Impact investing is still a new concept within financial circles, but one which could see billions of dollars channelled into addressing social problems. How can Australia make the most of it?
In Melbourne, a woman who had been sleeping rough is working in a café set up with money raised in one of the first share issues by a social enterprise.
In Yackandandah in North East Victoria, locals buy petrol from a service station acquired using a $400,000 investment from the community. In rural India, millions of children are being vaccinated in a scheme funded by private investors.
All of these are examples of impact investing, in which investors set out to make financial returns while creating positive benefits for society. Since the term was first coined at a Rockefeller Foundation event in 2008, a growing number of institutions and private investors have been seeking ways to put their money to work in a way that supports their values.
Meanwhile philanthropists are recognising that by investing in social causes and generating returns for reinvestment, they can make a greater impact than by providing grant funding alone.
The market potential for impact investing in Australia is estimated to be $32 billion over the next decade. Although the country has lagged behind the US and UK in take-up of impact investing, the concept has attracted interest from all quarters – from non-profits and private investors to government, superannuation funds and banks – and generated some high quality deals.
The $95m Goodstart deal in 2009 was one of the largest global transactions of its type. Following the collapse of ABC Learning, Australia’s largest single provider of childcare, a syndicate of investors stepped in to take over the operation. Goodstart Early Learningnow provides services to over 72,000 children and their families through 660 childcare centres.
Other initiatives include social impact bonds such as those trialled by the NSW government, funds which provide finance for social enterprise, run by organisations like Social Ventures Australia (SVA), Social Enterprise Finance Australia (SEFA) and Foresters Community Finance, as well as crowd funding schemes.
However according to a government report on impact investing last year, Australia needs to see an increase in activity. Rosemary Addis, one of the authors of the report, also represents Australia on the International Impact Investing Taskforce and is the co-founder of Impact Investing Australia.
She warns: “If there is not focused attention to building the market and developing quality products with measurable results, there is a risk the market will become overhyped and/or that interest will not translate to action.”
Ian Learmonth of Social Ventures Australia (SVA), one of the organisations involved in the Goodstart deal, says there is increasing interest from capital investors including banks, superannuation funds and insurers, however there is still a shortfall in investment opportunities.
“We are working on rebalancing this by working with Governments, social enterprises and the mainstream business sector to generate more transactions of scale,” he says.
“To develop the market we need deals of greater scale and to be able to offer better liquidity to our investors. This will enable us to marshal larger pools of capital and therefore make a greater and hopefully game changing difference to the social issues we are trying to address.”
SVA has backed a variety of business models, from an indigenous cleaning company to private healthcare and play groups. It also structured and funded Australia’s first social impact bond to help reunite children in care with their birth parents.
“We apply the usual business evaluation principals to all our potential investments, and are open to all manner of business models where we can also see a positive and tangible social outcome,” adds Ian.
Rosemary Addis agrees that discipline is key. “You need to put investment discipline and impact first and last to ensure what is delivered is not just more money or services but greater efficacy and innovation to meet social need.”
She believes intermediation will be critical to bring investment opportunities and investors together.
“The first priority is to raise awareness and get on and do quality deals,” she adds. “Demonstrating success is critical. Engaging government also matters as they have a role as a market actor to target scarce resources and encourage innovation and effectiveness and also as steward of the market.”
Rosemary believes Australia’s seat on the international Social Impact Investment Taskforce gives it ‘a major opportunity to continue to leapfrog forward’ by allowing it to adapt global lessons for local markets.
Judith Rodin, President of The Rockefeller Foundation, says there is still more to do at a global level, but the outcome will be worthwhile. “If impact investing becomes ‘business as usual’, the future will be a much different place. As far as impact investing has come in seven years, there is still more to do to make it the norm, and give everyday investors access to a range of investment products.
“But if we do, aspirational estimates suggest that impact investments could one day represent 1 per cent of professionally managed global assets, channeling up to hundreds of billions of dollars towards solutions that can address some of our biggest problems, from poor health to climate change.”