What impact investing wants: For the incoming government to up the ante
Thursday, 2nd May 2019 at 8:18 am
Australians need a government that recognises the critical role of private capital and looks to scale impact investing, writes Sally McCutchan, CEO and executive director of Impact Investing Australia, as part of a series of articles looking at what the social sector wants from the incoming government.
As the global market for impact investing reaches US$502 billion (A$712 billion), an incoming federal government should take the opportunity to move to action to scale impact investing in Australia.
There is already broad acknowledgement that the current resources of governments, the social sector and philanthropy are not enough to address the scale and complexity of the issues facing our society. To meet our growing social demands, Australians need a government that recognises the critical role of private capital and the leading part the government itself must play in catalysing the growth of the impact investing market in Australia.
Incremental policy measures now need to be stepped up to a meaningful, whole of government commitment and approach to building a market for new investments that deliver positive and measurable social and environmental outcomes alongside a financial return.
Often impact investments are seen as synonymous with Social Impact Bonds (SIBs) – a financial instrument in which the government is the payor. This understates the size and promise of the impact investing market. The Responsible Investment Association of Australasia’s, Benchmarking Report 2018, valued the market at $5.8 billion of which only $43 million was SIB related investment. The real opportunity is bigger.
The government can enable the market and unlock private capital flows to drive more resources and better outcomes for Australian communities.
For the last five years, the Australian Advisory Board on Impact Investing (AAB) and Impact Investing Australia (IIA) have worked alongside governments, intermediaries, community organisations, investors, social entrepreneurs, philanthropists and others to explore opportunities for mobilising private capital for public good. There is no question that the potential is significant to create a multiplier effect for government expenditure and find better ways to tackle issues affecting society through improved efficacy, innovation and new models, and cross sector collaboration at scale.
As an inaugural member of the Global Taskforce on Social Impact Investing, established under the UK presidency of the G8 in 2013 (now the Global Steering Group for Impact Investment, GSG), the AAB continues to be a key contributor in framing the policies needed to drive impact investing in markets around the world. This has included our involvement in the taskforce’s market mapping across its original nine participating jurisdictions to understand the common pieces of market infrastructure and the policies critical to building the market for impact investing. Lessons continue to be shared among the now 21 GSG member countries on how such infrastructure and policies can be implemented for success.
To date, our efforts to bring this knowledge and understanding to Australian policy development have led to some good but small, incremental movement. Over the years there has been significant engagement with the government through Parliamentary inquiries, discussion papers, roundtables, and numerous submissions.
The recent establishment of a taskforce within a central agency of government and an advising expert panel is the first time we have seen a whole of government approach. There is a real opportunity now to leverage the body of work of the AAB, IIA and our global and local colleagues to drive meaningful action.
Extensive global work and experience alongside multiple Australian market field scans have highlighted a number of critical actions that can help build the Australian impact investing market. The establishment of a new and independent financial institution – Impact Capital Australia (ICA) – is the most significant step that can be taken to mobilise greater capital and achieve greater outcomes across a range of social issues facing Australia.
Inspired by Big Society Capital in the UK, ICA would have two key roles: as a wholesale investor and impact investment market champion. It would unlock private capital and drive diversity and social innovation. In addition to addressing housing availability, ICA would spearhead new funds to invest in local jobs, de-risk investment in infrastructure and demonstrate models of financing in areas of high demand and growth such as aged care and disability. Rather than doing every deal itself, ICA would facilitate and enable others thereby supporting the intermediation necessary to drive the impact investing market in Australia to scale.
The AAB and IIA have developed and advocated for such an institution for some time now. Other governments around the world, most recently Canada, have since committed to fund national wholesale institutions for impact investing, utilising Australia’s design.
We encourage an incoming government to leverage the structure of the Social Impact Investing Taskforce within the Department of Prime Minister and Cabinet to create an ongoing and centralised Office of Social Impact Investment. This would ensure a “go to place” for the sector giving government better insight into opportunities for collaboration. It would also build a centre of knowledge, excellence and capability within government as evidenced in the UK and NSW.
Further drawing on the experience from overseas markets where governments have been key market participants, the establishment of a dedicated and appropriately capitalised Outcomes and Innovation Fund could support proof of concept and facilitate scaling of what works through outcomes-based commissioning. This fund could also help build systems and capability in working through the data challenges often associated with cross departmental and/or cross government outcomes measurement.
An incoming government also needs to consider further development of Impact Investing from Australia. Firstly through the extension of Australia’s support for related capacity building and intermediary development to further enable Indo-Pacific social enterprise development. Secondly through more active participation in regional infrastructure development. Expansion of the tools and geographical remit of the Australian Infrastructure Financing Facility for the Pacific for example could increase its efficacy, timely deployment and leverage of private capital for maximum regional impact.
Globally, impact investing is already generating outcomes across a broad range of areas including: housing, employment, disability, aged care, health, education, arts and culture, agriculture and the environment. It is supporting jobs, growth and productivity by providing access to appropriate investment capital for small and medium enterprises tackling social issues and operating in communities that need employment opportunities and economic resilience.
In Australia, it is only in areas related to environmental outcomes that we are starting to see scale. This has been helped by significant and catalytic government policy initiatives such as the Clean Energy Finance Corporation.
The AAB comprising experienced leaders from the investment, business, not-for-profit, philanthropic and community sectors, has looked at where government impact can be the greatest in growing the opportunities for impact investing. The findings have been informed by global work and experience. An incoming government can take bold but informed action – a larger leap onto a path well tread by its global peers and catalyse a market we all need, to drive better outcomes for our Australian communities.
About the author: Sally McCutchan has led Impact Investing Australia as executive director and CEO since April 2017. She has extensive experience in finance, funds management and strategy, and has spent many years working in and understanding Asia Pacific markets. Her experiences in both the domestic and Asian contexts have compelled Sally to be more actively involved in trying to affect better social outcomes. She is a non-executive director of Indigenous Business Australia Asset Management, Oxfam Australia, and a National Australia Bank securitisation company as well as a member of the Australian Advisory Board on Impact Investing.