Goldman Sachs B: Determining the Potential of Social Impact Bonds

by: Andrew Hoffman

Publication Date: February 14, 2014
Length: 8 pages
Product ID#: 1-429-379

Core Disciplines: Accounting/Finance, Sustainability

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Teaching Note

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Partnering with Bloomberg Philanthropies, MDRC, the Vera Institute of Justice, and the New York State Department of Corrections, Goldman decided to go ahead with the social impact bond (SIB) project to reduce youth recidivism. If there were lower rates of recidivism under the program, the city would not have to repay Goldman’s loans; Goldman would accept the risk. The city would in turn save money, allowing it to repay the bond. Before the bank knew whether the initiative would be successful, it was already moving on to new social investments. The firm was looking into an SIB to fund an expansion for a high-quality early childhood preschool program in the Granite School District of Central Salt Lake, Utah. The expansion would empower more children with early preparation, decreasing the need for special education and remedial services and saving the district money. Students are tasked with evaluating new social investment instruments, ways to mitigate risk, and the role of banks in social impact.

Teaching Objectives

After reading and discussing the material, students should:

  • Comprehend the history and basic structure of an SIB.
  • Identify with and differentiate among the choices a bank is faced with when exploring social investments.
  • Apply background information to assess if Goldman Sachs should invest in an SIB.
  • Construct a recommended expectation on returns for social and financial impact in a 2x2 matrix.