Impact Investing a Golden Opportunity for NFPs
9 March 2016 at 10:00 am
Never has there been a more exciting time for the Not for Profit sector to seize the golden opportunity that is offered by impact investing to deliver unprecedented gains for those in need, writes Wendy Haigh, Executive Director of Social Investment at The Benevolent Society.
This is an extract from a speech Haigh delivered to the Not for Profit Financial Sustainability Conference in Sydney this month:
According to the Community Council for Australia, the Not for Profit sector turns over more than $105 billion annually and holds over $175 billion in assets. In the last decade, sector growth has continued at more than 7 per cent per year, greater than any other industry group, but the real value of the NFP sector is often in the unmeasured impact on the Australian quality of life.
Collectively, NFPs make Australia a better place to live for us all.
The importance of the NFP sector is now being internationally recognised with many governments putting in place mechanisms to increase NFP investment. The sector is on the cusp of transformation to be more independent, more sustainable and better able to meet the many social challenges it faces. New models are being piloted that focus on delivering measurable outcomes to those in need.
In Australia, there are currently various initiatives seeking to promote social enterprise; reduce compliance costs for NFPs and encourage a diversification of financing options to build a more sustainable funding base. There is also a renewed focus on innovation more broadly with the ideas boom and NFPs are looking for other sources of revenue to fund their operations and secure their future.
In parallel, a new generation of investors has been demanding more ethical investments and transparency. They want investments – impact investments – that do well financially and do good socially.
Through impact investing:
- Service providers have more freedom to innovate and design effective services that are informed by sector knowledge and no longer prescribed by government. They can demonstrate outcomes (not just outputs) and provide evidence of what really does make a difference to their clients’ lives.
- Investors no longer have to choose between doing good and doing well financially. Simultaneously, they can diversify risk in their portfolios as social investments typically are not correlated to mainstream investments.
- Governments can leverage private capital to augment public funding and address more social needs, typically focusing on prevention rather than crisis management.
- Families and communities can get help sooner.
One form of impact investing is through social benefit bonds. The Benevolent Society is one of the first NFPs in Australia to undertake a social benefit bond. In collaboration with CBA, Westpac, and the NSW Government in 2013, the bond raised $10 million to fund an innovative program called Resilient Families that provides an intensive wrap-around service to keep children safely with their families and out of foster care.
Two years on, the program is tracking well. The 2015 results show 88 per cent of the families referred to the program are still together and 27 per cent fewer children entered foster care than a control group.
This has translated to indicative investment returns of between 5 per cent and 8 per cent per annum for bond holders to date, but could amount to as much as 10 to 30 per cent per annum compounded over the five years of the bond, if all goes well.
Evidence from abroad and at home has shown that the time is right for impact investing to move to the next level. Rob Wilson, the minister for civil society in the UK, recently declared that “the time for social investment has arrived” and added that social impact bonds will shortly be the most talked about method of public funding.
The demand from the private sector for investment-ready opportunities is growing rapidly and already amounts to hundreds of millions of dollars in Australia. When coupled with the size and reach of the NFP sector, this creates enormous potential to change the landscape of adversity in Australia. Just imagine!
Bill Ferris, Chairman of Innovation Australia, in a recent interview for AICD’s Company Director magazine said: “Unless you can get to a point where the excitement of gain trumps the fear of failure in boardrooms, we won’t make the impact we should.”
In my opinion, this sentiment applies equally to the NFP sector. Never has there been a more exciting time for the sector to seize the golden opportunity that is offered by impact investing to deliver unprecedented gains for those in need.
We are in a position to make giant leaps forward right now but in order to achieve lasting social change, we need to think and act in a new way.
About the author: Wendy Haigh is Executive Director of Social Investment at The Benevolent Society. Her career spans over 30 years. She has a “big four” accountancy background and has worked across many sectors, including science, health, education and community services. Haigh is passionate about finding innovative solutions to break the cycle of disadvantage, transforming the delivery of human services through social impact initiatives. She joined The benevolent Society in February 2012.