ubs optimus foundation: from giving to investing · 2020. 3. 3. · photo images courtesy of mark...

UBS Optimus Foundation: From Giving to Investing

Prepared bypfc Social Impact Advisors

November 2018

Acknowledgements

pfc Social Impact Advisors thanks UBS and the UBS Optimus Foundation (UBSOF, Optimus, or theFoundation) for the support of this programof study.We also thankUBSCEO Sergio P. Ermotti, andUBSOF CEO Phyllis Costanza for their commitment to sharing the story of UBSOF. pfc also extends asincereappreciationtotheUBSOFSocialFinanceteamofMayaZiswilerandSietseWoutersandtheirFoundationpeersandpartnerswhoparticipated in the interviewsandshared research (seeAppendixA). Their honesty and candor represented in this case analysis exemplify a learning organization andDeliberateLeadership.Theirrealvoicesandstoriesofinnovation,challenge,andchangearewhatmakethisanexceptionalgloballearningtool.

Finally,aspecialthankstothepfcstaffandconsultantswhocontributedtheirresearch,writing,editing,and design skills—D. Clancy,Meredith Rutland Bauer, Suzanne Lamoreaux, JayWalljasper, AliWebb,and Robert Yawson. Photo images courtesy of Mark Tuschman and UBS Optimus Foundation’sCommunications.

GaylePeterson

SeniorManagingDirector,pfcsocialimpactadvisorsAssociateFellow,SaïdBusinessSchool,UniversityofOxfordDirector,OxfordImpactInvestingandSocialFinanceProgrammes

TableofContentsPreface:AcceptingtheChallengetoSolveHumanity’sToughestProblems................................................1

SocialFinancePrimer...............................................................................................................................3

JustWhatIsSocialFinance,andWhyDoesItMatter?........................................................................3

WhoArethePlayersinSocialFinance?...............................................................................................5

SocialFinanceMovement....................................................................................................................6

MeasuringImpactVersusActivity........................................................................................................6

MakingMoneyMatter.........................................................................................................................6

Introduction:CapitalWithaCause..............................................................................................................7

SustainableDevelopmentGoals..............................................................................................................8

SettingtheContext:HowUBSandUBSOFMeetClientNeeds....................................................................9

SocialFinanceinAction..............................................................................................................................15

Phase1...................................................................................................................................................16

Phase2...................................................................................................................................................19

Phase3...................................................................................................................................................20

UBSOF’sSocialFinanceInstrumentsinAction.......................................................................................20

DoesPayforSuccessWork?EducateGirlsDIBOffersProofofConcept...................................................21

TheWickedProblem..............................................................................................................................22

FromIdeatoPilot...................................................................................................................................22

TheDIB:Partners,CommittedFinancing,andMeasurableResults.......................................................23

ThePartners.......................................................................................................................................24

TheFinancing.....................................................................................................................................25

OperationalizingtheDIB:GoalsandProcessforAchievingResults...................................................27

BringingItTogether................................................................................................................................28

Results,Outcomes,Success...................................................................................................................29

YearOne:GettingUnderway.............................................................................................................30

YearTwo:ProgressandCourseCorrecting........................................................................................31

YearThree:FocusonUnderperformance..........................................................................................31

ComplicatedandTime-consuming…ButUseful.................................................................................32

LessonsLearnedinRajasthan’sSchools.................................................................................................32

Lesson1:ListentoCommunity..........................................................................................................32

Lesson2:BuildEarlyAllianceswithGovernment..............................................................................33

Lesson3:ReachOutEarlytoServiceProviders.................................................................................34

Lesson4:CommunicateCandidlywithDonors..................................................................................34

Lesson5:BuildinaLongLeadTime...................................................................................................35

Lesson6:AdapttoCulturalConditions..............................................................................................36

Lesson7:IncorporateEvaluationandLearningfromStarttoFinish.................................................37

Conclusion..............................................................................................................................................38

ThreeSocialFinanceProjects:DevelopmentImpactBondsandaSocialSuccessNote............................39

UtkrishtMaternalandNewbornHealthDIB..........................................................................................40

TheWickedProblem..........................................................................................................................40

PartnersandParticipants...................................................................................................................40

ProgramStructureandStrategy.........................................................................................................42

GoalsandProcessforAchievingResults............................................................................................43

LessonsLearnedfromEarlyDaysofUtkrishtMaternalandNewbornHealthDIB............................44

Conclusion..........................................................................................................................................45

ImpactLoan(SocialSuccessNote)toImpactWater..............................................................................45

WickedProblem.................................................................................................................................45



Results,Outcomes,Success...............................................................................................................47

Conclusion..........................................................................................................................................48

TheQualityEducationIndiaDIB.............................................................................................................48

WickedProblem.................................................................................................................................48


ProgramStructureandStrategy.........................................................................................................50


EarlyLessonLearned:OpenCommunicationsareEssential..............................................................52

Conclusion..........................................................................................................................................53

DeliberateLeadershipinAction.................................................................................................................54

LessonsinDeliberateLeadership...........................................................................................................57

CaseAnalysis1:RebuildingCultureInsideaMajorFinancialInstitution...................................................58

NewCEO,NewChallenges.....................................................................................................................60

HowtoOvercometheMessyMiddle.................................................................................................61

InstillingBoldActionbyEmpoweringEmployees..............................................................................62

HoldingYourselftoHigherStandards................................................................................................62

WhyNecessaryEvilIsSometimestheBestThing..............................................................................62

HowDiversityandDissentHelpUBSOutpaceOtherBanks...............................................................64

DeliberateLeadershipatUBSOF........................................................................................................64

QuestionsforConsideration..................................................................................................................65

CaseAnalysis2:BalancingRiskandRewardforResults............................................................................66

AHiddenSystemFailureThatThwartsInnovation................................................................................67

SeizingUnforeseenOpportunities.........................................................................................................68

“WhyNotTakeaBitMoreRisk?”...........................................................................................................69

StrongLeadershipMeansHonestTalkAboutFailure........................................................................69

UBSOFEmbracesthePowerof“WhatIf?”........................................................................................70

TheEssentialArtofKnowingWhatCanGoWrong............................................................................70

HowSmartRisksFosterBreakthroughSolutions...............................................................................71

CatalyzingAlliances................................................................................................................................71


CaseAnalysis3:TreatingtheCommunityasaValuedClient.....................................................................74

ThePowerofFeedback..........................................................................................................................74

FeedbackDataCanBringBigReturns................................................................................................76

ShutUpandListen.................................................................................................................................77

There’sNoSuccessWithoutUnderstandingthePeopleYouServe...................................................78

SixKeyLessonsAboutHowUBSOFInvolvesCommunity......................................................................78

Lesson1:ChoosetheRightPartnerCommittedtoCommunityFeedback........................................78

Lesson2:BuildtheCapacitytoWorkwithCommunity—EveninChaoticTimes..............................79

Lesson3:BePatientandRealisticWhenAddressingWickedProblemsandSystemicChange.........80

Lesson4:GoDeeperandIncludeCustomerSatisfactionFeedbackfromtheCommunity................80

Lesson5:MakeaSpaceforServiceProvidersattheTable...............................................................80

Lesson6:FeedbackIsPowerful..........................................................................................................81


CaseAnalysis4:Multi-playerAlignmentforImpact..................................................................................82

HowAlignmentWorksInsideUBS..........................................................................................................84

InvolveTopLeadership......................................................................................................................84

CoordinateAcrossUBS.......................................................................................................................84

BuildAlliancesandAlliesAcrossProductsandDivisions...................................................................84

BlendBankingandDevelopmentontheBoard.................................................................................85

CommunicateOpenlytoBridgeDifferentPerspectives.....................................................................85

Hire“CanDo”andAdaptiveStaff.......................................................................................................86

FosterTeamwork,NotCompetition,WithinYourNetworks.............................................................86

PickupthePhone...............................................................................................................................87

CostanzaasaConstant.......................................................................................................................87

HowUBSOFNavigatestheComplexityofExternalAlignment...............................................................87

FindCommonPurposeThroughEfficiency,Capacity,andManagement..........................................87

BuildCapacityWhenNeeded.............................................................................................................88

KnowWhenItWon’tWork................................................................................................................88

RecognizetheYin-YangofPartnership..............................................................................................88

RecognizethePartnersThatDon’tAlwaysLookLikePartners..........................................................89

“AreWeDoingWhatWeSayWeAreDoing?”..................................................................................89

TheInevitableFrictionbetweenSocialImpactandFinancialReturn....................................................89

TheBeautifulChallengeofReconcilingBigFinancewithSocialFinance...........................................90

WorldsofRichandPoor.....................................................................................................................90


CaseAnalysis5:HowDoesUBSOFLearnandRecalibrate?.......................................................................92

LearningDeeplyThroughDoubleLoopLearning...................................................................................93

TheIllusionofFeedback.........................................................................................................................94

ABiasTowardActionMayCurtailLearning.......................................................................................94

AvoidingtheDoomLoop....................................................................................................................95

UBSOFFrameworkforMonitoringandEvaluation................................................................................95


CaseAnalysis6:WhatDoesItTaketoScale?............................................................................................97

“Test,Seed,andScale”...........................................................................................................................98

WhenSocialEntrepreneursandGovernmentWorkasaTeam.............................................................98

UBS’sStrategyforGoingtoScale.......................................................................................................99

ScaleisNotJust“RollOutandReplicate”........................................................................................100

FiveStepsforFearlessInvesting..........................................................................................................101

ScalingChallenges................................................................................................................................101

AnEssentialFoundationforBuildingScale......................................................................................102

NewTechnology...................................................................................................................................102

Scale:ChallengeandOpportunity........................................................................................................102

QuestionsforConsideration................................................................................................................103

Conclusion:The7CharacteristicsofDeliberateLeaders.........................................................................104

BoomTimes..........................................................................................................................................105

UsingtheRightToolfortheRightProblem..........................................................................................105

PatienceisRequired.............................................................................................................................106

NoPatAnswers....................................................................................................................................106

QuestionsfortheField.........................................................................................................................106

AppendixA.ListofInterviewees..............................................................................................................108

AppendixB.UBSOptimusFoundation’sFundingPortfolio......................................................................110

Notes........................................................................................................................................................116

1

Preface:AcceptingtheChallengetoSolveHumanity’sToughestProblems

Thiscaseispartofateachingseriestobeusedinacademicsettingsgloballyandbypractitionersacrosssectors. Itwillbe taughtat theOxfordSocial FinanceProgrammeand featured inbookspublishedbyStanfordUniversityPressandPalgraveMacmillan.Thisseriesexaminesthestrategiesgloballeadersusetotackletheworld’smostcomplexproblems.AccordingtotheWorldEconomicForum’sannualGlobalRisks Insights Report, poverty and the systemic and devastating consequences of income disparity,humanmigration,climatechange, inequality ineducation,andfoodandwaterscarcityareamongthethreatsthatkeepworldleadersacrosssectorsawakeatnight.1Childrenareaffectedthemostbythesedaunting,complexchallenges.Threehundredeighty-fivemillionchildrenliveinextremepoverty,andin2016,5.6millionchildrendiedbeforetheirfifthbirthday.2,3

World leadersare looking to theUnitedNationsDevelopmentProgramme’sSustainableDevelopmentGoals (SDGs) for solutions.Withanestimated fundingshortfallofUS$2.5 trillion, theprivate sector is

Preface

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Preface

being calledupon tohelp fill thegap throughnewcross-sectorpartnerships.UBS,oneof theworld’slargestwealthmanagementbusinesses,hasmadeacommitment tousecreativecapital tomeetSDGobjectives.ThiscasestudyexamineshowUBSOptimusFoundation(alsoknownasUBSOF,Optimus,ortheFoundation) is investing innewsocial financetoolssuchasDevelopment ImpactBonds(DIBs)andimpactloanssuchasSocialSuccessNotes(SSNs)toprototypesolutionstoscaletoimprovethelivesofchildrenglobally.Thecenterpieceofthesocialfinanceportfolioisapay-for-successmodelthatsupportsoutcomesandresultsoverpaymentforactivities.

TheUBSOFapproachesareexaminedusingaWickedProblem framework thatoffers leadersways totackletheseseeminglyintractablechallenges.SinceWickedProblemswerefirstdescribedinthe1970sbysocialscientistsHorstW.J.RittelandMelvinWebber,muchhasbeenlearnedaboutwhatittakestosuccessfully address the world’s most difficult problems.4 We have gathered these lessons togetherundertherubricofDeliberateLeadership,anamalgamofleadershipstrategiesusedinthebusinessandsocialsectorstoempowerleaderstodealwithcomplexitymosteffectively.

BecauseeachWickedProblem isunique, leadersmustchoosetheirapproachescarefully.Should theycommandandcontroldecisionswhenfacedwithacrisis?Shouldtheymanagetheproblembycallingonpreviouslysuccessfulexperiences?Whenfacingacomplexchallenge,shouldtheybecollaborativeandadaptive leaders, adjusting their strategy based on clear-eyed understanding of what is and isn’tworking? How do leaders hold onto their vision while putting their preconceived notions aside,recognizing the strengths and limits of their expertise and seeking solutions where one might leastexpecttofindthem,includingwithincommunitiesaffectedbytheproblemandacrossdisciplines?

DeliberateLeaders,asexploredinthisseries,areleaderswhoactwithintentionandwhorecognizethattheymustacceptnotonlytheriskofthechallengeahead,butalsotheconsequencesoftheiractions.IfWicked Problems were easy, they would have been solved. When dealing with the world’s mostcomplexchallenges,itisagiventhatthingswillgowrong.What’simportantistolearn,adapt,andmoveforward. This series of cases pulls together examples of Deliberate Leaders worldwide to help theirpeerssolvethebiggestchallengesofourtime.Thegoalofthecasestudiesisnottoprescribeanswers,buttostimulatediscussionandtoaskthequestion—whatwouldyoudointhesecircumstances?

Othercasesintheseriesinclude:

• ThomsonReutersFoundation’s TrustLawproject, an internationalnetworkofprobonoassistancefromtheworld’s largest law firmsproviding legal researchandadvice toorganizationsworking tosupportandimprovethelifechancesoftheworld’spoor.

• TheKresgeFoundationimpactinvestingstrategiestoreinvestinDetroit.

• W.K. Kellogg Foundation’s journey developing a mission-driven investment strategy andimplementingitinalignmentwiththeirHealthyKidsprogramarea.

• WilliamandFloraHewlettFoundation’sandTheDavidandLucilePackardFoundation’sbillion-dollar investment in ClimateWorks Foundation, a global intermediarywith amission tomitigateclimate change.

• HumanityUnited’screationoftheWorkingCapitalFundtoseednewtechnologyaimedattrackingandendingslaveryinthesupplychain.

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Preface

• VodafoneIndia’semployeeengagementprogramtoimprovethelivesofpoorwomenandchildrenthroughoutIndia.

• VladimirPotaninFoundation’s investments to launchphilanthropy inRussiaandpromotecreativethinkingthroughartsandhighereducation.

This researchwas supportedby theUBSOptimus Foundation. Themethodology includeda reviewofbackground materials provided by the Foundation and acquired through desk research and 33confidentialinterviewsconductedwithFoundationstaff,leadership,andcurrentpartners.Althoughtheinterviews were confidential, interviewees agreed to have their statements attributed. Independentacademicreviewerscritiquedthecaseforadherencetoacademicprotocolsandtoensureitsusefulnessasaglobalteachingtool.

SocialFinancePrimer

JustWhatIsSocialFinance,andWhyDoesItMatter?

Theindustry-widedefinitionofsocialfinanceisstillevolvingasacademicliteratureandtestcaseshelptoshapethepracticalunderstandingofthefield.UBSnotedthis in its2018whitepapertotheWorldEconomic Forum, “Partnerships for the Goals,” confirming that “Investors disagree on how to define‘impactinvesting.’Inaddition,therearenouniversaldefinitionsforsomecommonfinancialinstrumentsusedtopursuetheSDGs.”5

Thiscasedrawsprimarilyontwodefinitionsofsocialfinance.FirstistheoneusedattheOxfordSocialFinanceProgramme,providedbyOxfordscholarandSocialFinanceauthorAlexNicholls:"Theallocationofcapitalprimarilyforsocialandenvironmentalreturns,aswellasinsomecases,afinancialreturn."6

Social financerepresentsnewinvestmentmodelsaimedatsolvingsocialandenvironmentalproblemsand delivering a social and environmental return on investment, as well as below- or market-ratefinancial returns. As illustrated in Figure 1, these investment tools encompass hybrid fundingmodelsandstructureddeals thatblendvarious typesofcapital, fromphilanthropy toprivatecapital.Fundingcan come from philanthropic donations, government grants, ‘soft’ return debt and equity, mutualfinance,or‘financefirst’and‘totalportfolio’impactinvestingstrategies.7

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Preface

Figure1:MappingSocialFinance

Source:2017GlobalImpactInvestorsNetwork

Socialfinanceinvitesallinvestorstoconsidersocialimprovementasanimportantvalue-addtosocietyandtotheirorganizations.8

Theotherdefinitionof social finance isoneusedby theUBSOptimusFoundation to leverageprivatecapital: “Financial mechanisms that have potential to mobilize significant private funding fordevelopmentprograms,whileincreasingtheeffectivenessofsuchprogramsinsolvingtheworld’smostpressing social challenges. Private capital is designed to complement and supplement, rather thanreplace,existingfundingfromgovernmentsandNGOs.”ToUBSOF,socialfinancealsomeansan“explicitintentiontogeneratemeasurablesocialimpact,alongsidea(typicallybelow-market)financialreturn.”9(TheFoundationfocusesonsocialimpactandtheenvironmentisnotpartoftheOptimuscharter.)

This definition appears in a Foundationwhitepaper, “TheCase for Social Finance,”which goeson toemphasize,“There isanurgentneedtoexploreways tounlock theresources requiredtoachieve theworld’s ambitious development agenda. Current funding through official development aid and globalphilanthropicfundsisnotgenerating,andwillnotgenerate,thetrillionsofdollarsneededtoachievetheSDGs.Onewaytobridgethisgapistoengageprivatecapitaltoafargreaterdegree.”10

Thesetwodefinitionsofsocialfinancearecomplementedbyothersfromthebroaderfield,suchastheSocial Affairs and Inclusion Directorate of the European Commission, which offers additional socialfinance characteristics:methods that are autonomous of the state, nominally repayable, transparentaboutsocialimpactoutcomes,andinclusive.11

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Preface

WhoArethePlayersinSocialFinance?Thevariousactorsinvolvedinsocialfinanceecosystemfallintothreemainroles—demand,supply,andintermediary—asdescribedinFigure2.

Figure2.OverviewofSocialFinanceMarketplace

Source:2017AdaptedandRe-drawnfromGadafRexhepi

On the supply side, banks, governments, venture capitalists, community development agencies, andother fundersprovideup-front capital. Fromthere, intermediariesallocate the funding to theon-the-ground service providers. These intermediaries sometimes alsomanage risk for supply-side investors.Demand-sideplayersareoftennonprofits,charities,andsocialpurposebusinessesthatallocateservicesand goods to at-risk individuals in target countries and regions. These groups are responsible formeasuringandreportingresultstoshowprogressonspecificsocialissues.12

Nonprofitand

Cooperatives

CommunityDevelopmentAgencies

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Preface

SocialFinanceMovement

Social finance isbecomingmore thanamethodof investment—it’s amovement fueledby client andCEO interestsand theUNSDGs thatareunitingactionacross sectors foracommonpurpose.13,14UBSandUBSOFarebringingtogetherdiversecollaboratorsatacritical time in theworld,whensocialandenvironmentalneedsaregreat,andtheopportunitytomeetthoseneedswithnewfinancialresourcesispossible.Aconvergenceofseveralfactorsisopeningthedoorfornewfunding.TheseincludethelargesttransferofintergenerationalwealthestimatedatUS$40trillion;theemergenceofwealthywomenandmillennial investors seeking multiple returns on investment; and private sector commitment toimplementtheSDGs.15Culturalattitudesarealsochangingaboutthedefinitionof“impactandsuccess,”withagreaterfocusonprogramsthatarebusiness-orientedandevidence-based.16

MeasuringImpactVersusActivity

Justasthedefinitionofsocialfinancecontinuestoberefined,sodothewaystomeasureresultsbasedon impacts.Unlikethemanytoolsusedtomeasurethefinancialsuccessof investments,theabilitytomeasureaninvestment’ssocialimpactshasnotkeptpace.17Muchofthemeasurementstodatefocusonwhattheevaluationfieldcallsoutputs,whichsimplymeasureorreportontheamountofactivitiesorevents that occurred due to the investment. Examples of an outcome or impact-based investmentinclude:thenumberofmaternalorchilddeathsreducedorprevented;thenumberofchildrenreceivingcleanwaterandwhoarenolongerexperiencingillness;andthenumberofgirlswhoattendschoolsandwho improve their academic performance in reading and math. Examples of activities or outputsinclude:thenumberofpeoplewhoattendedameeting;thefrequencyofmediacoverage;orthegallonsofcleanwateravailable.

TheGlobal Impact InvestorsNetwork (GIIN)and thebroader social finance community recognize thatoutputsby themselvesdonotmeasurethe impactsof thoseefforts—theresultsor the“sowhat?”ofthoseoutputson the socialwell-beingof thebeneficiaries the social finance investment is to serve.18Withitsrigorousandrobustmethodologiesformeasuringsocialoutcomesandimpacts,theevaluationfield has partnered with the social finance field to help it incorporate impacts into performancemetrics.19 Outputs are necessary but insufficient measures of “impact” because the broader social-political,environmental,andeconomiccomplexitiesinfluenceoutcomes.Beneficiariesalsoneedavoicein determining what outcomes are important to them. To those ends, evaluators can developmethodologies that capture and reflect these realities, account for the complexities, and seekmeaningful,measurableoutcomesandimpacts.20,21

MakingMoneyMatter

Theriseofsocial financerepresentsan importantmoment,whenopportunitymeetsdemand.Wealthmanagement organizations have an opportunity to create a social value-added approach that canimprove the world. Defining and measuring the social impacts of social finance investing remains adynamicfieldwithinterestfromallsectors.GettingitrightwillhelpUBS,otherfinancialinstitutions,andcommitted social investors ensure the veracity of social finance claims. It will also help ensure thatinvestmentsprofferedassocial financewillenhancethewellbeingofthe individualsandcommunitiestheinvestmentsareintendedtobenefit.

7

Introduction:CapitalWithaCause

Social finance is capital with a cause.With growing global demand, UBS, one of the world’s largestwealthmanagers,ispayingcloseattention.SergioP.Ermotti,GroupChiefExecutiveOfficer(CEO)ofUBSGroupAG,explainsthat it isbecomingamandatefromclientstouseprivatewealthandbusiness-likestrategiestobenefithumanity.

ErmottihasservedasCEOofUBSsinceNovember2011.HebeganhiscareerwithMerrillLynchin1987andhasheld variouspositions involving equityderivatives and capitalmarkets ever since.BloomberghascalledErmottia“traderatheart”andheiscreditedwithhelpingoverhaultheinvestmentbankhenow heads in part by incorporating into wealth management and asset management a focus onsustainabilityandsocialimpact.22

It is significant for UBS and the financial sector when Ermotti says, “It was quite clear to us thatinstitutional and private clients weremore andmore demanding impact, and theyweremuchmorefocusedonhowtheyinvesttheirmoney.Inthelastfewyears,thishasbecomeatrueclientdemand.”23

Introduction

8

Introduction

Atthesametime,Ermottiacknowledgesthatclientsarenotyet“willingtocompromisereturns.”Thistensionbetweenfinancialandsocialreturnsisoneofthemanytensions inherent inthefieldofsocialfinanceexploredthroughoutthecasestudy.

SustainableDevelopmentGoals

InJanuary2016,theUnitedNations(UN)created17SustainableDevelopmentGoals(SDGs)toaddressglobal socioeconomic imbalances that threaten the lives of millions living in developing economies.AddressingthesegoalshasbecomeanelementofUBS’sbroaderagendaofusingfinancialresourcestoachieve social good. As a response to the growing client demands for social impact, this approachadvancesUBS’scommitmenttosustainableinvestmentandphilanthropy.

ManyUBS clientswant their capital to address specific SDGs and have funneled funds toward thosegoals. A 2017 customer survey showed UBS clients particularly wanted to focus on education, cleanwater, and climate action.24 The UBS Optimus Foundation’s focus on children cuts acrossmany SDGindicators and is also designed to meet client needs. Recruited by UBS to head the UBS OptimusFoundationin2011,CEOPhyllisCostanzabelievesthatcombiningclientinterestswithSDGandcapitalneedswillmake a powerful difference. “Our research shows thatmore than 90 percent of our largeclientsaregivingphilanthropically,butlessthan20percentofthemaresatisfiedwiththeimpactthey'remaking.Sothere'sahugeneedthereforustohelpourclientsimprovetheirimpact,”saysCostanza.25

This case study offers four examples of social finance performance-based partnerships that illustratehow strategic investment can meet clients’ desires to contribute philanthropically, while requiring ameasurable impact and return on their investment. As indicated in its strategic plan,UBSOFplaces ahighvalueonlinkingevidenceandpracticeandonintegratedsolutions.26ThecasedocumentsUBSOF’scollaboration with, and lessons learned from, a wide range of stakeholders, including government,schools, health clinics, civil society organizations, service providers, social businesses, and funders, astheyseektoimplementtheSDGsandimprovethelivesofchildren.

9

SettingtheContext:HowUBSandUBSOFMeetClientNeeds

UBSGroupAG (UBS) isoneof theworld’s largest financial institutionswitha strong record inwealthmanagement and philanthropy. Since its origins in the mid-19th century, UBS has become a globalfinancial services firm, encompassing the world’s largest wealth manager, the largest bank inSwitzerland,aspecializedandsuccessfulinvestmentbank,andamajorassetmanagementhouse.27

UBSisapubliccompanyincorporatedunderthelawsofSwitzerlandwithregisteredandprincipalofficesin Zürich.28 A major player in the Swiss Stock Exchange (SIX) and also listed on the New York StockExchange (NYSE),29UBS is committed to creating positive impact for its clients, employees, investors,andsociety.30AsofDecember2017,UBS’ssustainableinvestmentsaccountedformorethanathirdofitstotalinvestedassets—amountingto1.1trillionSwissFrancs(CHF),aboutUS$1.13trillion.31TheDowJonesSustainabilityIndicesconfirmedUBSastheindustryleaderforthefourthyearrunningin2018.32

SettingtheContext

SuzyLamoreaux

Highlight

10

SettingtheContext

“UBS in society” is the theme that ties together the various initiatives UBS employs as a corporatecitizen; these initiatives include Philanthropy Advisory, sustainable and impact investing, CommunityAffairs, and the UBS Optimus Foundation. UBS is committed to the United Nations’ 17 SustainableDevelopment Goals (SDGs), and the bank’s suite of tools allows its clients to drive financial capitaltowardsinvestmentsthatsupporttheSDGs.33

The company is using several approaches to help meet client needs and employee interest ininvestmentswithpurposeandthatmeetSDGgoals.

Oneapproachwastheannouncementatthe2018WorldEconomicForumoftheAlign17initiativeandUBS’s release of “Partnerships of the Goals: Achieving the United Nations’ Sustainable DevelopmentGoals.”34Align17,acampaigncreatedbytheWorldEconomicForum’sYoungGlobalLeaders,35supportsSDG17,whosegoalisto“strengthenthemeansofimplementationandrevitalizetheglobalpartnershipfor sustainable development.”36 The UN Conference on Trade and Development (UNCTAD) estimatesthatUS$3.9 trillion is neededannually tomeet all 17 goals by2030; currently, there is aboutUS$1.4trillion spent on the SDGs.37 Cross-sector partnerships are therefore imperative to leverage privatesectorcapitalthatcanhelpmakeuptheprojectedUS$2.5trillionannualfundinggap.38

The funding shortfall has an outsized impact in developing countries, which need capital for basicinfrastructure, food security, climate change mitigation, health, and education.39 UNCTAD believesfunding in those countries needs double the amount of private funds currently being invested. Toachieve this, UNCTAD’s “Strategic Framework for Private Investment in the SDGs” suggests severaloptionsthatfitwellwithUBS’swork,including:40

• Incentives promoting investment in SDG sectors that are “conditional upon their sustainabledevelopmentcontribution.”

• NewformsofpartnershipforattainingtheSDGsbetween investmentagencies,governments,andserviceproviders.

• Enablinginnovativefinancingmechanismstoachievescale.

• Shiftingtheprivatesector’sbusinessexpertisetoSDGinvestmentexpertisebyteachingsustainabledevelopmentandsocialfinanceinbusinessschools.

Figure3showsUBS’sapproachtomakingapositivedifferenceinfinance, inbusiness, inphilanthropy,andincommunities.

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SettingtheContext

Figure3.UBSinSocietyFramework

Source:2018UBS

Intheaftermathofthe2008globalfinancialcrisis,TheEconomistnicknamedUBS“UsedtoBeSmart,”because of the Swiss government bailout and the litigation around tax evasion resulting in clientdissatisfactionandalossofUS$17billion.41

Inthefollowingyears,UBSrefocuseditselfaroundwealthmanagementandrepositioneditselfasafirmfocused on sustainable investments and its ability to help clients use their wealth for somethingmeaningfultosociety.Thebankpositionsitselfasaresourceforclientstoaddresscurrentissues,suchas gender equality, economic justice, and peacebuilding. For International Women’s Day 2017, UBScreatedthehashtag#BeBoldForChange,notonlytocelebratewomen,butalsotobuildabusinesscaseforgenderequality:“WomencouldaddUS$12trilliontotheglobaleconomyinthenextdecade,”theUBSwebsite noted, and it also observed that 47 percent ofwomen “express their social, political orenvironmentalvaluesthroughtheir investmentdecisions.”42From2017-2022,UBShasalsopledgedtoinvestUS$5billion insustainabledevelopment-related investmentoptions.This includesapartnershipwithsustainableinvestmentfundRethinkImpact,thelargestfundof itskind.Ajoint-venturebetweenUBSandRethinkImpactresultedinmorethanUS$100millionbeingraisedtoaddressSDGs.43

12

SettingtheContext

CEO Ermotti says the positioning around sustainability is well aligned with UBS’s values, and that“reflectingthestrategictransformationUBShasundergoneoverthepastfouryearsgivesusadditionalmomentum.”44AsUBSbrandsitselfasavalues-basedfinancialfirm, it isalsopositioningitselftohavemore opportunities to partner with Ultra High Net Worth individuals, nonprofits, and other privateinstitutionsonsocialfinanceinitiatives.

AnotherexampleofhowUBS isadvancingtheSDGsand itssustainable investingpractice is theAssetManagementdivisionpartneringwithaUKpensionfundthatwantedtousepartofitsequityportfolioforclimateaction.Thatpartnershiphelpedthe fundmanagers’work toward theBritishgovernment’sParisClimateAgreementgoals.45

UBS, through its Philanthropy Advisory teams, holds events for its Ultra High NetWorth clients. AnexamplewasTheCollaborative,which isan initiativethatencouragescollaborationbybringingclientstogethertofocusonbringingscaletophilanthropy.46

Figure4belowdescribestheproductsandserviceswithintheclientoffering.UBScoversactivitiesandcapabilitiesrelatedtosustainableinvestingandphilanthropywithclients,aswellasenvironmentalandhuman rights policies that govern client and supplier relationships. Environmental footprint andcommunityinvestmentsareotherkeyareasoffocus.47

Evenwith the focusonsustainability,UBShascomeunder fire for contradictionsbetweenbrandandaction. UBS has not entirely cut off financing environmentally or socially questionable firms, such asthose involved in palm oil production and deforesting vulnerable wildlife areas. From a socialperspective,UBS’swealthyclientsalsorepresentthegrowingeconomicdisparitybetweenrichandpoorthathasbeen identifiedby theWorld Economic Forumasoneof themostdivisive issues influencinggeopoliticalstabilityandcausingharmtotheplanet.48

Figure4.UBSPhilanthropyandSustainableInvestingEcosystembyProduct

Source:2018UBSOF

Making donations to nonprofits to enable them to achieve their

vision. Hands off, no/low strategy, low

resource intensity

Strategic donations into a variety of solutions to help

achieve their philanthropic vision.

Hands on, robust strategy, high

resource intensity

Investing with the intention to generate

E&S impact alongside a financial

return

Investing with the explicit intention to

generate a measureable E&S

impact, alongside a financial return

Excluding companies or

industries from portfolios where

they are not aligned with an investor’s values

Integrating ESG factors into traditional

investment processes to improve portfolio

risk/return

Desired primary outcome

Financial return

E&S outcomes

UBS Optimus Foundation

UBS Philanthropy Advisory

UBS Impact Investing UBS Sustainable Investing

SUSTAINABLE INVESTING PHILANTHROPY

Charitable giving Strategic Philanthropy Impact Investing

Perceived positive E&S impact

Demonstrable positive E&S impact

E&S impact plus competitive risk adjusted returns

Social finance

Priority E&S impact plus some financial

return

Hig

h Lo

w

Hig

h Lo

w H

igh

Low

Hig

h Lo

w

Hig

h Lo

w

Hig

h Lo

w

Exclusion

Market returns, non-

underperformance

Hig

h Lo

w

Hig

h Lo

w H

igh

Low

Hig

h Lo

w

UBS Philanthropy Advisory (top line education only)

Integration

Competitive risk adjusted financial

returns, outperformance

Hig

h Lo

w

Hig

h Lo

w

13

SettingtheContext

The UBS Optimus Foundation (UBSOF, Optimus, or Foundation) was established in 1999 as anindependent charitable grantmaking organization. Itsmission is to “ensure children are safe, healthy,educated,andreadyfortheirfuture.”49In2017,theFoundationreachedmorethan2.1millionchildrenby supporting more than 175 programs worldwide.50 It also raised and disbursed US$62 million forprogramsfocusedonhealth,childprotection,education,earlychildhooddevelopment,andemergencyresponse.51 An estimated 14 percent or US$8.7 million was allocated for Social Finance in 2017, asshowninFigure5.OperatingcostsfortheFoundationarecoveredbyUBS.

Figure5.UBSOptimusFoundation2017ProgramsFundedbyArea

Source:2018UBSOF

Currently, the social finance portfolio is a small part of the Optimus total budget. Staff expects theprogramtogrowandtheFoundationisauthorizedtoallowthesocial financeportfoliotobeupto50percentof the grantmakingbudget.However, anyexpansionwill dependon the successofprograms(returns)and thecontinuedUBSclient interest in supporting social finance initiatives. This case studywill examinewaysUBSOF tries touse its resources to cast a larger shadow, leverage its funding, andachievemeasurableimpact.

The Foundation is taking intentional steps to build its own capacity and skill set by blending staffexpertiseinbusiness,internationaldevelopment,andsocialchangewithintheFoundationandthebank.Itisalsoputtingtheseskillstouseinproductsthatareresults-basedandbusiness-orientedsuchapay-for-successmodels.Finally,UBSOFhasusedpartnershipsandtheUBSbrandtolaunchseveral“firsts.”ThefirstDevelopment ImpactBond(DIB)toeducategirls inrural India,whichhasbeenfollowedbyalarger IndianQuality EducationDIB todemonstrate scale; the firstDIB to improvehealth for childrenand new mothers by certifying health clinics in Rajasthan, India; and the first impact loan or SocialSuccessNote(SSN)tobringcleanwatertoschoolchildreninUganda.ThesepilotsbuildonthepremisethatprojectcollaboratorsunderstandthatachievingtheSDGs is too large foranyoneorganizationtoaddressalone.

Education10%

Health27%

Health - LMH13%

ECD+12%

Child Protection

22%

Emergency Response

2%

Social Finance14%

Education

Health

Health - LMH

ECD+

Child Protection

Emergency Response

Social Finance

14

SettingtheContext

"Attheverybeginning,”saysErmotti,“theFoundationwasbroughtupandcreatedundertheumbrellaof wealth management, so the idea was: ‘Let's do some things that are right for society’...and that(idea)wasdrivenbysomethingwefeltwealthyclientswantedtodoindifferentpartsoftheworld—tohelpthemtofulfilltheirdesiretocontributetosocietyinastructuredway,notjustbydoingcharity,butbydoingitinawaythatwoulddeliversocialandfinancialreturns.

"Returnsaredrivenbyresults:girlsimprovingtheirscoresatschool,medicalstandardsbeingimprovedincertaincountriesoftheworldforchildren,andsoon,"Ermottistresses.52

TheOptimusFoundation,headquarteredinSwitzerland,hasstaffinHongKong,theUK,Germany,andtheUnitedStates toextendthedonationor investmentpossibilities for itsclients.53This includes twoadditional legal entities, UBS Optimus Foundation Deutschland and UBS Optimus Foundation UK; adonation platform through a donor advised fund in the United States; and a branch of the SwissfoundationinHongKong.54Together,theyformtheUBSOptimusNetwork("theNetwork"inthiscasestudy). The Network receives funds from UBS clients, UBS employees, and UBS. The Foundationguaranteesthat100percentofalldonationsgotoprojectsintheareasofeducation,health,andchildprotection,becauseUBScoversalloperatingcosts.UBSOFhopestogrowitsdisbursementstoUS$100millioninthenextfewyears.

Thereare legaldistinctions ingrantmakingamong theoffices. Forexample, theUKandUnitedStatesoffices are authorized legally to support program related investments—grants that typically yield abelowmarket rate returnwithout jeopardizing charitable status. This would include a Social SuccessNote described later in the case study.Offices in Switzerland,Germany, andHong Kong do not havesuch legaltaxprovisionsandmustuse impact loanssuchasSocialSuccessNotesusingwhatever localmechanism available to do so. These products and distinctions will be discussed further in the casestudy.

Staff bring experiences in the private sector, international development, philanthropy, and banking.BlendingdifferentsectorialandglobalperspectivesgetssupportfromFoundationboardmembersandentities like theWorld Bank. FayD. Twersky,UBSOFBoardmember, external expert, andDirector ofEffectivePhilanthropyat theWilliamandFloraHewlettFoundationsays, “WhatOptimushasdonesooutpaceswhat the other banks have done…They've created a very thoughtful strategic philanthropicmodel in thecontextofabank,using the ideaof tapping intotheirbiggestasset,which is thewealthundermanagement at UBS. They have other advisors, but providing a philanthropic vehicle throughwhich their clients can have real impact is pretty unusual, I would say. They're very disciplined andserious.”55

WhatIsUBStoDo?

UBSOF’s Social Finance team uses social capital to address many of the SDGs impacting children byincorporatingabusinessapproachintoitsgrantmakingportfolioandbuildingmulti-sectorpartnershipsaimed at performance-based outcomes. Achieving global SDG goals is a significant undertaking,accordingtoUBS.56ArecentwhitepaperpreparedbyUBSfortheWorldEconomicForumoutlinedwaysthat wealth managers can support the SDGs, including the finding that “philanthropic clients areincreasinglymovingawayfromsolelygivingmoneytowardcollaborationandadoptingmoreimpactfulphilanthropy models.”57 This case will show that what the bank and the Foundation learned isencouragingthisnewtrendingiving.

15

SocialFinanceinAction

Since2014,UBSOFhasbeenbuildingitsowncapacitybydesigningandlaunchingprototypesinresults-basedfinance.58MayaZiswiler,headoftheSocialFinanceteam,describestheseearlyeffortsaslayingthe groundwork forUBSOF to blend business and social change strategies tomake the developmentfieldmoreefficientandeffective.Aspartofitsown“learnbydoing”experience,UBSOFhassupportedfourevidenced-basedprototypeswithseveralobjectives:showhowsocialfinancecanleverageprivatesector resources; build new cross-sectorial partnerships; demonstrate proof of concept to scale; andhelp achieve the SDGs. From the beginning of their work, the Social Finance team has been veryintentional about sharing their experiences to inform the evolving field. The pilot programs were todeliveronmeasurableresultswithinanapproximatelythree-yearperiod.


16


In 2018, based on these early learning experiences, UBSOF refined its strategy, focusing on a three-phasedapproachasdescribedinFigure6,including:

• Driveoutcomesatscale:Through ImpactBondsandothervehicles,engagegovernmentandhelpNGOsshifttheirperspectivesaroundoutcome-basedresults.

• Scalesocialbusiness:Useincentivestoimprovesocialoutcomes,includingloansforimpact.

• Build the Social Finance ecosystem: Strengthen the social finance ecosystem through evidence-basedresultsandintermediariestobuildcapacitythroughresearchandconvening.

Figure6.ElementsofSocialFinanceatOptimusFoundation

Source:2018UBSOF

Phase1

Drive to scale. UBSOF has focused its pay-for-performance pilots primarily on Development ImpactBonds (DIBs). These are results-based contracts in which working capital is provided upfront byinvestors,who get paid back by outcome funders such as government and other funders, but only ifresults are achieved.59 DIBs uniquely hybridize philanthropy and investing, and some donors see thismodel as a mix that works well to blend social change goals with their investment objectives. Keypartners in a DIB include the service provider or implementing partner (the agency responsible fordelivering the results), and the third-party verifier of results and the beneficiary. Figure 7 illustratesUBSOF’sDIBmodel.60

17


Figure7.TheUBSOFDIBModel

Source:UBSOF2017

With DIBs, financial risk is born mainly by the investor. As UBSOF notes, “Compared to traditionalfunding,DIBsareextremelyinterestingfordonorsastheytransfertherisktoinvestors,whoputintheworking capital for the implementing organizations on the ground. Only if and when performanceindicators are met, will outcome payers provide their contribution, including a potential bonuspayment.”61 The investorwill not be repaid by the outcome payer unless the implementing partnersachievenegotiated,verifiedoutcomes.Theimplementingpartnersdonothavetoworryaboutrepayinga loan; thus, they have less financial incentive to only select beneficiaries that will help meet theperformance outcomes. That said, outcome payersmay provide incentive or bonus payments to theimplementingpartnersiftheperformanceoutcomesareexceeded.

TheCenter forGlobalDevelopmentandSocialFinanceoutlines thepotentialadvantagesofDIBsoverexisting fundingmechanisms:62 First, DIBs transform social problems into investable opportunities bymonetizing thebenefits of tackling social problems and attracting private sector investorswanting tobringtheirresourcesandskillstodevelopment.

Second, DIBs create incentives for investors to put in place (typically through intermediaries) thenecessaryfeedback loops,datacollection,andperformancemanagementsystemsrequiredtoachievedesiredoutcomes.Thisresults inabottom-up,client-centered,andgenerallymoreeffectiveapproachtoservicedelivery.

Becauseinvestorsprovidefunding—andassumerisk—forinterventionsthatcanleadtoimprovedsocialoutcomes, DIBs have the potential to attract funding for interventions that donor agencies andgovernmentsmightnotbewilling,orable,toprovidedirectly.

18


In the case of UBSOF, it is clear about its risk exposure. Tom Hall, Head of UBS Client PhilanthropyServices,notes,“Fromafinancialriskperspective,ifyou'reviewingtheinvestmentasarecyclablegrant,the risk you’re comparing it with is the minus 100 percent return on a grant, which often has noevidenceofanoutcome.Inanimpactbond,adonorcanprobablyeducateachildandgettheircapitalbackwithasmallreturntore-investinanewprogram,whichisprettycool.”63

DIBsarea subsetofSocial ImpactBonds (SIBs),butdiffer fromSIBs in that theyare typicallyused tofundanon-profitorcharityprograminadevelopingnation.64(Also,despitethename,theyaren’tbondsinthetraditionalmeaningoftheword.)DIBsarejustoneexampleofresults-basedfinancing,wherethefocusis100percentonresults,asverifiedbyanindependentanalyst.

By the end of 2017, 108 SIBs and DIBs had been established globally (Figure 8), aiming to helpwithproblemslikeopioidaddiction,homelessness,andunderfundedschools.Thisincludes32newSIBs/DIBsin2017alone.65

The first SIBwithin a low- ormedium-income countrywas established in 2017,when theWorkforceDevelopment SIB began in Colombia. Most SIBs are in high-income nations. Approximately US$392millionhasbeeninvestedinSIBsin24countries,andtheseprogramsareestimatedtoimpact738,000people.Asof2017,10programsreportedfullcapitalreturn,66andonereportedalossafternotmeetingitsgoals.67

Figure8.MapofLaunchedImpactBondsGlobally

Source:2017SocialFinanceUK

TwoDIBshavebeencompletedasof2018:aprogramthatsupportsIndigenouspeople’slivelihoodsandencouragesrainforestconservationinPeruandUBSOptimusFoundation’sprogramtoeducategirls inIndia,whichisdiscussedindetaillaterinthiscasestudy.68AmandaGlassman,chiefoperatingofficeroftheCenter forGlobalDevelopment, has identified fiveDIBs thathave so far collectively raisedUS$38million.69

19


UBSOF is looking at other opportunities beyond DIBs, including tools that use or blend debt, equity,guarantees, cashorgrants thatyieldamarketor sub-market rate return (seePhase2next). It isalsoconsideringmarketinvestmentwithinafundorotherstructurethatincludesinvestorssuchasUBSthattakemarketratereturns.

One of the key lessons learned from the prototypes is the recognition that going to scale requiresgovernmentpartnershipanda continuationandexpansionof thepilot. Inaddition, itwas recognizedthatinorderforNGOstofullyengageinoutcome-basedmodels,theircapacitymustbebuilt,andanewculturethatblendsprivatesectorskillsmustbewovenintothesocialchangeorganization’sculture.

Phase2

Supportsocialbusinessthroughincentivestowardsperformancebased-results.UBSOFisexperimentingwithusingImpactLoans(Figure9),suchasSocialSuccessNotes,tosupportthesocialbusinessImpactWaterbytyingfinancialreturnstothesocialgoalbeingachieved.

Figure9.UBSOFImpactLoansGenericModel

Source:UBSOF2017

TheSocialSuccessNote(SSN),developedbyRockefellerFoundationandYunusSocialBusiness,usesapay-for-success model.70 Specifically, UBSOF is providing a US$500,000 loan to the social businessImpactWatertofinancewaterfiltrationsystemsinschoolsinUganda.71Thisprogramiscoveredinmoredepthlaterinthecasestudy.

Generic structure

Social Enterprise

Investor (Optimus Foundation)

Customers

Investment Return

Product or service

Payment

Outcomes / Impact

Independent verification

Verification of outcome / impact

Payment for impact

Outcome payer

Possible additional payment for impact

= The outcome payer is an optional part of this structure

20


Lorenzo Bernasconi, Senior Associate Director of Innovative Finance at Rockefeller Foundation,describesthisproductasanenhancementtoProgramRelatedInvestments(PRIs)whichcanbecostlytostructure.SaysBernasconi,“This[impactloan]isanexcitingnewinstrumentinthegrantmakingtoolboxtoattractprivate investmentfor impact.Thepay-for-successmechanismfocusedon impactoutcomesallows for an effective and efficientway of aligning incentives and address the needs of donors andinvestorsalike.”72WithSSNs,thefinancialriskoftheloanisbornebytheinvestor.Thegreatertheresultthe social enterprise demonstrates, the lower the interest rate on its loan becomes. Cheapermoneymotivatesresults.

Phase3

Strengthen the ecosystem.UBSOF intends to build the field of social financebyproviding evidenced-based research and supporting intermediaries to help with training and cross-sector learning. SietseWouters, UBSOF’s Program Manager for Social Finance, describes the importance of building theecosystem in terms of increasing visibility and presence. “We support awide variety of field-buildingactivities—includingsupportingintermediariesandbuildingevidenceofwhatworks.”Withitspartners,UBSOFhasformedtheOutcomeFundersImpactBondWorkingGrouptoshareexperiencesandidentifybarriers and accelerators to expand results-based financing solutions, as well as support newpartnerships. The groupmeets periodically and represents multi-laterals, foundations, investors, andserviceproviders.73

UBSOF’sSocialFinanceInstrumentsinAction

ThisprogramofstudyexplorestwotypesofUBSOF’sinvestments—oneimpactloanandthreeDIBs.ItsfirstDIBandtheworld’sfirsteducationDIB—TheEducateGirlsDIBinIndia—waslaunchedin2015andcompletedinmid-2018.Thefollowingchapterdescribesthepartnerexperiencefromentrytoexit.

ThesuccessofEducateGirls reshaped theway theFoundationworks,both inphilanthropicprogramsand in social finance.74 It is also shaping the development field. As Program Director Dhun Davarexplains,becauseUBSOFpilotedtheworld’sfirsteducationDIB,“Wehaveimplementingorganizationsreachingouttousfrequentlyasking,‘Canwedotheexactsamething?’Andwetrytoexplainthatthiswasapilotwithhightransactioncosts,andtheDIBframeworkisnotnecessarilyappropriateforeveryprogram.” She says they “learneda lot from thatexperience,particularly about scale and transactioncost, and it has helpedus to design the next twodevelopment impact bonds.We've just launched ahealthDINandaneducationDIB.”75

TheothertwoDIBs—theQualityEducationDIB,whichscalestheEducateGirlsmodel,andtheUtkrishtMaternal and Newborn Health DIB funding rural clinics in India—as well as the SSN impact loan toImpact Water, were launched in 2017 and 2018. Each of these social finance tools is described inChapter4,“ThreeSocialFinanceProjectstoSaveLivesandBoostKids,”whichalsodiscussestheWickedProblem addressed and SDGs advanced; and the deal structures—participants, roles, funding, andoutcome—andkeylearnings.

21

DoesPayforSuccessWork?EducateGirlsDIBOffersProofofConcept

SDG4and5:QualityEducationandEqualityforWomenandGirls

The EducateGirls DIB addresses SDG 4,which calls for quality of education to “ensure inclusion andequitable quality education and promote lifelong learning opportunities for all.”76 The DIB alsoaddressesSDG5,whichpromotesgenderequalityandempowermentforwomenandgirls.Guaranteedaccesstoqualityeducationisoneindicatorofgenderequality.

EducateGirls DIB Offers Proofof Concept

22

EducateGirlsDIBOffersProofofConcept

TheWickedProblem

The state of education in rural India is aWicked Problem as described in the Preface andDeliberateLeadershipinActionchapter.Indiahasthelowestliteracyintheworld,77andcompulsoryeducationforchildren ages 6 to 14wasonlymandated in 2009.78Moreover, there is a stark contrast between theresourcesavailableforurbanversusruraleducation.Thesefactors,combinedwithentrenchedgenderroles,havemaderuralgirls’educationvirtually inaccessible. InRajasthan, thequalityofeducation forwomenandgirlsispoor.Thestateaccountsforoverninepercentofthe3.8millionout-of-schoolgirlscountrywideandishometoninedistricts(outof26)withtheworstgendergapindicators.79Asof2016,more than 60 percent of out-of-school children were girls; only 55 percent of schools had girls’restrooms, and for every 100 rural girls who entered primary school, only 12 went on to class 12(equivalenttosenioryearinhighschoolintheUnitedStates).80

Otherbarrierstomakingimprovementsincludebureaucraticallyrunschools;low-qualityeducatorsandcurricula;ashortageofteachers;a lackofparental involvement;andrigidsocietalnormsthatpreventgirlsfromexcellingin,orinsomecasesevenattendingschool.81ABrookingsInstitutereport,“PrimaryEducation in India: Progress and Challenges” found teacher attendance in primary schools to be 85percent,andthenationfacesashortageof689,000teachers.Schoolprincipalsoftenlackcertificationsortheeducationaltrainingnecessarytobesthandlemanagementresponsibilities,andalackofremedialsupportmeanspoorlyperformingstudentsdon’thave theopportunity tocatchupwith theirpeers.82When schools are runbadly, someparents feel justified in pulling their childrenout of them: a 2008surveyshowedthat42percentofgirlsdroppedoutofschoolunderdirectionfromtheirparents.83Whenparents can afford private school, they will often only send one child and will choose a son over adaughter.84

FromIdeatoPilot

Since2007,EducateGirls(EG)hasworkedtoprovidequalityeducationtogirlsintheruralIndianstatesof Rajasthan and Madhya Pradesh. With an education, girls are more likely to “enter the formaleconomy, gain employment, and lift their families out of poverty.”85 For many girls in rural India,childhoodandadolescencearespentdoingchores,takingcareofsiblings,andfetchingcleanwater.Intime, these same girls are “likely to end up as child brides and adolescent mothers, viewed as aneconomicburden,destinedtoalifeofdomesticity.”86EducateGirlsseekstointerveneinsituationslikethese,promotingtheideaofgirls’educationnotonlytothechild,butalsotoherfamilyandcommunityandattemptingtoshifttheestablishedculturalmindset.Thisapproachhasresultedin200,000out-of-schoolgirlsenrollingineducationprograms,transformingfamiliesandcommunities.87

Educate Girls had first learned of Development Impact Bonds in 2011, when the UK Department forInternationalDevelopment(DfID)requestedproposalsforaPay-By-Results(PBR)initiative.EducateGirlsExecutive Director and Founder Safeena Husain was intrigued by the idea and got to work on theapplication.WhenDfID pulled India from its area of consideration,Husainwas disappointed, but notdefeated.Theorganization“hadbecomesoinvestedinthePBRmechanism”thattheydecidedtopitchittootherinvestors.88

23


USBOFCEOPhyllisCostanzaremembersanearlyconversationwithHusainatameetingsponsoredbyUBS in Switzerland,whereCostanza first learnedaboutDevelopment ImpactBonds. “Every year,UBShosts a conference in St. Moritz called the Global Philanthropy Conference,” says Costanza. “I metSafeenaHusain,whorunsEducateGirls,andshetoldmeaboutthisnewthingcalledtheDevelopmentImpactBond.Sheexplainedittome,andIwassoexcited.Ithought,‘Wow!Thisaddressessomecriticalissuesthatwe’reseeinginthesector.’”89

According to Husain, the meeting with Costanza and UBSOF staff came during an unproductiveroadshowtoDelhi,Mumbai,andBangalorewithinternationalpartners,pitchingtheideaofapayments-by-resultscontract.“Wehadzero luck,andthenweran intoUBS,and itwas likeamarriagemade inheaven,” she says. The idea had come from the service provider and that was also unusual, Husainnotes.“This ideacamefromthebottomup.”90Husainwasalso interested in theDIB tohelpdiversifyfundingandtotestanapproachthatcouldmaketheirworkmorefocusedonreportingimpactresultsversus activities. The DIB was also consistent with India’s leadership and growing interest in impactinvestingandinusingaCorporateResponsibilityLawtoadvancegirls’education.91

Withthe idea inplace, theDIB’sultimategoal—to improveeducation,directlyand indirectly, throughimprovementsintargetedschoolsfor15,000children,9,000ofthemgirls,in166schoolsin140villagesinRajasthan’sBhilwaraDistrict—emerged(seeFigure10).

Figure10.LocationofEducateGirls’DIBinRajasthanIndia

Source:2018EducateGirls

TheDIB:Partners,CommittedFinancing,andMeasurableResults

Tomakeithappen,however,requiredateamandanecosystemofskilledpartners.UBSOFknewitsrolewouldn’t be to hire teachers or to choose curriculum. Those tasks would be up to Educate Girls.Nevertheless,UBSOFbroughtinresourcesthatEGdidn’thave,suchasscalingexpertise, investorbase

24


expansion advice, andmuch-needed funding. Other partners played critical roles, including outcomepayer,performancemanager,andoutcomeevaluator.

ThePartners

Whowerethesepartners,andwhatdidtheybringtothetable?Understandingthebackgroundofthefivekeyparticipants inadditiontoUBSOF—the investor—explainswhattheyeachbroughttotheDIB,andmayexplainthemotivationsforeachparticipant(seeFigure11).

Figure11:EducateGirlsDIBPartnersbyRoles

Source:2018UBSOF

• TheServiceProvider.EducateGirls (EG) is anonprofit organizationbased inMumbaidevoted togirls’educationthatwillinturnimprovetheformaleconomythroughgainfulemploymentthatwilllift their familiesoutofpoverty.EducateGirlsmobilizescommunitiesand leveragesgovernment'sinvestmentingirls’educationinIndia.

• The Outcome Player. The Children’s Investment Fund Foundation (CIFF) is an independentphilanthropic organization, headquartered in Londonwith offices in Nairobi and New Delhi. CIFFpaidbacktheFoundation,aslongastargetsweremet.

• The Project Manager. Instiglio provided technical advice, as well as performance managementassistancetoEducateGirlsonbehalfofUBSOF.AnonprofitintermediarybasedinBogota,Colombia,

25


itprovidestechnicalassistanceinthedesign,structuring,andperformancemanagementofresults-basedfinancingprogramsindevelopingcountries.

• The Outcome Evaluator. IDinsight validated the number of out-of-school girls involved andmeasuredtheoutcomes.AnimpactevaluationfirmheadquarteredinSanFranciscowithoffices inIndia,Uganda,andZambia,IDinsight'smissionistohelppolicymakersandpractitionersuserigorousdataandevidencetomakemoresociallyimpactfuldecisions.92

• The Process Evaluator. Dalbergwas the process evaluator. The firm is “aglobal group of changemakersworkingtobuildamoreinclusiveandsustainableworldwhereallpeople,everywhere,canreachtheirfullestpotential.”93Asthefifthpartner,itsrolewastoreachandevaluatetheprocessesusedtoplan,implement,andevaluatetheDIB.

TheFinancing

FinancingtheEducateGirlsDIBinvolvedpaymentsbetweentheinvestor(UBSOF),theserviceprovider(EducateGirls),andtheoutcomepayer(CIFF),aswellasfeestosupportevaluation,communication,andotherassociated functions, asexplainedbelow.Accounting forboth thedirectpaymentsand supportcosts, the three-yearDIB’s total expenditureswere almostUS$1.1million. As reported in the Resultssection,becausethemaximumpayoutwasmade,62percentofthosecostswerethesupport-related.94The DIB was structured as a pilot, with the clear understanding that the transaction costs wouldoutweigh the programmatic ones. The goal of the investment was to test the feasibility of theinstrumentandlearnfromittobuildthesubsequentonesmoreeffectivelyandefficiently.

DirectPayments:UBSOF,CIFF,andEducateGirls

The working capital for the Educate Girls DIB came from UBSOF through a three-year grant ofUS$270,000,whichwasmade in twopayments:40percentof theworkingcapital requirement in thespring of 2015 and 60 percent of the requirement in the spring of 2016. The outcome payer, CIFF,committed to a payment based on performance (see Table 1) of up to a maximum of US$422,000.UBSOF'sinternalrateofreturn(IRR)variedbasedonperformance,runningfromaminus29percenttoaplus15percent.EGwouldreceivepartofthatpaymentbasedonperformance.

Two performance, pay-for-results, metrics were tracked by the outside evaluator—educationalachievement(i.e.,learning)andenrollment.TheheavilyweightedformermetricwasbasedonmeetingASERstandardsformathcompetencyandEnglishandHindiliteracy;thelatterwasbasedonenrollmentof79%oftheeligibleout-of-schoolgirls,identifiedduringthebaselinesurveyandupdatedeachyear.(Thetotaleligibleoutofschoolgirlsbyyear3was837girls.).95,96InadditiontomeasuringresultsintheschoolsinwhichEducateGirlswasoperating,theoutsideevaluatorandEducateGirlscomparedthoseresults toa setofnon-serviced schools. To reducebias,bothpopulationsof schools (those servedbyEducateGirlsandthosethatwerenot)wererandomlyselected.

26


Table1.EducateGirlsDIBOutcomesPaymentsbyExpectedPerformance(inUSD)

Source:2015Instiglio

Support-RelatedCosts

Theoutcomepayer(CIFF)andtheinvestor(UBSOF)coveredanadditionalUS$674,000ofcostsincludingtheevaluators(seeTable2).NotethatCIFFandUBSOFsharedsomecosts,otherswerecarriedsolelybyCIFF.

Table2.SummaryofEducateGirlsDIBNon-ReimbursableCosts(US$)

CostElements CIFF UBS Total

Outcomeevaluation $315,000 $315,000

Processevaluation 25,000 25,000 50,000

Advisorygroup 14,861 14,861 29,722

Communicationsandmarketing 75,000 75,000 150,000

Contingency 21,418 21,418

Programdesignandprojectmanagement 24,050 24,050 48,182

Performancemanagement 40,000 40,000 80,000

Total 559,461 114,861 674,322

Source:Summarizedby2015Instiglio

% of expected

performanceOutcome payments

Return over

principalIRR ROI

Enrolment Learning Total

143% $92,911 $419,429 $422,000 $144,085 15% 52%

129% 92,911 377,486 422,000 144,085 15% 52%

114% 83,886 335,543 419,429 141,514 15% 51%

Expected 100% 73,400 293,600 367,000 89,085 10% 32%

86% 62,914 251,657 314,571 36,657 4% 13%

71% 52,429 209,714 262,143 – (2%) (6%)

57% 41,943 167,771 209,714 – (9%) (25%)

43% 31,457 125,829 157,286 – (18%) (43%)

29% 20,971 83,886 104,857 – (62%)

14% 10,486 41,943 52,429 – (81%)

No impact – – – – –

(29%)

0%

NM (100%)

Poor

Very good

Fair

27


OperationalizingtheDIB:GoalsandProcessforAchievingResults

The strategy for the DIB to meet the girls’ enrollment and educational targets was to engage thecommunity,especially theparentsofgirlswhowerenotattendingschools, the teachersat the targetschools, the enrolled girls (toprovide educational support), and the government (whose supportwasnecessary in terms of long-term scaling). Curriculum development and supporting teachers’implementationofitwerealsonecessaryoperationalpieces;likeotherpieces,thesehadtobeadjustedastheDIBunfolded.

EngagingCommunity:IdentifyingandSupportingGirls

A key underpinning fact for successfully enrolling girls is identifying them and meeting with theirfamilies.AsHusainnotes,“Essentially,it'saboutmindsetchange,becauseeverythingtodowithgenderisunderpinnedwithmindset.Sowegodoor-to-doorandwefindeverysinglegirlwhoisnotinschool,eitherdroppedoutornever enrolled, and this is donewithour community volunteers.Andonceweidentify them, we actually work—either through village meetings, neighborhood meetings, and/orindividual parent counseling—to bring them back into school, and then to make sure that they arestayingandlearning.”97

On-the-groundcommunityvolunteers,knownas“TeamBalika”(awordthattranslatesto“younggirl”),carried out a door-to-door canvas of 34,000 households. Volunteers met with parents to try andconvincethemthatgivingtheirdaughtersaneducationwouldhelptheirfamiliesandtheircommunitiesmore than their child’swork at home.Often, volunteers held villagemeetings to inform leaders andparentsaboutEG’sworkandtoaddressanyconcernstheyhad;themeetingsweremeanttofacilitatecommunityconversationaboutgirls’education.

Once a girlwas enrolled in anearbypublic school that partneredwith EducateGirls, shewashelpedalonginherHindi,math,andEnglishstudiesbyvolunteerswhocheckedinonhertomakesuresheandher teachers had the resources necessary to keep her enrolled in school. Educate Girls aligned withpublicschoolsinRajasthantoprovideresources.

ImportanttosuccessforEducateGirlswastoensureallchildrenreceivedtheeducationalsupporttheyneeded—not just thoseelements thatwouldhelpEGmeet the learningperformancemetrics.Husainnotes,“Oneof thekeythings that thisDIBhasdone is that ithasshownthe largestgains in termsoflearningforthatlastchild.”Shegoesontosay,“Thekidsreallyatthebottomhavegotupandhaverunthefastest.Youwanttojustmakesurethatyoudon’tevercreatetransactionswheretheincentivesaretojusttakethenon-performingassetsout,astheysay,andthenonlyfocusonthosewhowillrun.”98

EngagingTeachers:CurriculumandTeachingSupport

Supporting and training teachers were another set of critical elements for Educate Girls. Its learningcurriculumforallchildren(girlsandboys) inthird,fourth,andfifthgradeswas intendedtomakesurethat theywere actually learning andmoving forward. To ensure the curriculumwas understood andfollowed, Educate Girls worked closely with government teachers and trained its own communityvolunteerstoworkasteachingassistantsintheclassrooms.Itwantedtosupportthemandensuretheyhad the skills andmindset necessary to achieve the learning performance goals. For example, TeamBalikavolunteerscametoEducateGirlssayingtheirstudentsweren’timprovingmuchinEnglishliteracy.Thereason,theyexplained,wasbecausetheythemselvesdidn’thaveenoughEnglishlanguageteaching

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experience.EducateGirlsprovidedTeamBalikavolunteerswithcareer training inEnglish literacy,andtheirpupils’scoresbegantorise.99

EngagingGovernment:AccessingSchoolandData

Though theRajasthan governmentwas not the outcomepayer, it stillmade a critical contribution. Itcontrolled access to thepublic schools and teachers, andwas the keeperof the schools’ test results.Withoutaccess,EducateGirlscouldnotworkwiththeteachers,andwithoutthetestscores, thedatafor the learning performance metric would not be available. Thus, Memoranda of Understanding(MOUs)withthegovernmentwerepreparedandexecuted.

BringingItTogether

ForUBSOF,EducateGirls,and therestof thepartners, theDIBwasan intense learningexperience. Itrequiredfullengagement,adaptation,andtrustamongallparties.Figure12detailsthatjourney,whileTable3summarizestheultimateresults.Thenextsectiondetailsthoseresults.

Figure12.TimelineoftheEducateGirlsDIB

Source:2018Dalberg

DIB launch activities2014-2015

Outcomes and target setting

Outcome evaluator selection and evaluation methodology selection

Performance management (PM) driven capacity building around PM systems

Pre-launch2013-2014

Partner identification initiated by Instiglio and Educate Girls

Partner on-boarding

DIB Culmination2018

Launch of outcomes report by IDinsight

Process evaluation report by Dalberg

Programme implementation2015-2018

On-going reporting to steering committee

Outcome evaluations

Process evaluations

On-going performance management and course correction

Support from outcome evaluator to unpack data during annual evaluationsDIB launch

20182017201620152014

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Table3.EducateGirlsDevelopmentBondStructure

Source:2018pfc

Results,Outcomes,Success

The Educate Girls DIB is considered a success. The Foundation earned a 15 percent internal rate ofreturn,studentssignificantlyincreasedtheirreadingandmathlevels,and92percentofeligibleout-of-school girls in the target regionwere enrolled in school. The success rates for those two social goalswere160percentofthelearningperformancetargetand116percentoftheenrolmenttarget.EducateGirlsmore than exceeded its targetmetrics.100

Those successes have been reported in a raft of news reports and by groups like theBrookingsInstitution. As discussed previously, built into this type of social finance instrument isan annual verification system linked to payments. The results of the DIB were reportedannually, and theprogressionisnoteworthyforitssuccessesandfortheadjustmentsmadefromoneyeartothenext(seeFigure13).

Table 1

Instiglio

Children’s Investment Fund Foundation (CIFF)

Educate Girls

UBS Optimus Foundation (US$270,000)

IDinsight

7,300 children in 166 public schools

Identification of out of school girls, engagement to improve attendance,child-centric curriculum delivered by volunteers

– Payout of US$144,085 will be reinvested in development programs– Educate Girls to receive 32% of the internal rate of return– Remaining funds to go to other UBSOF programs

Verify enrollment of 15,000 children (including 9,000 girls) in 140 villages, RCTmeasuring learning progress across English, Math and Hindi

3 years

15% IRR achieved for UBS Optimus Foundation

Bilateral contractual arrangements between outcome funders, investors, andservice providers

– Learning gains of 3rd-5th graders (80% of payments)– Enrollment of out of school girls in grades 2-8 (20% of payments)

– Learning goals: success rate of 160% achieved– Enrollment: success rate of 116% achieved; 92% of eligible out-of-school

girls in target region were enrolled in school; 15,000 children educated

Implementation manager

Outcome funders

Service providers

Investors

VerificatioBeneficiaries

Intervention

Use of outcome funds

Payment metric

Duration of impact bond

Investment return rate

Legal structure

Expected impact

Actual impact

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Figure13.EducateGirlsDIB’sYear-Over-YearPerformanceResults

Source:2018UBS

YearOne:GettingUnderway

After one year, EG had enrolled 48 percent of all out-of-school girls in its region of focus and hadachieved26percentofitslearninggainstarget.Bytheendofthefirstyear,studentsbeingmonitoredwerebeginningtocatchuptotheirage-appropriatelearninglevel,andsomejumpedalevelorso,buttheystillhadalongwaytogo.101

By theendof the firstyear, itwasclear that takinga long-termviewwas important,becausea lotoftime had been spent on getting into a rhythm and testing out educational strategies. UBSOF didn’trequire EG touse a specific curriculumor to teach in a certainway—ahands-off approach that gaveteachers the space tomeet studentswhere theywere,Husain says. “YearOne resultswere low, butUBSOFdidn’tprescribehowthemoneyshouldbespentandwhatshouldbedone.”Shenotesfurther,“UBSOFdidn’tinterfereonhowwewereimplementingtheinterventionsandwasawareofallthedata,stepstaken,etc.”102

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YearTwo:ProgressandCourseCorrecting

ByYearTwo,Husain says, itwasclear that thisapproachwas starting towork.TeachersandEducateGirlshadcourse-corrected, inpartbychangingthecurriculum.Bytheendoftheyear,87.7percentofout-of-schoolgirlswereenrolledinschool,with54percentofthemover10yearsold.103

Yet at the end of Year Two, only 52 percent of students had met learning gain targets. Evaluationshowed84percentofthelearninggainshadbeenachievedbystudentswhohadbeenintheprogramforthefulltwoyears.104Tohelptherestofthestudents,EducateGirlsuseddatafromthemonitoringorganization IDinsight to find studentgroupswithpoor learninggainsand started intervening tohelpthesechildrencatchupwiththeirpeers.

YearThree:FocusonUnderperformance

The Year Two results were disappointing. “After this realization, we started conducting rigorous andmore frequent assessments and gap analyses for each child in Year Three to track outcomes,” saysVikramSolanki, SeniorDistrictManager at EducateGirls. “Thishelpedus figureoutmicro-errors, andchild-specificinterventionswererolledoutaccordingly.”105

Theimpactofthisnewapproachsoonbecameapparent.BytheendofYearThree,EGaimedtoenrollabout650out-of-schoolgirls,buttheyactuallyenrolled768—wellsurpassingtheirgoal.Oftheout-of-schoolgirlswhowereenrolled,60percentwere10yearsorolder.106

EducateGirlsalsosucceeded inmeeting its learninggainsgoalmidway through the thirdschoolyear,well exceeding their goal by the year’s end. The massive improvements in Year Three—about a 79percent increase in grade levels—essentially means students absorbed the equivalent of two years’worthofinstructioninoneschoolyear.”107

Compared to a control group, students in EG’sprogramschoolshad28percent larger learning gains,withrelativelyhighergainsinmathandEnglish.LearninggainsinHindiweren’tassignificant.108

Avnish Gungadurdoss, Managing Partner and Co-founder of Instiglio, notes, “We were positivelysurprised by the third-year results, butwhen you think about and look at the type of improvementsEducateGirlsimplementedandthetypeofcapacitytheybuiltduringthecourseoftheproject,youstarttounderstandwhytheresultsaresodramaticallydifferent,”hesays.“InYearsOneandTwo,EducateGirls experienced a steep learning curve, which ultimately enabled them tomaster the technique ofmanaging to outcomes during the last year of the project. It’s really a story of an organization goingthrough an intense transformation around the design of their intervention model and their deliverypractices,wheretheintrinsiccultureoflearningcannotbeunderestimated.109

AttheendoftheDIB,UBSOFrecoupeditsinitialfundingofUS$270,000plusa15percentinternalrateof return from Children’s Investment Fund Foundation (CIFF), the outcome payer. EG received 32percentoftheinternalrateofreturn,andtherestwasrecycledintootherUBSOFprograms.110

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ComplicatedandTime-consuming…ButUseful

AsTheEconomistnotedinJulyof2018,“Creatingthedevelopmentimpactbondwascomplicatedandtime-consuming…butalsouseful.”Praisingwhatitcalleda“novelwayoffundingcharitablework,”thepublicationnoted,“Ifagirlinapoorcountrygoestoschool,shewillprobablyhaveamorecomfortablelifethanifshestayshome.Shewillbelesslikelytomarrywhilestillachild,andthereforelesslikelytodie inchildbirth.So,notsurprisingly, there is (now)an Indiancharity that tries togetgirls intoschooland ensure they learn something, and there areWestern philanthropists willing to pay for its work.Whatisnoteworthyishowtheyhavegoneaboutthistransaction.”111

Thatsaid,theDIBhasdrawnskepticswhoquestionthetruemeaningofthepilot’s learninggainsandscalability.JustinSandefur,SeniorFellowattheCenterforGlobalDevelopment,notesthatthelearninggains were “reasonably comparable to other programs.”112 The gains, he says, are solid, but “hardlyunprecedentedforapilot.”113Inaddition,fullcostsofparticipatingintheDIBremainunclear.Sandefurfeels that cost calculation for the DIB should include all the expenses, including outside evaluators’costs,andtheseshouldbepartofthecost-benefitratio.114

LessonsLearnedinRajasthan’sSchools

TheEducateGirlsDIBpilotprovidedawealthof lessons learnedthatwere later incorporated intotheUtkrishtMaternalandNewbornHealthDIB,andtheywillbeusedtoinformtheimplementationofthenewQualityEducationDIBinIndia.

The Brookings Institution finds the adjustments made between Years Two and Three as particularlysignificant: “With the learning outcomes lagging in Year Two, several adjustmentsweremade to theintervention to boost students’ success.” These adjustments included structural changes in delivery(suchasincreasednumberofsessions),aligningteachinggroupswithcompetencylevels,andimprovedcurriculumcontentthatemphasizedpersonalizedlearning.115

AttheendofYearTwo,EGneededtoaccelerateitsrateofstudentimprovementifitwasgoingtomeettheoutcomegoals.“Byrigorouslycourse-correctingandimplementingnewstrategiescreatedbyaskingthecommunitywhattheyneeded,EducateGirlswasabletowellexceedtheirtargetoutcomesbytheendofthethirdyear,”saysAlisonBukhari,EducateGirls’UKDirector.116

The following lessons are grouped into themes often present in Deliberate Leadership cases:Community, Partners, Planning, and Evaluation. Each has an important role to play in looking at theimpactofthispioneeringDIB.

Lesson1:ListentoCommunity

Authentic community engagement was pivotal to the successful outcomes of the Educate Girls DIB.Bukharinotes,“Weweresoclosetothecommunityandreally, really listening inthat finalyear...so itwasinthatproximitywherethesuccessreally lay.”Bukharinotesthat listeningtothecommunitycanbesimpleorcomplex.Itcaninvolvefocusedvillageorgroupmeetingsandmonthsofdata,oritcanbeassimpleasobservingthestudentsoraskingtheteachersinoneclassroomwhattopicstheyneedsomeextrahelpwithunderstanding.

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According to Bukhari, proximity to the community is a fundamental aspect for success in the work,because it enables the community to solve the problem itself. Using community members from thevillagesprovidesa feedback loop, shenotes. “They'reable tosay, ‘Doyouknowwhat, this is justnotgoingtowork.Duringthosethreeweeksit’sharvest,thechildrenaregoingtobeworkinginthefield,orbothparentsaregoingtobeawayforwork…’"117

Husain also underscores the importance of the relationship with the community and bottom-uplearning:“Feedbackwillemerge,andwewilllearnandthenwewillgiveyouexponentialinsight,butithastobefromthatpersonontheground.Youdonotprescribe,”shesays.118

The data gathered in the early stages of the DIB shows that the curriculumwas only going so far inimprovinglearning.Butthefieldteamwasabletoassesswhichworkersandvolunteerswereachievingbetterresults,andthisledtoneededchangesinresourceallocation.“InYearOne,weessentiallycarriedon‘asnormal’withwhatcouldbeseenasmoreofatopdownapproachtomanagement,”saysBukhari.“Afterthefirstyear,werealizedthatthiswasn’tworkingwellenough,so…inYearTwo,decisionsweremademuchclosertothefield,feedingalotmoreinformationandanalysisofdatafromtheimpactteambacktothefieldstaffandgettingthemtomakedecisionsandaskforresourcesaccordingly.Solutionscamefromthestafforvolunteerswhowerewiththechildrenandfamiliesonadailybasis.Atthispoint,themomentumshifted,andtheprogrambecamemoreeffective.”119

“The curriculum changes thatwemadewere critical, and they obviously had a huge influence,” saysBukhari,“butitwasreallythefactthatweweredoingthingslikeerroranalysisandgettingthestafftolisten to and observe every child, understanding where they were having struggles, who was fallingbehind, and really documenting at an individual level what the issues were…then tailoring theinterventionstoactuallyshiftthechildren'slearning.Andyouknow,ifthatisn'tlisteningtocommunity,Idon'treallyknowwhatis.”120

Husainreflectsonthisrelationshipandtheneedtoallowittounfoldattherightpace."IfIweregoinginto a transaction tomorrow for the next DIB, I would say to build that patience in, so you’re notsuffocatingyourfieldworkerwithrequestsforresultsondayone.Givethemtheroomtobreatheandtoreallybeabletosetuptherightrelationshipsatthecommunity levelfortheresultstoemerge.”121Optimus, Instiglio, theprogrammanager,andCIFF, theoutcomefunder,gave theon-the-groundstaffroomtofixproblemsastheysawfit,providedtheywereremovingroadblockstotheproject’ssuccess.

Listening to the community and taking communitywants andneeds to heartwas the cornerstoneofEG’sthirdyearofprogramming—anditworked.EducateGirlsexceededitstargets,andtheDIBwassosuccessful that it is informing the new Quality Education DIB that will help with boys’ and girls’educationacrossIndia.

Lesson2:BuildEarlyAllianceswithGovernment

UBSOF is using those lessons to help their next DIBs avoid those samemistakes. For example,whileEducateGirlsdidcommunicatewiththelocalgovernmentandgotanMOUsignedwiththeGovernmentof Rajasthan, it would have been helpful to have had greater up-front advocacy and investment byEducateGirlsandotherstakeholderstohelpensureadequategovernmentsupportthroughouttheDIB.Thismayhaveloweredtransactioncostsandimprovedoutcomes.

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BukharilooksatthetimingofgovernmentinvolvementintheDIBinconversationwiththeteam.“Youaskaboutwhetherwemissedatrickinnotgettingthegovernmentonboardasanoutcomepayer,buthonestly,backin2014thatwasn’treallyanoption.Impactbondsweresonascent,therewasnosingleprecedentofanimpactbondinanemergingeconomytotaketothegovernment,andtheinstrumenthadnotyetbeenusedinaschooleducationcontext.Wehadnothingtotaketothem,”shesays.

“Instead,weworkedwiththegovernmentasacriticalenablingpartner,andtheywereaveryimportantpartner.Hadwedecided towaituntil thegovernmentwas ready toengage financially in theDIB,wemight have had to wait quite a while and lost valuable time creating a proof of concept. Now thegovernmenthashadalotmoreexposuretotheinstrument,wehavebeenengagedinalotofadvocacywork,andIthinktheworldhasmovedoninthosefouryears.Thegovernmentnowhasadifferent‘ear’andiscertainlylisteningandinterested.”122

UBSOF’sHeadofSocialFinanceMayaZiswileragrees.“AswesetuptheEducateGirlsDIB,wewantedtoget government buy-in, but we didn't really build it in well enough from the beginning. While wesecuredMOUsforthe interventionandtheevaluation,weweren'tabletoengagethegovernmenttotake ittothenext level,”shesays.“Itwasakey learning,but I thinkourpilotwastoo innovativeandmaybetooearlyforthegovernmenttoconsiderengaging.InourHealthDIB,wetransitionedtoamuchlargerDIB,wherethebuy-inwiththegovernmentisbuiltinfromthebeginning.”123

Husainemphasizestheimportanceofinvolvingthegovernmentasakeystakeholder.“Weneededthegovernment'spermissiontoactuallybeabletododatacollection,eventhoughweweren'tworkingoncontrolled schools, but had access to those schools. The village leaders, the school headmasters,teachers,everybodyhadtobebroughtonboardwithwhatyouaredoing.”124

With positive results, the EG DIB has focused interest in the funding mechanism, and many peoplebeyondtheDIBarepayingattentionandaretryingtopersuadethestatesacross Indiatothinkaboutoutcomes, rather than activities, and to shift the way all the states think about monitoring all thedifferentdepartmentsandsocialoutcomesthey'relookingtoworktowards.

Lesson3:ReachOutEarlytoServiceProviders

Reaching out early to potential service providers, outcome payers, and other stakeholders was alsocriticaltotheEducateGirlsDIB’ssuccess.ThisknowledgeprovedextremelyusefulinallowingUBSOFtobegin structuringa timeline severalyearsbefore the launchof itsnewQualityEducationDIB inotherpartsofIndia.

Lesson4:CommunicateCandidlywithDonors

Sonal Shah, a USBOF Board member and Executive Director of the Beeck Center at GeorgetownUniversity,describestherationaleforgooddonorcommunications.“They'reeducatingtheirdonorsonwhy they'redoing it andwhat they'redoing,but I thinkas youbuild thisoutmore, [youhave] tobecareful that it doesn't just become another financial transaction, but that continually the donors arebeingbroughtintowhyitmatters,”shesays.125

This becomes critically importantwhen results comemore slowly than anticipated. Although theDIBagreementdidallowUBSOFtowithholdfunding,theFoundationprovidedfundingthroughouttheDIB,

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eventhoughresultsdidnotbecomeobviousuntilYearThree.Hadthe fundingbeenpulledafterYearTwo,Husainsays,thechildrenwouldhavebeentheoneswhowouldhavesufferedthemostbybeingdenied those Year Three learning gains. “Unconditional fundingwas the primary trigger for theDIB’ssuccess,”Husainnotes.“Thepresenceofpatientcapitalwasakeyvariableinthesuccessoftheproject,as it provided EducateGirlswith enough flexibility to innovate.UBSOF had a large risk appetite, andtheiractionswereextremelysupportiveintheinterventionsandchangeswewerecarryingout.”126

With good communications, donors continue to support the work. Anthony Donatelli, Director,PhilanthropyServicesUK,UBSOF,addsthatdonorswanttoknowboththegoodandthebadandwanttobepartofthejourney.Hebelievesthatmanydonorsunderstandhowthepilotprocessworks.“TheygetthatweneedtodoaDIBbeforewegettheIndiangovernmenttobuyintodosomethingatscale.AndtheDIBishowwe'retryingtodemonstrateeffectivenesstogovernments.”127

“Private investors are always keen to understand, ‘Where ismymoney going?’,” says Ranajoy Basu,PartnerinReedSmith,aninternationallawfirmthatservesasreviewcounselfortheDIB’soperationalcontracts. That iswhy, he says, tight covenants, representations, andwarranties about reporting anddisclosureare“fairandimportant.”But,hesays,“Asalawyer...oneneedstoreallyappreciatethatyoucan'tdraftuptheseprovisionstomakethemcompletelywatertight.It'sabitofabalancingact,whereyouhavetoincludeacertainamountofflexibilityfortheunderlyingserviceprovidersonthegroundtobeabletodowhattheydowell,because,otherwise,they'remorefocusedaroundreporting,andthemeasureswoulddistractthemfromactuallyimplementingtheprojectandreceivingtheoutcomes.”128

Continuouscommunicationwithdonorsallowstheserviceproviderstobeflexibleandadaptivewithoutafearoflosingtheirfunding.

Lesson5:BuildinaLongLeadTime

Theproject encountered roadblocks,whichpresented an important lesson about building in a longerleadtimeandmorehandholdingsupportforserviceprovidersinearlystagesoftheDIB.Thisapproachhelps service providers better engage with targets, evaluate methodologies, and more accuratelybudgetforresourcerequirements.

“The learning is thatyouneedaYearZerobeforeyourYearOne,”Bukhari says. “And that'swhatwemissedouton.And,also,ourYearOnewasverymuchcrunched,becausethecontractstooklongertosign,and,workinginadata-poorenvironment,wehadtorenegotiatethetargetsoncewerealizedourbaselineproxydatawasveryinaccurate.129

Shebelieveshavingalongerramp-uptimecanhelpserviceproviderstakemoretimetoengagethelocalcommunityinfindingthespecificchallengesthatcouldimpacttheirplanforintervention,suchaslocalholidayswhenschoolsaren’tinsession,specificissueswithtransportationcausedbylocalflooding,andotherproblemsthataredifficulttoassessunlesstheorganizationisphysicallypresentinthearea.

“I thinkyoucan forgethowcriticaleverysingleweekofaschoolyearactually is in termsofgettingacurriculum delivered,” she says. “And, particularly in a country like India, where you've got seasonalissues,migrationissues,harvestingissues,thericeseason,andalltheagriculturalconcerns...You'vegotallthesestressorsthatparentsusetoremovetheirchildrenfromschoolsforallsortsofreasons.”Andsimplywaitingisnotanoption.“Whenyou'redesigningeducationprograms,[it’sabsolutelycritical]to

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bepreparedondayoneoftheschoolterm.Wejustcouldn'taffordnottostart,”saysBukhari.“Iwonderif itmighthavecollapsedifwe'dsaid, ‘Youknowwhat?Weneedto leave it forthenextschoolyear.’That's not how funders think. That's not really how thingswork.We teed up this DIB, andwewererunninglate,butwehadtolaunch.”130

Kate Sturla, Associate Director at IDinsight, offers why planning is important for partners—such asevaluators—as well. “We can't come in once you say, ‘We're ready.’ Even when we've been reallyexplicitaboutthisatcontracting,thereneedstobeanadditionalconversationtomakesureeveryonefullyunderstandswhatthey'resigningupfor.”131

Lesson6:AdapttoCulturalConditions

Finally,aspartofitspathtosuccess,EducateGirls, likeothernon-profits,hadtogothroughaculturaltransformation.PhyllisCostanzadescribesitas“anextremelydifferentculturalandmindsetshift.”Shesays,“Itrequiresanon-profitorganizationtobeextremelyperformancebased.This isnottypical,youknow,ifyouaskanynonprofitattheendoftheday,‘How'dyoudotoday?’theywouldsay,‘Whatdoyoumean?Youknow,howdidIdotoday?’”Shenotesthatifyouaskabusinessthesamequestion,theyanswerintermsofnetprofitandexpenses.132

ADIBcanhelptransformacultureandprocessesattheimplementingorganization,andsomeobservershavenotedthistypeoftransformationisanunder-discussedimpact.133InYearOne,EducateGirlshadtohireandtrainstaff rapidlyandspent theyearbuildingaperformancemanagementsystem.YearTwowas spentbuildingnew learning content, and in Year Three, “Everything kindof fell intoplace,” saysHusain.134InthecourseoftheDIB,EGchangeditsclassroommanagementtechniques,content,training,assessments,andthecommunitymobilizationprocess.

Othernewapproaches—particularly in YearThree—included increasing the intensityof interventions,switching toagroupapproach thatputchildrenof similar levels together, implementingan improvedcurriculum,addingsessionsduringholidays,addinghomevisitstoreachabsentstudents,andassigningmorestaffperstudent.Alltheseadaptationshadthecollectiveimpactoftransformingpreviouslyheldassumptionsintoanapproachthatproducedresults.

Bukhari observed the cultural shift firsthand. “At the time, I think we didn't actually know that toimplement fully would involve amajor culture shift in the organization. That's whywe needed timebeforeimplementationtounderstandwhatthecultureshiftwasgoingtobe.Whatwasdifferentaboutthe DIB [was that] it wasn't a totally new way of working that we read from a script book; it wassomethingwelearntbydoing,”shesays.“Theorganizationshiftedinitsculture.Whatdoesitmeantowork to outcomes? It was a very subtle thing in terms of the staff thinking in a different way, usrecruitinginaslightlydifferentway,andnotrecruitingsomeonewhowasamazinglydiligentatfollowingaplan.Itwasrecruitingsomeonewhowasfarmorepassionateandtenaciousthanyournormalperson,whowaspreparedtothinkontheirfeetandchallengeandproblemsolve.Sotherewasasubtleshiftinthekindofpeopleweneededtoemploy,aswell.”135

Cultural changes extended beyond EducateGirls. CIFF also had to change under the DIB. CIFFwouldusually co-createwith its partners, but it had to adapt to themuchmore hands-off role required bybeing the outcome payer in a DIB. It was forced to allow innovation and adaptation at the serviceprovider and ground level. Grethe Petersen, CIFF’s Director of Strategic Engagement and

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Communications, notes that, “The DIB’s process taught CIFF that there is a lot of good innovationhappeningclosesttotheground”andthat“theorganizationisnoweagertosupportlocalandnationalorganizations closest to beneficiaries, involve beneficiaries in the design, and allow its grantees theabilitytoinnovateandbeagileintheirprogrammingtoincreaseimpact.”136

AsMITprofessorBillAulet, expandingonanobservationoftenattributed tomanagementguruPeterDrucker,hasstated,“Cultureeatsstrategyforbreakfast,technologyforlunch,andproductsfordinner,andsoonthereaftereverythingelsetoo.”137Understandinghoworganizationalcultureshiftsovertimeisacriticalelementofreachingimpact.

Lesson7:IncorporateEvaluationandLearningfromStarttoFinish

InthisDIB,evaluationplayedaroleateverystageandatmultiplelevels.Oneofthebiggestunexpectedpartsof theproject,according toHusain,was the redesigningof theentireconceptof thecurriculumcontentattheendofYearOne.“Imean,fromscratch,whichissoriskyforanorganization.ButwediditinYearTwo,and itwascompletelyunexpectedthatwewouldgodownthatpath.Thatcontinuedfortwoyears,becauseeverydaythrewupnewthingsthatwehadtothinkabout.”138

PerhapsBukharisaysitbestwhenshedescribedsomeofthefeedbackloopsemployedduringtheDIB.“Essentially, our work is all about being accountable to the last girl who is out of school or the lastilliterateorinnumeratechildintheschoolwherewework.ThetypeoffeedbackweincorporateiswhatthefieldworkerorTeamBalikavolunteerishearingorseeingontheground,”shesays.“TheflexibilityoftheDIBenabledustoconstantlyiterateandredesign,basedontheneedsofthechildren.”139

Even starting the process proved challenging, because of the length of time it took to get theMOUsissued. Earlier alignment could have helped with on-the-ground support for evaluation at the publicschools.HusainbelievesthattheprojectandDIBplanningprocesscouldhavebeen improvedhadtheevaluatorsbeeninvolvedfromthebeginning.

Gettingthedatawasdifficult.Solankisaystherewassomehesitancyfrompublicschoolteachersearlyon,but theygotonboardonce they saw their studentswerebenefiting. “Ina few schools,we facedresistancefromsometeacherswhodidn’tcooperatewithourvolunteers,”Solankisays.“This,however,changedwhentheystartedseeingthepositiveeffectsofourintervention.”Additionally,astheprogramprogressed,theDIBwasabletoadapt.“WeconductedregularrigorousassessmentsandgapanalysesforeachchildinYearThreetotrackoutcomes.Thishelpedusfigureoutmicro-errorsandchildspecificinterventionswererolledoutaccordingly,”saysSolanki.140

KateSturlaalsostressestheimportanceofintegratingevaluationintothefabricofaDIB.PriortojoiningIDinsight, Sturla worked on education projects in India and Peru and oversaw impact evaluations ofpublichealth interventions in India. “Therearea lotof really important lessons fromtheDIB thatwewanttomakesurearedocumented,andIthinkthat'sthestagethatwe'reenteringintonowwiththefinalresultsrelease,”shesays.“Ithinkeverybody[sawthat]thiswasalearningmindsetofhowdowemakethisuseful,andI'msurethat it informsfutureDIBs.”InthecaseofEducateGirls,amoretypicaltrajectorymighthavebeenthattheNGOwouldbecomediscouragedthattheevaluationwasn'tprovinghowsuccessfultheyhadbeen.“ThismighthaveresultedintheServiceProviderchoosingtodisregardtheevaluationorsay,‘Nevermind,wethinkthatwasthewrongoutcometostartwith,’”saysSturla.“ToEducateGirl's credit, but also I think to the credit of theDIB structure, that accountability [was built

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in]…andIthink itwashighlymotivatingforEducateGirlstoreallyrevisittheaspectsof itsprogram. Itwas(also)highlymotivatingforEducateGirlstorevisitaspectsoftheprogramthatwerelesssuccessfulandmakesignificantcourse-corrections.ThebenefitoftheDIB’spairingofaccountabilityandflexibilityisapparentinthefinaloutcomes,withEGgreatlyexceedingtargetsinlearningandenrollment.”141

Conclusion

ThesuccessofEducateGirlsDIBwasnotablebecauseitsurpassedtargetsforenrollmentandlearningoutcomes.

Asamodel forsimilarendeavors,however, themessage is somewhatmixed.Brookingsobserves thatwhile the deal aimed to serve as a proof of concept for impact bonds, the field still lacks rigorousevidence comparing theDIB financingmechanism to otherways of paying for social services.142 As aresult,decision-makersmustensurethattheapproachesusedinDIBs likeEGaretherightoptionsfortheproblemstheyaretryingtosolve.Eachsituation—andeveryWickedProblem—isdifferent.

RegardingEducateGirls’ next steps, it has chosennot toparticipate in thenext India-focusedQualityEducationDIB(oneof thethreesocial financeendeavorsdiscussed inthenextchapter).EducateGirlsparticipatedinitsdevelopmentphaseandwillserveastechnicalassistanceprovider.Bukharinotesthat,“Giventhatwearetheonlyorganizationgloballythathassuccessfullydeliveredonamulti-yearimpactbond, we were happy to contribute our experience to the thinking that went into it.We also wereexcitedtocontinueasatechnicaladvisor.”

ThereasonsfornotparticipatingintheQualityEducationDIB?AccordingtoBukhari,“Giventhesuccessof over-achieving outcomes/results in the [Educate Girls] DIB,” the organization is now busy with“reflecting and institutionalizing the best practices that emerged out of the DIB across 25,000schools.”143Shenotesthat,“Ourexpansionoverfiveyearsseesusdoubleourcurrentscale(from15to31 educationally ‘backward’ districts as defined by theGovernment of India) and triple our outreach(fromfivemilliontoover16millionchildren).Wewouldnotbeinapositiontotakeonapay-for-successcontractatthiskindofscale.Andalso,givenourfive-yearbudget,wearenotsureifsuchalargechunkofthepay-for-successfundisavailableyetglobally.”

EducateGirlsisinthemidstofraisingfundsfortheexpansion.Theexperienceandthenewinstitutionalrigorandculturearoundresults-basedprogramminginstilledbytheEducateGirlsDIBishelpingthem.Bukharinotes,“Wearenowlookingathowwesustainperformancewiththe learningcurriculumandperformancemanagement system being taken across ourwork.Wemight be in a better position toevaluateperformanceinanotheroneortwoyears.”144

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ThreeSocialFinanceProjects:DevelopmentImpactBondsandaSocialSuccessNote

Following up on the Educate Girls DIB, UBSOF has been involved in three more pay-for-successprototypes designed to demonstrate proof of concept for social finance. Each was created to meetdifferentneedsandwillbecarriedoutwithdifferentpartnersandproducedifferentoutcomes.Becausethe threepilotsare invaryingstagesofdevelopment, thedescriptionsof the individual investment inthis chapter will differ, and additional outcomes and lessons learned will undoubtedly follow in thecomingmonthsandyears.

ThreeSocialFinanceProjects

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UtkrishtMaternalandNewbornHealthDIB

SustainabilityGoal: SDG3:GoodHealthandWell-being.“Ensurehealthy livesandpromotewell-beingforallatallages.”145

TheWickedProblem

InRajasthan,anestimated60,000babiesdieeveryyear,andthestatehasanewbornmortalityrateof32deathsper1,000births.Maternalmortalityratesare2.4deathsper1,000 livebirths.146 India,asawhole, struggleswithhigh infantmortality rates andaccounts for 26percentof theworld’sneonataldeaths. The situation is particularly dire in Rajasthan and three other struggling Indian states, whichcollectivelyaccountforhalfofIndia’snewborndeaths.147

Most of these deaths are preventable, and UBSOF saw someone needed to step in to fund on-the-groundclinicsthatcouldsavewomenandchildren. Inordertoprovidethebirthandpostpartumcarenecessary to save lives, USBOF studied the holistic problem of newborn andmaternal deaths. Mostmaternaldeathshappenduringbirthorwithin fivedaysofbirth,andhalfof stillbirthshappenduringlabor and birth (mostly from preventable conditions like maternal infection, non-communicablediseases, and obstetric complications). These lives could be saved through the introduction of bettermedical intervention during and after birth, such as emergency obstetric care run by skilled healthprofessionalsandclinicsstockedwiththenecessaryequipmentandmedicines.

PartnersandParticipants

TheRajasthanUtkrishtMaternal andNewbornHealthDIB (also known as theUtkrisht Impact Bond),which launched in February 2018 after three months of mobilization, aims to fund those medicalinterventions by drawing together several partners who understand the importance of reducingmaternal and newborn mortality in Rajasthan. The design process for this DIB shows how multi-stakeholderfinancingstructurescanbedevelopedtosavelives.148Itservesasaprototypethatmaybeuseful for practitioners interested in establishing impact bonds, as well as for funders interested insupportingthesemechanisms.Figure14illustratestheorganizationalstructureandrelationshipsofthevariousstakeholdersintheDIB,andTable4providesasynopsisofthestructureoftheUtkrishtImpactBond.

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Figure14:UtkrishtMaternalandNewbornHealthDIBOrganizationalStructure

Source:2017UBSOF

UBSOFistheinvestingorganizationandwillcontributeuptoUS$3.5millionfortheDIB.Palladiumistheimplementation manager, and its role is to drive achievement of outcomes through performancemanagement,stakeholdercoordination,anddatamonitoring.Theon-the-groundserviceproviderswhorun the clinics are Population Services International (PSI) and Hindustan Latex Family PlanningPromotionTrust(HLFPPT).MathematicaPolicyResearchistheindependentverifierfortheDIB.USAIDandMerckforMothers(MSDforMothers)aretheoutcomefunders,offeringtopayacombinedUS$9millionifthestatedgoalsaremet.

UBS Clients

Donation from client or client's DAF

Outcome funders

Pays investor for outcomes according to pre-defined rates

Investor

Grants working capital to deliver program

Service providers

Receive grant to deliver results. Increase number of high-quality private sector healthcare facilities


Drives achievement of outcomes through performance management, stakeholder coordination and data monitoring

Independent verifier

Verifies outputs and outcomes are achieved within contractual timeframes

Government of India

Participates in oversight in a non-executive role and lays the ground for government outcome funding in phase 2

Key

Information flow

Financial flow

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Table4.ProgramStructureoftheRajasthanUtkrishtMaternalandNewbornHealthDIB

Source:2018pfc

ProgramStructureandStrategy

The first yearof theUtkrishtMaternal andNewbornHealthDIBbegan inearly2018with thegoalofhaving 427 healthcare facilities running by the end of the year, including 195 new facilities and 83existingfacilitiesataccreditationstandard.149

However, actual implementation began earlier during a three-month period at the end of 2017. Thisramp-up period was critical for further stakeholder engagement, final recruitment of staff,establishment of facilities and IT systems at clinics, deployment of the performance managementsystem,anddetailedworkonimplementationplanning.

Much liketheEducateGirlsDIB,serviceprovidershadtosubmitadetailedplanofactionbeforetheywereselectedto implementthisDIB.Theoperationalplanwasbasedoncertainbaselineassumptionsand goals, such as saving 2,000mothers and babies. The hope is that up-front planning like thiswill

Palladium

– MSD for Mothers [also known as Merck for Mothers] (US$4.5 million)– USAID (US$4.5 million)

– Hindustan Latex Family Planning Promotion Trust (HLFPPT)– Population Services International (PSI)

– UBS Optimus Foundation (US$3.5 million)– Co-investment from stakeholders: Palladium (US$300,000), Hindustan Latex

Family Planning Promotion Trust (US$500,000), Population ServicesInternational (US$500,000)

Mathematica Policy Research

Base case of 360 private healthcare facilities in Rajasthan, India; up to 444 facilities

Support for facilities to prepare for accreditation under a new joint quality standard for maternal and newborn healthcare

– Up to US$8M for investors and service providers on delivery of results– US$1M for independent verification and impact evaluation

Verification that a facility is ready for accreditation under the new standard

3 years with a three-month mobilization period and a four-month wind-down period

7.1% expected IRR for UBS Optimus Foundation, capped at 8%

Bilateral contractual arrangements between outcome funders, investors, andservice providers

– Up to 920,000 newborns, as well as their mothers, expected to be impactedover DIB term by improving 360 facilities to accreditation standards

– Aims to reduce maternal and newborn mortality rate and stillbirths across240,000 births a year

– Aims to save at least 2,000 lives


Outcome funders

Service providers

Investors

Verification

Beneficiaries

Intervention


Payment metric


Investment return rate

Legal structure

Expected impact

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makeitpossiblefortheseorganizationstograpplewithfewerchallengesintheearlymonthsoftheDIB.Ifthechallengesarereduced,itmaybepossibletosavesignificantlymorelives—asmanyas10,000livesoverafive-yearperiod,accordingtothehigherendoftheimpactestimate.

Toreachgovernmentaccreditationstandards,facilitiesmustmeetspecificmetrics,knownastheJointQuality Standards. These include access to care such as regular assessments; laboratory work andimaging services; emergency services like ambulances; patient rights standards such as involving apatientintheirhealthcaredecisions;andinfectioncontrol.

When these clinics are accredited, it will demonstrate to the state government of Rajasthan a cost-effective way to channel government funding to private facilities to improve health outcomes andreducethecostsofmaternalhealthcare.

IndesigningtheDIB,itbecameclearthatthemakeupofhealthcarefacilitiesinIndiahasbeenchanging.Between1998and2016,birthsatprivatelyownedfacilitiesgrewfrom6percentofalldeliveriesto17percentofalldeliveries.150

ScottHiggins,DirectorofOperationsforMerckforMothers(knownasMSDforMothersoutsideoftheUnited States and Canada), says another attractive element of the DIB was that it’s a new form offinancialagreement—anexcitingprospectthatfocusesonrewardingresultsandtheintentofhandingofftheprojecttothegovernment.“Wewerealsoattractedtothefactthatthiswasanovelfinancingmodel,”heobserves.“Itwassomethingthatwewereinterestedinexperimentingwith,toseeifthereareopportunitiestousethisonabroaderscale.”151

GoalsandProcessforAchievingResults

Thegoaloftheserviceprovidersistoimprovetheclinicstreatingmothersandtheirnewbornssotheycanreceivegovernmentaccreditation—astandardthatwouldsignifythattheclinicsarewellmanagedand capable of giving high-quality care to their patients. It also is the benchmark required to receivegovernmentreimbursementforserviceproviders.

Thebaselinegoal isto improveat least360facilitiestoaccreditationstandards. If thisgoal ismet, it’sestimatedtheseimprovementswillsave2,000lives.ThecostofsuccessisexpectedtobeUS$17,300peraccreditedfacility.

Higgins says the DIB was an attractive investment opportunity for Merck for Mothers, a US-basedinitiative that supports maternal health projects in 30 countries worldwide. Through the DIB,MerckcouldbeassuredthattheirUS$4.5millionwouldonlybepaidifthesegoalsweremet,whichremovestherisktotheoutcomepayer.“AnattractiveaspectoftheDIBisthatwe'repayingonoutcomes,notontheinput…”hesays.“Youknow,oneoftherisksofatraditionalfundingmodelisthatyouarepayingforactivity,butyoufrequentlydon’treallyknowwhetherthedesiredoutcomeswillbeachieved.”152

Priya Sharma, Senior Policy and Innovative Financing Advisor forUSAID, agrees, adding that DIBs areattractivefromabudgetaryandmissionperspective.“It'sveryintriguingbecauseit'samechanismthatis solely outcomes based,” she says. “USAID doesn't put in any resources or we don't make anypaymentsuntilorunlesstheagreed-uponoutcomesarehit.Fromabudgetaryperspective,that'squiteappealing. If theprojectdoesn'twork, thenwedon't loseanymoney.Wecanuse thatmoney toputtowardsaprojectthatisworking.”153

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Thetwoserviceproviderswerechosenfortheirexistingtrackrecordsandtheirprovenabilitytoscaleifequippedwith the proper resources. Hindustan Latex Family Planning Promotion Trust (HLFPPT) is asocialenterprisewithmorethan600employeesandpartnershipswiththeIndianMinistryofHealthandFamilyWelfareaswellas11Indianstategovernments.Theorganizationfocusesonimplementationofreproductive health programs, HIV prevention, and other care programs that promote healthy living.Population Services International (PSI) is a global health network ofmore than 60 organizations thatfocusonimprovinghealthoutcomesindevelopingnations.

LessonsLearnedfromEarlyDaysofUtkrishtMaternalandNewbornHealthDIB

While the UtkrishtMaternal andNewborn Health DIB is still in its early days, the design process forcreatingtheDIBhasalreadyrevealedsomelessons.

Lesson1:PayCloseAttentiontoEvaluationCosts

Transactioncostscanbeexpensivewithpilotprojects,especiallywithevaluation.Waystoreducecostsare to ensure a reasonable project size in relation to the evaluation cost; to keep in mind that anevaluationapproachthatgetsthejobdonedoesn’thavetobethe“goldstandard”;andtomeasureanintermediateindicatorifitsignificantlyrelatestotheoutcome.

Lesson2:ScaleandDiversity

HavingdiverseprocurementmethodsfromdonorsandfoundationshelpswithscalingaDIB.UnliketheEducateGirlsDIB, theMaternalandNewbornHealthDIBhadvery large-scalepartners:USAID,Merck(Merck for Mothers’ parent company), and Population Services International are all multinationalcompanieswithbroad reachesandeven largerbudgets. In2016,PSIaddedanestimated38.1millionyears onto the lives of almost fivemillion peopleworldwide.154 That same year, USAID spent almostUS$19 billion in 144 countries,155 while Merck for Mothers spent US$500 million serving six millionwomen.156ShouldtheDIBbesuccessful, theseorganizationshavetheresourcestoreplicateandscaletheirworkworldwide.

Lesson3:Identifya“Champion”

Animpactbond’ssuccessisoftenthedirectresultofachampionstakeholderorstakeholderswholeaddevelopment from concept through to implementation, ensuring that challenges are navigated,relationshipsmanaged,andmomentummaintained.

Lesson4:EngageLocalGovernmentEarly,HaveaViableProduct,andOpentheSelectionProcesstoaWiderPool

Stakeholderengagementupfrontisessential,butalsomeansjugglingmanyballsatonce.Engaginglocalgovernment from the start makes the rest of the DIB work flow much smoother. Having a viableminimumproductbeforeengaginganinvestormakesitmorelikelythattheDIBwillbefunded.Italsohelpstoopenuptheserviceproviderand/orintermediaryselectionprocesstoawiderselectionpool.When stakeholders are chosen, it’s necessary to maintain a living design document that all keystakeholderscanaccessinordertocommunicateastheDIBdevelops.

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Lesson5:DocumentBestPractices

ThereisabigneedforpublicrepositoriesofbestpracticesforDIBs,aswellastechnicalassistanceforkey local stakeholders, because bond developmentwill remain time consuming and costly until localpartnershaveaccesstomoreinformationandexperience.

Lesson6:MakeMetricsCentraltotheWork

Outcomefundersarebetterabletodeterminepricepointsfordonorswhenthereismoredataavailabletoinformthosedecisions.Serviceproviderscanbecontractedthroughacompetitiveprocessbasedonthosemetrics.However,insituationswherenotenoughdatahasbeencollected,it’snearlyimpossibletotellwhetheranorganizationhasahistoryofusingfundingefficientlytosavelives.

Conclusion

The application of DIBs to the health sector is an exciting development, particularly as it affects thevulnerable target population of mothers and newborn infants. The Brookings Institution notes thathealthcare provides especially promising opportunities for impact bonds, given the potential for highfuture returns, both to individuals and to wider society.157 As the number of impact bond initiativesincrease,morevaluablelessonswillemerge.

ImpactLoan(SocialSuccessNote)toImpactWater

SustainabilityGoal: SDG6: CleanWaterand Sanitation.“Ensure availability and sustainablemanagementofwaterandsanitationforall.”158

WickedProblem

According to UNICEF, diarrhea is the leading cause of death in children under five years of ageworldwide.Anestimated480,000childrendieeachyearacrosstheworldfromdiarrhea—about1,300aday.Globally,nearly850millionpeoplehavenoaccesstoareliable,qualitysourceofdrinkingwater.159

Ugandaisacase inpoint.Althoughhomeaccesstocleanwaterhas increasedinthecountry,childrenare still exposed to untreated water in their schools. The social business, Impact Water, wanted toexpanditsworkofprovidingsafedrinkingwatertoschoolsacrossUganda.AccesstocapitalfromUBSmade it possible for them to scale up more quickly. UV filters provided through the program allowschoolstoavoidtheneedtoboilwaterforcleanliness.Inadditiontothethreatofdeath,dehydration,fatigue,andotherailmentsthatcomefromdrinkingdirtywater, itcankeepchildrenoutofschoolforsignificantperiodsoftime.


To solve thisproblem, inApril2018,UBSOF teamedupwithRockefeller FoundationandYunusSocialBusinesstoofferanewtypeofimpactloan:TheSocialSuccessNote(SSN).AnSSN“blendsfundsfromdonor organizations, governments, and private debt and equity. It is intended to be sector agnostic,ultimately seeking tobuilda largerpoolofboth investmentandoutcome funding.”160 TheSSNworksthroughaninvestor(UBSOF)providingasocialbusinesswithfundinginexchangeforthepromisethat

46


they’llachieveaspecificsocialgoal. If thatgoal ismet,theoutcomefunderspaythe investorandthesocialbusinessforreachingthattarget.

Forthisproject,UBSOFistheinvestorandpaidUS$500,000fortheSSN;YunusSocialBusiness(YSB)isthe implementation manager; a local Ugandan consultancy, SEDC, is the verification evaluator; andRockefellerFoundationistheoutcomefunder.

Table5givesahigh-leveloverviewoftheproject,andFigure15providesanorganizationalsummary.

Table5:SynopsisoftheImpactWaterSocialSuccessNote

Source:2018pfc

Yunus Social Business

Rockefeller Foundation (US$200,000)

Impact Water

UBS Optimus (US$500,000)

SEDC

1.4 million children

Increase access to clean water by selling UV water filters to schools

If goals achieved: UBS Optimus Foundation will receive 60% and Impact Waterwill receive 40% of the outcome funds

Number of children in schools paying for and installing new UV water filters

5 years

Debt is priced at 5%, with UBS Optimus Foundation’ return at 10% iftargets are met

Pay-for-performance contract between stakeholders

Provide 1.4 million children access to safe drinking water in their schools


Outcome fundersService providers

Investors

VerificationBeneficiaries

InterventionUse of outcome funds

Payment metricDuration of impact bondInvestment return rate

Legal structureExpected impact

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Figure15:OrganizationalStructureforImpactWaterSSN

Source:2018pfc,adaptedTheRockefellerFoundation


ImpactWaterworkswithschoolsinUgandaandhasrecentlyexpandedtoKenyaandNigeria.ThegoalofthisSSNistoreach1.4millionchildrenoverfiveyears.161

ImpactWateridentifiesschoolsthatneedwaterfiltersandgivesthemazero-interestloantopurchasetheUV filters. Schools can start using the filters right away, and they pay back their loan as fundingcomes in from tuition payments over up to five school terms. ImpactWater notes thatmost schoolscan’taffordsuchfilters,whichcostbetweenUS$1,200andUS$2,000,ontheirown.

YSBchairandco-founder,NobellaureateMuhammadYunus,notes,“Socialbusinessesaroundtheworldaregainingmomentum,andyoungentrepreneursaregettingenthusiasticaboutthem.Tosupporttheirinitiatives,socialbusinessesneedcontinuingfunding,andIhopetheSocialSuccessNotesbecometheleadinginstrumenttofulfillthisneed.”162

Results,Outcomes,Success

ImpactWaterhasalreadyprovided1,300schoolswithUVfilters invariouscountries.TheSSNaimstofundUVwatersystems for3,600moreschools inUgandaby2021.Thiswouldallow1.4millionmorechildrentohaveaccesstosafedrinkingwaterintheirschools.

Impact Data Reporting

5

4 1

3

1 Investor profiles loan to socialEnterprise, Impact Water

Impact Water scales their clean water program with a loan

Impact Water sends impact report to a donor

Impact Water repays loan

Donor uses philanthropic capital to provide investors with a market based return

Cash Flow

2

3

4

5

Investors

Donor Impact Water

2

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SocialSuccessNotesmakesensewhenasocialbusinessneedscapitalinvestment,butfallsinthecracksbetween traditional fundingoptions.Theseorganizationsalsomaybeviewedas too riskyormaynotofferenoughfinancialreturnfortraditional investors.AndwhileSSNsrequiremorerisktolerance,theimpact—cleaner water and healthier children—is immense, says Tim Neville, Impact Water ChiefOperating Officer. “We staywith schools. It's riskier. It'smore headaches.” Neville says that as SSNsbegin toscale,moredoorswillopenas the investmentcommunitybegins to realize thesocial impactopportunities available.While ImpactWater is still not at breakeven, Neville is hopeful that asmoreinvestorsrealizetheirclientswanttobeinvolvedwithsocialfinance,SSNswillofferasolution.“Itisanexcitingtrend.This isoneof thethings thatkeepsmeenergizedabout theworkthatwe'redoing.”163Theseopportunitiesandchallengesarediscussedinthecaseanalyses.

Conclusion

While Impact Water is still in the early stages of implementation, some observations are alreadyapparent.Itcanbejarringforatraditionalinvestmentorganizationtoputitscapitalinsocialbusinessesthat may not immediately be profitable. But Lorenzo Bernasconi, Senior Associate Director forRockefeller Foundation, says the focus on social businessesmakes themost sense for SSNs, becausethey have the efficiency of for-profit businesses with a core mission that is socially focused. “Thestructureofasocialbusinessistoreinvestanypotentialprofitsbackintothegrowthofthebusiness,”he says. “I also see this as a solution to any business, really, that is looking to enter amore difficultmarketwherethere'sthepotentialforimpactbutwheretheywouldneedsomekindofsubsidyonthefinancingsideoftheequationtomakeitworkforthem.”164

An important valueof theSSNmaywellbe its simplicity.AsMayaZiswiler,Headof Social FinanceatUBSOFnotes,thelowtransactioncostsintheSSNare“akeycomponent”inthedesignandsuccessofthemodel.Bruystenagrees: “We reallywanted tomake it very simple,becausewewereworriedwewould alienate investors [if] it’s just too complicated.”165 It remains to be seen if this simplicity willtranslate into a substantialmitigation of aWicked Problem in Uganda and elsewhere, but the initialresultsseempromising.

TheQualityEducationIndiaDIB

Sustainability Goals: SDG 4 and 5: “Ensure inclusion and equitable quality education andpromotelifelonglearningopportunitiesforall”166and“achievegenderequalityandempowerallwomenandgirls.”167

WickedProblem

AsnotedintheprevioussectiononEducateGirls,Indiaisfacingacrisisineducation.Whilethenationhasmadeprogresstowardsachievinguniversalprimaryschoolenrollment,qualityofeducationremainsa key challenge. Many Indian children still lack basic literacy and numeracy skills.168 Children oftenstruggle due to teacher shortages and teacher absenteeism; inadequate teacher qualification andsupport; a large variation in student abilities in each classroom; poor institutional capacity; a lack ofaccountabilitysystems;andalackofaconducivelearningenvironmentintheirclassrooms.

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UBSOFisusingtheEducateGirlsDIBexperiencetoshapetheQualityEducationIndiaDIB,whichaimstoimprove literacyandnumeracyskills for300,000elementaryschoolchildren in three regionsof India:Delhi, Gujarat, and Rajasthan. The goal is to get local children up to their appropriate grade-level intheseskills.TheDIBlaunchedin2018.


UBSOF isprovidingupfrontworkingcapitalofUS$3million toprovideeachserviceprovider funds forthefour-yearprogram.AccordingtowebsiteaboutthenewDIB,“MichaelandSusanDellFoundationisthe anchor outcome funder for the DIB, and the British Asian Trust has convened a group of othercriticaloutcomefunders,includingTataTrusts,ComicRelief,theMittalFoundationandBT.”169Figure16illustratestherelationshipsbetweenthepartners.

Figure16.OrganizationalStructurefortheQualityIndiaEducationDIB

Source:2018UBSOF

ThetotaloutcomefundraisedfortheDIBisUS$11million,“withthegoalofdoublingthesizeoftheDIBinthecomingyears.”170

TheDIBtechnicalassistancepartner is theUKDepartment for InternationalDevelopment(DfID);GreyMattersIndiaistheevaluator;andDalbergistheperformancemanager.

Much like the Educate Girls DIB, service providers for the Quality Education India DIB were chosenbecauseof their significant experiencedirectly or indirectly supporting students in low-incomeareas.EachhasatrackrecordofsupportingeducationalimprovementinIndia:

• Gyanshala’smissionis“toenablePoorRural/UrbanSlumChildrentojointheProfessionalClassofTomorrow.” One of the largest non-government school education programs for poor children inIndia, its programs include Elementary School,Middle School, and High School Education, and itoperates innine Indiandistrictsacross fourstates.Thegroupholds freeprivateschoolclasses for

Dalberg

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children in first through third grade in slums in Ahmedabad and Surat in the state of Gujarat.Gyanshala provides funding to open more classes, enroll more students, and improve learningoutcomesforstudents.

• KaivalyaEducationFoundation(KEF)started in2008withthefocusoftransformingthequalityofeducation inpublic schoolsbyproviding leadership training toschoolprincipals.Since then, ithaspartneredwithmanygovernment,private,andeducationalinstitutionstoimpactmorethan1,200schools in the three states of Rajasthan, Gujarat, andMaharasthra. KEF also seeks to expand itsSchool Leadership Development Program, which aids school principals to be prepared formanagementdutiesandtotrainmoreprincipalsandteachersinabout210schoolsinAhmedabad.

• SocietyforAllRoundDevelopment(SARD) isanonprofitorganizationdedicatedto increasingtheparticipationofminoritiesanddisadvantagedcommunities inmainstreamdevelopmentprocesses.SARD’s goal is to empower these groups, particularly women and adolescent girls, by improvingtheir access to quality education and health services; providing vocational training; introducingmicro-credit programs; and promoting environmentally sustainable income generating activities.Thegroup’sfocusistobuildtheorganizationalandleadershipcapacitiesofitsstakeholders.Ittakesaholisticandintegratedapproachtodevelopmentthatfavorsthesustainabilityofitsprogramsbyproviding people access to the tools, training, and structures they need. SARD uses direct andindirectmethodstohelpchildrenimprovetheirlearningoutcomes.

ProgramStructureandStrategy

TheDIBwillaggregateandfacilitateimpactcapitaltoreplicateandscaletheinnovativefinancingmodelandcreateaparadigmshift ineducation financing.TheDIBaims todisburseoutcomepaymentsoverfouryears,reaching300,000primaryschoolchildreninIndia.Theoverallprogramcost isestimatedatabout US$7.6million, with about US$400,000 required for operating costs. Table 6 explains the DIBstructure.

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Table6.TheEducationIndiaDIBStructure

Source:2018pfc


TheDIBhasfourobjectives:

• Demonstrate the valueof anoutcomes-based approach in helping to deliver greater/ consistentimpactinschools.

• Develop a market for outcomes by providing greater transparency around cost per impact unitacrossdifferenttypesofprogramsandserviceproviders.

• Unlock more private capital to increase the overall pool of available capital to high-qualityeducationprogramsthatdeliverimprovementsinlearningoutcomes.

• Actasproofofconcepttogovernmentandpavethewayforgovernmentparticipationininnovativefinancingvehicles(suchasaSocialImpactBond).

– Dalberg– Department for International Development (technical assistance partner)

The British Asian Trust, The Michael & Susan Dell Foundation, Tata Trusts,Comic Relief, The Mittal Foundation, Department for International Development(DfID), and British Telecom (BT)

Gyanshala, Kaivalya Education Foundation (KEF), and Society for All RoundDevelopment (SARD)

UBS Optimus Foundation

Grey Matters India

300,000 children

Support education providers in India to improve learning outcomes for over300,000 primary school students in India.

Implement and scale quality education interventions across India across a range of operational models, including direct school management, supple-mentary programs and principal and teacher training.

Improvement in learner outcomes as measured by proficiency in literacy inlocal language and math

Four years

Expected IRR of 8% if outcome targets are met

– Increase of enrollment of all schools supported by service providers fromabout 103,000 students to about 187,000 students. Increase learning gainsto get students on or near grade level.

– (Specific targets have been established for each service provider.)


Outcome funders

Service providers

Investors

Verification

BeneficiariesIntervention


Payment metric


Investment return

Expected impact

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TheDIBisexpectedtoincreasethereturnoncapitaldeployedbyestablishingrobustaccountabilityandperformancemanagementmechanismsthatexplicitlylinkoutcomefundswithperformance.Itwillalsofoster more innovative and effective programming compared to a traditional grant-financingmechanism.

StudentsmoveinandoutofschoolsfrequentlyinthesethreetargetedareasofIndia,sotheoverallgoalistoimprovelearningoutcomesforabout300,000studentscumulativelyoverfouryears.Thisincludesstudentswholeavetheschoolsduringtheprogramterm,studentswhoenrollduringtheprogramterm,andstudentswhostayforthedurationoftheprogram—whichiswhythatgoalislargerthanthespecificenrollmenttarget.Theoutcomegoalistohaveabout187,000studentsenrolledinDIB-relatedschoolsattheendofthefourthyear.

CommunityVoicesMatter

ThisDIBtakeslessonsfromtheEducateGirlsDIBandmakessureserviceprovidersunderstandthattheyareexpectedtointeractwiththestudents,theirparents,andthelocalcommunitiestoseewhethertheoutcomesbeingprovidedareactuallywhatthecommunityneeds—ratherthanjustwhatstakeholdersthinkthesecommunitiesneed.

“Weare lookingforserviceproviderswhoworkverycloselywiththeendbeneficiariesoftheservicesthattheyprovideandwho…canshowanddemonstratethattheinterventionortheservicethatthey'relookingtodeliverhasbeeninformedfirstbyanassessmentofthelocalneed,”saysRadanaCrhova,DfIDDevelopmentImpactBondsAdvisor.“So,isthisworkthatwe'regoingtodoneeded,and,ifso,[arewe]lookingatwhataretheoutcomesthatpeopleonthegroundaremissingrightnow?”171

Crhovasaysit’sbest,wheneverpossible,forstakeholderstospeakwithmembersofthecommunitiesinwhichthey’rehopingtosetupaDIBprogrambeforetheDIB isactually implementedandtocontinuethese discussions as theDIB progresses. Community voicesmatter in these decisions, she says, sincethey are theprimary customers in thisDIB. “How couldwebestworkwith them in order to achievethoseoutcomes?”sheasks.172

EarlyLessonLearned:OpenCommunicationsareEssential

As the DIB is implemented, Crhova says DfID is keeping communication lines wide open withstakeholders to get theDIBoff to a smooth start by avoidingearly issues andby allowing fornimbleadaptationwhenroadblocksinevitablyarise.

“Ithinkit’sstilldowntoregularcommunicationandmakingsurethatwe…arefosteringanopenculturewithintheproject,”Crhovasays,“whichmeansthateverypartyinvolvediswillingandabletospeaktousaboutanyearlyconcernsorearlysortofwarningsofanythinggoingawry. [It’s important] thatwekeepintouchregularly[and]thatweactuallyphysicallyvisitpeopleinthefieldasmuchaswecan.”173

Havingonlyjustlaunched,thisDIBwillprovideaninterestingcasestudy,buildingonthesuccessoftheEducateGirlsDIBandincorporatinglessonslearnedfromotherDIBsandimpactloans.

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Conclusion

Asstatedearlierinthiscasestudy,theEducateGirlsDIBandthesesubsequentUBSOFpay-for-successprototypeswere created for theprimarypurposeofdevelopingproofof concept todemonstrate theeffectiveness of results-based financing mechanisms that have emerged in recent years. UBSOF hasbeenapioneerinthisendeavor.

Social finance mechanisms that combine the best of private sector efficiency and financing,organizational support, and impactmeasurement can create farmore than the sumof their parts.174Private sector capital is crucial to help achieve the UN’s 17 Sustainable Development Goals.Nonetheless, the combination of expertise and networks that newmechanisms that can bring to thedevelopmentsectorisequallyimportant.175

DhunDavar,ProgramDirector,SocialFinanceatUBSOF,addsthatitcanbealmostadecadebeforeanylong-lastingimpactofathree-yearprogramcanreallybeseen.InDavar’sview,changetakestimeandpatience,anditcanbedifficulttogetdonorstoembracethattimescale.176

Itcanalsobechallengingtogetdonorstoseethe“bigpicture”goals.177SinceDIBsrelyonthesuccessofa specific social goal, choosing the correct goal and the subsequent benchmarks are essential to theviabilityofaprogram.

As the resultsof theseadditional financingmechanismsaremeasuredagainstexpectationsandcosts,thesocialfinancesectorwillcontinuetobeinformedandwillundoubtedlycontinuetoevolve.

“I think that recognition andunderstandingof expectations andwherepartners are coming fromareabsolutelycritical,”saysMayaZiswiler.“Itreallyisaboutbeingopenandhonestandupfrontaboutwhatyourexpectationsareandwhyyou’redoingsomething,and, if incentivesaren'taligned,weshouldn'tengageinthepartnership.”178

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DeliberateLeadershipinAction

HavingdescribedUBSandUBSOptimusFoundationandfoursocialfinanceprototypes,thecasestudynowexaminestheseinvestmentsthroughthelensofWickedProblems,usingtheDeliberateLeadershipframework.Asnotedearlier,theconceptofWickedProblemsemergedfromthefieldofurbanplanningin theearly1970swhenBerkeleyprofessorsHorstW. J.RittelandMelvinWebbersought todescribe“wickedly”complexsocialproblems.179

RittelandWebberputforwardtencharacteristicstoidentifyWickedProblems:180

1. Theyhavenodefinitiveformulation.

2. Theyhavenostoppingrule,orarenevercompletelysolved.

3. Theirsolutionsarenottrue-or-false,butgood-or-bad.

4. TherepercussionsofaWickedProblem’ssolutioncanneverbefullyappraised.

DeliberateLeadership

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5. Everyattemptedsolutioncountssignificantly,leavingtracesthatcannotbeundone.

6. Theydonothaveanexhaustivesetofpotentialsolutions,anditisnotpossibletoprovethateverysolutionhasbeenidentifiedandconsidered.

7. Eachoneisessentiallyunique.

8. Eachonecanbeconsideredasymptomofanotherproblem.

9. One’s choice of explanation for a Wicked Problem determines the nature of the problem’sresolution.

10. Thosewhoattempt tosolveWickedProblemsareheld liable for theconsequencesof theactionstheygenerate.

This concept is now used widely by business leaders, particularly in the development field. WickedProblemsarelarge,messy,complex,andsystemic,andincludemanyofthemostchallengingissueswefacetoday,fromglobalissuesofpovertytolocalissuesoffailingeducationsystemsandlackofaccesstowater, food,andfinancialsecurityandstability.TherearenoeasysolutionstoWickedProblems,and,thoughenormousprogresscanbemadeinalleviatingthem,theywillremainwithus.

Some scholars distinguish between Critical, Tame, and Wicked Problems. The first are urgent andrequire command-and-control leadership (“the house is on fire”). The second are technical and havebeensolvedmanytimesbeforeandrequiretechnicalexpertise(“theroadmustbebuilt”).Thethirdarealways being approached for the first time and require adaptive leadership and collaboration andpartnership.181

Deliberate Leadership is anamalgamof themostpopular andcommonly taught leadership strategiestaught in business schools around the world. These leadership strategies are a response to thechallengesposedbycomplex,systemicchallenges.TheDeliberateLeadershipframeworkisdesignedforleaderstouseintacklingproblemswithnoeasyorconsensussolutions.EachcharacteristicofDeliberateLeadership is based on proven business and social sector theory and practice. They are recognizedleadershipstrategiesusedincreatinglastingpositivechangewithincompaniesandorganizationsandinthelivesofpeoplemostaffectedbytheconsequencesofWickedProblems.

The seven core characteristics (the 7C’s) of Deliberate Leaders are those that institutions, andindividuals in those institutions, must consistently display to demonstrate flexibility and maximizelearning:

• Courage—to embrace risk and live with ambiguity. Deliberate Leaders recognize that simplesolutions are insufficient to address complex challenges. They also realize that risk is inherent toWickedProblems.Solutionsmustbetried,tested,andallowedtoevolve.

• Collaboration—to seek out and listen to divergent viewpoints. Deliberate Leaders recognize thatbuilding collaborative solutions may be slow and uncomfortable, but essential to understandingoptions,gainingnewknowledge,andbuildingpowerfulsolutions.

• Community—to build solutions together from the ground up. Deliberate Leaders recognize thatanswerstotoughissuesmayalreadyreside inPositiveDeviants.Theyseekuncommonanswerstodifficultsituationsandputpeopleatthecenterofdecision-making.

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• Candor—to speak and hear the truth about what is working and what isn’t. Deliberate Leadersembracefailureandsuccessequally—internallyandamongpartners—tomanageriskandallowforrecalibrationandinnovation.

• Creativity—to imagine a new future and move beyond the constraints of the past. DeliberateLeaders look for “big ideas” and evolving practices through scenarios that envision a differentfuture.

• Capital—to examine how financial and non-financial resources are invested and how impact isanalyzed.

• Compassion—to understandhowempathy andpartnership, not ego, impact thepowerdynamicswithinandsurroundinganorganization.

ThesevencharacteristicsofDeliberateLeadershipapplyequallyacrossall threephasesoftheprocessby which organizations learn and adapt in order to deal successfully with Wicked Problems.Organizationallearningisimportantatboththeprogrammaticandtheoperationallevels;theevaluationprocess must apply to both. The three phases of organizational learning and change are: Phase I—Partner and plan; Phase II—Act and assess; and, Phase III—Reflect and recalibrate (see Figure 17).LearningandrecalibrationarecoveredinCaseAnalysis5.

Figure17.TheDeliberateLeaderLearningProcess

Source:2016pfc

PartnerMap stakeholders and partners

ListenTo community, threat-opportunity analysis

PlanDevelop theory of change, learning framework

ActImplement framework

RewardCandor and risk

AssessDocument impact, numbers and nuance

ShareLearn with Partners

ReflectOn impact

RecalibrateStrategies, assumptions

1Phase I:

Partner and Plan

2Phase II:Act and Assess

3Phase III:

Reflect andRecalibrate

Deliberate Leader

Learning Process

Organizational Learning

Program Learning

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LessonsinDeliberateLeadership

In this case study, pfc uses the Wicked Problem and Deliberate Leadership frame to examine theperspectivesofUBSandUBSOptimusFoundation staff and their fellow funders andpartners as theyrecounted theirperceptionsof successes, challenges,and lessons learned.Thisanalysisoffers insightsinto how Deliberate Leaders embrace factors that can get in theway of positive impact: values andbeliefs; organizational development and culture; clarity and communications about roles andexpectations; accepting and celebrating risk and failure; alignment among funder, investor, serviceprovider,andthechildrenatthecenteroftheinvestment;and,ultimately,deeprecalibrationbasedonknowledgeandlessonslearned.

Featuredperspectivesinclude:

• Case Analysis 1: Rebuilding Culture Inside a Giant Bank. Phyllis Costanza, CEO of UBS OptimusFoundation,reflectsonhowshecreatedateamandorganizationreadytoembraceinnovationandriskinsocialfinancetoimprovethelivesofvulnerablechildren.

• CaseAnalysis2:BalancingRiskandRewardforResults.Partnersacrossthefourprototypesdiscusstheirperspectivesonrisk,failure,andcollaboration.

• CaseAnalysis3: Treating theCommunityasaValuedClient. Severalpartnersexaminehow theyinvolveclientfeedbackandwhatacceleratesprogressandgetsintheirway.

• Case Analysis 4: Multi-player Alignment for Impact. It is hard to align interests, roles andresponsibilities, and expectations when working across diverse teams and collaborations.Intervieweessharetheirexperiencesabouthowtokeepandsustainstrongworkingrelationships.

• CaseAnalysis5:HowDoesUBSOFLearnandRecalibrate?Asnewapproachesinsocialfinanceareexplored, constant iterationand learning isneeded.This caseanalysisexploreshowUBSOptimuslearnsasateamanditeratesstrategywhilesharingitsresultswiththefield.

• Case Analysis 6: What Does It Take to Scale? Taking solutions to scale through new capital isessentialiftheambitiousSDGsaretobemet.Partnersacrossprojectssharetheirinsightsaboutthedefinitionofscaleandwhatgetsintheirway.

The story of UBS Optimus Foundation and the work of its Social Finance team and its partners arecomplex and offer rich learning experiences. Therefore, we offer several case analyses featuringparticularly relevant elements of the Deliberate Leadership framework. Each case analysis posesquestionsforstudentsandthebroaderfieldofsocialfinancetohelpanswerthequestion,“Whatwouldyoudo,giventhecircumstances?”

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CaseAnalysis1:RebuildingCultureInsideaMajorFinancialInstitution

Integrityiskey…it’sthethingsthatyoudowhennobodyiswatching.Thosethingsmatter,andweallsensethem,andifwesensethatsomebodydoesn'thaveit,wedon'tbuyintowhatthey'redoing.You

know,wecareaboutsocialjustice,andwecan'tfakethat.

—PhyllisCostanza,CEO,UBSOptimusFoundation182

UBSOptimusFoundation(UBSOF)is,inthewordsofscholarRichardPascale,“actingitswayintoanewwayofthinking”foritsorganization,thebankinwhichitishoused,theclientsitsupports,itspartners,andthebroaderfieldofsocialfinance.183Manyorganizationsandleaderswronglybelievethattheycanthink their way into innovation and action—especially when addressing complex challenges. But it isacting differently that will help build new frames of reference and that changes the organizationalmindsettoacceptrisk,experiment,andbeopentonewpartnershipsandopportunitiesforinnovation.

RebuildingCultureInsideaMajorFinancialInstitution

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This analysis examines how CEO Phyllis Kurlander Costanza reimagined the Optimus Foundation andcreatedaculturethatembracesanewwayofactingandthinkingtofulfilltheFoundation’svisionandmissionofsupporting“aworldwhereallchildrencanreachtheirfullpotentialbyensuringchildrenaresafe,healthy,educated—andreadyfortheirfuture.”184

UnderCostanza’sdirection,UBSOFhasspurredtheevolutionofthesocialfinancefieldbyleadingworld-class innovations with its partners through the first education and healthcare Development ImpactBonds (DIBs) and a Social Success Note. These efforts have a common hallmark—they tie outcomepayments to measurable impact. By prototyping possible solutions to scale and showing ways toleverage private sector financial resources to meet the UN’s Sustainable Development Goals, UBSOptimus Foundation is also helping UBS clients improve the lives of vulnerable children and theirfamilies.

Costanza’s leadership approach touches on many tenets of Deliberate Leadership. As Figure 18illustrates, Deliberate Leaders are guided by values and beliefs that shape internal culture,organizationaloperations,andprogrammaticoutcomesandlearning.HarvardacademicandleadershipexpertRonHeifetznotesthatadaptiveleaders—capableofridingthewaveofcomplexityandchaos—mustgroundthemselvesandtheirteams(withinandbeyondtheboundariesoftheirorganizations)withdiverse perspectives, while also sharing common values and respect.185 This diversity enables crosschecks and the ability to question ideas and innovations to refine themand tomake them ready forrollout.Thisopennessalso requires thata leadercreateasafespace fordissenting ideas, forbuildingtrust,andforsupportingtransparencyandcandor.

Figure18:LeadershipandOrganizationalCultureinSupportingInnovation

Source:2017pfc

According to sector scholars, organizational culture is shaped by a leader’s values and beliefs and iscommunicated through norms, artifacts, and behavioral patterns.186 These values become socialdeterminantsforanorganization’sroutinesandpractices,andtheyenabletheconditionsandclimatetoinfluenceemployeebehaviorandcreativitypowerfully.187Whenleadershipvaluesareclearandsharedacrossanorganization,innovationisspurred.188

Socially innovative actions, strategies, practices, and processes are mostly responses to WickedProblems.189Inthe“institutionalizedfield”ofpublicorprivateaction,theinabilitytouselinearthinking

STRATEGIC LEARNING,

EVALUATIONRECALIBRATION

THEORYOF

CHANGE

PROGRAMRESULTS

VALUES,BELIEFS,CULTURE

STAFF,BOARD,

PARTNERS,STAKEHOLDERS

PROGRAMAND STRATEGY

ORGANIZATIONALSTRATEGY

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approachesandtoproducesatisfactorysolutionstowicked,complex,andintractablechallengessuchaspoverty, exclusion, segregation, and deprivation creates the need for social innovation.190 Socialinnovation, however, does not occur in a vacuum. Addressing Wicked Problems through businesspracticesandsocialinnovationsrequiresDeliberateLeadershipanddevelopmentstrategiesforhelpingorganizationsmirrorpracticesandapproaches—internallywithstaffandexternallywithstakeholders.191

Costanza built diverse and collaborative teams with the support of her board, staff, and externalpartners. The trajectory of Costanza’s leadership role as she rebuilds the Foundation is grounded inpartnershipandadaptability.ThisanalysisprovidesinsightsintooneCEO’sapproachtobuildingastrongorganizationalculturethatembracesinnovationandtransparency.

NewCEO,NewChallenges

Weneedtoworktogether,andit'snotjustwithinthetwotothreeteams(operations,fundraising,andprograms),butit'salsowithinUBSoverall.Andit'sapoliticalenvironment,asaremostlarge

corporations.I'veworkedinNewYorkCitypolitics,soIunderstandpoliticswithabigandsmall“P.”Andthethingaboutworkinginphilanthropyinafinancialinstitutionisthatwhileit'snotthecorebusiness,it’sstillinterestingandgivespeopleasenseofpurpose.Everyonewantstobeabletogiveoutmoney

andfeellikethey’remakingadifference.


Phyllis Costanzawas recruited byUBS to become CEO of theUBSOptimus Foundation in 2011 afterhavingsuccessfullyhelpedlaunchtheChildren’sInvestmentFundFoundation(CIFF)andservingaspartofitsleadershipteamforeightyears.TheUK-basedfoundationwasstartedbyahedgefundexecutiveand Costanza’s former classmates from Harvard’s Kennedy School. Costanza was ready for a newadventure,andsheandherfamilywereattractedtoZürich,butthecultureoftheOptimusFoundationwasnotwhat she expected. She knewpolitics—having served asNewYorkGovernorMarioCuomo’srepresentative for Manhattan—but she was unprepared for the intrigues of a Swiss global bank.Emerging from a devastating global recession that required a government bailout, UBS was goingthroughamajortransformation,andithadtorebuilditsreputation.DespitethefactthatonethirdoftheSwisspopulationbankedwithUBS,thecitizenryhadlosttrustintheinstitution,andemployeesofthe Foundation had been told not to say anything about publicly Optimus, for fear that it would beviewedasaloinclothforthebank.193

When she arrived,UBSOptimus Foundation reflected the culture of the bank—risk averse andmorecomfortablerunningquietlyandunobtrusively.

CostanzahadtoreexaminehervaluesandmakesuretheywerealignedwiththoseoftheFoundationandthebank.Intheearlydays,sheadmits,thereweretimeswhenshewonderedifshemadetherightmove.Atthecenterofherdecisiontoacceptthechallengewasthevalueofintegrityandadeepdrivetoimprovethelivesoftheworld’smostvulnerablechildren.CostanzabelievedthatUBS—withaccesstoclients with significant financial resources and a commitment to philanthropy—could helpmove thisimportant agenda forward. Operating under the directive from the then-Board Chair to take theFoundation“tothenextlevel,"Costanzagottowork.

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She identified four areas of improvement: an underperforming board; operational inefficiency;ineffective programmatic strategy; and a staff that lacked the right drive, skills, and vision. Costanzarecognizedthatrebuildingthefoundationwasnecessarytoboostcollaboration,skills,andscale—bothwithinUBSandtheFoundation.

HowtoOvercometheMessyMiddleWithinherfirstmonth,CostanzadivedintoleadingtheFoundationthroughitsmostpressingissues.AsFigure 19 illustrates, her approach to dealing with these challenges was what some managementtheoristsreferredtoastheparadigmofmanagingup,down,andacross.EventhoughasCEO,shefoundherselfinthe“messy”middle,shewasabletomanageupbyreorganizingtheboardandbygettingbuy-in fromUBS.Shewasalsoconfrontedby thechallengeofmanagingacrossby implementinga radicalimprovement in operational efficiency of the Foundation and by also changing its programmaticstrategy.Finally,shehadtomanagedownbydealingwithstaff,someofwhomwereill-preparedtohelptheFoundationachieveamoreambitiousprogramvisionandstrategy.Ultimately,shewasabletowalkthefinelineofmanaginganin-housefoundationofoneoftheworld’slargestfinancialinstitutions.

Figure19.DiagnosingandTrackingtheEarlyChallengesatUBSOF

Source:2018pfc

Phyllis Costanza(CEO, UBSOF)

Managing UpUBSOF Board,UBS CEO, etc.

Managing Down

Staff

Managing Across

ProgrammaticStrategy

Managing Across

Operations

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InstillingBoldActionbyEmpoweringEmployeesIthinkthemostimportantthingaboutleadingateamisthatyouenablethemtoperform.And,weknow

thatthehighestperformingteamsaregenerallypeoplewhoaresatisfiedintheirwork.Whatgivespeoplejobsatisfaction?Thetwomostimportantthingsarethattheyhaveasenseofpurposeandthat

theyfeelempoweredtomakedecisions.


HowDiplomacyHelpsYouShakeThingsUpThefirstchallengeCostanzatackledwasthereorganizationoftheboard.Costanzaexplains,“Theboardcomprised people who were well meaning and certainly very smart, but not necessarily globallyrecognized leaders.” Shewanted toaddboardmemberswho representeddiverse leaderswithinUBSand externally. This diversitywould stimulate richer discussion anddebate, but also added credibilityand objectivity. An outside search firmwas used, and Costanza solicited recommendations from theexistingboardmembers.Therestructuringoftheboardwasnot instantaneous,however.Theprocessstartedgraduallyovertheseveralyears.Boardmemberswerereplacedwhentheirtermscameuporatwhatseemedtobetheappropriatetimetodoso.

Among the issues faced by Costanza during the board reset was that the group lacked the specificoperational expertise pertinent to UBSOF’s new direction, as well as the large-scale fundraisingconnectionsneededtotaketheFoundationtothenextlevel.Withtime,diplomacy,sharedvision,andtransparency, Costanza reorganized the board in a way that served the best long-term interests ofUBSOFwhileminimizingpotentialfrustrationandillwillamongfoundingboardmembers.

HoldingYourselftoHigherStandards

The second challenge Costanza tackled was operational efficiency. The Foundation reviewed andrevamped theway it saw donations, (i.e., fromwhomwere the donations coming,where theyweregoing, and the countries from which the donations were received). The Foundation and Costanzaworkedwiththelegalandcompliancedepartmenttoensurethattheywereholdingthemselvestothehigheststandards.Afterthereview,theFoundationessentiallystoppedactivelyseekingdonationsforayear—anddonationincomedroppedfromanall-timehighofmorethanUS$35mtoaboutUS$11m.

The law firmBakerMcKenziewashired todo a thorough reviewof donations—which countries theycould come from, and if they were accepted, what were the tax liabilities or tax obligations of theFoundation.SaysCostanza,“Atthetime,weasked,‘Howcanweensurethatpeoplemakingdonationswereactuallyfullytaxcompliant?’Wewantedtoholdourselvestoamuchhigherstandardthanothernon-profits.”195Afterthereview,adecisionwasmadenottoacceptdonationsfromclientsotherthanSwisstaxresidents,becausetheFoundationwasonlyregisteredinSwitzerland.Today,theFoundationacceptscontributionsfromallglobalofficesintheUS,theUK,Germany,HongKong,andSwitzerland.

WhyNecessaryEvilIsSometimestheBestThing

Costanza sawgreatpotential inabank thatmanagesmore thanUS$3.2 trillionworthofassets todogoodinsociety.Takingadvantageoftheopportunity,CostanzaopenedanofficeinHongKong,becauseitwasoneofUBS’slargestoffices,andAsiawasapriorityregionforthecompany.Thisstrategicdecision

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alloweddonationsfromUBSclientsfromHongKong.AparalleldecisionwasmadetoclosetheprogramofficeinSouthAfrica.Costanzaexplains,“Asafoundation,weweren’tpermittedtofundraiseinSouthAfrica.And,wewererevisingourprogrammaticstrategyandapproachtograntmaking,andIthoughtitwasessential todothat inaveryhands-onway fromourcorporateoffice. Iwantedtobuildastrongcultureandcommitmenttoexcellenceandthenbuildout.”196

ClosingtheofficeinSouthAfricawasbothacomplicatedanddifficultdecision,butoneCostanzaneededto make. Harvard Business School professor Joshua Margolis and Andrew Molinsky of BrandeisUniversity’sInternationalBusinessSchooldescribethesechallengesanddiagnosticsas“necessaryevils”that exist at the heart of professional and leadership positions. They are among themost unsettlingresponsibilitiesfornewmanagers.197

Furthermore,necessaryevilsoccupysuchasignificantandcentralplacebecausetheydistilltheburdensmanagersshoulderastheytrytodowhatisbestfortheirorganizations,andinsodoing,theyexerciseconsiderable power over people's lives. They are especially common when companies are trying torecoverfrompoorperformance,transformthemselves,orengineerchange.198,199,Classicexamplesfrommanagement include laying people off for economic reasons, firing people for poor performance,denyingpromised resources, deliveringnegativeperformance feedback, and terminatingprojects andcontracts.

After opening theHongKongoffice and closing the SouthAfrica office, the firstmajor programmaticstrategythatCostanzaandherteamundertookwastoevaluatealltheFoundation’sgrantsanddoanassessmentofwhatwasorwasnotworking.Thiswasapainstakingprocess,astheFoundationwasnotsystematicallycollectingsuchinformation.“Itturnedintoanextremelysubjectiveexercisethatreliedonprogramstafftoassesswhetherthegrantstheyawardedwereperformingwell.Sufficeittosay,therewassomeconflictofinterest,”Costanzasays.200

BlazingGunsandBuildingTrust

The challenge with staff issues was handled simultaneously with the three other main challenges,alreadydescribed.WhenCostanzawashired, shewasadvised tobeculturally sensitive,explaining, “Iwas told, ‘You are an American, and UBS is a very Swiss bank, so don't cause a revolution.Wait toreplacestaffforabout12months.’”201

Unfortunately, Costanza was facedwith her first HR challenge during her first week on the job. Sheasked themost senior person in the office to give her an overview of the projects, asking for basicinformationabouthowmany,locations,averagesize,bestperforming,etc.Thestaffmember,whowastheHeadofPrograms,couldn’tansweranyofthequestions.Costanzawasforcedtotakeaction.“Iwenttomybossandsaid,‘IknowyoutoldmeIcouldn'tfirepeopleforthefirstyear,andI'monlyaweekin,butthisisunacceptable;youwouldn'tacceptthisfromanyofourbankingcolleagues,andweshouldn'tacceptithere.’Andthatwasmyintroduction.”202

After this dramatic episode, Costanza commenced staff meetings over two weeks to kick-start atransformation effort and to gather feedback directly from the staff. By doing this, she created anenvironment inwhichemployees’feelingsandideaswereheardandacknowledged.Shebeganwithatrust-buildingmovementthatfocusedonempoweringtheteamtoexpandoutsideoftheircomfortzoneandtosharetheiropinionsfreely.Whilethisapproachwassometimesuncomfortable,Costanzagained

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direct staff insight that allowedher tobeginbuilding the framework for improvement. Sheexplainedthat in two weeks, “I interviewed ten staff and asked three questions: What did they think theFoundationdidreallywell;whatwouldtheychangeintheorganization;andwhatwouldtheydomoreof?” Costanza believes this experience helped her learn more about the organization and allowedpeopletobecomemorecomfortablewithher.203

HowDiversityandDissentHelpUBSOutpaceOtherBanks

AccordingtoAnitaWilliamsWooley,aresearcheratCarnegieMellon,diverseteamsoutperformeventop performers because of the power of “collective intelligence.”204 The challenging tasks facingCostanza required the best collective intelligence she could assemble. She operationalized hercommitmenttodiversitywhilebuildingteamswithinherstaffandtheboard.

Her Foundation team is intentionally staffed by colleagues with skills in finance, internationaldevelopment,theprivatesector,andgovernment.Costanza’sstaffbelievethatthesedifferentpointsofviewenablegreaterrisktakingandprovideagreateropportunityforquestioninguntestedideas.HeadofSocialFinanceattheFoundation,MayaZiswiler,explains,“TheFoundation’sstrengthisitsdiversityofperspective.Weallseethingsdifferently,butshareacommonpointofviewtofindnewwaysofbeingmoreefficientwithdevelopmentresources.Wepokeholesinideas,andwedoitinarespectfulway.”ProgramManager for Social Finance, SietseWouters, explains that Costanza has also created a safespacefortryingnewthings,explaining,“Phyllishasourbackasweprototypenewtools.Shehascreatedasupportiveenvironment.”205

The Foundation board now also exemplifies diversity as it challenges and guides the Foundation’sdirectionandinnovation.Internally,theboardincludes,amongstothers,theUBSCEO,theheadofAssetManagement,andtheheadoftheInvestmentBank.Italsoincludesexternalrepresentationtoprovideskills in philanthropy and community-based perspectives, including representatives from the AfricanWomen’sDevelopmentFundand theheadofEffectivePhilanthropyat theWilliamandFloraHewlettFoundation.

DeliberateLeadershipatUBSOF

Thishasbeenaboutthepeople,it'sbeenabouttheprocess,and,mostimportantly,it'sbeenaboutthepurpose.YouhavetohavetherightpeopleinvolvedinstructuringnotjustthisDIB,butinbuildinga

team,instrivingforgrowth,andstrivingforthehighestimpact,andthosepeoplecan'talllooklikeyou.Theyhavetobringinverydifferentskills,andthereisoftentimesalotoftensionwiththat,andit's

uncomfortable.Butwehavetoembracethat.


As MIT lecturer Douglas Ready writes in Harvard Business Review, two-thirds of large-scaletransformation efforts fail.207 Transformation is hard. As HBR points out, “Smart, capable, solidprofessionalsmost often performwell in their roles until they reach a level in their organizations atwhich they are confronted with a series of embedded tensions and paradoxes that make leadingeffectivelymuchmorecomplicated.”208Recognizingthosetensionsandparadoxesandactingonthemis

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whatmakestransformationpossible.Thereareoftennoeasyanswers,butcommitmenttoreconcilingtensionsisessential.

Balancing the tensionbetween impactandreturn, involvingdiverse individualson the team,speakingcandidly, and having the patience to find the right path are reflective of several of the seven corecharacteristicsofDeliberateLeadership.Costanza’s leadershipapproachtouchesonmanyof the7C’s.Byallaccounts,shehasbeensuccessfulinhertenureasCEOofUBSOptimusFoundation.ShehasbeenabletounifyFoundationstaffacrossfivecountries.ShehasincreaseddonationsfromthelowofUS$12million tomore than US$65million annually, has tested new social finance strategies, and has builtsupportforanewvisionwithinUBS.Shewasalsomotivatedtoundertaketheworld’sfirstDIB,todriveUBSOF,andtopushthefield.Inaccomplishingallthis,shehascreatedacommunityofopennesswithinthe Foundation andwith partners, and she has demonstrated the power of Deliberate Leadership inaddressingWickedProblems.

QuestionsforConsideration

• How do you reshape the organizational culture of a foundation within a cautious bank or otherbusinessunderpublicscrutiny?

• What stepsareneeded forDeliberate Leaders tounderstand their current reality, see the future,andchartanewwayforward?

• Howdoleadersmaximizethebenefitsofdiverseteams?

• Howdoleaderslearntomanageinthe“messymiddle”?

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CaseAnalysis2:BalancingRiskandRewardforResults“Wesupportinnovativeprogramstoachievesocialchange.Byseekingandfundinginnovativeprogramswithgroundbreakingideas,wetakecalculatedrisks.Andasaresult,notallofourprogramsarealways

100%successful.

—UBSOF2017AnnualReport209

When the United Nations Development Programme (UNDP) examines risk to the realization of itsorganizational goals, it examines theexternal and internal influencing factors that createuncertainty.UNDPutilizesanEnterpriseRiskManagement(ERM)Systemtomanagetheriskwhichincludes:

• Identifyandtreatriskthroughouttheorganization,

• Identifyopportunitiesandthreats,

• Encourageproactivemanagementandbetterinformedstrategicdecisiontaking,and

• Effectivelyallocateanduseresourcesforrisktreatment.210

BalancingRiskandRewardforResults

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With this framework inmind, consider the variety of risks inherent in social finance, which seeks tocreatemeasurablesocialbenefitsalongsidea financial return. Impact investingprovidesanoption forfinancing social impact through a blended return, the overall return achieved by combining aninvestment’ssocialimpactwiththefinancialreturn.211Everyinvestmentofthistypecreatesatleasttwodifferentkindsofrisks,financialandimpact.Asthefieldhasmatured,theriskconversationhasmovedbeyondachoicebetweenimpactorfinancialreturnfirst.Thistrade-offisnolongerthebestlenswhenevaluating the risk associatedwith an investment.Amuchmore nuanced view is now required—onethat places the investment in a spectrum across a portfolio with various levels of risk, return, andimpact.212

AHiddenSystemFailureThatThwartsInnovation

In a 2017 article in the Stanford Social Innovation Review (SSIR), Laurie Michaels and Judith Rodinasserted that there is a system failure in philanthropic practice that is diluting impact and costingfunders potentially billions of dollars.213 They attributed this failure to the absence of common risk-managementpracticesasanintegralpartofthegrantmakingprocess.214Thereisnodisagreementastothedefinitionofrisk;itisanoccurrencethatwillcausesometypeofundesirableeffect.Riskscanoccuranywhereoranytime,theymayormaynotbepredictableorcontrollable,andtheymaybecausedbyinternalorexternalvariables.215Theimportantdistinctionbetweenriskcultureversusriskmanagementneedstobeunderstoodwhendiscussingaleader’soranorganization’scouragetotakerisk.Riskculturemirrorsanorganization’sappetiteforrisktolerance.Organizationsthathavemadedeliberateeffortstocodifytheimportantattributesthatdefinetheirriskculturecanbringinternalandexternalclaritytotheprocessbywhichtheymakechoicesregardinginvestmentsandgrants.216

Howrisk isassessedvaries.“I thinkoneof thechallengesofbeing inthisFoundation,wherewehavepeoplewhocome fromthebank, is [that] it’savery riskaverseculture,” saysMayaZiswiler,HeadofSocialFinanceatUBSOF.217

A well-governed bank takes the level of risk that is commensurate with its shareholder wealth andbound by the constraints enforced by laws and regulators. The essence of riskmanagement in suchbanks isnot tominimizeor reduce thebanks’ total risk. Instead, it revolvesaround risk identificationandmeasurements the banks are taking, and how these risks are aggregated into ameasure of thebanks’totalrisk.Thiscalculusenablesbankstoavoidoreliminatebadrisks,andensuresthatthebanks’levelofriskisconsistentwiththeirriskappetites.218

As a foundation linked to one of the world’s leading wealth management banks, the Foundationoperateswithinthismindsetofriskmanagement,balancingtheneedsofthebankanditsclientswiththedramaticneedsofvulnerablechildren,whose livescenteronadifferenttypeofhighrisk—humanrights, human security, and survival. UBSOF firmly believes that foundations—more than any othersocial sector actors—should take smart, informed and intelligent risks.219 The Foundation stated thefollowinginitsmostrecentstrategicplan:220

• Non-governmental organizations (NGOs) areon the front lines, serving families and communities,butoftenlacktheresourcesandbandwidthtoexperiment.

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• Governmentshavethedeepestpocketsandareresponsibletodeliversocialgoodsandservicestotheircitizens,buttheyoftenhavealowtoleranceforrisktaking.

• Individualdonorsarenumerousandgenerous,butoftenwanta“surething”andimmediateresultsfromtheircharitabledonations.

Head of UBS Client Relations Philanthropy Services, TomHall, sees an opportunity for increasing risktakingat theFoundation. “I think there isa strongdesire toensure innovationsaremore likely tobesuccessfulthannot,whichcouldmeanwe'retakinglessriskthanwecould,andarguablyshould,”saysHall.221

SeizingUnforeseenOpportunities

Figure20 visualizes the relationships inherent in a threat-opportunity analysis that leads to improvedstrategicdecisions and results. Leaders assess the risks they can foreseeas shown inside the cycleofplanning. They also know that they will not be able to anticipate everything, that there will beunforeseen risks, unintended consequences, and also unforeseen opportunities, depicted outside thecycleofplanning.

OwenStrickland,BusinessManager forUBSOF,notes thecomplexityof suchconsiderations. “Ateachvarious point, you can address the risk topics. That’s the challenge of the structure—you’ve got theinitial riskof thedonor for the foundation,andthenthecontractual riskbetweenthe foundationandthepartners,andthentheoutcomefundersaswell—anotherdimension.Andthenyou’vegottheotherbiggertopics,asthecirclegoesaround,effectively.”222

Figure20.DeliberateLeadershipThreat–OpportunityAnalysis

Source:2017pfc

PLANNED RESULTS

UNANTICIPATEDOPPORTUNITY

THREAT-OPPORTUNITYANALYSIS

UNANTICIPATEDTHREAT

AACTCTUALUALRESULTS RESULTS

INVEST

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RESULTS

ANTICIPATED OPPORTUNITY

ANTICIPATED THREAT

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“WhyNotTakeaBitMoreRisk?”

Sonal Shah, UBSOF board member and Founding Executive Director of the Beeck Center for SocialImpactandInnovationatGeorgetownUniversity,echoesthatassessment.“It’sinteresting.Inbusiness,everybodytalksabouttakingrisks,butwhenitcomestophilanthropyandsocialimpact,nobodywantstotakerisks,”shesays.“They’reafraidtheymightdosomethingwrong,andthechallengewiththatisthatthealternativeisthestatusquo,whichisjustasbad.So,whynottakealittlebitmorerisktotrysomething,andtolearn,andtoiterate.”223ThisisexactlywhatthebankandUBSOFaredeterminedtodo.

Regardlessofanorganization’sriskcultureoraleader’sriskappetite,everyorganizationorleadermustmanagerisks.“Riskmanagementisnecessarytodealwiththeunavoidableexistenceofrisk,regardlessof one’s appetite or tolerance for it.”224 The ability to reduce or avoid disruptive events and to havestrategies and contingency plans in place is the essence of risk management. Risk culture and riskmanagementareevenmoreimportantwhenanorganizationisattheforefrontof innovation,suchasintroducingtheworld’sfirsteducationDIB.Undoubtedly,newtoolsandmechanismsbeingusedonthefrontiers of social finance need scenario planning to anticipate unintended consequences and toacknowledgewhatcangowrongwhendealingwiththecomplexissuessocialfinanceseekstoaddress.

“Obviously,lookingatmitigationstrategies…howmuchoftheriskcanyoureduce?Whatshouldwejustaccept?Whotakesspecificactionswithregardtowhattypesofrisk isalsovery important.What’sanoutcome funder’s role, versus the serviceprovider’s, versus the investor’s?” saysRadanaCrhova,DIBadvisor,DepartmentforInternationalDevelopment(DfID).225

StrongLeadershipMeansHonestTalkAboutFailure

Forward-facing businesses understand that innovation entails embracing risk and the possibility offailure.Embracingriskandtalkingaboutfailureopenlyandhonestlyare lessonsthatphilanthropycanlearn from business in order to better address the greatest challenges of today and the future. Thisparadigm shift is key to Deliberate Leadership. The Wicked Problems that philanthropy and socialfinanceseektoaddressarebydefinitionhighriskandposemanyunknowns.Funderstryingtoaddresssuchproblemswillhavesuccessandfailure. Inthatcontext,havingthecouragetotakeriskandshareresultswidelyisanessentialattributeofDeliberateLeadership.

AtUBSOF,thereisrecognitionoftheimportanceofassessingresultsinaself-criticalmannerandfortheneedtocommunicatesuccessandfailure.AsHallobserves,“Iguessthenatural thingtodo iswetalkabout thewinners, and the things thathaven’tquiteworked fall by thewayside.Andeverynowandagain, people will ask, ‘What happened?’ And you give them an update. But, we’re probably notproactive [enough]externally, saying, ‘Hey,we invested in this thing,and itdidn’twork,butwehavelearnttheseimportantlessons.’”226

The challenge is in how the Foundation shares failures. These challenges are common across thefinancialserviceindustryandtheprivatesector.Workingwithinabank,thereisfearoflosinginvestorsandclientsasaresultofsharingfailuresopenly.Duringinterviews,staffmentionedtherewasafinelinebetween transparency and being too open. Another concern centers on sharing failures openly withcompetitorsandthatmakespublictransparencymoredifficult.Finally,therewasafearofimperfection

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prohibitingpeoplefromsharingweaknessesinaprogramorinvestment.Thisfearofadmittingfailureorweaknesseswasanareaonecolleaguesaidwascommonplaceamongthe financial industryand that,whiletheculturewithinUBSisfairlyopen,itwasanareainwhichtheorganizationcouldpushitselftodobetter.

UBSOFEmbracesthePowerof“WhatIf?”

Scenarioplanningprovidesforprogramdesign,aswellasforreshapinganorganizationalstructure.Theuncertainty and dynamic complexity of Wicked Problems present an uncertain landscape fororganizationstoplanstrategically.Organizationsneedaframeworkthatallowsthemtomaneuverinanuncertain environment and tomake decisions that can prepare them for dealingwith futureWickedProblems.227

Techniquessuchasscenarioplanning—takingtimetothinkthroughanumberofalternativeoutcomesor “what-ifs”—maybetterprepare anorganization to adjustwhen threatsmaterialize. Talkingopenlyaboutwhatmaynotwork,both internally andwith stakeholders andpartners (including funders andgrantees,orinvestorsandentrepreneurs),isjustasimportantassellingavisionofsuccess.

Scenarios can be categorized into exploratory/forecasting and normative/inward/back casting.Exploratoryscenariosbeginwiththeanalysisofthepresentandlinktothefuturebyaskingquestionssuchas“Whatnext?”and“Whatif?”228Thebasicaimofscenarioplanningisnotforecastingthefuture,or fully characterizing itsuncertainty,but ratherbounding thisuncertainty.229 Scenarioplanninghelpsfocusattentionondrivingforces,possibilitiesofevolution,andtheextentofcontingenciesthatmaybeconfronted.Theyareparticularlyusefulwhenmany factorsneedtobeconsidered,andthedegreeofuncertainty about the future is high.230 Scenario analyses are very different from other forecastingmethodsinthattheyusuallyprovideamorequalitativeandcontextualdescriptionofhowthepresentwill evolve into the future, rather than a description that seeks numerical precision.231 Anotherimportantdifferenceisthattheyaregenerallyusedtoidentifyasetofpossiblefutures,wherethereisthepossibilityofoccurrence,butwithoutanycertainty.

UBSOFcreatedtwoimportantcomponentsofascenarioplan—alandscapeanalysisandasubsequentfive-yearstrategicplan.Inadvanceofafive-yearstrategicplanningprocess,UBSOFlaunchedathoroughlandscapeanalysistodeepenitsunderstandingofglobaltrendsinitsareasofinterestasawaytoinformplanning for the future and also to refine its strategy.232 As part of the landscape analysis, theFoundation used an internally driven process that included discussions with more than 70 globalexperts, intensive research, and a comprehensive internal audit of lessons learned frommore than adecade of grantmaking.233 The goal of the landscaping was to develop amap of themost impactfulopportunity areas for UBSOF to consider and to enable a strategic discussion around how theFoundationshouldachieveitsgoalsandassessitsimpact.234

TheEssentialArtofKnowingWhatCanGoWrong

In 2013, the UBSOF launched a comprehensive research and analysis effort to inform and refine itsphilanthropicstrategy.Determinedtoseekthesmartestandmosteffectiveapproachestoimprovechildprotection,health,andeducation,theFoundationconductedacarefulandthoroughassessmentoftheenvironmentinwhichitoperatestodevelopthefive-yearstrategy.235

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In the course of amulti-year strategy, effective organizations also learn and adapt. One of themainlessonslearned,saysVivekSharma,ChiefTechnicalOfficeratPopulationServicesInternational,India,isthat“themetricisveryimportant.Impactbonds,likeUtkrisht,buildontheevidence,andexperiencesisextremely important.…We need the flexibility…to modify it as per the ground realities, which maychangeoveraperiodoftime.”236

Thisaspectofscenarioplanningisbothanessentialandcriticalfirststep…andperhapsnotsufficient.Inadditiontomonitoringmetricsalongtheway,asubsequentcomponenttothestrategicplanningcouldhavebeenastrategicflexibilityanalysisthatwouldhaveprovidedtheFoundationanditspartnersthemeanstoanticipateunintendedconsequencesandacknowledgewhatcangowrongwhendealingwithcomplexissues,suchasimprovingchildprotection,health,andeducation.

HowSmartRisksFosterBreakthroughSolutionsPhilanthropyandimpactinvestingsitalongaspectrum,anddependingonwhatoneisseeking,theywillbedrawntodifferentpointsonthatspectrum.Whenhavingconversationswithclients,wespeakof(the

conceptof)“philanthropyasbeingaboutsolvingproblems,”whileimpactinvestingisansweringadifferentquestionandisseekingariskadjustedreturnwithalsoasocialimpact.Ourgroupismore

focusedontheformerintermsofachievingthesocialimpact,andthereareotherpartsofthebankthataremuchmorefocusedonmoremainstreaminvestments,whichhavethatsocialaspect.

—AnthonyDonatelli,Director,PhilanthropyServicesUK,UBSOF237

UBSOF tests new approaches and adapts proven tools and models to new cultural contexts andgeographicsettings.Asawayofminimizingrisk,everyinnovationistestedwithsmallergrants,engagingactively with the grantees to mitigate risk, continuously assess, and course-correct when needed.238Takingwhat they refer to as Smart Risks, the Foundation remains comfortable in its role as the firstinstitutionalfunderforpromisingneworganizationsandwelcomesnewsolutionsthataredevelopedbyproventeams,basedonsoundevidence,andaccompaniedbyengagedgrants’management.239

CatalyzingAlliances

While the Foundation is willing to be the first philanthropic funder for new initiatives, it frequentlypartners with governments, the private sector, and other funders, including the largest globalfoundationsthatfocusonchildren’swell-being,tocreateacatalyticalliance.Firstdescribedbybusinessexpert Sandra Waddock and James Post,240 catalytic alliances operate at the leading edge of socialreform,by leveragingresources toaddressasocial issuethroughthemobilizationofothers toaction.Thisalliancetypeworksthroughanetworkofotherorganizationstoaddressthesocialissues.

Unlike certain collaborative forms, catalytic alliances avoid direct intervention, preferring instead toworkthroughothersbyprovidingthesupportandinvitingotherorganizations,bothpublicandprivate,to address the problem effectively. The DIBs initiated by UBSOF through its catalytic alliances andprototypes are intended to contribute towards a behavior shift in the wider social finance sector,influencingorganizations acrossdisciplines tobemore receptive to theway fundersprovide financialresources,requiringmorealignmentwithoutcomes,anddeliveringbettervalueformoney.241

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Inthesepartnerships,riskissharedamongcollaboratinginvestors,whichminimizesrisksforindividualpartners.Catalyticalliancesdealwithwhataredefinedas"non-zerosum"problems,whereoneactor'ssuccess does not come at the expense of another actor; both can win, or both can lose. Theserelationships are vision-driven. The presence of a social entrepreneur who understands the broadpotentialforstimulatingsocialchangeseemsvirtuallyessentialtoaneffectivecatalyticalliance.242

Newproducts,suchasDIBs,bytheirnaturerequirethecreationofcatalyticalliances.EventhoughDIBsarelaborintensivewithpotentiallyhighcosts,catalyticalliancesminimizerisk,becausethereareseveralpartners entering into the work with UBSOF. The DIB fund structure enables comparison of theeffectiveness of different operational models, thereby helping prioritize future funding propositions.This type of analysis—and engaging in catalytic alliances—allows UBSOF to achieve outcomes indifferentcontexts.

CostanzaandtheSocialFinanceteamcreateddiversepartnershipsineachoftheirinvestmentareas—for example, with the Educate Girls DIB; the Health DIB with USAID and Population ServicesInternational; Social Success Noteswith ImpactWater; and others. “This beginswithmaking sure allpartners feel like thework hasmeaning and purpose,” says Costanza.243 The approach leverages notonlyfinancialresources,butalsoprovidesnewideasandapproaches.

PriyaSharmaexplainsfurtherabouttheUtkrishtMaternalandNewbornHealthDIB.“Attheendoftheday, this is a partnership, and I realized that maybe others might view this as much more of atransaction,” she says. “But, I thinkwhatmostlywas the key to the success of this particular impactbondwasthefactthateverybodywasinitforthelonghaul.Everybodyboughtintowhatitwasthatwewere fundamentally trying todo.Evenwhen itgotdifficult, I thinkeverybodywasstillwilling tohavethatdiscussion,tohavethatnegotiation.”244

Creatingcatalyticalliancestomitigatetheunintendedharmofrisktakinginthesocialfinancesectorisanewandexcitingapproach.Enabling cross-sector inputandpartnerships, then,becomesessential.AsRockefeller Foundation’s Senior Associate Director of Innovative Finance, Lorenzo Bernasconi, notes,“There’scertaininnovationwethinkiskeytodrivingtheinvestmentweneedtoachievetheSustainableDevelopment Goals. There are risks in driving this innovation agenda that no one else can take butphilanthropy.So,it’sphilanthropy’sresponsibilitytotakethoserisks.Ifphilanthropydoesn’ttakethem,noonewill.”245

UBSOFhasbeenwillingtotakerisks,testnewinnovativefinancialstructures,andforegomarketratesofreturninthepursuitofsustainableimpact.Staffadmitsthatitischallengingtotakerisksandpotentiallyfailwhilestilltryingtomarketproductstoclientswhowanttohearsuccessstories.246UBSOFmustraiseits grantmaking budget annually, primarily fromUBS clients, and findways to discuss uncomfortabletruthsaboutprojectchallenges.

AlthoughhewasdiscussingUBS,bankCEOSergioErmotti’sstatementtoBloombergNewsisreflectedinthe Foundation’s approach to risk, as well. “I’m pretty happy with the level of risk we take, thesustainabilityofourresults,andhowthattranslatestoourrelationships.”247

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• Howdoesthefieldbetterevaluateimpactrisks,sothattheycanbeaccuratelymeasuredalongwithfinancialrisks?

• DidUBSOF’sdefinitionofriskalignwiththesector’sdefinition?

• DoyouseeanytensionbetweentheriskdefinitionofthebankandtheFoundation?

• Whattypesofpartnershipsorallianceshelpmitigaterisk?Whenmighttheyincreaserisk?

• Howmuchdoyoushareexternally?

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CaseAnalysis3:TreatingtheCommunityasaValuedClient

Bringinginthecommunityvoiceissomethingthatourimplementationpartnersdobest.Soweselecttherightpartnerswhowebelievewillengageallstakeholdersintheirdecision-makingprocess.

—DhunDavar,ProgramDirector,UBSOptimusFoundation248

ThePowerofFeedback

ThepreviouscaseanalysesdiscusshowUBSOptimusFoundationleadersandstaffcreatedafoundationbuilt for innovation and risk. This analysis looks outward and examines how UBSOF and its externalpartners, particularly the service providers, involve community in key decisions in pay-for-successinvestments. It also looks more closely at the issue of power and reconciling investor impactexpectationswiththoseofservicesprovidersandtheclientbeneficiariesreceivingtheservices.

TreatingtheCommunityasaValuedClient

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Putting community at the center of investments is a cornerstone of Deliberate Leadership. Likewise,understandingtheecosystemoffunderstryingtoinfluencethechild,mother,orcommunitybenefitingfromthoseresourcesisparamount.Thisanalysis,asillustratedinFigure21,providesgreatercontexttoenable investors tobetter coordinate strategies andbuild synergieswithpartnersworking across theecosystem.Theprocessoflisteningtocommunityandundertakinganecosystemanalysisbetterinformsatheoryofinvestment.Thisprocessalsohelpsidentifyfundinggapsandaffectsdataalreadycollectedbyotherinvestorsthathelpadvancemutualgoals.Listeningcloselytocommunity—fromentrytoexit—leadstobetterdecision-making.

Figure21.DeliberateLeaderEcosystem

Source:2016pfc

Why is listening to community or beneficiary clients important? How deeply should community beinvolvedthroughout thedevelopment, implementation,andexit fromaDevelopment ImpactBondorSocialSuccessNote?

DennisWhittle,CEOofFeedbackLabs,believesthatcommunityengagementisboththe“smartandtheright thing to do.” Engagement is the smart thing, because like any business or organization that isservice-oriented,understandingandmeetingclientneedsisessential.Feedbackprovidesthoseinsights,and client satisfaction helps drive the bottom line. Whether with Ultra High Net Worth clients orbeneficiaries with few assets, customer opinions allow services to be provided more wisely, moreefficiently,andmoreeffectively.WithinUBS,meetingclient interestsandneedshasbeenadriver fortheUBSOptimusFoundation’snewSocialFinanceprogram.Thisapproachisthealsorightthingtodo,asWhittleexplains,“Itisamoralimperativetorespectthepeoplewhoarebenefitingfromservices.”249

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Fay Twersky, UBSOF board member and Director of Effective Philanthropy at the William and FloraHewlettFoundation,isafirmbelieverinthevalueofclientfeedback.TwerskydrawsheavilyontheworkoftheFeedbackLabs,KeystoneAccountability,andFundforSharedInsight,afundercollaborativethatsupports transparency and community-based feedback field-wide. Shedescribes community feedbackaspartofathree-leggedstoolofmonitoring,evaluation,andfeedbackdesignedtomakephilanthropymore transparentand impactful.Andphilanthropyneedshelpwithboth.According to theCenter forEffective Philanthropy (CEP), only 17 percent of foundations share their evaluation results with theirpeers,andonly14percentshareresultspublicly.Similarly,37percentofnonprofitscollect“beneficiary”feedback during the planning, implementation, and reflection phases of their programs, and mostrespondentsbelievethatfoundationfunders“lackadeepunderstandingoftheirintendedbeneficiaries’needs.”250

There are several common reasons given for not using feedback: It takes too much time. It feelsuncomfortable.It isonemorethingtodo.251Whilecustomers’ insightsdriverevenuesinthefor-profitsector,money flows top-down in the non-profit world, leaving little direct incentive for funders andgranteestolistentocommunity.Therearesomeexceptions.BypublishingresultsandlessonslearnedfromtheOptimusFoundation’ssocialfinanceprototyping(includingthiscasestudy),UBSOFismodelingtransparencyforthefieldandishelpingitgrowbasedonreal-timeexperience.

FeedbackDataCanBringBigReturns

Drillingdeeper intowhyusingcommunity insight isgoodbusinessshowsthatfeedbackdata improvesperformanceandoutcomes.Whenusedwell, collecting community feedback throughout the lifeof aDIBmayallowserviceproviderstomorerapidlyachieveimpactmeasures.Whittleexplainsthevalueofclient-centereddatacollection.“Whenconstituentvoiceorfeedbackislistenedtoandactedon,youseeimprovementsinoutcomesofsometimesaquartertoathird,”hesays.“Thinkaboutallthethingswedototrytoimproveoutcomesthatpeakoutataone,ortwo,orthreepercentincrease.Iffeedbackisdonewellintherightcontext,itcanhavevery,verymajoreffects.”252

Uganda offers vivid examples of the value of feedback. A citizen report cardwas administered to 50ruralUgandadistrictstoevaluatehealthfacilityperformancedata.Theresultsweresharedatfacilitatedsessionsbetweenusersandproviders,whocollaborated to shapesolutionsandaplanofaction.Thisresultedina16percentincreaseintheuseofhealthfacilitiesanda33percentdropinchildmortalityundertheageoffive.Similarly,ruralUgandanschoolsthatdevelopedtheirownindicatorstoevaluateeducation outcomes exhibited an 8.9 percent and 13.2 percent reduction in absenteeism amongstudentsandteachers,respectively.Bycomparison,schoolswhoseevaluationswerebasedonstandardindicators(developedbyexperts)showedinsignificantresults.253

Soliciting and sharing community and beneficiary feedback also helps establish trust and lendslegitimacytoinitiatives,anditprovidesinsightsintolocalandcurrentcontextthatcannotbecapturedbyaggregateddataand formalwritten studies. Trust, legitimacy, andunderstanding local contextareessentialtosuccessfulimplementationofanysocialfinanceinvestment.254

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ShutUpandListen

Thefirstprincipleofaidisrespect

—SirolliInstituteCEOErnestoSirolli255

Head of UBSOF’s Social Finance team, Maya Ziswiler, has worked both in the private sector andinternationaldevelopment,andshebelievesthatthelatterneedstobetransformedbecauseitisoftenslow,bureaucratic,andineffective.Ziswilerbelievessocialfinancetoolsbasedonapay-for-performancemodelcanofferawaytoimprovetheimpactofinternationaldevelopmentfunds.256

Dr. Ernesto Sirolli, one of the world's leading economic development consultants, agrees that thereneeds to be a dramatic shift in the way international aid is delivered. In his TEDTalk,Want to HelpSomeone? ShutUpand Listen!,hepoints out that aidworkers tend to approachunfamiliar problemswithanoutlookthatis,atbest,paternalistic:“Itreatanybodyfromadifferentcultureasiftheyweremychildren”—and at worst, patronizing—“I treat anybody from a different culture as if they were myservants.”257Truerespectrequirestreatingcommunitymembersaspartnersinsolvingsystemicwickedchallenges.

Doing things “smart” and “right,” based on community feedback, is a fundamental tenet of theDeliberate Leadership. It starts immediately with mapping out partners and stakeholders in anecosystem, putting community at the center, and identifying who is working in the interconnectedhuman security frame who might also influence impact for the child or family at the center of theservices(seeFigure21).258

This mirrors the view held by seminal thinkers like Amartya Sen and Jean Drèze, who argue thatdevelopmentorganizationsthatfailtoconsultwithcommunitymembersaredeprivingthemofagencyand their basic right to “unlock their innate abilities for self-determination.”259 Sen’s work is thefoundation for the work of thought leaders on feedback loops, such as Keystone Accountability andFeedbackLabs,whobelievethat“peopleshoulddrivewhataffectsthemmost.”260Viewedthroughthismoral lens, even commonly usedwords like “beneficiary” seem inadequatewhen describing the rolecommunitymemberscanplayinproblemsolving.Senpreferstheterms“community,”“constituent,”or“participant”todescribethosewhoareoftenreferredtoas“beneficiaries”inthesocialsector.

Therearealsothose,likeFayTwersky,whobelievethatencouraging“agency”isoftentherightthingtodo,butfindthatitisfrequentlypromotedinageneralizedandoverlysimplisticmanner.Insomecases,it may not always be appropriate to expect community members to solve their own problems, andtherefore, agency should not be the chief driver for why feedback is sought.261 In other cases, it isessentialforfunderstobeinformedbythecommunitiestheyareseekingtohelp,butitisunrealistictoexpectfundingagenciestohandoverdecisionmakinginawholesalewaytopeopleandcommunities.Thisisafaircriticism,particularlyinthecaseofextremelyvulnerablecommunitiesthatmaybestarvedoftheresourcesorcapacitytopresentsolutions.

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There’sNoSuccessWithoutUnderstandingthePeopleYouServe

Even so, Twersky and other proponents of this viewwould still say that organizations have amoralresponsibility to consult with community members—at the very least to ensure that programs andservices are working for them and to identify opportunities for improvement and innovation. “Weshould listen to the people we're trying to serve, because that's ethical andmoral,” saysWhittle ofFeedbackLabs,“andinaphilosophicalsense,theyaretheoneswhoshouldbetheultimatearbitersofwhatittakestomaketheirlivesbetterandwhethertheirlivesaregettingbetter.”262

KathyReich,Directorof theBUILD Initiativeat theFordFoundation,describes listening tocommunityfeedbackasaformof“valuingtheirlivedexperience.”263RoySteiner,ManagingDirectoratRockefellerFoundation,arguesfeedbackisbothmoralandpractical:“Itisourbasicbeliefthatwe’reheretoservethe people that we’re delivering products and service to, and their voices matter.…If we believe inempowered individuals,weshouldbe listening to themandtrying tounderstandwhat theirconcernsandquestionsare.It’saphilosophicalapproach,butalsoverypractical.Wejustdon’tseethatyouhaveasuccessfulbusinessornonprofitwithoutreallyunderstandingwhoyou’reserving.”264

SixKeyLessonsAboutHowUBSOFInvolvesCommunity

UBSOF’s approachechoes a “smart and right” philosophy. In the2017 annual report, the Foundationexplains itsapproach toworkingatacommunity level.Asnoted in theCaseAnalysis3headerquote,ProgramDirectorDhunDavarbelievesthatexternalpartnersareeffectiveconduitstocommunity.TheFoundationteam’srelationshipwithEducateGirlsintheEducationDIB,PopulationServiceInternationalintheHealthCareDIB,andImpactWaterthroughtheSocialSuccessNoteillustratethisapproach.ThereareseveralcommonlessonslearnedthatemergedfromtheinterviewsandcaseresearchthatdescribehowDIBsand theSSN integratedclientor community feedback.There isalsoa critiqueof challengesandsuggestionsforinvestorstoconsidertostrengthenserviceprovidercapacityduringtheDIBprocess.Theselessonsaredescribedbelow.

Lesson1:ChoosetheRightPartnerCommittedtoCommunityFeedback

Finding the right partner who has deep knowledge of community, context, and client is essential,coupledwithashareddesiretoinnovate.Theoriginsoftheworld’sfirstDIBcamefromEducateGirls,anIndian service provider steeped in local needs. At the end of three years, Educate Girls’ results inRajasthanexceededtheDIB’sgoals,highlightingtheeffectivenessof theirapproachtoboth increasedenrollment and learning outcomes.265 According to EducateGirls CEO SafeenaHusain, shewanted tochangetherulesininternationalaidfundingandwantedtotestherassumptionsthroughaDIB.Husainwasinsearchofaninvestorpartnerwhowaswillingtotakearisk.Afterafalsestartwithonefunder,HusainandOptimusFoundationCEOPhyllisCostanzafoundeachother.Theywerebotheagerlylookingto test payment-by-resultsmodels that could help demonstrate real impact in the lives of vulnerablechildren.

Throughoutthecourseofthethree-yearDIB,EducateGirlsactivelyreachedintocommunitytoshapeitscurriculumandusedoutreachparties tohelpmeet resultsoutcomes.TheDIB involved local teachersandvolunteers,students,andoutofschoolandat-riskgirlsandfamilies.Husainandherteamknowthatgettingthegirlchildtoschoolinadeeplypatriarchalsystemrequiresconstantcontactandtrustbuilding

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withinlocalcommunities.Ateamofvolunteersprovidedreal-timefeedbacktotheEducateGirlsteam.Theorganizationtrainedateamof18-to30-year-oldcommunityvolunteerstomakedoor-to-doorvisitsencouraging families to enroll their girls in school and to deliver curriculum enhancement in publicschoolclassrooms.Theirvolunteerswerepresentinover8,000villagesand12,500schoolsinRajasthan.(PreviouscasecontenthasgoneintofurtherdetailabouttheDIBprocess.)

Alison Bukhari, UK Director for Educate Girls, believes that it was in the third year of the DIB thatEducate Girls workedmost closely with the community. “It is the fact that we were so close to thecommunityandreallylisteninginthatfinalyearwhenweexceededresults,”shesays.Bukharipointstocrucial curriculum changes that were made because “staff was listening to the children and reallyunderstandingwheretheywerehavingstruggles,whowasfallingbehind,andreallyunderstandingatanindividual level what the issues were…and tailoring the interventions to actually shift the children’slearningexperience.”266

ImpactWaterisasocialbusinessthatprovidessafedrinkingwatertoschoolsinUgandathroughaSocialSuccess Note, and also works in Kenya and Nigeria. Tim Neville, COO of Impact Water, points tocustomer market research as a driver for evolving their business model. Neville explains, “Ourorganizationstartedwithend-user interface,community interface,[and]sincethatpoint,thebusinesshas been listening to customers. I thinkwe have gotten better.We’re doingmore focus groups andtryingtoactuallyuseourcustomerstohelpussolveourproblems,asopposedtoustryingtosolvethemalone.”267

Vivek Sharma of Population Services International (PSI) says the purpose of the DIB is to “make themarketmoreconsumercentered,and[bringthe]qualityofcareofservicesclosertothedoorstepsofthekeytargetpopulation,basicallywomenandchildren.”268

Lesson2:BuildtheCapacitytoWorkwithCommunity—EveninChaoticTimesAnother common themewas theneed tobuild sufficient capacity to transition intoamorebusiness-oriented, impact-centricwayofoperating.EducateGirlsstruggledthe firstyear tryingtomeet impactmeasures and getting staff ready for making a cultural shift in the way it delivered services. Husainexplains,“Wethoughtwecoulddoitinternallyandthenrealized,‘OhmyGod!Thisisgoingtobeverydifficult...[Then] UBSOF stepped up and offered us additional resources.”269 This additional fundinghelpedEducateGirlshirenewstaffwhoweremorealignedwithsocialfinanceapproachesandstartedtheprocessoftransformingtheircultureandtheirorganizationintoanewwayofthinkingandacting.

While Impact Water did not receive direct capacity building funds, it was supported in building itsbusinessmodel throughfunding fromapilotproject.Nevillebelievesmorecanbedonewith investorresourcestohelpserviceprovidersresolvewickedlydifficultoperationalchallengesthat interferewithan entrepreneur’s ability to more fully engage community. Corruption, collusion, and fraud are alsoconstantthreatsthatmakeoperationsmoreonerous.

PSI’s experience points to inconsistencies between rural and urban places in terms of the quality ofprogramsandthelackofcapacitytoundertakeclientsurveysoncertifiedprograms.

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Lesson3:BePatientandRealisticWhenAddressingWickedProblemsandSystemicChange

Allthreeserviceproviders’leaders:Husain,Neville,andVivekSharma,shareacommonlessonlearnedfrom participating in a DIB or impact loan—realism and patience are essential when dealing withsystemic challenges andWicked Problems. Even under normal circumstances, chaos and change areinevitableforserviceproviders,butthesechallengesareheightenedundertheweightandpressureofbeing the first prototype demonstrating proof of concept. This combination of factors also interfereswiththeabilitytoengagecommunityadequatelyinfeedback.

For EducateGirls, itwas the time pressure of doing something newwithin the tight constraints of aschoolyear.ForPopulationServicesInternational,theunpredictablenatureoftheworkwasmademoreuncertainwhenUSAIDwasthreatenedbypotentialbudgetcutsandchangingprioritiesundertheTrumpAdministration.ForNevilleandHusain,findingtherightseasonedstafftooktimeandhadconsequencesfor the changing culture of an organization involved in a new business model. For success, a newmindset is required by service providerswho have to find creativeways to engage communitywhileengagingtheirownstaffindifferentways.

Lesson4:GoDeeperandIncludeCustomerSatisfactionFeedbackfromtheCommunity

Several interviewees, who requested to be anonymous, believe that the results-based financingmovementoffersauniqueopportunity to rethink the roleof the recipient communities in thedesignandassessmentofdevelopmentprograms.Historically,manyinternationalaidprograms,includingDIBs,aredevelopedwith little involvementof therecipientcommunities,whicharenotactivelyengaged indefiningthetypesofservicestheyneedorinassessingwhetherthoseserviceshavebeensatisfactorilydelivered.TheyalsofeelthatifDIBsaretogenuinelyimprovetherelevanceandimpactofservices,itiscriticalthatthestakeholderscreateaprocessthatempowersbeneficiariestobothdefinewhat‘results’meanandtoempowertheirvoiceinevaluatingtheimpactofthoseservices.

This community-centric approach raises several provocative questions: Should the community beingserved be asked, “Whatwould you prefer?”Questions youmight ask of theDIB team could include:“Would you prefer a cash transfer or the services (and outcomes) achieved by the DIB?Would youprefer that the US$200,000 be available to build a better school or support community volunteers?Whenandhowshouldyourinvolvementbesolicited?”

Lesson5:MakeaSpaceforServiceProvidersattheTable

Bukhari expresses concerns that, as the field evolves, new social finance tools, such as DevelopmentImpactBonds,runtheriskofneglectingtoincludecommunityatthetableinkeymeetings.Thelackofan invitationandthe lackofmoneytoattendmeetingsprevent fullparticipation inhelpingshapethefieldandensuringcommunityvoicesarepresent.Sheexplains,“Often,fundersorinvestorswithmoneywill meet to create affinity groups to discuss the evolution of this fast-moving space. Nonprofitorganizations representing local interests need to help round out the discussion and candidly offerguidance for the next iteration of Development Impact Bonds. What is critical is who is setting theoutcomesandhowtheyaremeasured.Onlycertainsocialoutcomeswillbeappropriateforthiskindofinstrument. And, a very subtle change in how the outcomes are evaluated canmean the differencebetween incentivizing good or very bad behavior…between focusing on the easiest or the hardest to

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reach.Iamconcernedthatthisisashinyballthatinvestorsmightseeasa‘one-size-fits-all’solutionforscale.Itisn’t.What’simportantisthatserviceprovidersareatthetabletodiscussscaleandgrowthinarealisticway.”270

Lesson6:FeedbackIsPowerful

All of the serviceproviders agree that local feedback is important and shouldbe integrated intonewsocial finance toolsbasedonabusinessmodel.Thisnewapproachwill requiremore resources,morediscussions,andastrategytoensurethefielddoesthesmartand therightthingforbeneficiariesandtheircommunities.


• Howcanyouincorporateameaningfulcommunitylensintosocialfinance?

• Howdoesanysocial financeinitiativedecidewhichcommunitymemberstoplaceatthecenteroftheDeliberateLeaderEcosystem?

• Towhatextentandinwhatwayshouldfunders’internalteamsviewthecommunitiestheyseektoserveastheirultimatecustomers?

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CaseAnalysis4:Multi-playerAlignmentforImpact

Weknowthatthehighestperformingteamsaregenerallypeoplewhoaresatisfiedintheirwork.Howarepeoplesatisfiedintheirwork?Thetwomostimportantthingsarethattheyhaveasenseofpurpose

andthattheyfeelempoweredtomakedecisions.

—PhyllisCostanza,CEOUBSOptimusFoundation271

Like Phyllis Costanza, Oxford academic Jonathon Trevor believes that alignment for high-performingorganizations depends on agreement about purpose and the ability to pull together several criticalpuzzlepieces:agreed-uponstrategy,organizationalcapacity(anddesire),adequateresources(timeandmoney),andacommitment toalignmentamongmanagement.According toTrevor, “Thechallenge isthat executives tend to focus on one of these areas to the exclusion of the others, but what reallymattersforperformanceishowtheyallfittogether.”272

Multi-playerAlignmentforImpact

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Theothercommonfactorsthatgetinthewayinclude:

• Lackofawarenessaboutwhatriskmisalignmentposestotheentirevaluechain.

• Lackofownershipandagreementamongstakeholder leadersabout the importanceofalignment,resultinginturfbattlesanddysfunctionalteams.

• Complexityinjugglinggeography,size,anddiversity.

• Mistakingbusinessasusualforprogress.

While working withMuhammad Yunus and Danone on a social impact business model, HEC scholarBertrand Moingeon created an alignment tool to remind partners to test their assumptions andexpectationsfrequentlyforalignmentthroughoutapartnership.273Figure22demonstrateshowpartiescan compare their intendedexperience (what theywanted tohappen),with their offeredexperience(whatactuallyhappened),andwiththeanticipatedandactualexperiencesoftheirpartners—whethercolleagueswithinanorganization,investors,serviceproviders,orbeneficiaries.

Key reflection points encourage partners to ask a series of important questions during theircollaboration: What is our common sense of purpose? Who owns the alignment process in ourpartnership to ensure strong links to purpose?What is our agreed upon strategy? Do we have theorganizational will, time, andmoney to devote to alignment and collaboration? Howwill we handlechallenges when they arise? How do we maintain a shared vision and purpose throughout ourpartnership?

Figure22.DeliberateLeadershipAlignmentFramework

Source:2017pfc

ThisanalysisexamineshowtheUBSOptimusFoundation(UBSOF,Optimus,orFoundation)approachesalignmentandwhatithaslearnedasitworksacrossmultipleinternalandexternalpartnerships.These

FUNDER INTENDEDEXPERIENCE

FUNDER OFFEREDEXPERIENCE

STAKEHOLDER LIVEDEXPERIENCE

STAKEHOLDER EXPECTEDEXPERIENCE

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relationships include: collaborations within UBS; across the UBSOF global offices and among theFoundationstaffanditsboard;withprototypepartnerships;andwithclients—bothwealthydonorswhocontributetoUBSOFandbeneficiarieswhoreceivetheservicesdesignedtoimprovetheirlives.

Withmorethan62,000employeesworkingin52countriestohandletheneedsoftheworld’swealthiestclients,UBSknowsthatalignmentrequiresclear-eyedpurpose.Similarly,Optimus,workingwithstaffinfive countries to positively impact 2.1million children globally in 2017, also knows that alignment isessentialtosatisfyingtheneedsofitsdonorsandinmeetingtheneedsofthevulnerablechildrenatthecenterofitsmissionandinvestmentdecisions.274

HerearestepsOptimustakesinsideandoutsideUBStocreatehigh-performancepartnerships.

HowAlignmentWorksInsideUBS

InvolveTopLeadership

ForCostanza, a cornerstoneof the Foundation alignment strategy is to involveUBS leadership in theFoundation.ThisincludeshavingUBSCEOSergioErmottiserveaschairoftheUBSOFboardandhavingother UBS executives participate in Foundation governance. This relationship allows for a deeperunderstanding and commitment to the Foundation’s purpose and helps integrate UBSOF into UBS’soverallcorporatesustainableinvestmentgoals.

CoordinateAcrossUBS

Within UBS there are several stakeholders vying for a piece of wealthy clients’ portfolios. Theserelationships are typicallymanaged bywealthmanagers and advisors and are coveted, complex, andpolitical. Keeping alignment among potentially competing stakeholders is essential for the clients. TobettercoordinatephilanthropyneedswithinUBS,CostanzaworksinclosecollaborationwiththeGlobalPhilanthropyAdvisors unit,while alsoheading theOptimus Foundation,which in turn falls under theUBSinsocietyumbrella.

Costanza reports to Hubertus Kuelps, Global Head UBS in society (in addition to his role as GroupManagingDirectorofCommunicationsandBranding).Kuelps coordinatesUBS sustainabilitypractices,including sustainable impact investing, philanthropy, environmental and human rights policies,community investment, and the UBS environmental footprint.275 He reports to Ermotti, providing anongoingunderstandingofsharedpurposeandstrategyacrossUBStopromoteacoherentsustainabilitystrategytoclientsandtoexternalaudiences.

BuildAlliancesandAlliesAcrossProductsandDivisions

NicoleNeghaiwi,UBS Impact InvestmentStrategist, sees there isagreatappetite for impact investingproducts. Her teamwants to expand the current client core portfolio and tomovewhatwould haveotherwisebeeninvestedinatraditionalprivateequityfundintoasustainableinvestmentportfolio.Shebelieves that offering a sustainable impact product or brand to a client also enables the OptimusFoundation,throughitssocialfinanceDIBofferings,toopenupnewopportunitiesforclients.Neghaiwithinks that innovative social financing mechanisms such as those being experimented by Optimus

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FoundationthroughDIBsandSocialSuccessNotes“potentiallyallowinvestorstoinvestinacausethattheydefinitelywouldhavenotbeenabletoinvestinotherwise.”276

BlendBankingandDevelopmentontheBoard

UBSOFstaffandboardmembersacknowledgethatoneoftheFoundation’sstrengthsisthewayithasblendedfinanceanddevelopmentskillsintostrategy.

The integrationofUBSexecutivesatagovernance levelallows for cross-learningwithinUBSandUBSOptimusFoundation.Costanzaexplains, “Theadvantage is thatUBS leadershipgets toknowour staffand throughourexternalboardmembers, theyhave theopportunity to listenand learn fromuniqueexperiencesofcolleaguesinthephilanthropicandacademicsectors.”277

Chairman Ermotti points out, “The Foundation has taken on a more business-like approach, usinglanguage that makes programs that achieve measurable achievements for girls’ education moreappealingtoclientsandUBS.”278

Boardmembers have commented on the benefits of having bankers involved in the Foundation. FayTwersky, UBSOF board member and Director for Effective Philanthropy at the Hewlett Foundation,believesshehasgrowninnewwaysfromtheexperience.“I learnatremendousamountjustsittinginthatboardseatandbeingsurroundedbybankers.Iunderstandintrinsicallynowmoreofthepressuresthattheyhave,moreoftheopportunitiesthattheyhave,andhowtoengagewiththatworld.”Shelistsseveralcomparativeadvantagesofthisapproach:“First,theyknowfinance.Second,theyknowhowtoorganizefinance.Third,theyhavethisgreatasset,whichisabankers’fortune,butitisalsoabouttheirclientsandtheircustomersandhowtheycanputthemalltobetteruse.”279

Twersky also believes that Costanza has been effective at combining finance skills from her bankingcolleagues with the development knowledge of the Social Finance team. “It is this marriage of corecompetenciesthattogethercanbequitepowerful,”sheadds.280

CommunicateOpenlytoBridgeDifferentPerspectives

While Deliberate Leaders’ strength is building diverse teams, it isn’t easy to coordinate differentperspectives.OwenStrickland,UBSOFBusinessManager,offerstheseinsights.“We’veallgotdifferentbackgrounds in theFoundation. I come frombankingand I spentmore than10yearsatUBSbefore IjoinedtheFoundation.So,I’vecomewithaslightlydifferentmindset.Itisdifferentfromsomeonewhohasspenthisorherwholecareerinthephilanthropysector.Wehavedifferentwaysofapproachingaproblemsometimes.”281

Evenwith the advantages associated with uniting banking and development, there are still on-goingtensions between thebank and the Foundation aroundpurposeand strategy. Thebest solution is tospeakopenlyaboutthechallenges,saysStrickland.“ThebankisakeystakeholderfortheFoundation,andweneedtomakesurewe’refollowingthebank’sproceduresandpolicies.Equallyimportant,we’vegot to remind the bank that we are not a little bank and, actually, we do something completelydifferent,”henotes.“Weworkreallyhardtoremindourpartnersthattherulesmaybeirrelevant.Wearenotsellingsecurities.”282

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Hire“CanDo”andAdaptiveStaff

UBSOF Chief Operating Officer (COO) Nina Hoppe came to the Foundation from banking. She neverconsideredworkinginacharity,butfindssheisenergizedbythedailychallengesandthehighenergyaroundcreatingimpact.

Withherbankingbackground,Hoppecanempathizewithstaffwhoarrivewithadifferentmindset,andshereadilyadmitsthereareculturaldifferencesineachoftheirfiveoffices.Yet,a“cando”attitudeisonesetof skills she looks forwhenhiringstaff.Sheexplains, “Weneedstaffwhoareprepared tobeproblem solvers and come with a ‘Can Do’ attitude. We all have to row together to grow theorganization.”283

She looks forpeoplewithambitious imaginationswho strive for “what if,” andpoints to theEducateGirl’s successasaprimeexample. “Wehadagreat successwithUS$300,000; imaginewhatwecouldaccomplishwithUS$300million.Thisisthescaleweneedtoimagineispossible.”284

HeadofSocialFinanceMayaZiswilerbelievesthatstafffromthebankcanbetooriskaverse.“Whatwearedoing inourSocialFinanceteamhasneverbeendonebefore.Wedon’thaveablueprint—wearecreatingaswego,”sheexplains.“Thisrequiresadaptability,andthatcanbescary.”285

Tobuildateamreadytotakeonnewsocialfinanceopportunities,theFoundationleadershiphasmadeaconsciousdecisiontolookforstaffwhoareadaptive,empathetic,willingtolisten,andwhoexhibitaneagernesstofindsolutionstogether.

FosterTeamwork,NotCompetition,WithinYourNetworks

The UBS Optimus Network (the Network) comprises the UBS Optimus Foundation in Switzerland; itsbranchinHongKong(whichistherepresentativeofficeinChina);itssisterorganizations,UBSOptimusFoundationDeutschlandandUBSOptimusFoundationUK;aswellasadonationplatformintheUnitedStates.286 The Network receives funds from UBS clients, UBS employees, and UBS itself. It disbursesgrants to program partners that help underprivileged or vulnerable children around theworld in theareas of education, early childhood development, health, child protection, and medical emergencyresponse.287 With a network of semi-autonomous entities, the key concern is how to ensure thatteamwork, not competition, prevails within the Network. In addition to ensuring alignment ofexpectations across partnerships, it is equally important to ensure that there is alignmentwithin theNetwork.

TheNetwork is governed through individualboards in Switzerland, theUK,andGermany.TheboardscompriseUBSemployeesandindependentexternalmembers(withtheexceptionoftheGermanboard,whichcomprisesonlyUBSemployees).Annually,astrategicmeetingofrepresentativesfromeachoftheboards is held in Zürich, Switzerland. To ensure the highest standards of transparency in terms ofdecision-making and in linewith good governance practices, theNetwork has established a NetworkManagementCommittee.288

In a Network as far-flung and complex as this one, the need for teamwork and not competition isobvious.SuccessinachievingthestatedobjectivesoftheUBSOptimusFoundationdemandsnoless.Inthe context of this study, it should perhaps come as no surprise that another core characteristic ofDeliberateLeadership—collaboration—isattheheartoftheserelationships.Seekingoutandlisteningto

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differentviewpointsandbuildingcollaborativesolutions(evenslowlyanduncomfortably)areessentialtounderstandingoptions,gainingnewknowledge,andbuildingpowerfulsolutions.

PickupthePhone

FindingtherightwaytocommunicatewithFoundationcolleaguesacrosstheplanetisessential.Hoppeencouragespeopletopickupthephone,ratherthansendinganemailthatcouldblowupbecauseofamisunderstanding.Growthhasitschallenges.UBSOFhadasmallcoreteamsixyearsago,andnowithasglobal offices, Hoppe explains. “Assuring alignment in English when it is not a staff’s mothertongue…meansthatthingscanbemisinterpreted.”289

CostanzaasaConstant

PhyllisCostanzaprovidesconstancyamong thedifferentoffices.Her roleon thegovernanceboardofsatellite offices helps strengthen partnerships and alignment of strategy and purpose. She also hiresstaff and leaders who prize the value of the team’s diversity and who are eager to devise ways ofworkingbettertogether.

HowUBSOFNavigatestheComplexityofExternalAlignment

Partofbeinginapartnershipismaintainingthatconstantdialogue,thatopencommunication,andcommunicatinghonestlyandopenlywiththeotherpartnersheretomakesurethatthingshaven't

changed.Iftheyhavechanged,thentryingtounderstandwhytheyhavechanged,andhowdoesthatimpactthisparticularproject(and)maybeourrelationshipgoingforward?

—PriyaSharma,SeniorPolicyandInnovativeFinancingAdvisor,CenterforInnovationandImpact,USAID290

TheexternalpartnershipsthattheOptimusSocialFinanceteamiscreating(andjuggling)toprototypetheDevelopmentImpactBondsandSocialSuccessNotearen’tforthefaintofheart.Forthemostpart,each deal is made from scratch—even though lessons learned are incorporated from previousexperience. Partners are from different countries, cultures, and different types of organizations. Asnotedearlier,complexitycanbethebaneofalignmentandpartnership.

So, how do UBSOF and their partners juggle complexity and maintain clarity, alignment, andcollaborationaroundpurpose,strategy,resources,andmanagement?Howwellaretheydoingthis,andwhatcanbelearnedacrosstheinvestmentsinaligningexpectationsandexperiencesfromthetop-downandbottom-up?

FindCommonPurposeThroughEfficiency,Capacity,andManagement

Ziswiler offers one overarching strategy—stay focused on a common purpose. As an example, shedescribeswhypartnersarecomingtothetablearoundimpactbondsandtheSocialSuccessNote.Thefirst reason—personally important to Ziswiler and shared by partners—is to make the developmentsectormore efficient by promoting transparency, including pay-for-successmodels that are based onachievingclearlydefinedoutcomes.The second is tobring inmoreprivate sectormoney to the field.Last, but certainly not least, is that lives of the world’s most vulnerable children will be improved

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throughmoremoneyandgreaterefficiencyforsocialinitiatives.291

Shebelieves theFoundation iswellpositioned toaccomplish thesegoals,because it “operatesat thenexus…ononehand,havingexperienceinthephilanthropicspaceandthedevelopmentspace,andontheotherhand,havingthatrelationshipwiththebank.Wearetryingtoexploresynergiesbetweenthetwoworlds,anditreallycametolifeverynicelywiththeimpactbond.”292

Fornonprofitpartners,improvinglivesofchildrenandwomenremainsthecenterpieceoftheirdecisiontoparticipate,butfindingnewfundingsourcesiscriticaltolong-termsustainability.Usingnewbusiness-likeinvestmenttoolsisappealingtodonorsandfoundations.PopulationServicesInternational,EducateGirls,andthesocialbusiness ImpactWaterareexploringwaystodiversify theirprogramstrategiestoleverage new types of donors as bi-lateral funding shrinks. Success begets success—in the case ofEducateGirls,theirparticipationintheworld’sfirsteducationDIBopeneddoorstonewdonorsthat,inturn,haveallowed themtoexpand theiroutcome-basedapproach in India. Likewise, ImpactWater isexploringhowtodiversifyitsfinancingstrategytoblendgrantsandloans.

BuildCapacityWhenNeeded

Educate Girls Founder and Executive Director Safeena Husain soon realized that DIBs aren’t forbeginners.AlthoughHusainand theEducateGirls teamwereeager topartneronaDIB, theydidnotrealize extent of the intense and expensive capacity building needed to shift its entire culture tooutcome-basedprogramming.Fortunately,UBSOFprovidedresourcesforcapacitybuilding inordertomaximizeEG’sabilitytosucceed.

KnowWhenItWon’tWork

EducateGirls isahighlysuccessfulorganizationthatworksatthegrassroots level.Yet itstillstruggledandneededsubstantialcapacitybuildingtoadaptitscultureandstrategy.Severalintervieweesdonotbelieve that smaller, less-experienced grassroots organizations are necessarily able to handle thescrutiny,rigor,andresourcesrequiredtofunctioneffectivelyinthiskindofsocialfinanceproject.

“Partnersshouldbechosenwisely,”Ziswilerpointsout.“TheDIBinstrumentmightnotworkformanyorganizations,becausetheyareunwillingtotweaktheirmodel,learnfromit,iterate,andchange.Theyhaveamodel that they think isdevelopedand is right. Theydonotwant to startquestioning itwithinputfromfunders.”293Havingfrankconversationsintheearlystageabouttherightpartnersiscriticalbecausetherewillbechallenges.

RecognizetheYin-YangofPartnership

EvenwithstrongprojectmanagersandserviceprovidersfortheDevelopmentImpactBondandSocialSuccess Note, the prototypes require enormous energy and time to coordinate in complex settings,especially with the big mission of addressing complex problems targeted in the UN SustainableDevelopmentGoals. The time it takes tobuildoutaDIBhasbeenamajor criticismofUBSOF’s socialimpactwork.Butthiscriticismistemperedbythefactthatthroughalongandhardprocessoflearning,UBSOFanditspartnersarefindingwaystoexpeditetheprocessofdesigningandlaunchingDIBsinthefuture.Thebulkoftheresearchintheseearlyprojectscenteredonpartnershipandtheworkthatgoesintoalignment.Aligningpay-for-performancepartnershipshasayin-yangquality.Ononehand,partners

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musthaveverydistinctroles,andontheother,theymustworkcloselyasateam.

Development ImpactBonds requireorganizationsand individuals tochange their traditional rolesand“stay in their lanes,” as Costanza puts it. In the case of the Educate Girls DIB, she explains, “Theimplementers are theexperts—somethingmanydonors forget. Theywill dowhat theyhave todo toachieve theoutcomes.Weneed to know their cost structure, sowe candeterminewhat is the rightamountofcapitaltoputup,buttheoutcomepayershouldn'tbeminglingintheprogrammaticissues,because they're buying two things: they're paying to get 7,300 girls in school, and they're paying forlearningoutcomesthatare75percentbetterthanacontrolgroup.Howtheygetthereisnotrelevanttotheoutcomepayer.”294

RecognizethePartnersThatDon’tAlwaysLookLikePartners

The Foundation also frequently partners with governments, the private sector, and other funders,including the largest global foundations that focus on children’swell-being. TheOptimus FoundationalsoseesitsowngranteesaspartnerswhoarehelpingtoachievetheFoundation’smission.

TheFoundationoperatesthesepartnershipsinanumberofways,including:295

! Providingtheevidencethatgovernmentneedstoscaleupandsustaineffectiveprograms.

! Strengtheningcapacities,providingaccesstonetworksandstrategicguidancetofledglingandriskierprograms,andaddingvaluebeyondtraditionalgrantmaking.

! Cooperating as equals with co-funding partners of comparable size, or in support roles (e.g.,supportingmonitoringandevaluationofpartners’programs)withlargerfunders.

! Leavingbehindalegacyofmaterialsandtoolsthatcanbeadaptedtolocalcontexts.

! Engaging the private sector to implement market-based solutions, where appropriate, to solveproblems.

“AreWeDoingWhatWeSayWeAreDoing?”

OneofthekeysthemesthatemergedfromtheinterviewsisthatthestructureofDIBspromotescandor.PriyaSharmaofUSAIDexplains:“Partofthenicethingaboutimpactbonds,asawayofworking,istheconstantmonitoringandevaluation,constantverification,andthecheckon‘Arewedoingwhatwesaywe'regoingtobedoing?’”saysSharma.“Akeypieceofthatistalkingtothewomenthatwe'rehopingtobeable to impact,aswell.So, theirvoice isacomponent that isbuilt into thequestionof ‘Arewehavingtheimpactthatwewanttobehaving?Arewemakingthechangethatwethinkneedstohappentoimprovetheirhealthoutcomeswhentheygotoaprivatefacilitytodelivertheirchildren?’”296

TheInevitableFrictionbetweenSocialImpactandFinancialReturn

Alignmentofexpectationsalsocallsfortheneedtomanagetheinherentfrictionbetweenimpactandreturn.Many investorsprofess that theypursueopportunitieswhere the impactmission is synergeticwiththepursuitoffinancialreturn.InitspitchforsocialinvestmentstoclientsofUBS,theFoundationuses a similar argument. However, the Foundation delineates its conversations with clients by

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emphasizingthedifferencebetweenphilanthropy(theFoundation),whichcentersonsolvingproblems,and impact investing (UBSthebank),which isarisk-adjustedreturnwithasocial layeringontop. It isgenerallyacknowledgedthat,attimes,frictioncanarisebetweenthesetwogoals.

Is there a linear relationshipbetweendevelopmental success and thebottom line?TimNeville, ChiefOperatingOfficerofImpactWaterUganda,isn’tsure.“Idothinkinalotofdevelopmentendeavorsthatuseabusinessapproachorasocialbusinessapproach,thatthere'softengoingtobeatensionbetweensocialimpactandprofitability.Theissuecentersonwhethersocialbusinessesshouldmakeadecisiontobemoreselectiveintheschoolsinwhichtheyworkbasedonabilitytopayforservice,oriftheyshouldbedrivenbymeetingtheneedsofallchildren—regardlessofaschool’sabilitytoaffordtheservice.”297

Formany social businesses,being financiallyprofitable couldmeanbecomingmuchmore selective inthecommunitiesthatcanaffordtopayforservices.Theconsequenceisthatpoorercommunitiesandchildrenmightnotbeservedthroughamorerigorouseconomicscreeningprocess.298

TheBeautifulChallengeofReconcilingBigFinancewithSocialFinance

Anotherthemearisingfromtheinterviewsisaboutthesimilaritiesanddifferencesbetweenbigfinanceand social finance.The languageofbig financeoftenopensupconversations. “Ido think that there'ssomethingthat'sveryinterestingintheimpactbondmodelofbringingthosedifferentfactorstogethertothetable,”notesEmilyGustafsson-Wright,Fellowat theBrookings Institution.“I think it'sboththebeauty of the impact bond, but also the challenge of the impact bond. These different actors oftenspeakdifferent languages,andthat'spartofwhatthecostofdoingthesetransactionsendsupbeing,becausethere'salongtimeofnegotiation,etc.But,ontheotherhand,they'rehavingthatconversation,andthatmayhaveamuchlongersystemicimpact.”299

WorldsofRichandPoor

Weneedtomakesurethatthecommunitiesarerepresentedatthosetables.They'rereallysmart.Theyreallyknowtheirstuff,andweneedtounderstandthatwemightnotspeakthesamelanguage,

understandingwhatthey'reactuallysayinganddiggingintowhattheproblemisthatthey'retalkingaboutversusjusthearingthewordsthatthey'resaying.

—SonalShah,ExecutiveDirector,BeeckCenter,GeorgetownUniversity300

TheFoundationmustmeettheneedsoftwoverydifferentclients—UltraHighNetWorthdonors,thoseinvestorswhorepresenttheworld’stoptrillion inassets,andchildrenandfamilieswhorepresenttheworld’sbottombillionpoorestpeople.Whiletheirconditionsarelightyearsapart—theonethingthatunitesthemisacommondesireforabetterfuture.

MartinaGaus,HeadofOptimusPhilanthropyServices inSwitzerland,explainsherwork“aswanderingbetweencompletelydifferentworlds.Itisourjobtoworkinthisbroaderworld.”301

TheFoundationhasaclearmissiontohelpchildren.And italsomustraise itsannualprogrambudgetfromdonors, so its offerings have to be of interest to clients. According toGaus, “The social financeoffering is appealing toour clientswhoarebusiness-orientedbecause it usesbusinessprinciples.Weknow social impact bonds are not bonds, but the language resonateswith clients, and the ability to

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measureimpactisalsoappealing.”302

Nina Hoppe explains, “An important value, onewewant to share and show to all of our clients andcommunitiesinwhichwework,isempathy.”303

Currently,UBSOFgivesavoicetochildrenandthecommunitiesitservesthroughtheserviceprovidersand intermediaries it supports in the social finance portfolio. Educate Girls offers a very powerfulgrassrootsconnectiontogirlsandtheirfamilies,forexample.However,aconsistentthemeinthesecaseinterviewswashowtodomore—howtotapcommunityvoicesandbeneficiariesattheheartofsocialinvestmentstohelpshapeperformancemeasures.HowcanrobustfeedbackloopsbeincorporatedintoDIBs and Social Success Notes to enable a community to critique the services providers and theirapproaches?

UBSOFboardmemberSonalShahasksthesocialfinancefieldtobehonestwithitself.“Let’sfaceit,isn’titeasiernottoinviterepresentativesofthecommunitiesbecauseitisnotefficient?Itisn't.Right?Let'sbeclear. It'snotefficienttohavethembecausetheyhaveverystrongperspectivesandverydifferentviews,butifwedon'tunderstandtheperspectivesandtheviews,wewillhavemissedtheproblem.”304

Costanza is unwavering about the purpose of the Foundation. “At its core, our work is about socialjusticeandmeetingtheneedsof themostvulnerable insociety.”305Sherecognizesthe importanceofmovingquicklyandgettingtoscaletoachievetheSustainableDevelopmentGoals.Theproblemswon’tgoawaywithoutmoremoney.TheFoundationhastheabilitytodobothwithpurpose.


• What leadership characteristics are necessary when forming, sustaining, and aligning a diversepartnership?

• Howcaninterestsbealignedwithpartnerswhohavedivergingorcompetingobjectives?Howcandifferencesbeharnessedtocreategreatervalueinproductsandservices?

• Whenshouldleaderslead,andwhenshouldtheyfollowtoencouragealignment?

• Howcansocialfinancebridgemission,values,andfinancialrequirementsandremainaligned?

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CaseAnalysis5:HowDoesUBSOFLearnandRecalibrate?

OnethingthatIthinkisimportantistogiveconstantfeedbacktoyouremployees,andforthemtobeabletogiveconstantfeedbacktoyou,asaleader.Weshoulddothesamewiththeprogramsthatwe'refunding.And,whilewedothiswithsuccesses,embracingandpenningthem,failureissweptunderthecarpet.I'veaskedourboardandothershowwecanevolvetocreateaculturewherefailureisn’tadirtyword.AndI’vegottenlotsofgoodadvice,suchas,celebratefailure.Awardamonthlyprizeforthebestfailure.Andwhilewe'vetriedthingslikethat,theyhaven’tstuck.Thisisclearlymyfailure.Ifwereally

wanttolearn,weneedtospendalotmoretimereflectingonwhathasn’tworked.


HowDoesUBSOFLearnandRecalibrate?

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LearningDeeplyThroughDoubleLoopLearning

The Deliberate Leadership framework sees data gathering and assessment as part of each stage ofactivity in identifying partners and stakeholders and properly identifying problems being addressed.Additionally, ongoing assessment occurs in parallel with action, while reflection and recalibrationrequire a particular kind of learning that is important. Double loop learning, a concept developed byHarvardscholarChrisArgyris,307helpsleadersandtheirorganizationsmakeinformeddecisionsinrapidlychanginganduncertaintimes.

Thethreephasesoforganizationallearningandchange,asillustratedinFigure23,are:

! PhaseI:Partnerandplan

! PhaseII:Actandassess

! PhaseIII:Reflectandrecalibrate

Figure23.DoubleLoopLearning

Source:2016pfc

IntheirbookTheNecessaryRevolution:WorkingTogethertoCreateaSustainableWorld,Senge,Smith,Kruschwitz, Laur, and Schley characterizeour current complex and challenging times asproviding thecontext for growing the capacity for everyone to shape the future they desire, individually andcollectively.308Thiscapacitybuilding requiresunlearningoldassumptionsandbiases thatobstruct thediscoveryof sharedpurpose. Italso requires learning themeans toenactnewcollectivevisions.Theymakethecasefordoublelooplearning(orchangesinunderlyingframeworks)thathelpsinlearninghowtoexaminetheassumptionsandthementalmodelsgoverningactions.

AsSengeandhiscolleagueswrite,inordertoeffectivelyemploydoublelooplearning,thereisneedfora“necessaryrevolution,”andtheycontendthatthepeopleleadingthisrevolution(likePhyllisCostanzaandherteam)demonstratemasteryofthreecoreareasthatundergirdorganizationallearning:learning

STRATEGY RESULTS

DEFENSIVEREASONING

UNDERLYING ASSUMPTIONS/

VALUES, BELIEFS

SINGLE-LOOP LEARNING,

PROGRAM FOCUS

DOUBLE-LOOP LEARNING, DEEPER

ORGANIZATIONAL ANDPROGRAM FOCUS

MUST GET PAST

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howtoseethelargersystems;understandingtheimportanceofcollaboratingacrossboundaries“thatpreviouslydivided them fromotherswithinandoutside theirorganizations;”and“movingaway fromreactiveproblemsolvingmodetocreatingfuturestheytrulydesire.”309

TheIllusionofFeedback

Itiseasytoconfuse“input”informationcollectedtodesignnewprogramsandtheoriesofchange,with“feedback.”310Feedbackcanonlybesaidtoexistbetweentwopartsorgroupswhentheyinteractwithandaffecteachother.311Ideally,feedbackmechanismsoughttocreatesystemsthatareself-regulating.Thiscanbeachievedthroughdoublelooplearningthatisnotmerelyadjustingstrategyimplementationbased on feedback results, but also is instituting processes that overcome defensive reasoning toquestionandcriticizeunderlyingorganizationalandprogrammaticassumptions,values,andbeliefs.

An organizationmay have reasons tomistakenly believe that it already has robust feedback loops inplace.Monitoringandevaluationactivities, adhoc site visits, andoutcomesmeasurementworkshopscan often look and feel like listening and learning from feedback. The key difference is that, whilemonitoring and evaluation are assessments based on the priorities of funders, managers, andindependent experts, authentic feedback prioritizes the voices of stakeholders who lack formalauthority,suchascommunitymembersandjuniorstaff.

Another concern is that, even when organizations set up feedback loops that are separate frommonitoringandevaluationefforts, these loopsareoften faulty. Thismaybedue toa lackof toolsorknowledge to solicit feedback in a routinemanner that is “reliable, rigorous anduseful.”312 Site visitsmaynotbeasystematicmethodofcollectingdata,surveysmaybeofpoorquality,informationmaybedifficulttointerpretwithoutbenchmarks,and,mostcommonly,organizationsmaynothavecompletedthecrucialstepofclosingtheloopbyactingonandsharingthefeedbacktheycollect.313

Itisimportanttoreinforcethepointthatfeedbacklooppracticeswillonlyyieldresultsifimplementedthrough appropriate leadership and organizational culture. Leadership determines whether the rightquestionsareasked,whether survey respondents feel comfortableaboutprovidingcandid responses,and how the feedback collected is used and reconciled with competing priorities from otherstakeholders.

ABiasTowardActionMayCurtailLearning

ThelifeordeathurgencyofWickedProblems,suchastheneedsofeducatinggirlsinIndiaorprovidingsafedrinkingwater inUganda,oftencauses leaderstorevert to immediateactionthroughcommand-and-controlleadership,ratherthantimeconsuming,multi-stakeholderdialogueandanalysisthattheseproblemsrequire.This“biastowardaction”isoneofthefundamentalreasonswhyorganizationsdonotlearn.314Suchanapproachusuallyleadstoexhaustionanddoesnotleavetimeforreflection.

SafeenaHusain, Executive Director of Educate Girls, observes, “If I was going into a transactiontomorrowforthenextDIB,Iwouldsayyoushouldbuildthatpatienceinsoyou'renotsuffocatingyourfieldworkerwith‘Wherearemyresults?Wherearemyresults?Where'smyresults?’ondayone,”shesays.“Givethemtheroomtobreatheandtoreallybeabletosetuptherightrelationshipandatthecommunitylevelfortheresultstoemerge.”315

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Inculcating learning and reflection requires organizations to deliberately carve out time, to set upmechanismsforthoseapproaches,andtostartearly.HowisUBSOFincentivizinglistening,learning,andadapting internally and externally? As Senge described nearly three decades ago, the modernorganizationexistsinanenvironmentofsuchrapidandcomplexchange,thattheonlywaytoadapttosuch perpetual complexity is to cultivate each individual’s ability to learn at all levels of theorganization.316 UBSOF seeks to find a balance between acting and achieving tangible outcomes andmaking room for iterative and honest learning. InUBSOF’s Strategic Plan, it is clearly stated that theFoundationwillbuildafeedbackloopintoitsevaluations.Thisisnotonlydesignedtoassesstheextenttowhichtheprogramhashadimpact,butalsoseekstoaddresstheneedsofthecommunitiesinwhichtheprogramisimplemented,listeningandadvisingonhowtoenhanceandsustainthebenefit.317

AvoidingtheDoomLoop

In general, grantees, service providers, implementers, and intermediaries who seek communityfeedbackmayoftenfindnegativefeedbackdifficulttolearnfromandevenmoredifficulttoshare.Givensocial sector power dynamics, the fear of failure and preoccupation with success at the funder orinvestorleveltricklesdowntothegranteeorserviceproviderlevel,whereitgetsreinforced.Thismeansthatgranteesandserviceprovidersexperienceasimilar“doomloop”whenfacedwithfailure,andtheyareoftenafraidtoreportnegativecommunityfeedbacktofundersandinvestors.

Evenmorechallengingthanreceivingnegativefeedbackisreceivingfeedbackthatcannotbeaddressedor that creates tensions with other constituents such as staff or funders. However, these issues aresomeoftheillsoftraditionalphilanthropythatemergingsocialfinancetoolslikeDIBsareattemptingtoaddress.

OneofthekeythemesthatemergedfromthevariousinterviewsconductedforthiscaseisthatDIBs,bytheirverynatureandstructure,promotecandor.UBSOFboardmemberSonalShahdescribestheneedforemployingthiscorecharacteristicofDeliberateLeadership,observingthatbeinghonestaboutwhatisactuallypossibleiscriticaltosuccess.Shenotesthatitisessentialtothesuccessoffundingvehicles,suchasaDIB,thatmetricsareclearly identified,pertinentquestionsaredetermined,andappropriatemeasurementsplanned.

UBSOFFrameworkforMonitoringandEvaluation

AsboardmemberFayTwerskypointsout,“Idothinkthatinmanyways,Optimusisverysophisticatedandveryaheadofthecurve.Theyroutinelytrackkeyperformanceindicatorsandsupportindependentevaluation. I do think in the area of systematic feedback from nonprofit clients, customers, andcommunitymembers, they can do better.”Maya Ziswiler, Head of Social Finance for UBSOF, agrees,“Wedonotsystematicallyevaluateourselves.”Whiletheydoreportonbenchmarksandobjectives, itmostly involves reporting on topics like amount of money raised or the number of partnershipsestablished.“Butitstaysatthatlevel,”sheconcludes.318

That is in contrast to how grantees are evaluated. UBSOF has strict standards for reporting on theprogressofallfundedprojectsfromgranteesandserviceproviders.Allfundedprojectsarerequiredtoprovideregularprogressupdatereports,asindicatedinthespecificcontracts(aminimumofonceeveryyear,withthefirstreportdueoneyearafterthestartofprojectfunding).Furthermore,aclosingreport

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is requested from every project. Priya Sharma of USAID suggests that impact bonds are designed torequireconstantmonitoringandverificationandthattalkingtobeneficiariesisanimportantpartoftheprocess.“Theirvoiceisacomponentthatisbuiltinto(thequestions):‘Arewehavingtheimpactthatwewanttobehaving?Arewemakingthechangethatwethinkneedstohappentoimprovetheirhealthoutcomeswhentheygotoaprivatefacilitytodelivertheirchildren?’”shesays.319

Whilethiskindofinquiryisuseful,therearenoexplicitfeedbackloopswhenitcomestoDIBs.Asmuchaslessonscanbelearnedfromtheprototypes,therestillseemstobetheneedforadditionalfeedbackloopswithin individualDIBs tocourse-correct, recalibrate,and learnwithinasingleDIB.Theabilityofthe Foundation to incorporate such learningwill be a test of howDeliberate Leadership is employedoverthelong-termatUBSOF.

UBSOF’s experiences in this case study model a number of examples of double loop learning. TheFoundationbelievesthatbeingatthefrontendofdevelopinganddeliveringnewproductscreatestheopportunityforreflectionsonsuccessesandfailures,aswellasanabilitytoadaptasaresultoflessonslearned.Beinganin-houseFoundationofaveryconservativebankinitselfcreatestheaddedchallengeofembracingcandortospeakthetruthaboutwhat isworkingandwhat isnot,aswellasallowingfortheessentialrecalibrationtofeedinnovations.Whileinternallythismaybeeasiertodo,thesituationisdifferentwhen it comestodealingwithexternalpartners suchasclients.Sohow isUBSOFcreatingalearningenvironmentwherepartnersandcollaboratorscansafelychallengecorebeliefsandvalues?

A deeper andmore adaptive form of assessment rests on several principles: commitment to robustlearning,testinghypotheses,openlysharingresults,andrecognizingthatprogramoutcomesareshapedby values, beliefs, and assumptions, as well as by strategy. It encompasses profound life-cycleexaminationandlearning.SolvingWickedProblemshasnoroomforsinglelooplearning.TheDeliberateLeader understands this and knows how to get past defensive and rational reasoning to test theunderlyingassumption,values,andbeliefsandhowtorecalibrate.


! What are some of theways that a lack of attention to feedback can negatively affect a project,program,orsocialinvestment?

! Atwhatstagesofaprojectshouldfeedbackmechanismsbeused?

! Whatistheroleoforganizationalleadershipinimplementingfeedbackloops?

! Whataresomeofthewaysinwhichfeedbackloopscanbefaulty?

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CaseAnalysis6:WhatDoesItTaketoScale?

OneofmybiggestfearsofscaleintheDIBandtheSIBspace,isthatwewanttoroutinizeeverything,andhumannatureisnotroutinized.So,understandingwhatyou'replayingtoandwhatmightcreate

perverseincentivesandunderstandinghowtochangethatwhenthetimecomesissuperimportant.

—SonalShah,ExecutiveDirectorofBeeckCenterforSocialImpactandInnovation,GeorgetownUniversity,andUBSOFboardmember320

WhatDoesitTaketoScale?

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WhatDoesItTaketoScale?

“Test,Seed,andScale”

Over its19-yearhistory,UBSOptimusFoundation(UBSOForFoundation)has investedcreativecapitaltohelp theworld’smost vulnerable children. In 2017, it reachedmore than twomillion children andraisedand spentanestimatedUS$62milliononprograms toendchildabuse,ensureearly childhooddevelopment,decreasetherateofinfantmortality,andimproveemergency-responsesystemsinhard-to-reachruralcommunities.321

The Foundation’s Social Finance teamhasbrought abusiness approach into its grantmakingportfolioandhasdevelopedmulti-sectorpartnershipstodriveevidenced-basedoutcomes.

Inthecourseofthiswork,UBSOFanditspartnershavepioneeredseveralglobal“firsts.”InRajasthan,India, theworld’s firsteducation-focusedDevelopment ImpactBond (DIB),EducateGirls, reached768girls.322AlsoinRajasthan,UBSOFdevelopedtheworld’sfirsthealthcareDIBtoimprovethelivesof2,000new mothers and their children through expanding hospital certification.323 In Uganda, UBSOF,RockefellerFoundation,andYunusSocialBusiness launchedtheworld’sfirstSocialSuccessNote(SSN)toprovide1.4millionchildrenaccess todrinkcleanwaterat school.324Theseproofsof conceptweredesignedtonurturelargerprojectswithgreaterreachandimpactincludingthenewQualityEducationDIB.“Test,seed,andscale”isseenasawinningformulafortheFoundation.

Thiscaseanalysisfocusesontheissueofscale.Fortheestimatedonebillionchildrenlivinginpovertyworldwideand(accordingtoUNICEF)theapproximately22,000dyingdailybecauseofpovertyrelatedconditions, survival depends on taking solutions to scale.325With a shortfall of an estimated US$2.5trillionannuallyneeded tomeet theUN’s17SustainableDevelopmentGoals (SDGs)by2030,movingmoneywithmission andmeasurable impact is amandate. Thismandate needs to be temperedwithcaution,however.When setting the course for scale, questionsmustbe raised, assumptionsmustbechallenged, and lessons drawn from experiences must be shared. Drawing on research and on thecontentof33interviewswithUBSstaffandpartners,thefollowinginsightsonscaleareofferedtohelpgeneratefield-widediscussion.

What is scale? The definitionwill be debated for a long time, but for purposes of this case and theOxford Social Finance Programme, scale is big in scope: city-wide, province-wide, country-wide,continent-wide, global. Scale blends capital, tapping public, private, and philanthropic financial andsocial resources. Scale is measurable, and solutions take hold with evidence-based results. Scale issystemic and sustainable, and it is built to last by adapting and shape-shifting to accommodate adynamic world. Scale is what will be required to meet the challenges laid out in the SustainableDevelopmentGoals.

WhenSocialEntrepreneursandGovernmentWorkasaTeam

MayaZiswiler,HeadofSocialFinanceatUBSOF,believesthattheFoundation’ssocialfinanceprototypesset the stage for larger partners, such as government, to pick them up when proof of concept isdemonstrated.ShecallsUBSOF’sapproacha“transitiontoscale.”326 Indeed,socialentrepreneurswhoareabletomovegovernment“fromthesidelinestoafarmoreproductiveplaceinthesystem”arelikelyhaveagreaterimpact.327

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Ziswilerdescribestheirapproachtoscaleasthree-pronged:

1. Focusonoutcomesatscale(viaimpactbonds)withtheaimtoshiftgovernmentanddonorfundingtowardsresults.

2. Scalesocialbusinessesbyprovidingtherightincentivestofocusonsocialoutcomeswiththeaimofcrowdinginmorecommercialfunding.

3. Build theecosystem to getorganizations "social finance ready"by supporting intermediaries andincubators,butalsobybuildingevidenceanddocumentingwhatworks/doesn't.

EachoftheDIBsinthiscasestudyhassoughttoinvolvegovernmenttohelpinthetransitiontoscale.IntheEducateGirlsDIB,therelationshipwithgovernmentcamelaterthanexpected.AccordingtoEducateGirls’UKDirectorAlisonBukhari,astheDIBwasgettingsettolaunchin2014,theenvironmentwasn’tright“toengagethegovernmentasafunder.”328Bukharinotesthat“inthefuture,governmentsmustplay a critical role in funding and scaling,” and that “DIBs could be a pathway to engage thegovernment…” This is the case with the Quality Education DIB and the Utkrisht Health Care DIB;relationshipswiththeIndiangovernmentandwithpartnerswhohadgreateraccesstopublicresources,suchasDfIDandTataTrust,werebuilt inmuchearlier intheprocess.“InourUtkrishtDIB,wehaveaveryclearcommitmentforthegovernmentofRajasthantoscale,ifsuccessful,”saysZiswiler.329

TimNevilleat ImpactWateralsoacknowledgeschallengesofpublicsectorsolutions,pointingoutthatmanygovernmentsinemergingeconomiessufferfromcorruption,makingthemunpredictablepartnersforscale.Thesesamegovernmentchallengesalsomakeoperationsforsocialbusinessesmoredifficultand unpredictable. Daniel Isenberg and Vincent Onyemah, writing for The World Economic Forum,suggest building high-level, highly visible cross-sector partnerships that provide sufficient publictransparencyandaccountability:“Ifgrowthhappens,andnooneknowsaboutit—likethetreefallinginthe forest—it does not have a broad community impact.” Isenberg and Onyemah urge socialentrepreneurs torecognizetheirgrowing impact“andtalkabout it,”especially in termsthat resonatewith various stakeholders: “Most people from across the entrepreneurial ecosystem—public leaders,corporateexecutives,educationaldirectors,bankers—haveanaturalstake in localgrowth.”Themorethat growth and impact are discussed in ways that benefit each sector, the more meaningful aninvestmentbecomes.330

UBS’sStrategyforGoingtoScale

PrivatesectorcompaniessuchasUBSofferanaturalopportunityforscale.UBShasaccesstothelargestnumber of billionaires in the world—ultra-wealthy clients across the globe who are often seekingmultiple returns. “In the last few years [multiple returns on investment] have become a true clientdemand,” saysUBSCEO Sergio Ermotti. “Itwas quite clear to us that institutional andprivate clientswere more and more demanding for impact to social aggregated investment teams, and they weremuchmorefocusedinhowtheyinvesttheirmoney.Andastheyweredoingthat,theywerenotreally,andtheyarestillnotreallywillingtocompromisereturns.”331WhenPhyllisCostanzatookoverasCEOforUBSOptimusFoundation in2011,90percentofUBS’sbiggest clientswere interested in investingtheirwealthforgood.332Costanzarealizedthatnotonlycouldshe leveragethefundsofUBS’sclients,butshecouldalsoutilizethe“expertiseof60,000employeesaroundtheglobe.”333MayaZiswilernow

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seesthetrendmovinginadifferentdirection.“InSwitzerland,almost40percentofclientsarewillingtocompromiseonreturnsifitmeansgettingmoreimpact.”334

That a corporation the size ofUBShas committed to the SDGs is promising, but tomake any sort ofimpactbeyonditsowngrant-fundedandsocialfinanceprogramswillrequirecross-sectorpartnershipson amassive scale. AsWiebeDraijer, JaneNelson, and LisaDreier note, “Motivating dozens or evenhundreds of organizations to work together—and making sure their work makes a difference—isextremelydifficultwhennoone is clearly incharge.”335Tomobilize suchsystemicchangewill require“systemleadership”,thatisbringingtogetheranentireindustrytoaddressissuesthatinevitablyimpactadiversegroupofstakeholderswhilekeepinginmindsite-andculture-specificvariances.

Oneexampleofsector-widemobilizationisthenewlyestablishedImpactBondWorkingGroup(IBWG).The IBWG, started in 2018, is a group of public and private sector donors intending “to lay thefoundationforconcertedinitiativesandstrategiesforenhancingthecosteffectivenessandscalabilityofImpactBondsasameanstosupportgovernmentsindeliveringtheSDGs.”336

TheFoundationanditspartnershavesharedtheDIBresultswidelyandtransparently,andthesuccessof EducateGirls is amodel for otherorganizations thatmaywant tomove intoDevelopment ImpactBonds.Theirstrategytoattractothersincludesthreeareasoffocus,accordingtoZiswiler.ShesaysthatUBSOF'sefforttotransitionimpactbondstoscaleincludes:

1. Workingwithlargedonorstoshiftpartoftheirdevelopmentfundingtooutcomes-basedfinancing.

2. Pooling investment funds to attract different types of investors through blended capital(philanthropic,DFIs,andcommercial).

3. Buildingcapacityonoutcome-basedfundingviaaresourcecenter.

By publicizing the DIB results, which have been presented at Brookings and published on Instiglio’s,IDinsight’s, andCIFF’swebsites (allwere involved in theDIB),UBSOF is practicing “scalable learning,”whichJohnHagelIIIandJohnSeelyBrowndescribeasbeing“drivenbythedesiretolearnmoreaboutthose who are being served by the institutions and then to provide ever more value to thoseconstituenciesbytailoringproductsandservicestoaddresstheindividualandevolvingneedstothosebeingserved.”337AsShahpointsout,scalablelearningisn’trote.“Humannatureisnotroutinizable,”shenotes.338 Frequent recalibrating based on community context and circumstances must be taken intoconsiderationwhengoing to scale.Tobring theEducateGirls, IndiaEducation,UtkrishtMaternalandNewbornHealthDIBs,andtheSocialSuccessNotetoscale,theFoundationanditspartners—theserviceproviders, implementation managers, outcome funders, and independent verifiers—must continuallyrefineandadapttotheever-changingneedsofitsbeneficiaries.

ScaleisNotJust“RollOutandReplicate”

ZiswilercautionsthatsuccessfullyscalingDIBsandothersocial financetools for impactrequiresmanyvariables for that process to go right. “I don’t think these types of instruments are an answer to alldevelopmentchallenges,”shesays.“Ithinkitworksfororganizationsthathavereachedacertainscale,(but)…a small grassroots organization probably couldn’t handle the kind of scrutiny and resourcesneededtobeabletofunctioninthisconstruct.”339

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BukhariechoesZiswiler’ssentiment,comparingtheprocessofgoingtoscaleto“findingasilverbullet.”“Youwanttomaketheseassumptionsthatthisoneamazingthingcanactuallyworkforeveryone,”saysBukhari.Inherexperience,this“one-size-fits-all”practiceofreplicatingwhatothershavedone,withoutconsideringcommunityandcontext,hasnegativeconsequences,anditiswhere“somuchinnovationatthefieldlevelisgoingwrong.”340

FiveStepsforFearlessInvesting

For systemic change and scale to occur, a collective effort by the investor community is needed todismantlebarrierstoentryformainstreaminvestors insocial finance.341 Investorsthemselveshaveanimportant role in this process. Foundations like UBSOF have a number of levers at their disposal,including access to UBS clients with large amounts of investment capital, the ability to engagepolicymakers, deep technical expertise, and theopportunity toexercise sector-wide coalition-buildingpower.

To overcome the perceived risk of investing in complex socioeconomic initiatives, Sarah Miers, aportfolioand investmentanalystat theSkollFoundationandZachSlobig,awriterandeditoratSkoll,suggesttakingthefollowingsteps:342

• Build credibility. UBSOF must prove itself as an effective social investor, with demonstrablesuccessesandawillingnesstoshareitsexpertisewithothersinthefield.

• Lookbeyondtheusualsuspects.UBSOFshouldseeknewpartnershipswithorganizationsoutsideofthegeographyorsectorwithwhomittraditionallyworks.

• Enhance sustainability through earned revenue. UBSOF should reserve a part of its budget foradvisoryandteachingservices.

• Leverageexistingassets.UBSOFhasmanysuchassets—whether theybemonetary,employee,orexpertise.

• Demonstrate fidelity to themodel.UBSOFmustprove thatDevelopment ImpactBondscanworkwiththerightteam—fromtheserviceproviders,totheimplementationmanagers,totheoutcomefunders—andthatitisnotsolelythepresenceofUBSOFastheDIB’sinvestorthatmakethemodelsuccessful.

ScalingChallenges

Solvency and sustainability of social businesses and entrepreneurs remains a challenge to scale forinterviewees.Specifically,intervieweesraisedthequestionastowhethertheseissuescanbeachievedsimultaneously.Intervieweeswereunsure.

Safeena Husain, Founder and Executive Director of Educate Girls, points out one challenge, thepossibilityof selectingonly the “best” students toworkwith.Husain thinksDIBs thatare too impact-centricanddrivenbythedemandsof investorsfor impactcouldmakeserviceproviders lesswillingtoworkwiththosestudentsmostinneedandhardertoreach.WheninvestorscontrolthetermsofaDIB’simpact, it is possible the project “will have some really bad incentives—it will be more about the

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returningofcapitalthananythingelse,”saysHusain.“That,Ithink,isonekeypiece:Whodecide(s)onthose outcomes?” A better alternative, Husain believes, is “patient investing,” where investors arepreparedfortheircapital“totakerootinthecommunityorintheschoolsystem”overalongerterm.343

In addition, unless DIBs are streamlined and less time consuming on the front-end, theymay not beaffordable for many civil society organizations that should be working in collaboration withgovernment—bothasserviceprovidersandaswatchdogs.

AnEssentialFoundationforBuildingScale

This brings the concept of additionality into the discussion on scaling. Additionality is an importantconsideration in thinking about scaling. Without traditional grants, can social businesses like ImpactWaterbesustainableandachievethegoalstheSocialSuccessNotesweredesignedtoachieve?Whatroledo investors likeOptimusFoundationhave toplay toensure that ImpactWaterand theSSNarescalable?

“Whatwas very clear fromearly onwas thatwe can't do this at this small scale, ifwewant it tobesustainable,” says Ziswiler. She adds, evolving from a pilot to a scalable model, with governmentinvolvement,requiresstartingtobuildamarketforoutcomes.PartnerslikeUSAID,MerckforMothers,and others like performancemanager Palladium add expertise. “The Tata Trust, which is one of thebiggestlocalphilanthropies,alsoaddsgovernmentrelationshipandbuy-in,”saysZiswiler.Shedescribesa process where differentmodels are piloted as a “think and go.”While piloting, they are “thinkingabouthowwecanleveragetheUBSplatformatscale.”344

NewTechnology

The surround-soundbuzz aboutwhatWorldEconomic Forumcalls the Fourth IndustrialRevolution isgetting louder.Technologytools likeblockchain, fintech,andartificial intelligenceareeverywhereandare often being touted as a panacea for social ills. Implementing such technologies can dramaticallychange a system.345 For example, blockchain is being experimentedwith by theUBSOF team.UBSOFexpectsblockchainandothertechnologytopotentiallyplayabigroleindeliveringimpactinthefuture,primarilyinreducingthetransactioncostsofemployingprivatecommercialandphilanthropiccapitaltosocialcauses.

Scale:ChallengeandOpportunity

Overall,asseenintheinterviewsandtheliteratureexaminedinthiscasestudy,alongwithassessingthevarious social finance vehicles being spearheaded by UBSOF, it is clear that social finance holdsconsiderablepromiseformobilizinganddeployingprivatecapital forsustainabledevelopmentandforcontributinginsignificantwaystowardtheachievementoftheUNSustainableDevelopmentGoals.

Whiletherearechallengesandcomplexitiesthatneedtobeaddressed,therearealsoinnovationsandearly successes thatdemonstratenot justpotential,butalso real, tangible results. Throughexpandedrelationshipsandnewtools,UBSOFnowhas theopportunity tocontinuetoscale thesesocial financevehicles for greater impact. Scaling involves systematically monitoring and evaluating the vehicles—expectingfailureandsurprises,aswellasingenuityandsuccess.

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WickedProblemsaresocomplexthattheycan'tbesolvedbygovernments,civilsociety,ortheprivatesector alone. Even when all three work together, promising pilots sometimes remain just that—promising.Without scaling solutions to a broad geography and creating sustainable systems change,significant socialprogressdoesn'thappen.Thinking throughhowsocial innovationsmight scale,whiletough, is important at the beginning,middle, and endof thework. In thewords of theGodfather ofSocialEntrepreneurship,BillDraytonofAshoka,“Socialentrepreneursarenotcontentjusttogiveafishorteachhowtofish.Theywillnotrestuntiltheyhaverevolutionizedthefishingindustry.”346


• Howdoyouknowwhichprogramsareworthscalinginthefirstplace?

• Isscalingalwaysagoodidea?Isitalwayspossible?

• Whatarethekeyneedsfordifferentstakeholdersateachstageinthescalingcycle?

• Whatarethekindsof financingthatneedtobeconsideredby investorsateachstageofascalinginitiative?

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Conclusion:The7CharacteristicsofDeliberateLeaders

This program of study of the UBS Optimus Foundation reveals insights about how the DeliberateLeadership process, when properly executed, can provide results—even when the participants comefrom varied backgrounds and perspectives. Through a process of questioning, listening, learning, andapplyinglessonsfromthisexperienceinwaysmostsuitedforeachorganization,WickedProblemscanbetackledatboththecommunityandgloballevels.

Inparticular,thiscasehighlightshowthefast-growingfieldofsocialfinanceoffersnewopportunitiestoleverage private sector capital to help achieve the United Nations Development Programme's 17Sustainable Development Goals by 2030. UBSOF and their partners shared the lessons they learnedduring the course of developing and implementing a wide range of innovative social financing tools.These lessonsmovebeyond traditional grantmaking to include Social SuccessNotes, program relatedinvestments, andDevelopment ImpactBonds (DIBs).Manyof these toolsarebeingusedgloballyand

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Conclusion

are being tested through prototypes to determine ways to scale results to improve the lives ofvulnerablechildren.

BoomTimes

Asawayofhelpingensurecapitalforgoodcauses,socialfinanceisbooming.AsMayaZiswiler,UBSOFHeadofSocialFinance,notes,“Alotofpeoplewanttodo(socialfinance),eventhoughtheymightnotknowif it'stherighttypeof instrumenttoachieve, justbecauseit'sthenewshinything.”Ziswilerhasalsoobserved“arushofpeopleattractedandinterestedtodothiswithoutanyunderstandingofwhatitactually requires in terms of setting up the appropriate structure and appropriate measurementmechanisms.”347

Priya Sharma of USAID is also tracking the interest in this financing tool and is following the tensioncreatedbytheneedforbothreturnandsocialchange.“Iwasstruckbythenumberoflargemainstreaminvestors that said…they actually wanted to move away from the term impact investing towardstraditionalinvestingbecausetheywerelookingforopportunitiestohaveafinancialreturnandachievesocial impact,”shesays.“Thatwasexcitingontheonehand,butalsosomewhatworrying,because italso thenmeansthatyou'rebringing investors inwhomighthave limitedunderstandingof thetrade-offs that are involved in having financial and social impact, or (who might) have unrealisticexpectations.”348

UsingtheRightToolfortheRightProblem

Insellinga“product” likesocial finance forsocialgood, thechallenge isoftenseparatingthe financialreturn from the impact. “We have to be thinking about things on a systems level. I know that'scomplicated and ugly and not fun for the financial folks,” says Ann-Marie Sevcsik, former ProgramDirector at UBSOF. “That's my biggest concern with that. How do we find digestible products andpackages that will attract the financial world, but at the same time not undercut the fundamentalsystemsstrengtheningthatneedstohappen?”349

Merck forMothers’ScottHigginsnotes thatsocial financecanbe thesolution tosomeproblems,butsocialfinanceisnotthepanaceaforallwoes.InthecaseoftheUtkrishtMaternalandNewbornHealthDIB, social finance was a good choice because the program hadmeasurable outcomes and becausesolutionsalreadyexistedthatneededappropriate financing.“Myrecommendation is tostartwiththehealthcare systemproblem that you're trying to solve,”Higgins says. Then,heargues, “Peelback theonionandask, ‘If this is theproblem,what factorsare contributing to theproblem thatwecanhaveimpacton?’Identifythoserootcauses.Then,onceyou'veidentifiedthoserootcauses,identifyifthereisanopportunitytohaveanimpactandask,‘Doesaninnovativefinanceapproachmakesense?’”350

Higgins’advicetothefield:“Don’tstartwithahammerandthenseekoutnailstostrike.IfyoustartwithaplantouseinnovativefinanceoraDIBbeforeyouidentifythetarget,youareasolutioninsearchofaproblem.Youareapplyingsomethingthatmayormaynotmakesenseforthesituationthatyou'rein,”hesays.“It’satool.It'snothingmorethanatool.”351

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PatienceisRequired

Sevcsikalsonotes that social finance, andespeciallyDIBs, can’thappenovernight.Resultsmight takedecades tobe seenona larger level. Contract agreementshave tobenegotiated indetail andmighttakemonths.Someoftheseproblemsaresocomplicatedandrequiresomanyinterventionsthatitcanseem nearly impossible to estimate outcomes—yet outcomesmust still be determined. “Everybody'sjust ultra-excited about social finance,” Sevcsik says, “without recognizing...how many differentquestions and how much time has to be invested at all different levels to make sure that you'reansweringtherightquestions.”ShesaystheneedsofthemothersandnewbornsinRajasthanarelong-termproblems,nottrends.352

NoPatAnswers

Thegoalofthiscasestudyisn'ttoprovidedefinitiveanswerstothesecomplexissues,buttostimulatethinking.Aspointedoutinthepreface,thecaseanalysesinthisUBSOFprogrammeofstudyexploreindepththebackground,history,successes,andchallengesofitsworkwithagoalofprovokingdiscussionaroundthedrivingelementsoftheanalysis.

ThisstudyalsopinpointstheDeliberateLeadershipcharacteristicsneededtoaddresstheworld’smostcomplexchallenges,offeringinsighttoleadersastheyusenewformsofblendedcapitaltotackle21stcenturyproblems—WickedProblems.

A commitment to using Deliberate Leadership requires leaders to create, nurture, and continuallyreinforceanorganizationalculturededicatedtoopenandhonestlearning,adaptation,communication,anddiversestakeholderinvolvement.Italsorequiresorganizationstoletgooftheideaorneedtohaveonly the “right” answers, to focus on short-term outcomes and impacts, and to control the processunilaterally.Thesecommitmentsoftenmeanasubstantialchangeininstitutionalculture.

QuestionsfortheField

AddressingWickedProblems requiresa significantcultural shift formanyorganizations,whether theyare funders, grantees, or other stakeholders. The previous section views UBSOF through the lens ofWickedProblems,seekingtounderstandhow,withallitsgreatstrengths,UBSOFcouldhavebeenevenmoreeffectivebyapplyingthetenetsofDeliberateLeadership.Thequestionsthisraisesofferstudentsofphilanthropyandsocialinvestorsrichopportunitiestodiscuss,debate,andlearninsituationswherethereisnoonerightanswer.

1. Courage:Based on your experiences and knowledge, do most funders diagnose complex issuesproperly?Dotheysupporthigh-riskprojectsandsolutions?

2. Collaboration:Dofundersseekoutdivergentpointsofviewandensurethattheywerewelcomedandprotectedatthetable?Dotheyseekpartnersinproblem-solving?

3. Community:Can you think of illustrations of ways funders have worked effectively to build atrusting relationship with communities? Have these organizations also built effective teamsinternally?

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Conclusion

4. Candor:Howdofunderscreateaculturethatembracesopennessandfailure?Howdotheycreatealearning organization that reflects on its values, culture, and strategies and builds on lessonslearned?

5. Creativity:How can funders build “what if” scenarios and anticipate threats early in their duediligenceandgrantmakingprocess?

6. Compassion:Whenandhowdofundersexhibithumilityandempathyindecision-making?

7. Capital:Howcanfundersvaluethesocialandfinancialassetsoftheirpartnersandstaff?

This handful of questions gets at the heart of being a Deliberate Leader. The case study presentsinformationandanalysesthatcanhelptoraiseimportantquestionsonleadershipandlearningfortheglobalfieldofphilanthropyandsocialinvesting—andatthesametimeofferspracticalhopeforsolvingthe problems of poverty, inadequate health, and poor education that afflict half of the planet’spopulation.

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AppendixA.ListofInterviewees

Name Organization TitleRanajoyBasu ReedSmith PartnerLorenzoBernasconi RockefellerFoundation SeniorAssociateDirector,

InnovativeFinanceAlisonBukhari EducateGirls UKDirectorPhyllisCostanza UBSOptimusFoundation ChiefExecutiveOfficerRadanaCrhova DepartmentforInternational

DevelopmentDevelopmentImpactBondsAdvisor

DhunDavar UBSOptimusFoundation ProgramDirector,SocialFinanceAnthonyDonatelli UBSOptimusFoundation Director,PhilanthropyServicesUKSergioErmotti UBS ChiefExecutiveOfficerJohnFairhurst GlobalFundtoFightAIDS,Tuberculosis

andMalariaHead,PrivateSectorEngagement

MartinaGaus UBSOptimusFoundation HeadofOptimusPhilanthropyServicesSwitzerland

JamesGifford UBS HeadofImpactInvesting,ChiefInvestmentOffice

SarahGonzalez-Arza UBSOptimusFoundation CommunicationsManagerAvnishGungadurdoss Instiglio Co-founderandManagingPartnerTomHall UBSOptimusFoundation HeadofClientRelationsUKAnna-MarieHarling UBS HeadofGreatWealthPhilanthropy

CenterScottHiggins MerckforMothers DirectorofOperationsNinaHoppe UBSOptimusFoundation ChiefOperatingOfficer

SafeenaHusain EducateGirls FounderandExecutiveDirector

HubertusKuelps UBS GroupHeadofCommunicationsandBranding

PritpalMajara PopulationServicesInternational ManagingDirector

NicoleNeghaiwi UBS ImpactInvestmentStrategist

TimNeville ImpactWater ChiefOperatingOfficer

GrethePetersen Children’sInvestmentFundFoundation Director

Ann-MarieSevcsik UBSOptimusFoundation FormerProgramDirector,Health

SonalShah BeeckCenterofSocialImpactandInnovation,GeorgetownUniversity

ExecutiveDirectorUBSOptimusFoundationBoardMember

PriyaSharma USAID SeniorPolicyandInnovativeFinancingAdvisor,CenterforInnovationandImpact

VivekSharma PopulationServicesInternational ChiefTechnicalOfficer

VikramSolanki EducateGirls ProjectManager

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Name Organization TitleOwenStrickland UBSOptimusFoundation BusinessManager

KateSturla IDinsight AssociateDirector

FayTwersky WilliamandFloraHewlettFoundation

Director,EffectivePhilanthropyGroup;UBSOptimusFoundationBoardMember

PeterVanderwal Strat!gosConsulting FounderandChiefExecutiveOfficer

SietseWouters UBSOptimusFoundation ProgramManager,SocialFinance

MayaZiswiler UBSOptimusFoundation HeadofSocialFinance

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AppendixB.UBSOptimusFoundation’sFundingPortfolio

ProgramsfundedbyUBSOptimusFoundationbyPortfolioasofJuly2018include:

Portfolio OrganizationName ProjectTitle Region

Health StopBuruliInitiative BuruliConsortium Worldwide

Education OxfamGB GirlsCAN:promotingsecondaryeducationforgirls

AfricaSouthofSahara

Health GlobalAllianceforRabiesControl Child&DogCARE:CommunitiesAgainstRabiesExposure

Asia&Pacific

ECD+ MotherChildEducationFoundation(ACEV) QualitychildcareforyoungTurks Central&EasternEurope

Health PublicHealthFoundationofIndia SafeChildbirthChecklist Asia&Pacific

ChildProtection

WorldHealthOrganization Globalstatusreportonviolenceprevention

Worldwide

ChildProtection

CentreforJusticeandCrimePrevention(CJCP),UniversityofCapeTown(UCT)

OptimusStudy-Violenceprevention AfricaSouthofSahara

Education TeachforthePhilippines TeachforthePhilippines Asia&Pacific

Health InternationalCentreforDiarrhoealDiseaseResearch Savingchildrenwithseverepneumoniaandmalnutrition

Asia&Pacific

ECD+ PREVIVA,SchoolofPublicHealth,UniversityofAntioquia

PROMESAstokeep:doesitreduceabuse? LatinAmerica&Caribbean

Health UniversityHospitalsofGeneva-DivisionofInternationalandHumanitarianMedicine

Bites&bikes:savingchildrenfromvenomoussnakes

Asia&Pacific

ECD+ KhomLoyDevelopmentFoundation Low-costMontessorifordisplacedkids Asia&Pacific

Health CentreSuissedeRecherchesScientifiquesenCôted'Ivoire

Integratedapproachtofightparasiticwormsanddiarrhea

AfricaSouthofSahara

ChildProtection

Childhoodwithoutviolenceandcruelty NationalChildProtectionSystems Central&EasternEurope

Health DrugsforNeglectedDiseasesInitiative DrugsprinklesforchildrenwithHIVandTB

AfricaSouthofSahara

China FudanUniversity,SchoolofPublicHealth Mothers'mouthwashforbaby'shealth Asia&Pacific

Health QueenslandInstituteofMedicalResearch 'MagicGlasses'tofightparasiticworms Asia&Pacific

Health SchoolofPublicHealth,GriffithUniversity Takingtoiletstoscale:full-scalefieldtestofBALatrine

Asia&Pacific

Health APOPO TBornotTB-ThatisthequestionforAfricanrats

AfricaSouthofSahara

ECD+ IlifaLabantwana(BasedattheDGMurrayTrust) IlifaLabantwana-scalingupearlychildhood

AfricaSouthofSahara

ChildProtection

UniversityHospitalUlm E-learning:EarlyPreventionofMaltreatment

WesternEurope

Education InstitutoABCD MoreandbettereducationforchildrenintheAmazon

LatinAmerica&Caribbean

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Education Child'sDreamFoundation Bridgingtheeducationgapforunderprivilegedchildren

Asia&Pacific

China RightToPlaySwitzerland HappyHealthyChildren Asia&Pacific

Health PhamNgocThachHospital Low-costbeadstodetectchildhoodtuberculosis Asia&Pacific

Education STIREducation(SchoolsandTeachersInnovatingforResults)

TeachersandparentsinnovatetosolveIndia’slearningcrisis

Asia&Pacific

Health MédecinsSansFrontières EmergencyResponsetotheEbolaoutbreak AfricaSouthofSahara

ECD+ YaleUniversity Educationtoreducechildren'sexposuretoviolence

NorthAfrica&MiddleEast

China PlayRightChildren'sPlayAssociation Structuredplayforchildreninhospitals Asia&Pacific

ChildProtection

RootsofEmpathy Buildingempathyinchildren WesternEurope

ECD+ InternationalRescueCommitteeUK Parentsmakethedifference AfricaSouthofSahara

Education PrathamEducationFoundation Learningcampsformarginalizedchildren Asia&Pacific

Health UniversidadPeruanaCayetanoHeredia Integratinghomeandcommunitymeasurestoimprovehealth


ChildProtection

UniversityofOxford Essentialcomponentsofparentinginterventions Worldwide

Health HamlinFistulaEthiopia Savinglivesbygivinglight AfricaSouthofSahara

Health KarolinskaInstitute,DepartmentofClinicalScienceandEducation

Anewtestfortuberculosis AfricaSouthofSahara

ECD+ Warmayllu Improvingnutritionandcognitiveabilitiesofchildrenthroughthearts


EmergencyResponse

WeCareSolar LightingupliveswithSolarSuitcases Asia&Pacific

Health JohnsHopkinsBloombergSchoolofPublicHealth

mCare:mobilephonesfornewbornsurvival Asia&Pacific

ECD+ IlifaLabantwana(BasedattheDGMurrayTrust)

IlifaInnovationEdgeforearlychildhood AfricaSouthofSahara

ChildProtection

HopeandHomesforChildren Deinstitutionalizingchildren AfricaSouthofSahara

ECD+ InternationalCentreforDiarrhealDiseaseResearch

Happymother,happychild Asia&Pacific

ECD+ ConcernWorldwide(UK) Transforminglivesofstreetchildren Asia&Pacific

ECD+ ArcanysEarlyLearningFoundationInc. Transformationthroughparentcoaching Asia&Pacific

ECD+ ActionAgainstHunger Innovationforpreventinganemiaandstunting LatinAmerica&Caribbean

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ChildProtection

ChildProtectionNetworkFoundation,Inc. SafeSchoolsforTeens Asia&Pacific

Health WeCareSolar WeCareSolarSuitcases:GoingfromGoodtoGreat

AfricaSouthofSahara

Health WeCareSolar LightingUpLiveswithSolarSuitcases AfricaSouthofSahara

China TeachForChina SupportstipendsofTeachForChinafellows Asia&Pacific

Education ResultsforDevelopmentInstitute(R4D) EducationandHealthInnovationLandscape AfricaSouthofSahara

ChildProtection

Promundo-US Engagingfatherstoreduceviolenceagainstchildren

Asia&Pacific

ECD+ BRACUSA,Inc. Community-ledEarlyChildhoodDevelopment Asia&Pacific

ChildProtection

HopeandHomesforChildren Deinstitutionalizingchildren Worldwide

Education InnovationsforPovertyAction(IPA) QualityLow-CostPrivatePreschools AfricaSouthofSahara

ChildProtection

InvestinginChildrenandtheirSocieties(ICS) Skillfulparentingtopreventchildmaltreatment

AfricaSouthofSahara

Education AbdulLatifJameelPovertyActionLab(J-PAL)SouthAsiaatIFMR

Everychildcounts!Ascalablecurriculumforearlymathematics

Asia&Pacific

China ChineseReliefandDevelopmentFoundation LeftbehindchildreninChina Asia&Pacific

China AssociationConcerningSexualViolenceAgainstWomen(RainlilyFoundation)

Preventsexualviolenceagainstchildren Asia&Pacific

ECD+ ICanCharity Earlytalkboost WesternEurope

Education ResultsforDevelopmentInstitute(R4D) LearningLab:buildingcapacityformonitoring,learningandevaluation

Worldwide

China RightToPlayChina EarlyChildhoodDevelopmentforchildrenfromethnicminorities

Asia&Pacific

China ShenzhenMeetCharityFoundation KeepkidsawayfromHydatid Asia&Pacific

China UniversityofHongKong Abetterfutureforyoungchildrenfromethnicminorities

Asia&Pacific

ChildProtection

TaboobreakerGmbH Preventsexualabuse WesternEurope

China LittleFlower Helpforthetrulyhelpless Asia&Pacific

China ChineseUniversityofHongKong CommunityEyeScreeningProgramforChildrenoftheLower-IncomeClassinHongKong

Asia&Pacific

Health LivingGoods Happymeals:anutritionmicro-franchise AfricaSouthofSahara

China CaritasMedicalCentre Pediatricpre-schooleducation&rehabilitationserviceprogram

Asia&Pacific

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ECD+ GrandChallengesCanada SavingBrains-ScalingImpact Worldwide

China HongKongAdventistHospitalFoundation(HKAHF)

Medicalservicesforlow-incomechildren Asia&Pacific

China UnitedChristianNethersoleCommunityHealthService

EveryChildCounts Asia&Pacific

Education SRIInternational EvaluationProjectonschoolattendanceandperformance

AfricaSouthofSahara

Education WorldBicycleReliefDeutschlandGmbH BicyclesforEducationalEmpowermentProgram AfricaSouthofSahara

Education FoundationtoEducateGirlsGlobally EducateGirlsDevelopmentImpactBond Asia&Pacific

ChildProtection

CentreforPublicHealth,LiverpoolJohnMooresUniversity

V-Info:one-stopglobalviolencepreventionresource

Worldwide

ChildProtection

OnSideYouthZones OnSideYouthZone WesternEurope

ChildProtection

OptimusStudy OFStudy3rdCycleProjects:Switzerland(HochschuleLuzern-SozialeArbeit)/Assessagencyresponsetochildmaltreatment

WesternEurope

ChildProtection

CentreforJusticeandCrimePrevention(CJCP),UniversityofCapeTown(UCT)

OptimusStudy-Trackingreportedmaltreatmentcases

AfricaSouthofSahara

Education SolonFoundation EducationforLearningandEmployability AfricaSouthofSahara

Health PowerofNutrition(NutritionforGrowthN4G)-CatalyticFinancingFacility

PowerofNutritionFund-CatalyticFinancingFacility

Worldwide

Health NationalCentreforParasitology,EntomologyandMalariaControl

Protectingchildrenfromthreadworms Asia&Pacific

Health LastMileHealth/TiyatienHealth Goingthelastmileforcommunityhealthresilience

AfricaSouthofSahara

China AiYouFoundation AiYouYoungHeartProject Asia&Pacific

ChildProtection

CampGroupgemeinnutzigeGmbH Stronggirls,safecommunities AfricaSouthofSahara

China AiYouFoundation AiYouYoungHeartProject Asia&Pacific

ChildProtection

OptimusStudy GlobalEvaluationChallengeFund/PhaseOut-Violenceagainstchildren-EvaluationChallengeFund

Worldwide

EmergencyResponse

WeCareSolar SolarSuitcasestoSupportEarthquakeRelief Asia&Pacific

ChildProtection

UniversityofNewHampshire,SponsoredProgramsAdministration

Guidelinesforapplyingforfundinginthenewevidence-basedculture

Worldwide

China LeYiHui(Beijing)ConsultingCo.Ltd.(R2PChina)

Pilotingsocialworkserviceinhospital Asia&Pacific

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ChildProtection

InvestinginChildrenandtheirSocieties(ICS)

Skillfulparentingtopreventchildmaltreatment AfricaSouthofSahara

ECD+ FSG AffordableEarlyChildhoodEducationprogram(AEP)

Asia&Pacific

Education InstitutzurCooperationbeiEntwicklungsprojekten

ContextualizedRuralSchoolingintheSemi-AridRegionofBrazil


China ChiHengFoundation ImprovelivesofAIDSorphans Asia&Pacific

Health UniversityChildren'sHospitalZürich-Eleonorenstiftung

Easesufferingofdyingchildren WesternEurope

China RightToPlaySwitzerland ECDPrograminLiangshanPrefecture Asia&Pacific

ECD+ PhilippineAmbulatoryPediatricAssociation,Inc.

Parentingforlifelonghealth Asia&Pacific

China LiangshanInstituteofEnvironmentandLivelihoodDevelopment(LIELD)viaChinaSocialWelfareFoundation

IntegratedsupportforYiChildren Asia&Pacific

Education TeachforAll ExpandingEducationalOpportunity LatinAmerica&Caribbean

China HuaDan Migrantchildrenparticipatorytheatreintervention

Asia&Pacific

ECD+ HippocampusReadingFoundation(onbehalfofHippocampusLearningCentres)

Establish72sustainableruralEarlyChildhoodEducationcenters

Asia&Pacific

Health FoundationforInnovativeNewDiagnosticsFIND

DevelopmentandintroductionofnoveldiagnosticsolutionsforBuruliulcer

AfricaSouthofSahara

EmergencyResponse

SavetheChildrenSwitzerland HumanitariancrisisinGreece WesternEurope

China RuralEducationActionProgram(REAP) Nurturingthefuture:improvingparentinginruralChina

Asia&Pacific

Health VisionforaNationFoundation InnovativeandsustainableprimaryeyecareforRwanda

AfricaSouthofSahara

ECD+ MobileCreches Ensuringtherighttocareforchildrenofurbanmigrants

Asia&Pacific

ChildProtection

ComunitàSanPatrignanoSocietàCooperativaSociale

Happyfamilylife WesternEurope

Education InstituteofEducationalDevelopment,BRACUniversity

BRACNobodharaSchool:CreatingAccesstoQualityEducation-BRACNobodharaSchool

Asia&Pacific

China RuralEducationActionProgram(REAP)-ShaanxiNormalUniversity

Buildingapreschoolvisionscreeningregimenforruralcounties

Asia&Pacific

ECD+ HandinHandIndia Mothers’collectiveforEarlyChildhoodDevelopment

Asia&Pacific

Health FoundationSuyanaMundial IntegratedhealthcareforruralchildreninPeru LatinAmerica&Caribbean

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China ChinaDevelopmentResearchFoundation(CDRF)

Bettercaregivingtoimprovechildren'sfuture Asia&Pacific

ECD+ HealthRightInternational Teacher-implementedchildandfamilyviolencepreventioninNepalischools

Asia&Pacific

ECD+ a:primo SustainableEarlyChildhoodDevelopmentschritt:weise|petits:pas

WesternEurope

China BeijingLepingSocialEntrepreneurFoundation

RuralpreschoolteachertraininginChina Asia&Pacific

ECD+ HelpAgeInternationalNepal(HAI-N) ImprovingEarlyChildhoodHealth&EducationthroughactiveageinginNepal

Asia&Pacific

ChildProtection

DeutscherKinderschutzbundBundesverbande.V.

Sehen-Verstehen-Angemessenhandeln:supportandintegrationofrefugeechildren

WesternEurope

ChildProtection

CureViolence Mobilizingcommunitiestodetectandinterruptviolence


ECD+ KarunaFoundationNepal Inspire2Care Asia&Pacific

China NationalInstituteofParasiticDiseases,ChinaCDC

Ready-for-schoolwithoutworms Asia&Pacific

Health AOAllianceFoundation(AOAF), PediatricfracturesolutionsforGhana AfricaSouthofSahara

Health SchistosomiasisControlInitiative ImprovingchildhealthandeducationbytreatingneglecteddiseasesinMadagascar

AfricaSouthofSahara

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Notes

1WorldEconomicForum,“TheGlobalRisksReport2018.”https://www.weforum.org/reports/the-global-risks-report-20182WorldBankGroupandUNICEF,“EndingExtremePoverty:aFocusonChildren,”UNICEF,October2016,https://data.unicef.org/wp-content/uploads/2017/09/Ending_Extreme_Poverty_A_Focus_on_Children_Oct_2016.pdf.3“Levels&TrendsinChildMortality,”UNICEF,2017,https://www.unicef.org/publications/files/Child_Mortality_Report_2017.pdf.4HorstW.J.RittelandMelvinM.Weber,“Dilemmasinageneraltheoryofplanning.”PolicySciences,Amsterdam,no.4(1973).http://www.uctc.net/mwebber/Rittel+Webber+Dilemmas+General_Theory_of_Planning.pdf.5AxelA.WeberandSergioP.Ermotti,“Partnershipsforthegoals:AchievingtheUnitedNations’SustainableDevelopmentGoals,”UBS,January2018.6AlexNicholls,RobPaton,andJedEmerson,SocialFinance,EditedbyAlexNicholls,RobPaton,andJedEmerson,(Oxford,UK:OxfordUniversityPress,2015).doi:10.1093/acprof:oso/9780198703761.001.0001.7Ibid.8AlexNicholls,“TheLegitimacyofSocialEntrepreneurship:ReflexiveIsomorphisminaPre-ParadigmaticField,”SocialEnterprises:AnOrganizationalPerspective44(2012)222–47.doi:10.1057/9781137035301_11.9“TheCaseforSocialFinance.SupportingInnovationandFocusingonResultsinDevelopment,”UBSOptimusFoundation,2018.10Ibid.11EvaVargaandMalcomHayday,ARecipeBookforSocialFinance:Apracticalguideondesigningandimplementinginitiativestodevelopsocialfinanceinstrumentsandmarkets,(2016)doi:10.1093/acprof.12GadafRexhepi,“TheArchitectureofSocialFinance,”inRoutledgeHandbookofSocialandSustainableFinance,editedbyOthmarM.Lehner,35–49(London,UK:Routledge,2017),doi:10.4324/9781315772578.ch3.13AlexNicholls,RobPaton,andJedEmerson,SocialFinance,EditedbyAlexNicholls,RobPaton,andJedEmerson,(Oxford,UK:OxfordUniversityPress,2015).doi:10.1093/acprof:oso/9780198703761.001.0001.14PetroskeChristian,FlorianParzhuber,HaneolJeong,JohnKinsella,MaayaMurakami,MitchellLaferriere,Mitchell,andRemiCordelle,“SoFi101:Understandingsocialfinance,”SocialSpace8-14(2017)Http://ink.library.smu.edu.sg/lien_research/152.15JessStonefield,“AreBoomersReadytoMaketheGreatestWealthTransferinHistory?”Forbes,May21,2018,https://www.forbes.com/sites/nextavenue/2018/05/21/are-boomers-ready-to-make-the-greatest-wealth-transfer-in-history/#7184c3ca677d.16“RoadmapfortheFutureofImpactInvesting:ReshapingFinancialMarkets,”GlobalImpactInvestingNetwork,March2018,https://thegiin.org/assets/GIIN_Roadmap%20for%20the%20Future%20of%20Impact%20Investing.pdf.

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17JaneReisman,VeronicaOlazabal,andShawnaHoffman,“Puttingthe‘Impact’inImpactInvesting:TheRisingDemandforDataandEvidenceofSocialOutcomes,”AmericanJournalofEvaluation39no.3(2018):389-395.18JaneReismanandVeronicaOlazabal,“Situatingthenextgenerationofimpactmeasurementandevaluationforimpactinvesting,”TheRockefellerFoundation,December2016,https://www.rockefellerfoundation.org/report/situating-next-generation-impact-measurement-evaluation-impactinvesting/.19KarimHarjiandEdwardT.Jackson,“FacingChallenges,BuildingtheField:ImprovingtheMeasurementoftheSocialImpactofMarket-BasedApproaches,”AmericanJournalofEvaluation39no.3(2018):396-40.20MichaelQuinnPatton,UtilizationFocusedEvaluation,FourthEdition(St.Paul,MN:SagePublications,2014).21MichaelQuinnPatton,DevelopmentalEvaluation:ApplyingComplexityConceptstoEnhanceInnovationandUse(NewYork,NY:TheGuillfordPress,2010).22ElisaMartinuzziandJoelWeber,“HowUBSBecameHometoHalfoftheWorld’sBillionaires,”Bloomberg,October3,2017,https://www.bloomberg.com/features/2017-ubs-sergio-ermotti-interview/.23InterviewwithSergioErmotti,July10,2018.24UBSAG,“AnnualReview2017:UnlockingPotential,”UBS,accessedSeptember7,2018.25InterviewwithPhyllisCostanza,June13,2018.26UBSAG,“AnnualReview2017:UnlockingPotential,”UBS,accessedSeptember7,2018.27“UBSSwitzerland,”BankTrack,April30,2018,https://www.banktrack.org/bank/ubs.28Ibid.29Ibid.30UBSAG“UBSandSociety:ConstitutionalDocument.”UBSandSociety,2016.31UBSAG,“AnnualReview2017:UnlockingPotential,”UBS,accessedSeptember7,2018.32“UBSnamedsustainabilityleaderintheDowJonesSustainabilityIndexforthefourthconsecutiveyear,”UBS,September13,2018,https://www.ubs.com/global/en/ubs-news/r-news-display-ndp/en-20180913-sustainability-leader.html.33UBSAG,“UBSandSociety:ConstitutionalDocument,”UBS,2016.34AxelA.WeberandSergioP.Ermotti,“Partnershipsforthegoals:AchievingtheUnitedNations’SustainableDevelopmentGoals,”UBS,January2018.35Ibid.36SecretaryGeneraloftheUnitedNations,“ProgresstowardstheSustainableDevelopmentGoals,”SustainableDevelopmentKnowledgePlatform,2016,https://sustainabledevelopment.un.org/sdg17.37“Developingcountriesface$2.5trillionannualinvestmentgapinkeysustainabledevelopmentsectors,UNCTADreportestimates,”UNConferenceonTradeandDevelopment,June24,2014,http://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=194.

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38GavinE.R.Wilson,“There’sa$2.5trilliondevelopmentinvestmentgap.Blendedfinancecouldplugit.”WorldEconomicForum,July18,2016,https://www.weforum.org/agenda/2016/07/blended-finance-sustainable-development-goals/.39Ibid.40UNCTAD,“WorldInvestmentReport2014Overview—InvestingintheSDGs:AnActionPlan,”UnitedNations,2014,http://unctad.org/en/PublicationsLibrary/wir2014_overview_en.pdf.41HelenaBachmann,“TheSwissQuestionTheirOnceProudBanks,”Time,March5,2009,http://content.time.com/time/business/article/0,8599,1883255,00.html.42BjörnEdlund,“MixingMarketingandAdvocacy—HowUBSUsesBrandingtoProjectModernSmarts,”ArthurPageSociety,March15,2017,https://page.org/blog/mixing-marketing-and-advocacy-how-ubs-uses-branding-to-project-modern-smarts.43“UBSWealthManagementAmericasPartnerswithRethinkImpacttoContributetoRaisingIndustry’sLargestImpactInvestingFundwithGenderLensOverlay,”BusinessWire,March8,2017,https://www.businesswire.com/news/home/20170308006003/en/UBS-Wealth-Management-Americas-Partners-Rethink-Impact.44BjörnEdlund,“MixingMarketingandAdvocacy—HowUBSUsesBrandingtoProjectModernSmarts,”ArthurPageSociety,March15,2017,https://page.org/blog/mixing-marketing-and-advocacy-how-ubs-uses-branding-to-project-modern-smarts..45“Consciousfunds,”UBS,accessedOctober3,2018,https://www.ubs.com/global/en/ubs-society/2018/conscious-funds.html.46AxelA.WeberandSergioP.Ermotti,“Partnershipsforthegoals:AchievingtheUnitedNations’SustainableDevelopmentGoals,”UBS,January2018.47UBSAG,“UBSandSociety:AnOverview,”UBS,2015.48AdamJezard,“Wealthinequalitykeepswidening.Butit’snothingnew,”WorldEconomicForum,December11,2017,https://www.weforum.org/agenda/2017/12/wealth-inequality-has-been-widening-for-millennia/.49“UBSOptimusFoundationStrategicPlan2014to2019,”UBSOptimusFoundation,2014.50Ibid.51“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.52InterviewwithSergioErmotti,July10,2018.53UBSAG,“UBSCorporateResponsibility,”UBS,2014.54“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.55InterviewwithFayTwersky,May29,2018.56“5wayswealthmanagerscansupporttheUNSustainableDevelopmentGoals:lessonsfrom2017,”UBSAssetManagement,accessedSeptember14,2018,https://www.ubs.com/global/en/asset-management/insights/sustainable-and-impact-investing/si-insights/2018/five-lessons-on-sustainability-un-sdg-wef.html.57Ibid.

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58Results-BasedFinancing(RBF)isatooltogivemoneytosocialprogramsthatwork.InaResults-BasedFinancingmodel,a“payer”(afoundation,internationaldonor,orgovernment)conditionsitspaymenttoaserviceprovider(anNGOorprivatecompany)ondesiredoutcomes59SietseWouters,“SocialFinance:EngagingMorePrivateCapitalforDevelopment,”UBSOptimusFoundation,2017.60”DevelopmentImpactBond,”UBSOptimusFoundation,accessedSeptember24,2018,https://www.ubs.com/microsites/optimus-foundation/en/development-impact-bond.html.61“Knowledgeispowertheworld’sfirstDevelopmentImpactBondineducationsurpassesbothtargetoutcomes,”UBS,accessedSeptember10,2018,https://www.ubs.com/microsites/optimus-foundation/en/development-impact-bond.html.62CenterforGlobalDevelopment,“InvestinginSocialOutcomes:DevelopmentImpactBonds,”TheReportoftheDevelopmentImpactBondWorkingGroup,2013,WashingtonDC.63InterviewwithTomHall,June6,2018.64“WhatisanImpactBond?”Instiglio,accessedSeptember7,2018,http://www.instiglio.org/en/impact-bonds/.65EmilyGustafssonandIzzyBogglid-Jones,“Payingforsocialoutcomes:Areviewoftheglobalimpactbondmovementin2017,”BrookingsInstitution,January17,2018,https://www.brookings.edu/blog/education-plus-development/2018/01/17/paying-for-social-outcomes-a-review-of-the-global-impact-bond-market-in-2017/.66“SocialImpactBondsreachglobalmass:108projectslaunchedin24countries,”SocialFinance,January29,2018http://socialfinance.org/news/social-impact-bonds-reach-global-mass-108-projects-launched-24-countries/.67JohnKelly,“SocialImpactFinancing’sFirstFlop,”TheChronicleofSocialChange,July14,2015,https://chronicleofsocialchange.org/analysis/social-impact-financings-first-flop/1072368“SocialandDevelopmentImpactBonds(Results-BasedFinancing),”UNDevelopmentProgramme,accessedSeptember14,2018,http://www.undp.org/content/sdfinance/en/home/solutions/social-development-impact-bonds.html69EmilyChasan,“UBSBroughttheBondMarkettoPhilanthropyandItPaidOff,”Bloomberg,July12,2018,https://www.bloomberg.com/news/articles/2018-07-12/ubs-brought-the-bond-market-to-philanthropy-and-it-paid-off.70ImpactWater,UBSOptimusFoundation,TheRockefellerFoundation,andYunusSocialBusiness,“TheSocialSuccessNote.ANewInnovativeFinancingTool,”ImpactWater,2018.71Ibid.72InterviewwithLorenzoBernasconi,August13,2018.73“ImpactBondsWorkingGroupManual,”ImpactBondsWorkingGroup,2018.74“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.75InterviewwithDhunDavar,April26,2018.76“SustainableDevelopmentGoal4,”UNSustainableDevelopmentKnowledgePlatform,accessedSeptember10,2018,https://sustainabledevelopment.un.org/sdg4.

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77Instiglio,“EducateGirlsDevelopmentImpactBond:ImprovingEducationfor18,000ChildreninRajasthan,”Instiglio,May20,2015.78Ibid.79AlisonBukhariandSafeenaHusain,“TriggeringSuccess:InnovativeInterventionstoPromoteEducationalAccessinIndia,”EducateGirls,2016,https://www.educategirls.ngo/pdf/Triggering%20Success%20Innovative%20Interventions%20to%20Promote%20Educational%20Access.pdf.80Instiglio,“EducateGirlsDevelopmentImpactBond:ImprovingEducationfor18,000ChildreninRajasthan,”Instiglio,May20,2015.81Ibid.82UrvashiSahni,“PrimaryEducationinIndia:ProgressandChallenges,”Brookings,January20,2015,https://www.brookings.edu/research/primary-education-in-india-progress-and-challenges/.83Ibid.84Ibid.85“AboutUs,”EducateGirls,accessedSeptember10,2018,https://www.educategirls.ngo/Who-We-Are.aspx#about-us.86“WhatWeDo,”EducateGirls,accessedSeptember10,2018,https://www.educategirls.ngo/What-We-Do.aspx#section0.87Ibid.88SafeenaHusain,“DrivingQualityatScale:ImplementingTheWorld’sFirstDevelopmentImpactBondInEducation,”EducateGirls,2018,https://www.educategirls.ngo/pdf/Lessons%20from%20the%20Educate%20Girls%20DIB.pdf.89InterviewwithPhyllisCostanza,June13,2018.90InterviewwithSafeenaHusain,May23,2018.91DilsherDhillon,“Nearly60$ofIndia’sfundsforcorporatesocialresponsibilityarespentoneducationandhealthcare,”BusinessInsiderIndia,April16,2018,https://www.businessinsider.in/nearly-60-of-indias-funds-for-corporate-social-responsibility-are-spent-on-education-and-healthcare/articleshow/63785437.cms.92“EducateGirlsDevelopmentImpactBonddeliversimpressiveresults,surpassingbothtargetoutcomes,”Children’sInvestmentFundFoundation,July13,2018,https://ciff.org/news/educate-girls-development-impact-bond-delivers-impressive-results-surpassing-both-target-outcomes/.93“OurMission,”DalbergAdvisors,accessedSeptember14,2018,https://dalberg.com/who-we-are.94Instiglio,“EducateGirlsDevelopmentImpactBond:FinancialModel,”Instiglio,March2015.95“ImpactFirst:AnnualReview2016ofUBSOptimusFoundationNetwork,”UBSOptimusFoundation,2017.96EmailfromAlisonBukhari,October24,2018.97InterviewwithSafeenaHusain,May23,2018.98Ibid.

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99UBSOptimusFoundationandChildren’sInvestmentFundFoundation,“World’sfirstDevelopmentImpactBondontracktodeliveronsocialimpactandfinancialreturns,”UBSOptimusFoundation,July5,2016.100DraftreportofEducateGirlsImpactBondreport.101“World’sfirstDevelopmentImpactBondontracktodeliversocialimpactandfinancialreturns,”UBSOFPressRelease,July5,2016.102InterviewwithSafeenaHusain,May23,2018.103EmilyGustafsson-Wright,“Year-tworesultsoftheworld’sfirstdevelopmentimpactbondforeducation,”BrookingsInstitute,2017.104“EducateGirlsDevelopmentImpactBonddeliversrobustsecondyearresults,valuablelessons.”UBSOFPressRelease,June29,2017.105InterviewwithVikramSolanki,July28,2018.106“EducateGirlsDevelopmentImpactBond:Year3Results,”BrookingsInstitution,July13,2018.107AdvaSaldringer,“TheEducateGirlsDIBexceededitsgoals:Howdidtheydoitandwhatdoesitmean?”Devex,July13,2018,https://www.devex.com/news/the-educate-girls-dib-exceeded-its-goals-how-did-they-do-it-and-what-does-it-mean-93112.108“EducateGirlsDevelopmentImpactBond:Year3Results,”BrookingsInstitution,July13,2018.109AdvaSaldringer,“TheEducateGirlsDIBexceededitsgoals:Howdidtheydoitandwhatdoesitmean?”Devex,July13,2018,https://www.devex.com/news/the-educate-girls-dib-exceeded-its-goals-how-did-they-do-it-and-what-does-it-mean-93112.110Ibid.111“Developmentimpactbondsarecostly,cumbersome—andgood,”TheEconomist,July12,2018,https://www.economist.com/finance-and-economics/2018/07/12/development-impact-bonds-are-costly-cumbersome-and-good.112AdvaSaldringer,“TheEducateGirlsDIBexceededitsgoals:Howdidtheydoitandwhatdoesitmean?”Devex,July13,2018,https://www.devex.com/news/the-educate-girls-dib-exceeded-its-goals-how-did-they-do-it-and-what-does-it-mean-93112.113Ibid.114Ibid.115EmilyGustafsson-WrightandIzzyBogglid-Jones,“World’sfirstdevelopmentimpactbondforeducationsshowssuccessfulachievementofoutcomesinitsfinalyear,”BrookingsInstitution,July13,2018,https://www.brookings.edu/blog/education-plus-development/2018/07/13/worlds-first-development-impact-bond-for-education-shows-successful-achievement-of-outcomes-in-its-final-year/.116InterviewwithAlisonBukhari,August1,2018.117Ibid.118InterviewwithSafeenaHusain,May23,2018.119InterviewwithAlisonBukhari,August1,2018.120Ibid.

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121InterviewwithSafeenaHusain,May23,2018.122InterviewwithAlisonBukhari,August1,2018.123InterviewwithMayaZiswiler,April27,2018.124InterviewwithSafeenaHusain,May23,2018.125InterviewwithSonalShah,June13,2018.126InterviewwithSafeenaHusain,May23,2018.127InterviewwithAnthonyDonatelli,June7,2018.128InterviewwithRanajoyBasu,May31,2018.129InterviewwithAlisonBukhari,August1,2018.130Ibid.131InterviewwithKateSturla,May23,2018.132InterviewwithPhyllisCostanza,June13,2018.133AdvaSaldringer,“TheEducateGirlsDIBexceededitsgoals:Howdidtheydoitandwhatdoesitmean?”Devex,July13,2018,https://www.devex.com/news/the-educate-girls-dib-exceeded-its-goals-how-did-they-do-it-and-what-does-it-mean-93112.134InterviewwithSafeenaHusain,May23,2018.135InterviewwithAlisonBukhari,August1,2018.136InterviewwithGrethePeterson,June19,2018137BillAulet,“CultureEatsStrategyforBreakfast,”TechCrunchblog,April12,2014http://techcrunch.com/2014/04/12/culture-eats-strategy-for-breakfast/.138InterviewwithSafeenaHusain,May23,2018.139InterviewwithAlisonBukhari,August1,2018.140InterviewwithVikramSolanki,July28,2018.141InterviewwithKateSturla,May23,2018.142EmilyGustafsson-WrightandIzzyBogglid-Jones,“World’sfirstdevelopmentimpactbondforeducationsshowssuccessfulachievementofoutcomesinitsfinalyear,”BrookingsInstitution,July13,2018,https://www.brookings.edu/blog/education-plus-development/2018/07/13/worlds-first-development-impact-bond-for-education-shows-successful-achievement-of-outcomes-in-its-final-year/.143EmailfromAlisonBukhari,September7,2018.144Ibid.145“SustainableDevelopmentGoal3,”SustainableDevelopmentKnowledgePlatform,accessedSeptember13,2018,https://sustainabledevelopment.un.org/sdg3.146“RajasthanMaternalandNewbornHealthImpactBond,”UBSOptimusFoundation,October2017.147Ibid.

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148Convergence,Palladium,andBerthaCentre,“TheUtkrishtImpactBond:DesignGrantCaseStudy,”Palladium,January2018,https://thepalladiumgroup.com/research-impact/The-Utkrisht-Impact-Bond-Design-Grant-case-study.129.Ibid.150“RajasthanMaternalandNewbornHealthImpactBond,”UBSOptimusFoundation,October2017.151InterviewwithScottHiggins,May23,2018.152Ibid.153InterviewwithPriyaSharma,June6,2018.154PopulationServicesInternational,“2016AnnualReport,”PopulationServicesInternational,2017,https://www.psi.org/wp-content/uploads/2017/11/PSI-Annual-Report_2016.pdf.155“DollarstoResults:USAIDinvestmentsandillustrativeresults,”USAID,accessedSeptember14,2018,https://results.usaid.gov/results?fiscalYear=2016.156MerckforMothers,“AllforMothers:MerckforMothersProgramReport,”MerckforMothers,2017,http://merckformothers.com/docs/MFM_programreport_allformothers_061317.pdf.157EmilyGustafsson-WrightandIzzyBoggild-Jones,“Rallyingbehindmaternalandnewbornhealth:AnewimpactbondlaunchesinIndia,”BrookingsInstitution,November29,2017,https://www.brookings.edu/blog/education-plus-development/2017/11/29/rallying-behind-maternal-and-newborn-health-a-new-impact-bond-launches-in-india/.158“SustainableDevelopmentGoal6,”SustainableDevelopmentKnowledgePlatform,”accessedSeptember4,2018,https://sustainabledevelopment.un.org/sdg6.159SophieEdwards,“Newresults-basedfinancingtooltargetscleanwaterforschools,”Devex,April13,2018,https://www.devex.com/news/new-results-based-financing-tool-targets-clean-water-for-schools-92521.160YunusSocialBusiness,ImpactWater,UBSOptimusFoundation,andTheRockefellerFoundation,“TheSocialSuccessNote:PressPack,”YunusSocialBusiness,April12,2018.161SophieEdwards,“Newresults-basedfinancingtooltargetscleanwaterforschools,”Devex,April13,2018,https://www.devex.com/news/new-results-based-financing-tool-targets-clean-water-for-schools-92521.162Ibid.163InterviewwithTimNeville,July25,2018.164InterviewwithLorenzoBernasconi,August13,2018.165SophieEdwards,“Newresults-basedfinancingtooltargetscleanwaterforschools,”Devex,April13,2018,https://www.devex.com/news/new-results-based-financing-tool-targets-clean-water-for-schools-92521.166“SustainableDevelopmentGoal4,”UNSustainableDevelopmentKnowledgePlatform,accessedSeptember10,2018,https://sustainabledevelopment.un.org/sdg4.167“SustainableDevelopmentGoals5,”SustainableDevelopmentKnowledgePlatform,accessedSeptember18,2018,https://sustainabledevelopment.un.org/sdg5.168“EducationDevelopmentBond:ProvidingasustainablefinancingsolutionforimprovingqualityofeducationinIndia,”UBSOptimusFoundation,2018.

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169QualityEducationIndiaDevelopmentImpactBond,accessedOctober3,2018,http://www.qualityeducationindiadib.com/.170Ibid.171InterviewwithRadanaCrhova,May31,2018.172Ibid.173Ibid.174“TheCaseforSocialFinance.SupportingInnovationandFocusingonResultsinDevelopment,”UBSOptimusFoundation,2018.175Ibid.176InterviewwithDhunDavar,April26,2018.177Ibid.178InterviewwithMayaZiswiler,April27,2018.179HorstW.J.RittelandMelvinM.Weber,“Dilemmasinageneraltheoryofplanning.”PolicySciences,Amsterdam,no.4(1973).http://www.uctc.net/mwebber/Rittel+Webber+Dilemmas+General_Theory_of_Planning.pdf.180HorstW.J.RittelandMelvinM.Webber,“DilemmasinaGeneralTheoryofPlanning”,PolicySciences4(1973):155-169.181KeithGrint,“WickedProblemsandClumsySolutions:TheRoleofLeadership,”ClinicalLeader1no.2(December2008).182InterviewwithPhyllisCostanza,June13,2018.183TracyGoss,RichardT.Pascale,andAnthonyAthos,“TheReinventionRollerCoaster:RiskingthePresentforaPowerfulFuture,”HarvardBusinessReview,November-December1993,https://hbr.org/1993/11/the-reinvention-roller-coaster-risking-the-present-for-a-powerful-future.184“AboutUs,”UBSOptimusFoundation,accessedSeptember7,2018,https://www.ubs.com/microsites/optimus-foundation/en/about-us.html.185RonHeifetzandDonaldLaurie,“TheWorkofLeadership.”HarvardBusinessReview,December2001,https://hbr.org/2001/12/the-work-of-leadership.186SuellenJ.HoganandLeonardV.Coote,“OrganizationalCulture,Innovation,andPerformance:ATestofSchein’sModel”JournalofBusinessResearch67no.8(2014).ElsevierInc.:1609–21.doi:10.1016/j.jbusres.2013.09.007.187MichaelD.Mumford,GinamarieM.Scott,BlaineGaddis,andJillM.Strange,“LeadingCreativePeople:OrchestratingExpertiseandRelationships.”LeadershipQuarterly13no.6(2002):705–50.doi:10.1016/S1048-9843(02)00158-3.188SuellenJ.HoganandLeonardV.Coote,“OrganizationalCulture,Innovation,andPerformance:ATestofSchein’sModel”JournalofBusinessResearch67no.8(2014).ElsevierInc.:1609–21.doi:10.1016/j.jbusres.2013.09.007.

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189FrankMoulaert,FlaviaMartinelli,SaraGonzález,andErikSwyngedouw,“Introduction:SocialInnovationandGovernanceinEuropeanCities.”EuropeanUrbanandRegionalStudies14no.3(2007):195–209.doi:10.1177/0969776407077737.190Ibid.191JohnC.Camillus,“StrategyasaWickedProblem,”HarvardBusinessReview,May2008,https://hbr.org/2008/05/strategy-as-a-wicked-problem.192InterviewwithPhyllisCostanza,June13,2018.193Ibid.194Ibid.195Ibid.196Ibid.197JoshuaD.MargolisandAndrewMolinsky,“NavigatingtheBindofNecessaryEvils:PsychologicalEngagementandtheProductionofInterpersonallySensitiveBehavior”AcademyofManagementJournal51no.5(October2008).198LindaA.Hill,“NewManagerDevelopmentforthe21stCentury.”TheAcademyofManagementExecutive18no.3(2004):121–26.doi:10.5465/AME.2004.14776182.199JoshuaD.Margolis,andAndrewMolinsky,“NavigatingtheBindofNecessaryEvils:PsychologicalEngagementandtheProductionofInterpersonallySensitiveBehavior.”AcademyofManagementJournal51no.5(2008):847–72.doi:10.5465/AMJ.2008.34789639.200InterviewwithPhyllisCostanza,June13,2018.201Ibid.202Ibid.203Ibid.204AnitaWilliamsWooley,ChristopherF.Chabris,AlexPentland,etal.,“EvidenceforaCollectiveIntelligenceFactorinthePerformanceofHumanGroups”.Science330no.6004(2010)DOI:10.1126/science.1193147205InterviewwithMayaZiswiler,April27,2018.206InterviewwithPhyllisCostanza,June13,2018.207DouglasA.Ready,“4ThingsSuccessfulChangeLeadersDoWell,”HarvardBusinessReview,January28,2016,https://hbr.org/2016/01/4-things-successful-change-leaders-do-well.208Ibid.209“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.210“PolicyonEnterpriseRiskManagement,”UnitedNationsDevelopmentProgramme,January2016,https://popp.undp.org/UNDP_POPP_DOCUMENT_LIBRARY/Public/AC_Accountability_Enterprise%20Risk%20Management%20Policy%20(2016).pdf.211Ibid.212Ibid.

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213LaurieMichaelsandJudithRodin,“EmbracingPhilanthropy’sRiskyBusiness.”StanfordSocialInnovationReview,Summer2017,https://ssir.org/articles/entry/embracing_philanthropys_risky_business.214Ibid.215Ibid.216Ibid.217InterviewwithMayaZiswiler,April27,2018.218RenéMStulz,“Risk-TakingandRiskManagementbyBanks,”JournalofAppliedCorporateFinance27no.1(2015):8–18.219“UBSOptimusFoundationStrategicPlan2014to2019,”UBSOptimusFoundation,2014.220Ibid.221InterviewwithTomHall,June18,2018.222InterviewwithOwenStrickland,April27,2018.223InterviewwithSonalShah,June13,2018.224LaurieMichaelsandJudithRodin,“EmbracingPhilanthropy’sRiskyBusiness.”StanfordSocialInnovationReview,Summer2017,https://ssir.org/articles/entry/embracing_philanthropys_risky_business.225InterviewwithRadanaCrhova,May31,2018.226InterviewwithTomHall,June18,2018.227RobertM.Yawson,2015.“The‘WickedProblemConstruct’forOrganisationalLeadershipandDevelopment,”InternationalJournalofBusinessandSystemsResearch9no.1(2015):67–85.doi:10.1504/IJBSR.2015.066812.228RobertM.Yawson,andBradleyC.Greiman,“StrategicFlexibilityAnalysisofAgrifoodNanotechnologySkillNeedsIdentification,”TechnologicalForecastingandSocialChange118(2015):184–94.doi:10.1016/j.techfore.2017.02.019.229RaffaeleZanoli,DaniloGambelli,andDanielaVairo,“ScenariosoftheOrganicFoodMarketinEurope,”FoodPolicy37no.1(2017):41–57.doi:10.1016/j.foodpol.2011.10.003.230RobertM.Yawson,andBradleyC.Greiman,“StrategicFlexibilityAnalysisofAgrifoodNanotechnologySkillNeedsIdentification,”TechnologicalForecastingandSocialChange118(2015):184–94.doi:10.1016/j.techfore.2017.02.019.231Ibid.232“UBSOptimusFoundation:LandscapeAnalysis2012-2013,”UBSOptimusFoundation,2013.233Ibid.234Ibid.235“UBSOptimusFoundationStrategicPlan2014to2019,”UBSOptimusFoundation,2014.236InterviewwithVivekSharma,July3,2018.237InterviewwithAnthonyDonatelli,June7,2018.

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238Ibid.239Ibid.240SandraA.Waddock,andJamesE.Post,“CatalyticAlliancesforSocialProblemSolving,”HumanRelations48no.8(1995):951–73.doi:10.1177/001872679504800807.241“EducationDevelopmentImpactBondFund.ProvidingaSustainableFinancingSolutionforImprovingQualityofEducationinIndia,”UBSOptimusFoundation,2014.242SandraA.Waddock,andJamesE.Post,“CatalyticAlliancesforSocialProblemSolving,”HumanRelations48no.8(1995):951–73.doi:10.1177/001872679504800807.243InterviewwithPhyllisCostanza,June13,2018.244InterviewwithPriyaSharma,June6,2018.245InterviewwithLorenzoBernasconi,August13,2018.246“TheCaseforSocialFinance.SupportingInnovationandFocusingonResultsinDevelopment,”UBSOptimusFoundation,2018.247ElisaMartinuzziandJoelWeber,“HowUBSBecameHometoHalfoftheWorld’sBillionaires,”Bloomberg,October3,2017,https://www.bloomberg.com/features/2017-ubs-sergio-ermotti-interview/.248InterviewwithDhunDavar,April26,2018.249InterviewwithDennisWhittle,August24,2017.250EllieButeau,RamyaGopalandPhilBuchanan,“HearingfromThoseWeSeektoHelp:NonprofitPracticesandPerspectivesinBeneficiaryFeedback”,TheCenterforEffectivePhilanthropy,2014,http://research.effectivephilanthropy.org/hearing-from-those-we-seek-to-help-nonprofit-practices-and-perspectives-in-beneficiary-feedback?portalId=1615425&hsFormKey=9eca7754382210d6a04563a91d5aa364&submissionGuid=7938730d-d89f-4228-9163-826d59f88ea9#module_14774085226752127.251InterviewwithFayTwersky,July21,2017.252ElinaSarkisova,“IsFeedbackSmart?”,FeedbackLabs,June2016,http://feedbacklabs.org/summits/wp-content/uploads/2016/07/FBL_SmartPaper_Final.pdf.253Ibid.254Ibid.255ErnestoSirolli,“WanttoHelpSomeone?ShutUpandListen!”,TED,podcastvideo,17:09,accessedSeptember21,2017,https://www.ted.com/talks/ernesto_sirolli_want_to_help_someone_shut_up_and_listen.256InterviewwithMayaZiswiler,April27,2018.257ErnestoSirolli,“WanttoHelpSomeone?ShutUpandListen!”,TED,podcastvideo,17:09,accessedSeptember21,2017,https://www.ted.com/talks/ernesto_sirolli_want_to_help_someone_shut_up_and_listen258UnitedNationsHumanSecurityUnit,“HumanSecurityinTheoryandPractice:AnOverviewoftheHumanSecurityConceptandtheUnitedNationsTrustFundforHumanSecurity,”UnitedNationsTrustFundforHumanSecurity,2009,

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http://www.un.org/humansecurity/sites/www.un.org.humansecurity/files/human_security_in_theory_and_practice_english.pdf.259AmartyaSenandJeanDrèze,India:DevelopmentandParticipation(NewDelhi:OxfordUniversityPress,2002).260Ibid.261ElinaSarkisova,“IsFeedbackSmart?”,FeedbackLabs,June2016,http://feedbacklabs.org/summits/wp-content/uploads/2016/07/FBL_SmartPaper_Final.pdf.262InterviewwithDennisWhittle,August24,2017.263InterviewwithKathyReich,August11,2017.264InterviewwithRoySteiner,August10,2017.265ZacharySlobig,“HowaPioneeringDevelopmentImpactBondPushedEducateGirlstoExceedExpectations,”SkollFoundation,August3,2018,http://skoll.org/2018/08/03/development-impact-bond-educate-girls-results/.266InterviewwithAlisonBukhari,August1,2018.267InterviewwithTimNeville,July25,2018.268InterviewwithVivekSharma,July3,2018.269InterviewwithSafeenaHusain,May23,2018.270InterviewwithAlisonBukhari,August1,2018.271InterviewwithPhyllisCostanza,June13,2018.272JonathanTrevorandBerryVarcoe,“HowAlignedIsYourOrganization?”HarvardBusinessReview,February7,2017,https://hbr.org/2017/02/how-aligned-is-your-organization.273BertrandMoingeon,MuhammadYunus,andLaurenceLehmann-Ortega,“BuildingSocialBusinessModels:LessonsfromtheGrameenExperience,”LongRangePlanning,April-June2010,http://www.hec.fr/var/corporate/storage/original/application/4c2fc23d0007ff24248fc6f8003d468d.pdf.274“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.275InterviewwithHubertusKuelpsJune28,2018.276InterviewwithNicoleNeghaiwi,June6,2018.277InterviewwithPhyllisCostanza,June13,2018.278InterviewwithSergioErmotti,July10,2018.279InterviewwithFayTwersky,May29,2018.280Ibid.281InterviewwithOwenStrickland,April27,2018.282Ibid.283InterviewwithNinaHoppe,June7,2018.284Ibid.

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285InterviewwithMayaZiswiler,April27,2018.286“Ournetwork,”UBSOptimusFoundation,accessedSeptember27,2018,https://www.ubs.com/microsites/optimus-foundation/en/about-us/our-network/governance.html.287“Grantareas,”UBSOptimusFoundation,accessedSeptember27,2018,https://www.ubs.com/microsites/optimus-foundation/en/our-approach/project-and-grant-areas.html.288“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.289InterviewwithNinaHoppe,June7,2018.290InterviewwithPriyaSharma,June6,2018.291InterviewwithMayaZiswiler,April27,2018.292Ibid.293Ibid.294InterviewwithPhyllisCostanza,June13,2018.295 Ibid 296InterviewwithPriyaSharma,June6,2018.297InterviewwithTimNeville,July25,2018.298Ibid.299InterviewwithEmilyGustafsson-Wright,June13,2018.300InterviewwithSonalShah,June13,2016.301InterviewwithMartinaGaus,April27,2018.302Ibid.303InterviewwithNinaHoppe,June7,2018.304InterviewwithSonalShah,June13,2018.305InterviewwithPhyllisCostanza,June13,2018.306Ibid.307ChrisArgyris,“DoubleLoopLearninginOrganizations,”HarvardBusinessReview55no.5(1977):115–125.308PeterSenge,BryanSmith,andNinaKruschwitz,TheNecessaryRevolution:WorkingTogethertoCreateaSustainableWorld(NewYork,NY:CrownPublishingGroup2010).309Ibid.310ValerieThrelfall,LandscapeReviewoftheBeneficiaryFeedbackField(Oakland,CA:HewlettFoundation,2013).311Ibid.312FayTwersky,PhilBuchanan,andValerieThrelfall,“ListeningtoThoseWhoMatterMost,theBeneficiaries.”StanfordSocialInnovationReview11no.2(2013):41–45.313Ibid.

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314FrancescaGino,andBradleyStaats,“WhyOrganizationsDon’tLearn,”HarvardBusinessReview,November2015:110–18.315InterviewwithSafeenaHusain,May23,2018.316PeterM.Senge,TheFifthDiscipline:TheArt&PracticeoftheLearningOrganization,(NewYork,NewYork:Doubleday,2006).317“UBSOptimusFoundationStrategicPlan2014to2019,”UBSOptimusFoundation,2014.318InterviewwithMayaZiswiler,April27,2018.319InterviewwithPriyaSharma,June6,2018.320InterviewwithSonalShah,June13,2018.321“ChangingtheGame.Together.AnnualReview2017,”UBSOptimusFoundation,2018.322EmilyGustafsson-Wright,“EducateGirlsDevelopmentImpactBond:Year3Results,”BrookingsCenterforUniversalEducation2018.323UBSOptimusFoundation,“RajasthanMaternalandNewbornHealthImpactBond,”UBSOptimusFoundation,October2017.324YunusSocialBusiness,UBSOptimusFoundation,TheRockefellerFoundation,andImpactWater,“TheSocialSuccessNote:ANewInnovativeFinancingTool,”TheRockefellerFoundation,2018.325“11FactsaboutGlobalPoverty,”DoSomething,accessedSeptember14,2018,https://www.dosomething.org/us/facts/11-facts-about-global-poverty.326InterviewwithMayaZiswiler,April27,2018.327SallyOsbergandRogerMartin,“TwoKeystoSustainableSocialEnterprise,”HarvardBusinessReview,May2015,https://hbr.org/2015/05/two-keys-to-sustainable-social-enterprise.328ZacharySlobig,“HowaPioneeringDevelopmentImpactBondPushedEducateGirlstoExceedExpectations,”SkollFoundation,August3,2018,http://skoll.org/2018/08/03/development-impact-bond-educate-girls-results/.329InterviewwithMayaZiswiler,April27,2018.330DanielIsenbergandVincentOnyemah,“Start-upswon’tsavetheeconomy.But‘scale-ups’could,”WorldEconomicForum,March28,2017,https://www.weforum.org/agenda/2017/03/start-ups-entrepreneurship-scale-ups-latin-america/.331InterviewwithSergioErmotti,July10,2018.332InterviewwithPhyllisCostanza,June13,2018.333Ibid.334InterviewwithMayaZiswiler,April27,2018.335WiebeDraijer,JaneNelson,andLisaDreier,“NoCompanyCanSolveaMassiveGlobalProblemonItsOwn,”HarvardBusinessReview,January21,2016,https://hbr.org/2016/01/no-company-can-solve-a-massive-global-problem-on-its-own.336ImpactBondWorkingGroup,accessedSeptember22,2018,https://www.ib-wg.com

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337JohnHagelIIIandJohnSeelyBrown,“GreatBusinessesScaleTheirLearning,NotJustTheirOperations,”HarvardBusinessReview,June7,2017,https://hbr.org/2017/06/great-businesses-scale-their-learning-not-just-their-operations.338 InterviewwithSonalShah,June13,2016. 339InterviewwithMayaZiswiler,April27,2018.340InterviewwithAlisonBukhari,August1,2018.341JessicaDavisPluess,SmrutiGovan,andPaulaPelaez,ConditionsforScalingInvestmentinSocialFinance,2015,EditedbyBNYMellon.NewYork:BSR.http://www.bsr.org/reports/BSR_Conditions_for_Scaling_Social_Finance_2015.pdf.342SarahMiersandZachSlobig,“FromDirectActiontoAdvisoryServices:APathwaytoScaleforSocialEntrepreneurs,”StanfordSocialInnovationReview,March27,2018,https://ssir.org/articles/entry/from_direct_action_to_advisory_services_a_pathway_to_scale_for_social_entre.343InterviewwithSafeenaHusain,May23,2018.344InterviewwithMayaZiswiler,April27,2018.345KlausSchwab,“TheFourthIndustrialRevolution:whatitmeans,howtorespond,”WorldEconomicForum,January14,2016,https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/.346KathleenKellyJanus,“PlantingtheSeedsforSocialStartupSuccess:10ThingstoRememberWhenStartingaSocialEnterprise,”ChangeThis,February7,2018,https://changethis.com/manifesto/161.02.SocialStartupSuccess/pdf/161.02.SocialStartupSuccess.pdf.347InterviewwithMayaZiswiler,April27,2018.348InterviewwithPriyaSharma,June6,2018.349InterviewwithAnn-MarieSevcsik,April26,2018.350InterviewwithScottHiggins,May23,2018.351Ibid.352InterviewwithAnn-MarieSevcsik,April26,2018.

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