By Rabbi Jacob Siegel

“There is no guarantee,” your financial advisor explains. “But a new investment called a Social Impact Bond could return a profit in excess of 10%, if the project out-performs. Best of all, your investment will help address one of Boston’s biggest social issues and support the work of an important Jewish agency.”

Last month, forty impact investors said yes to the above scenario, contributing at least the minimum $100,000 investment to support the Massachusetts Pathways to Economic Advancement project, a Social Impact Bond (also known as Pay for Success financing) centered around one of Boston’s oldest Jewish nonprofits, Jewish Vocational Service (JVS). Pay for Success is an innovative funding model that combines nonprofit expertise, private funding, and independent evaluation to transform how government leaders respond to chronic social issues.

In its early history, JVS assisted Jewish immigrants struggling to enter the American workforce during the Great Depression. Today, the organization helps people from over 67 nations find employment and build careers. JVS is guided by Jewish teachings, including the Torah’s mandate to “love the stranger in our midst” and Maimonides’ levels of tzedakah. Maimonides ranks highest a person who assists another in finding employment, so they may be released from dependency and poverty and achieve self-sufficiency.

The first step in the development of a Social Impact Bond is identifying a need. In this case, the Commonwealth of Massachusetts was concerned with workforce preparedness and English language education. In Boston, 10% of all residents, many of them refugees or immigrants, lack the basic skills and credentials to enter college or family-sustaining employment; and 30% of the greater Boston labor market is based on immigrants entering the workforce.

Next, Massachusetts selected a service provider, JVS, one of the largest workforce development organizations in New England, and partnered with Social Finance, a nonprofit intermediary that structures Pay for Success deals and identified investors for the project. At its core, Pay for Success is about aligning uncommon partners around a common goal: improving outcomes for individuals and communities in need.

Social Finance raised $12.43M in private capital, the majority of which will go to JVS to significantly scale the organization’s programs over the next five years. If JVS is successful at helping more individuals enter the workforce or college, the government of Massachusetts will pay the investors back with a profit. If JVS is moderately successful, investors could see a return of their investment but no profit; and if JVS fails to deliver on pre-determined social impact metrics, investors stand to lose their investment entirely.

Social Impact Bonds are an innovative new investment vehicle within the broader impact investing movement. The goal of impact investing is to achieve both financial returns and measurable social and/or environmental outcomes. Social Impact Bonds are often described as a “win-win-win.” Massachusetts only pays for actual delivery of the metrics it cares about; JVS receives funding to scale its work; and investors have the potential to earn a return if the social metrics are met. But the biggest winners of all are the communities the projects serve.

Investors, and to some degree the Massachusetts government, have placed a bet on the ability of JVS to train people to enter the workforce. “There has never been more attention on anything we have ever done,” said Carol Ozelius, the Chief Operating Officer of JVS. “It’s like putting a national spotlight on yourself and saying, ‘I can deliver.’”

Amy Nishman, Vice President of Pay for Success and Skills Training at JVS, explained that “by moving private capital to deliver social services, everyone wins.” For JVS, the influx of capital from the Social Impact Bond will allow the organization to scale, something difficult to achieve from philanthropy alone.

JVS staff isn’t worried about impact investing’s potential cannibalization of philanthropy. Instead, as Carol noted, it is “a brilliant model that allows investors to earn money on their investment; the project can be scaled to a level that the government is not able to, and thousands of people get services that they wouldn’t have otherwise.” Karin Blum, Chief Development Officer at JVS, added: “Particularly in the case of our local federation’s investments, the capital is sitting in an investment fund somewhere, so why not bring it to a Jewish agency?”

The investment’s alignment with Jewish teachings wasn’t lost on the Combined Jewish Philanthropies of Greater Boston (CJP), a long-time partner of JVS. Despite the uniqueness of the Social Impact Bond structure, CJP leadership was confident that JVS would use the funds responsibly, and CJP’s donor-advised-fund participants stepped up as some of the earliest investors.

“I knew who my first ten calls would be,” said Charlie Glassenberg, Vice President of Gift Planning & Investment Partnerships at CJP. They included CJP’s donor-advised fund participants who had expressed interest in impact investing. In particular, Charlie recalls one parent-child pair who had spoken with him about impact investing and were eager for the opportunity to engage. This reflects a much broader trend of impact investing as a tool for engagement across generations – more than 80% of millennials express interest in the topic.

Given the newness of Social Impact Bonds, their risk, financial return and social return is still largely untested. The Boston community, the impact investing community, and the Jewish community will spend the next five years monitoring the Massachusetts Pathways to Economic Advancement Project, eagerly awaiting the outcome.

JVS leadership will share additional insights at JLens’ upcoming Jewish Impact Investing Summit on December 5th in New York City.

Rabbi Jacob Siegel is the Director of Engagement for JLens, a network of individual and institutional investors who seek to apply a Jewish lens to the modern context of values-based impact investing.