Building Blocks for a Social Outcomes Marketplace: A New Frontier in Development Finance

In the ever-evolving landscape of international development, we're constantly seeking innovative ways to fund and achieve the sustainable development goals (SDGs).

By Cooper Renfro and Rob Mills

While the voluntary carbon market (VCM) has shown promise in monetising both environmental and social impacts, it's not necessarily the optimal route for enterprises focused primarily on social outcomes. Traditional donor-supported projects have limitations too, particularly in terms of long-term sustainability of funding. 

Enter the concept of a social outcomes marketplace - a potentially game-changing mechanism for buying and selling SDG outcomes. This approach could move beyond both carbon credits and the stop-start nature of traditional aid projects, offering a more direct and sustainable way to fund social impact. 

But what would it take to build such a marketplace?

Our analysis suggests four key building blocks:

• Buyers: The Foundation of Demand

  Any market requires robust buyer demand. In the case of social outcomes, potential buyers fall into three main categories: 

  • Development partners, that have supported various results-based financing initiatives. 

  • Philanthropic foundations, that have shown willingness to mobilise significant capital for development goals. 

  • Corporates, increasingly recognising their responsibilities towards all stakeholders. 

  While pockets of interest exist among these groups, significant demand levels have yet to materialise. To build this demand, we need to think creatively about how paying for SDG outcomes could help buyers to efficiently achieve institutional ambitions, to comply with regulatory requirements and, for corporates, to meet consumers’ expectations to do the right thing. 

• Sellers: Generating the Supply 

  On the supply side, potential sellers of social outcomes would likely face challenges similar to those in the VCM. They would need support in three key areas: 

  • Eligibility: Understanding whether their initiatives meet buyers' additionality thresholds and if appropriate SDG outcome methodologies exist. 

  • Impact assessment: Modelling the volume of SDG outcomes they could generate and managing delivery risks. 

  • Financial feasibility: Assessing costs of getting impact units to market and revenue generation potential. 

  To ensure a well-represented supplier market, sector-wide technical assistance would be crucial. 

• Tools for Definition, Measurement, and Verification 

  For a social outcomes marketplace to function effectively, buyers and sellers need to agree on how impact is defined, measured, and verified. This presents several challenges: 

  • Impact definition: Should there be standardised metrics for common social co-benefits? While this could simplify communication, it may not capture contextual nuances in areas like gender empowerment outcomes. 

  • Impact measurement: Minimum standards for measuring social co-benefits could build confidence in impact quantification, but striking the right balance between rigour and practicality is crucial. 

  • Impact verification: Robust verification is fundamental to outcomes-based funding but can be resource-intensive. Innovative approaches like digitally-enabled remote sensing could help to reduce costs. 

  These considerations must balance rigour with cost-effectiveness.  

• Market Architecture: Facilitating Efficient Transactions 

  In the long term, some form of market architecture will be crucial to build demand and provide access for high-impact initiatives to monetise their SDG outcomes. Early-stage initiatives like OutcomesX and Common Good Marketplace are already working to build platforms matching supply with demand. 

  Effective governance will also be key to ensuring market integrity. It needs to be carefully considered and well-calibrated: too little can undermine market credibility, too much can drive out both supply and demand. There is potential to draw on the experiences of the impact investment market’s efforts to build market-wide consensus on approaches to impact measurement and management. 

The Road Ahead 

While the building blocks for a social outcomes marketplace exist, significant work remains to bring this concept to fruition. Progress is needed on all fronts - building buyer demand, supporting sellers, developing standardised tools for impact assessment, and creating efficient market architecture. 

A social outcomes marketplace could have the potential to revolutionise how we fund and achieve the SDGs. By learning from the experiences of the VCM and traditional aid projects, while leveraging innovative approaches to impact measurement and verification, we could create more direct, efficient, and sustainable mechanisms for funding social impact. 

But this endeavour is larger than any single organisation. Collaboration will be crucial in pushing this agenda forward. We're keen to hear from others working on these enabling building blocks to explore partnership opportunities: development professionals, potential buyers and sellers, and anyone interested in innovative finance for social good to join the conversation.

For more information contact: Cooper Renfro or Rob Mills