Investing Defined by Impact, Not Risk
30 October 2013 at 8:12 am
Impact Investments in social causes should not be distinguished from the mainstream by risk, a leading Australian social investor has told a Sydney conference.
Speaking as part of a forum discussion at The Social Marketplace, Danny Almagor, Founder and CEO of social investment business Small Giants, described Impact investing as a lens through which he saw all his company’s investing.
“When we look at risk, we look at it in each area rather than thinking of impact investment as a risk portfolio in itself.”
“It makes no sense trying to say ‘in this asset class what is the risk?’ because you’ve just looked at three different types of investments.”
“I suspect the benefits of investing in social good bring down your risk slightly. More people are batting for you and come and support you as opposed to a business nobody really wanted in the community in the first place.”
Impact investing, where capital is invested with the intent of generating both high financial returns and high social returns, is in its infancy in Australia.
The forum considered two ways investment is currently generating at least some return in both areas – one with high financial return and lower impact (“largely the marketplace today,” Almagor said) and high social and environmental impact with lower financial return, for example, social enterprises.
Management of expectations and an understanding of motivation emerged as a key issue on both sides of the discussion.
“For Small Giants which is a family investment house, because it’s private money, it’s personal money, for us it’s really important that we continue to make profits, it’s not philanthropic capital,” Almagor said.
Presenter Libby Ward-Christie, Head of Enterprise Support and Investment at Social Traders, presented the social enterprise perspective, highlighting the fact that many were not in the social enterprise space with expectations for high financial returns and that philanthropy was still an accepted part of the picture.
“A lot of the risk mitigation process is around the capacity building side, ” she said.
“Quite often in most of the investments we make there’s that philanthropic part of the capital.”
“We occupy that space because there is market value in that space – its not necessarily where you get return,” she said.
Ward-Christie said the pressing issue from the social enterprise perspective was not the capital available but the ability for social enterprises to effectively use impact investment funds.
She said that while there were currently around 20,000 social enterprises nationwide, “very few of them would be in a position to absorb capital in what we would describe as impact investing.”
Almagor was a passionate advocate for impact investments emerging from the private sector.
“Let’s have a look at the potential, and talk about the capital that sits in ‘business as usual’…you’re talking about trillions of dollars.”
“My sense is that this is the way people do business and we just redefine what success in business looks like. It’s not just one bottom line but many returns maximising value,” he said.
In recent years, innovative financial models to fund social initiatives have emerged worldwide.
Social stock exchanges have emerged in the UK and Singapore, along with increased social procurement among corporates, the launch of the NSW social impact bond and the Western Australian Social Enterprise Fund.
The conference, hosted by The Centre for Social Impact and convened by Sandy Blackburn-Wright, former Head of Social Innovation at Westpac, is intended to explore what an impact investment market could look like in Australia.