Social Policy Bonds and their variants

Partly to simplify the exposition of the bonds, I haven't delved into  variants of the basic Social Policy Bond principle. These variants include such possibilities as:

• bonds that expire; ie, if the targeted social or environental goal isn't achieved by a certain date, they become worthless;
• bonds that yield a partial payout if the goal is only partially achieved;
• redemption funds that are not placed in escrow, but guaranteed, either by public- or private-sector bodies; and
• payouts indexed to some measure of inflation.

There are many other possible variations on the basic theme: the Social Policy Bond concept is a versatile one and, because it is best deployed on large scale and for long-term social problems, it would be worth exploring the potential of variants on a case-by-case basis. 

On a related note, I have been asked what would happen to the funds intended to be paid out if the terms of a Social Policy Bond issue were not met. I would think that much would depend on who is undertaking to redeem the bonds. If it's a government body, or some supranational body (like the United Nations), I would imagine that any funds placed in escrow could be diverted to other uses within that body. More likely, though, such bodies, being credible, would merely guarantee payout, as in my third bullet point above. These bodies would want to minimise any perception that they will not pay out, partly to reduce their costs (ie, bolster the float value of the bonds) and partly to maintain faith that they will pay out in future bond issues. 

What about smaller bodies, such as a group of philanthropists, with less credibility? In such an instance the funds could remain in escrow, hopefully earning interest, until the goal is actually achieved and sustained. It's likely that these smaller bodies would target goals with a shorter overall time horizon. If, say the goal were the elimination of serious armed conflict: while a UN body, say, could target a sustained period of peace of, say 30 years, I could envisage that a group of philanthropists or non-governmental organisations would have a less ambitious target; perhaps peace in the Middle East sustained for a period of five years. Then, if a conflict were to erupt within that five-year period they need do nothing with the funds; they could patiently wait until a five-year period of peace arises. Or when issuing the bonds, they could have specified the time period during which the goal had to be achieved and, if the bonds fail to achieve the goal within that period, they could simply withdraw their funds from escrow.

For this and further queries see the bonds' FAQ page.