Investing for Impact – Australia’s National Path Forward

May 27, 2022

Investing for Impact – Australia’s National Path Forward

May 27, 2022

Call for social impact investing ‘wholesaler’ to attract capital

By James Eyers, June 13 2022 in the Australian Financial Review 

The Albanese government could help attract private capital to support funding of social services by creating a new investment institution as recommended by a report for the Department of the Prime Minister and Cabinet that the previous government never released, its authors said.

Establishing a social impact function in the federal government could help leverage public dollars with superannuation funds looking for investments that offer both reasonable returns and positive social outcomes, such as improved education or health.

The movement known as ‘social impact investing’ – which reflects the “S” in ESG – has struggled to get off the ground in Australia, but the new government has a game plan to improve performance after a “social impact investing taskforce” delivered a report 18 months ago with recommendations the Morrison government never responded to.

But there is hope Labor might be attracted to its suggestions for policy reform, including the creation of a “social investing wholesaler” to direct and coordinate investment. It could be based on Big Society Capital in Britain, which guides due diligence around social impact investing opportunities to support capital raising from private investors.

Michael Traill, the founding CEO of Social Ventures Australia who chaired the taskforce, said government could help to “catalyse and crowd-in more funding” for social impact investing. This could attract large-scale funding from big investors wary of the area due to its lack of standardised data, and bespoke and illiquid private market deals.

Big Society Capital “is a bellwether of what is possible and what needs to happen here,” he told a recent event hosted by the Australia-Israel Chamber of Commerce.

“We think that is a really important thing to look at. We think there is an appetite for that to both happen and make a transformational difference in mobilising bigger pools of capital.”

The rise of sustainable and ethical investment will be a key topic of discussion at the Australian Financial Review ESG Summit on Wednesday.

Prime Minster and Cabinet (PMC) established the social impact investing taskforce in September 2019, which consulted more than 140 organisations and delivered a final report at end of 2020. It is understood the taskforce called for an early-stage foundation to be set up to encourage entrepreneurs, and an office of social impacting investing within the federal bureaucracy to provide holistic leadership.

The taskforce also suggested more social services funding be based on outcomes, as the sector works on developing more reliable data and metrics to measure social impact – the lack of which creates a major obstacle for many investors.

Big Society Capital has unlocked more than $3 billion for impact investing in the UK since it was established a decade ago, helping to bring 50,000 people into employment and 26,000 people into suitable housing; delivering 6700 children access to childcare; and providing 255,000 people with online support for mental health. Similar social impact wholesalers have been created in Japan, South Korea and Canada.

Mr Traill told the AICC event, held the week after the federal election, that Big Society Capital had created “a very powerful precedent”, where public funding was matched three-to-one with private capital, delivering investors, including UK banks, a 3.5 per cent to 4 per cent annual return. A local version “would liberate things to be done ethically in the long term that drives returns that sit comfortably on the financial risk reward spectrum,” he said.

Megan Flynn, a partner at Pollination, said family offices and high net worth investors are getting engaged with social impact investing but for institutional capital, “one of the fundamental issues is data and how you create a common set of metrics”.

She said reliable, precise data will be crucial to help super funds avoid criticism around greenwashing, as social investing faces similar pressure to the environmental part of ESG.

Read more about this event in the Digital Nation write up: