Social impact financing is a relatively new phenomenon, but its ability to drive investment in solutions to complex social ills has drawn increasing attention. When the State of Connecticut partnered with Social Finance, Inc., to launch a landmark initiative taking aim at substance abuse and promoting family stability, it tapped global bank BNP Paribas to serve as lead arranger, administrative agent, and anchor senior lender. The bank, a longtime client of the Firm, took on the project as part of its Corporate Social Responsibility initiative and sought White & Case's legal expertise on a quasi-pro bono basis to advance the project.
Social impact financing deploys private sector funding to address challenges facing society. Typically in such financing, private funders cover upfront costs. Independent evaluators then determine whether a program has met specified targets. If it does, governments repay the original investment. Otherwise, they may pay nothing. In this way, social impact financing encourages experimentation on the part of governments by reducing the risk—and the costs—of failure.
This collaboration grew organically out of our practice, taking our work in an exciting new direction. We have had a wonderful opportunity to collaborate with a long-term client for the greater good, applying the unique skillset we possess as lawyers to a pressing social need.
Partner, New York
Since 2010, about 70 social impact financing projects have launched, raising more than US$200 million to confront issues including homelessness, recidivism and mental illness. But this project bore one significant difference from all earlier efforts: White & Case was asked to elevate the legal documentation of a social impact syndicated loan to the highest standards expected for a lending facility.
The paucity of existing precedents meant that our lawyers had to innovate. "Part of our challenge here was creating suitable documents—largely from scratch," says New York partner David Bilkis. "The typical loan provides lenders with greater protections. Devising documents that inspired the confidence of the lenders involved required a tremendous amount of care."
The Connecticut program will provide US$11.2 million of private capital to fund intervention teams visiting the homes of families with children aged six or younger. The teams will work to promote positive parent-child interactions and help parents overcome substance abuse.
Connecticut will repay funders if the program meets four targets: preventing out-of-home placements; preventing re-referrals to the Department of Children and Families; reducing substance use; and achieving target program enrollment rates.
The significant impact of Family-Based Recovery programming has been amply demonstrated. The new project will scale up an existing program for families with children aged three or younger. Social Finance, Inc., the premiere NGO organization in the US dedicated to pay-for-success projects, is initiating the scaled-up program in partnership with the State of Connecticut and Family-Based Recovery Services at the Yale Child Study Center.
Researchers from Yale University have found that this earlier initiative has led to fewer children being removed from their homes. The new program is expected to help more than 500 families over the next four and a half years.
David Bilkis says it was especially rewarding to contribute to a project that will have statewide impact. His team had just closed a deal for BNP Paribas when a call came in requesting the Firm's help. "This collaboration grew organically out of our practice, taking our work in an exciting new direction. We have had a wonderful opportunity to collaborate with a long-term client for the greater good, applying the unique skillset we possess as lawyers to a pressing social need."
As Jean-Yves Fillion, CEO of BNP Paribas USA and Head of the Americas, Corporate & Institutional Banking, explains, "Our aim is to drive social change by creating well-structured and targeted investments as solutions to pressing social, economic and environmental issues. This innovative pay-for-success model demonstrates our ability to impact local communities and underscores our mission as a sustainable and responsible financial institution."
UN SUSTAINABLE DEVELOPMENT
GOALS ADVANCED BY THIS WORK
01 | No Poverty
03 | Good Health and Well-Being
04 | Quality Education
08 | Decent Work and Economic Growth
10 | Reduced Inequalities