can often be the deciding factor on where someone decides to work.

“People have a choice where they work, and we believe they will be more inclined to work with, and continue to work with, companies such as ours who participate in these programs. Premiums4Good is an innovative manner to positively impact our communities and this innovation resonates with our employees.”

In addition to the company culture, Mann says there is a direct correlation between QBE customers and the projects they support.

“Like our employees, we believe many insurance buyers care about the same issues and our shared values are part of their buying decision.”

Potential Drawbacks

While the Stanford Social Innovation Review supports the pay-for-success model, they also caution about its use.

“A long list of social programs and interventions has been implemented with great enthusiasm yet has not achieved their goals. Without strong evaluations, you cannot be certain about an intervention’s strength or degree of impact.”

As a way to help achieve a successful pay-for-success program, they recommend certain criteria to evaluate whether a program would be viable for such investment.

“The [pay-for-success] field is becoming more sophisticated in its evaluations of launched PFS projects. It is time for PFS project partners to become more sophisticated in using evaluation and research literature to select appropriate, effective, and winning interventions before they start.”

Summing it Up

When it comes to corporate social responsibility, programs like pay-for-success are giving the private sector another option. They can invest funds into programs to ensure their success by partnering with government funding for their outcomes.

While not all programs are successful, more and more companies are turning to pay-for-success to see a social return.

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