Increasingly, fiscally constrained governments are accepting of the need to attract private-sector capital to underpin the cost of delivering social services. Consequently, Australia is seeing growing momentum in the development of a market for social impact investment. In particular, there have been calls for the establishment of a new financial institution to be a catalyst for such a market.
This was most recently reinforced in a report prepared by a working group with representatives from the financial services and community sectors. The report, commissioned by Impacting Investing Australia, highlights the need for a well funded, dedicated entity designed to spur the growth of this nascent market and create a virtuous circle of investment and deal flow leading to a self-sufficient market.
The report estimates the entity, called Impact Capital Australia in the report, would require approximately $300m to be of sufficient size to meet these objectives. This echoes a similar vehicle used in the UK, Big Society Capital, a British ‘social investment bank’ established in 2012 with a capital base of £600m.
The report proposes that funding for Impact Capital Australia could emanate from various sources including government as well as financial institutions, community groups and philanthropists; although the report stresses that no formal commitments have yet been made.
The report follows hot on the heels of the federal government’s response to its financial system inquiry that identified the potential for impact investing to be mutually beneficial for government and taxpayers. It is understood the federal government is commissioning a discussion paper with terms of reference focusing on the mechanisms required to enable an impact investment market in Australia.
In many respects the federal government has ground to make up. A number of Australian States have instigated pilot initiatives to support the issue of social impact bonds designed to fund social programs. Whilst New South Wales is at the vanguard of this process, Queensland and South Australia have also recently embarked on providing support for the issuance of such debt instruments.
This move to develop impact investment as a serious funding tool is supported by a number of peak bodies, such as the Australian Healthcare and Hospitals Association which recently called for the use of social impact bonds as part of a broader suite of social impact investing to deliver outcome-focused improvements across the health sector including increased innovation and accountability in service delivery.
Similarly the philanthropic sector is looking closely at how social impact investment can be rolled into investment portfolios. The Myer Foundation recently completed a social impact investment into a social enterprise, demonstrating a capacity to achieve its philanthropic strategy both through its grants process as well as its investment portfolio.
Of course, whilst social impact investment still represents only a small part of overall investment and funding in Australia, as the size of the social impact investment increases and the ability of participants to access such investment funding improves, it is likely its importance will increase significantly in coming years as it has in other jurisdictions.