Investing for impact: A call to action

The Centre for Social Impact (CSI), with the support of sponsorship from mecu and National Australia Bank, convened its inaugural Investing for Impact Forum in Melbourne on 8 April.

The event’s aims were to drive impact (or social) investment in Australia by stimulating dialogue among a wide range of stakeholders, and to explore and develop new ways of mobilising capital to drive positive social, environmental and economic change.

Accelerating impact investment

In his opening address, Assistant Federal Treasurer, the Honourable. Senator Nick Sherry told forum delegates that investment into social businesses in Australia significantly lagged behind global trends, and he encouraged delegates to work toward accelerating the adoption of impact investing in Australia.

“Governments cannot address all the social problems facing Australians,” said Senator Sherry. He emphasised the Government’s support for the third sector and for social business, and spoke of its desire to create a regulatory environment that stimulates social investment.

Senator Sherry’s comments reflect the rapid change occurring in the philanthropic and investment landscape around the world. Harnessing the capital markets and using investment to address social and environmental problems is increasingly gaining acceptance, as charitable and government capital is deemed insufficient to address global challenges.

It is the new industry of impact investing, rather than philanthropy, that will be the vehicle to mobilise the capital needed to address the many domestic and international challenges. Impact investing helps solve these challenges while generating financial returns for investors.

The industry has taken hold in the United States and Europe over the past decade, with industry pioneers developing investment opportunities in the areas of microfinance, fair trade, community development, social enterprise, global health and clean energy.

An ecosystem to unlock creativity and impact

Pertinent comments also came from Glen Saunders, board member and Treasurer of United Nations Principles for Responsible Investment, and senior advisor to Triodos Bank.

Saunders encouraged Australia to leverage the learnings from overseas to move from its current nascent position to one of leadership. He called for the development of “an ecosystem – a social investment market – to unlock creativity”.

The Investing for Social and Environmental Impact report, issued by the Monitor Institute in early 2009, described the concept of an ecosystem and identified its three critical foundations: efficient intermediation, enabling infrastructure, and absorptive capacity.

Efficient intermediation is required to unlock the supply of capital. Enabling infrastructure is essential to facilitate transactions. Absorptive capacity is crucial to ensure opportunity is created for capital to both flow to and support the development of scalable and sustainable social change.

Saunders highlighted the crucial role of intermediaries between sources of capital and those social businesses which need the capital. He included the international examples of intermediaries such as Charity Bank, Triodos, Oikocredit and New Resource Bank.

“The key is not funds and players, or even structures, but the presence of intermediaries who can bring them all together,” he said.

Comments from the three panels held throughout the day supported the call for intermediaries. Four social businesses – Barefoot Power, GoodStart, Hepburn Community Wind Farm and StrEAT – all spoke about the challenges of raising capital. Investors trailblazing the field of impact investing in Australia highlighted the difficulties of identifying investment opportunities in an efficient manner.

A call to action

Saunders concluded by calling for practical action – as opposed to more reports – to develop social finance intermediaries capable of incubating and accelerating impact investment opportunities by simultaneously growing the supply and demand for capital.

Many, including Senator Sherry, expressed the view that the natural supply of capital in the first instance flows from the nearly $2 billion of assets held by private ancillary funds: trust funds established by individuals, families or businesses as a vehicle for private philanthropy, which have an undeniable charitable and values-based investment mandate. Although it may be more challenging, the ‘holy-grail’ of capital supply would come from unlocking the pool of assets held by the superannuation savings and general funds management industries.

Delegates unanimously supported a call for action: to use the network convened by the forum to catalyse impact investing and to create an ecosystem to support social investment.

The Centre for Social Impact will be producing a report of proceedings and holding a series of follow-on events to continue the momentum of discussions and, more importantly, to drive action.