A landmark Social Impact Investing Taskforce is recommending that the commonwealth government take a “coordinated and long term” approach to guide its involvement in the social impact investing market.
Kylie Charlton, managing director of Australian Impact Investments
The Social Impact Investing Taskforce has released its interim report examining the Commonwealth’s role in the social impact investment (SII) market. The taskforce comprises an independent expert panel with SII expertise and a support team within the Department of the Prime Minister and Cabinet.
The impact investing sector is small in Australia – managed impact investments grew from around $1.2 billion in mid 2015 to $5.8 billion at the
end of 2017. But the vast majority of finance is for environmentally focused
investments: only 4% of the 2017 total or $242 million was socially focused, the interim report noted. At the end of 2018, there was an estimated US$502 billion in impact investing assets worldwide this figure includes both environmental and social impact investments, the report said.
The interim report established three “clear headlines”:
•Existing and prospective social impact investors have an active appetite to invest significantly more capital.
•The shortage of social impact investment opportunities with transparent measurement of social outcomes and financial performance is a major barrier to further growth.
•There is a lack of intermediaries who can advise on and create social impact investing transactions to stimulate market growth.
The taskforce also established three key pathways to drive the sector forward: early stage funding to support the market gap of social entrepreneurs accessing support and capital; increasing a range of outcomes-based funding opportunities; and establishing an impact investing wholesaler, akin to Big Society Capital in the UK.
“This report recognises that the government has a clear role to play in catalysing and driving Australia’s impact investing market to realise the potential benefits for Australian communities,” said Sally McCutchan, CEO, Impact Investing Australia, a member of the Expert Panel guiding the Taskforce. “The government is unique in its ability to use policy levers and partnering with the private sector to enable the market. Through the establishment of a social impact investing wholesaler, the government has the immediate opportunity to drive scale by making a one-time investment in a game-changing initiative. Designed as a catalytic, independent institution, with impact at its core, a SII wholesaler will unlock capital and capacity to tackle social issues at scale.”
Big Society Capital in the UK is funded by four large banks – Barclays, HSBC, Lloyds Banking Group and RBS.
“There’s lots of value in the Taskforce’s recommendations and ideas – in particular that governments can help support social enterprises as they start up,” said Dan Madhavan, CEO of Impact Investing Group. “Likewise, a wholesaler, like the UK’s Big Society Capital fund, could deliver outsized positive impact for the public’s investment.”
Other industry experts spoke positively of the initial recommendations.
“Each of the three key initiatives has an incredible opportunity to drive the sector along,” said Kylie Charlton, managing director of Australian Impact Investments. “Enterprises are quite challenged when we go at pay by outcomes, and there is a need to engage organisations at all levels of sophistication.”
Charlton also noted that there is a role for government to play in establishing a wholesaler model for impact investing.
“The wholesale model around the world have had a government hand involved,” she said. “Being aware of the conversations that have occurred around Impact Capital Australia and the work to get that up and going, government could be an important catalyst to actually bringing it to reality. That doesn’t mean that government has to be the source of capital. I think that government can crowd in money to the wholesaler, and that can be valuable.”
The taskforce identified gaps and opportunities to build the impact investing sector, which should enhance partnerships, coordination across the markets, with the goal of establishing better outcomes. Of particular focus is the role government can play in supporting better evidence, data and measurement practices for social impact, and in developing principles to guide the sector and inform best practice and retain integrity.
“Standards should be industry led,” Charlton said. “Government plays a role in access to information, and the taskforce gets at that – let’s make sure government is providing access to information, so that people understand the data and the information on the social impact, but measuring and reporting an impact should be industry-led and that’s what we’re starting to see.”
The taskforce flagged that the final report will focus on advice and support to increase outcomes-based contracting, which is a popular structure for social impact deals. Existing social impact bonds in NSW and SA, such as the Newpin Social Benefit Bond and the Aspire Social Impact Bond are based on outcomes-based contracts.
“Making it easier for participation and helping with the early stage contract side is valuable and addresses what has been seen as a challenge in the marketplace,” Charlton said. “From the investors’ perspective, that will help to increase the flow of product for payment by outcomes, which has been taken up relatively positively by the investing community. Early stage funding contract readiness is a consistent point, regardless if you’re looking at the impact space or outside the impact space. Early stage organisation struggle to think about how they attract the investment dollar and they need support.”
The final report will be submitted to government in June.
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