Finding the Real Value in Impact Investing
14 January 2015 at 9:22 am
The time is right for a national conversation on further catalysing Social Impact Investing, a new phase of development for ethical investing writes Sandra Nugent, Manager Strategy and Development at Foresters Community Finance.
In recent years, Foresters Community Finance (Foresters) has witnessed a high demand for alternative sources of capital in the Not for Profit sector.
Initiatives supporting the demand are diverse, but are rooted in sustainable financial solutions for social enterprises to pursue their long-term sustainability. Finance has a direct impact on enterprise through assisting it to get started, to expand or to maintain its business activities.
Now the time is right for a conversation on further catalysing Social Impact Investing, a new phase of development for ethical investing. Investments with intentional social as well as financial returns are starting to become a real flavour in the Australian financial markets, and impact investment products are part of delivering the opportunity to use capital to generate social, environmental or cultural outcomes.
The consumers of Social Impact Investing are often community sector organisations, including Not for Profits and social enterprises, who want to do more of what they are good at but may have a funding gap that can be filled through an investment made in their organisation, often in the form of debt or equity.
However, without a complementary conversation on the nuances required to deploy capital allocated to such investments, impacting investing stakeholders will be left with the challenge of finding ways to get the money out the door. This is similar to experiences of more mature markets such as the UK, where just as much as there was a focus on the supply of capital, there was a complementary requirement for building demand, combined with access to capital fostered by specialist intermediaries (Burkett, 2013).
To reach the next level, Australia needs to have an open conversation on what it actually means in terms of mobilising the investment capital to generate social impact, and a better understanding of the risks in the market. Governments, Investors, and Intermediaries (who hold knowledge of the demand side) all play a role in shaping a targeted and successful Social Impact Investing market in Australia.
Intermediaries can play a role
We must contemplate the role of specialist intermediaries who have the capability to provide the avenues for investment and are best placed to manage the risks. These organisations respond to needs in our communities and generate the impact as well as financial returns that investors are seeking.
Specialist intermediary Foresters has begun to track the outcomes enabled through its investments in community sector organisations, using specific indicators that can inform potential social investors of these impacts. Foresters has provided access to social impact investments via loan capital to over 46 community sector organisations for various social, cultural and environmental initiatives.
Tracking outcomes is a cumulative effect, and the intent is to monitor existing and new loans on an ongoing basis.
The following information reflects activity that has happened for social enterprises up to 30 June 2014, as a result of accessing a loan:
For community sector organisations, accessing capital has meant support for the start-up of business activity, business continuity, or business expansion resulting in both social and financial outcomes for organisations and their communities.
Through continuing to make investments to meet the diverse needs of community sector organisations Specialist Intermediaries gain a unique understanding of how to reach the market. Continuing to track outcomes that occur as a result of these investments, is not only a means to evidence the success of investments but also to communicate to stakeholders the benefits, in order to further catalyse support for the work.
Prioritise Broadening Australia’s Knowledge
Education is clearly critical to the future prosperity of the market for Social Impact Investment in Australia. In addition to the work of intermediaries, there needs to be a better understanding by all stakeholders including Governments as to why there is value in the work and what it can bring to the task of social, cultural and environmental change.
Partnerships, are one way intermediaries may share their expertise into the future. Foresters, a Not for Profit, has entered into a strategic partnership with financial consultants InterFinancial Corporate Finance to further develop impact investing products for the Australian market.
Organisations, even from different sectors, can, with a strong values alignment, a keen interest in accelerating the growth of Social Impact Investing, and the ability to respond appropriately to the demands of the market, work together effectively to leverage each other’s expertise and improve the prospects for organisations seeking and making investments as the market develops.
As Social Impact Investment gains momentum in Australia, it is important for all stakeholders to understand the outcomes and impacts and how best organisations and their communities can benefit.
At the core of Social Impact investment is social change and investment serves as a mechanism to achieve it. The investments made in community organisations and the outcomes and impacts are signals confirming that the results we are seeking have been met. Without this, it is undetermined whether we have met the mandate of Social Impact Investing.
Still emergent in Australia is the scale in this space to achieve the corresponding larger scale change. It will only come with a better understanding by all stakeholders of how to facilitate more of these investments, and ultimately better capital to areas of our community that are often excluded from mainstreams systems.
Key considerations are: a better understanding of risk, the specialist agencies/intermediaries such as Foresters that are best placed to assess and mitigate against these risks, as well as a deeper insight into the value of the work and what it can bring to the task of social, cultural and environmental change.
Foresters Community Finance is a specialist financial Intermediary providing innovative financial solutions for people and communities. It manages a number of impact investing funds including the Department of Employment’s Social Enterprise Development and Investment Funds (SEDIF). For more information visit www.foresters.org.au