Unpacking Impact Investment
15 May 2013 at 9:50 am
With a new spotlight on the rapidly developing area of Impact Investment, Strategic Environmental Management Consultant, Garry Taylor unpacks the concept and how it works.
Impact investment (sometimes called social finance) describes investments, the defining feature of which is that they are made with the intention of achieving a positive social, cultural and/or environmental impact and a financial return.
This rapidly developing area generates finance for addressing social, cultural or environmental issues and creating new public value.
Impact investing is a field of practice and market development that sits within a broader context of both social investment and financial markets.
The focus on achieving both a social and financial return distinguishes impact investment from grant funding (which primarily seeks social impact) and parts of the financial markets which focus exclusively on financial return. It often involves a mix of investors with different appetites for risk and return, and different priorities.
It can utilise a range of existing and new financial products and generate a range of social, cultural and environmental outcomes and financial returns.
Who can it help?
Impact investment is having a positive affect internationally catalysing new markets and encouraging entrepreneurship and innovation aimed at solving entrenched issues and creating sustainable solutions.
Socially motivated entrepreneurs and organisations who find it difficult to access appropriate finance and support in the mainstream financial market can benefit from access to appropriate finance to enable development and growth of organisations and services that create positive impact in community.
Impact investment benefits communities by providing new opportunities to develop services, infrastructure, and generate jobs. For example, directing capital to affordable housing or clean energy or investing in businesses where the community needs jobs and regeneration.
Impact investing helps investors by providing new opportunities to put their money to use in ways that make a financial return and also benefit society. It helps governments target their spending and encourage more capital into areas where there is need for new solutions. It also helps philanthropists generate greater good through their activities.
Where is it being used?
Nationally and internationally, impact investments are being used to finance initiatives in a wide range of areas including the arts, aged care, community development, education, employment, health, environmental management, sustainable agriculture, renewable energy, justice, social housing and international development. The types of social impacts being achieved include the creation of new training opportunities for disadvantaged young people, quality sustainable jobs in regions facing economic change and decline, increased affordable housing stock, improved health and educational outcomes, new facilities and services that meet the needs of a community and renewable and clean energy solutions.
Who are impact investors?
Impact investors are the people or organisations that provide the capital for impact investments. They include governments, philanthropists, private investors, corporations and institutional investors (such as superannuation funds).
A range of factors influence the approach of any given impact investor. These include: their motivations for investing, the types of investments they can make within their organisational and capital structure, their appetite for risk and their expectations with regard to social outcomes and financial returns.
Some examples of impact investment in Australia:
Apartments for Life bonds. In 2011, The Benevolent Society proposed a $10 million bond offering to help finance 128 dwellings to house older people in a community setting. The bonds carried a 5% return over eight years. For a range of reasons this bond issue did not proceed. It was an innovative experiment that enlivened the imagination of others and sparked dialogue about the level of financial return required to attract investors and how policy can support capital raising for the community sector.
STREAT equity raising. STREAT is a social enterprise providing homeless youth with a supported pathway into long-term careers in the hospitality industry. In 2012, STREAT financed the purchase of the Social Roasting Company through an equity raising. STREAT aims to double the number of young people it reaches and return at least 7% to investors over the first three years.
Chris O’Brien’s Lifehouse at RPA bonds. Lifehouse created a 'social bond' to partially finance development of a cancer centre in Sydney providing care outside of a hospital setting. The bonds have a term of 6 or 8 years, and the $14 million raised will allow the centre to be completed and available sooner. Returns are targeted at between 5 and 8 % depending on whether investors accept a 6 or 8 year term.
“The stories featured in this report showcase examples in Australia and internationally of people harnessing capital markets to support community prosperity, encourage vibrant culture and contribute new solutions for issues of exclusion and sustainability,” Social Innovation Strategist with DEEWR Rosemary Addis said.
For more information about impact investing, click here.
Garry Taylor is a Strategic Environmental Management consultant at Croesus Project Services.