An Examination of Social Impact Bonds from a Thomistic Viewpoint

The social impact bond (SIB) is a recent innovation which attempts to bridge the gap between private financial markets and charitable causes. The SIB is a financial instrument intended to raise revenue for a charitable cause while supplying an equitable return for investors. In practice, many SIBs have fallen short of economic ideas of justice expounded by Thomas Aquinas centuries ago. This thesis surveys the St Mungo’s and Goldman Sachs Utah SIBs which were set up with the laudatory goals of reducing homelessness and promoting preschool literacy yet have disappointing results. Both used simple performance metrics to calculate financial payouts which had the effect of reducing people to numbers on a spreadsheet. In particular, the St Mungo’s SIB had little benefit for their homeless clients, while providing an ample return for investors. To Aquinas, these bonds would be deemed unjust because they did not serve their clientele well, and more seriously, lacked “regulated self-control” as they put profits before people. In contrast, the Denver Homelessness SIB is discussed that was set up by the city to reduce homelessness. The payout scheme was simple and unambiguous as the city would pay an amount for each day a “rough-sleeper” was in stable housing. This SIB fulfils the Thomistic ethic by being fair to both its clientele and investors. In all, SIBs can live up to Thomistic virtues, but must be constructed carefully so their charitable aim is not lost by reductionist payout methods.