By Phyllis Kurlander Costanza, Jason Saul, Andrew Dunckelman, and Maya Ziswiler
Corporations committed to meeting environmental, social impact, and governance (ESG) goals often find it difficult to demonstrate the impact of their social investment.
Now the emergence of a social-outcomes marketplace, tied to registries of nonprofits and social enterprises with verified outcomes, is demonstrating a way to objectively determine the cost and results of corporate social spend and to give all nonprofits—large; small; and Black, Indigenous, and people of color (BIPOC)–led—access to capital.
Socially minded companies should take notice, both to allocate resources wisely and because their investors, consumers, and employees are demanding more social action. Leaders who view fostering social change as an asset to their business should consider this mechanism.
Verifying Social Outcomes
For most funders today, aligning social spending with impact takes a lot of time and effort.
Imagine a publishing company in Detroit that wants to improve reading outcomes for local third graders. A company program manager might spend weeks meeting with nonprofit and educational providers to figure out—typically with limited data—which organizations are having an impact, which intervention strategies they are using, and whether those strategies are producing results.
That can change: Identifying and funding nonprofits with proven results has become easier with the advent of the social sector’s first impact registry and the launch of a marketplace to make the match.
The Impact Genome Registry is an independent verification body that enables nonprofits to report their results against evidence-based standards that are peer reviewed. The registry also publishes underlying data and methods of proof points that organizations can access to determine the quality of their own data for given interventions.
Today, that Detroit company staffer could access registry-vetted nonprofits in the social-outcomes market that can deliver reading outcomes to a target population in their city for a given cost, or cost per outcome (CPO).
A nonprofit’s CPO factors in the total cost of a unit of change, such as getting one child to reading level, including general operating and programmatic expense. It also factors in the efficacy rate, the percentage of children receiving the intervention who achieve the goal.
If the company wanted to improve learning for 10,000 kids, and a registry-vetted approach has an efficacy rate of 80% and a $400 CPO for activities such as tutoring each child, then the company will need to invest $5 million to achieve 10,000 positive outcomes. In this way, corporations can channel their social spend more efficiently, and nonprofits can find instant liquidity to fund their work.
Scorecard for a U.S.-Based Literacy Nonprofit
The matching in an outcomes market occurs in one of two ways: instantaneously, by buying outcomes on the spot from nonprofits that have listed their verified impact credits for sale; or via procurement, where OutcomesX validates a set of nonprofits, including those that are local and community-led, which are qualified to bid for funding.
Making the Market for Social Impact
The latter was the case for the UBS Optimus Foundation, which had experience valuing education outcomes through a social impact bond in India. It launched an emergency relief fund to raise funds from its clients to support children in Ukraine at a time when most humanitarian aid had been helping families who had fled. And it turned to the marketplace to match those funds to outcomes.
OutcomesX recruited more than 60 nonprofits working on two specific outcomes for Ukrainian children: improved learning and improved mental health. The nonprofits uploaded their data and cost info to the impact registry, which rated the quality of their data based on rigor of collection method, whether anecdotal, at point in time, pre-/post-action assessment, or a randomized controlled trial; relevance to the outcome, such as whether the data related to the specified outcomes; and validity, how closely the approach corresponds to methods proving their merit elsewhere.
Based on this analysis and its relationship to registry benchmarks for outcomes in education and mental health, OutcomesX selected 25 nonprofits that could deliver results, and it set a price for each unit of impact. The UBS Optimus Foundation committed to purchasing $2 million of these Verified Impact Units (VIUs) from OutcomesX via the nonprofits, which included organizations such as EdCamp and Divchata
As nonprofits deliver outcomes, they will upload relevant data to the registry, which will verify the outcomes achieved and issue VIUs to the nonprofits to be transferred to the UBS Optimus Foundation to report to its clients and employees. The approach may seem technical and transactional, but the impact of social-outcomes markets is personal; it can advance equity and literally change lives.
It’s also changing the game for less-well-known nonprofits. Today, smaller, minority-led charities are often at a fundraising disadvantage. Many don’t have the social capital, costly grant writers or evaluation consultants that larger and better-connected charities might. But a social-outcomes marketplace levels that playing field by giving organizations a central resource to find capital and compete for it based solely on their ability to deliver results.
Buyers can specify whether they want to invest in outcomes from smaller or equity-led organizations. This approach mirrors more traditional markets and gives nonprofits and social enterprises the upfront working capital they need to deliver greater social benefit.
Ripple Effects for Social Change
Transitioning social impact into an asset sets the stage for more social-sector business opportunities and financial products to emerge, just as they have in the carbon offset market. One such product will be social indexes, a basket of social outcomes an investor can purchase in a given sector (like health) or location (like northern Ghana).
The market will also allow rating agencies to assess a company’s commitment to social issues by tracking the amount they spend and, more importantly, the social impact they have created.
The market isn’t without critics, who may fear that commoditizing a social outcome minimizes the human element or that standardization can’t address the nuances and complexities of social change. But its proponents argue that a marketplace advances equity and enables nonprofits of all sizes and geographies to report against a consistent standard and garner access to capital on merit versus marketing. This amplifies the human element—more effectively improving lives, easing suffering, and achieving the social, economic, and environmental results aspired to by funders and nonprofits alike.
Learn more about investing in a social outcomes marketplace.
Phyllis Kurlander Costanza is cofounder and president of OutcomesX. Jason Saul is cofounder of OutcomesX and executive director of the Center for Impact Sciences at The University of Chicago. Andrew Dunckelman is head of impact and insights, Google.org, which is a funder of OutcomesX. Maya Ziswiler is CEO of the UBS Optimus Foundation.