Social impact project finance: An innovative and sustainable infrastructure financing framework

Abstract

The purpose of this article is to propose a framework of Social Impact Project Finance (SIPF) for financing infrastructure projects. In the framework, public sector commits to pay performance-based yield for improved services, which in turn motivate private investor to better construct and manage infrastructure assets. By embedding social impact performance criteria, SIPF has an endogenous incentive mechanism that can align perspectives of public and private sectors, while traditional project finance lacks. SIPF can also play a critical role in achieving sustainable infrastructure, because all three components of sustainability (social, environmental and economic) can be easily embedded as impact factors in the framework. In addition, it could be well customized for governments globally to address their own problems, such as carbon emission or congestion reduction. Private investor can also benefit from higher yield, liquidity, and tax break. With this innovative interdisciplinary initiation of impact finance and project finance, there will be significant opportunities to not only create a new format of impact-based project delivery methods, but also show us a prospective way to securitize and deliver public services under clear supervision in the future.