As defined by the Global Impact Investing Network, impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact as well as a financial return. Financing tools for pay for success programs, sometimes termed social impact bonds, are seen as ways to provide critically needed funding for social programs while promoting new levels of innovation and accountability. Several articles in this issue of Cascade provide an overview of these financing tools and examples of how they are being used in communities across the nation.

The Federal Reserve’s community development function is using its research and convening powers to better understand and support the deployment of impact investing dollars in underserved domestic communities. In late 2014, staff from each of the Reserve Banks convened an Impact Investing Working Group. The goals of this group are to foster communication and collaboration among Reserve Bank staff working in the impact investing field and potentially identify System-wide initiatives related to impact investing. Participants are working to identify strategies to increase the amount of impact dollars available for community development activities as well as helping to strengthen local capacity to use impact funds more effectively.

We are working on a number of efforts to help increase our knowledge of this topic, including hosting a pay for success meeting here in Philadelphia on November 4. This event will provide participants with a solid understanding of pay for success financing and create opportunities to understand and discuss different perspectives about the purpose, appropriate uses, and potential challenges of this new tool. Additionally, we hope to create a community of interest in the development of pay for success financing and opportunities for government officials, potential investors, and service providers to explore working together to leverage this financing structure to implement and/or scale social innovation.

There are efforts underway to use impact investing to fund projects ranging from early child care to homelessness. There is still a lot to learn from earlier projects, however, as to how impact investing can be implemented most effectively to the benefit of those who need these resources the most. Evaluations of earlier projects will be critical to helping the field identify the strengths and weaknesses of this approach. It is clear that these efforts herald a new era of innovation and creativity in the financing of community development solutions.