Community-Driven Outcomes Contracts
Community-Driven innovation in social finance.
The Community-Driven Outcomes Contract (CDOC) is a social finance instrument initially conceived by the Raven Group. Its structure is based on social impact bonds (SIBs). Both of these instruments allow impact investors to invest in the completion of a project that has measurable social outcomes, which are paid for by outcomes purchasers. The most important difference between the CDOC and SIBs is who determines the sought-after outcomes: SIBs’ outcomes are determined by the outcomes purchaser, while CDOCs’ outcomes are determined by the beneficiary communities. Thus, CDOCs are designed to be more effective and relevant for the beneficiary while achieving savings for the outcomes purchaser and securing returns for the impact investors; truly, a win-win-win situation.
The Full Case Study
Renewable Energy - Case Study
During the 2016 Indigenous Innovation Summit in Edmonton, the McConnell Foundation proposed a peer-to-peer input process when one of its grantees, Aki Energy, was turned down from the Indigenous Innovation Demonstration Fund. Aki was concurrently facing several policy barriers to expansion, so the McConnell Foundation proposed a social innovation lab to search for solutions. The lab had no pre-defined outcome and was designed to engage the community and unusual suspects, such as but not limited to: the McConnell Foundation, Community Foundations of Canada, a nascent iteration of Raven Indigenous Capital Partners, the 4Rs Youth Movement, and the Government of Canada.
During the lab, it became clear that renewable energy was a unique lever around which innovative capital deployment could build the capacity of Indigenous-led organizations and the Indigenous communities they serve. The lab also identified a novel approach to social outcomes financing: the Community-Driven Outcomes Contract.
The Case Breakdown
The ProblemEnergy investment on-reserve is predetermined by Government programs; priorities are set by those far removed from the community and are usually realized as short-term solutions with little community control. This provides little choice or self-determination for Indigenous communities and focuses on Government outputs, often driven by existing program pathways and immediate cost indicators, rather than aiming to build long-term energy resiliency or community well-being.
Our ApproachLab participants determined that a pay-for-success financing model would flip this troubling paradigm on its head, allowing the community to be flexible and adaptive in its approach to generating energy savings and broader social benefits.
DeploymentThe pay-for-success financing structure was refined over the 18 months following the Lab resulting in the Community-Driven Outcomes Contract (CDOC) structure launched in partnership with AKI Energy, Raven, and several impact investors.
ChallengesThe challenges we faced when creating and implementing the Renewable Energy CDOC were: raising funds quickly, creating the tool, and aligning timelines.
This is Canada’s first Community-Driven Outcomes Contract (CDOC), named for its focus on the outcomes most important to community members, rather than on the outcomes most appealing to stakeholders outside community.
The Contract has incredible potential for scale; the success of this small CDOC will be the precedent for further Renewable Energy CDOCs in other First Nations and for its use in other areas that affect Indigenous Peoples in Canada.
The CDOC is innovative in several ways; its Indigenous-driven structure and emergence from community priorities in a co-created manner are novel in the Canadian context. Another innovation brought forth by the CDOC was the creation of a rate card that calculated the financial value of different social and environmental outcomes, including the value of energy bill reductions, job creation, trades training and GHG reduction.
The rate card showed that for every $1M of investment, the CDOC generates $1.8M of outcomes and offers investors a competitive 4% rate of return. Outcomes purchasers – parties interested in achieving the outcomes set forth in the rate card, such as governments and philanthropy - also benefit, paying only $1.2M for each $1.8M of outcomes generated. Not only that, but governments in particular gain long-term benefits through the accrued resiliency of geo-thermal over 30 years and a reduced energy cost normally borne by the government over time.
The Contract has incredible potential for scale; the success of this small CDOC will be the precedent for further Renewable Energy CDOCs in other First Nations and for its use in other issues affecting Indigenous Peoples in Canada.
As of June 2020, the CDOC has enabled:
- The installation of 31 completed geo-exchange units and 39 partially completed units in 3 First Nations;
- A total of $1.2M of direct investment in Indigenous communities to date;
- The training and employment of 10 community members;
- A related reduction in social assistance payment for those 10 community employees; Considerable utility bill savings for the households with geothermal units;
- A total of $4.3M worth of social and environmental outcomes for First Nations.