Impact Investing Australia has welcomed various state government impact investments announced in recent weeks including a new social impact bond in New South Wales as well as Victoria’s first two social impact bonds and a landmark green bond.
New South Wales announces new Social Impact Bond
New South Wales, a domestic and global impact investing trailblazer, has announced another social impact bond.
The impact investment will support a new program, On Tracc (Transition Reintegration and Community Connection), which will work with up to 3,900 parolees over five years to prevent reoffending and re-incarceration.
A social impact bond (SIB), also known as a social benefit bond, is a type of ‘payment by outcomes’ funding mechanism which engages private capital for the execution of social initiatives. This model promises a financial return to private investors when agreed-upon social outcomes are met.
The NSW Government pioneered Australia’s first two social impact bonds, the Newpin and The Benevolent Society bonds, while also launching Australia’s first whole-of-government impact investment strategy in 2015.
Developed in 2014, and building on a first year return of 7.5 per cent, the $7 million Newpin bond delivered an 8.9 per cent yield to investors in 2015.
As allocating funding for deserving projects becomes harder, governments are increasingly looking to capital markets to take the pressure off already strained budgets.
NAB and the Australian Community Support Organisation are joint investors in the program, highlighting the potential of collaboration between financial services organisations, the community sector and government.
“Prisoner reoffending is a persistent social issue in many countries including Australia. We are seeing that impact investing provides a unique model for tackling this issue,” said CEO of Impact Investing Australia, Daniel Madhavan.
“Through its whole of government policy and innovative transactions, NSW has played a pioneering role in harnessing impact investment and growing the opportunities for private capital to work alongside public and philanthropic funds in delivering measurable positive social outcomes.”
Victoria announces $300 million green bond
The Victorian Government has announced its first green bond for $300 million, becoming the first government in Australia to issue a green bond.
The triple-A rated bond, issued by the Treasury Corporation of Victoria, is the first state or federal government-issued bond anywhere in the world to receive international Climate Bond Certification. This ensures Green Bond proceeds are used in ways consistent with delivering a low-carbon economy.
Snapped up within 24 hours of its release, it accrued 17 diverse investors including insurance companies and funds management firms with a specific green or socially responsible investment (SRI) mandate.
The funds are expected to finance low-carbon public transportation, energy efficiency, renewable energy generation and water treatment projects across the state, through this landmark green bond issuance.
Treasurer Tim Pallas says the Victorian government is delivering on its promise to “making Victoria a leader in action on climate change – with strong renewable energy targets and now diversifying our funding source for key state investments.”
“It’s evident by the strong market demand for these bonds, that they make economic sense – giving investors the confidence of a triple-A rated government security, with the assurance that funds will be used for ethical and environmentally friendly investments.“
Victoria announces two social impact bonds
In the same week, the Victorian government also announced its first two social impact bonds which will tackle the issues of drug and alcohol addiction in young people, and also the supporting of young people transitioning from out-of-home care.
The Victorian government has said these bonds would complement, not replace existing services with the outcomes evaluated and measured though ‘robust systems’, after consultations with the community sector to assess how best to derive right outcomes from social impact bonds.
It joins the NSW Government which has led the way in Australia so far with implementing social impact bonds. Queensland and South Australian Governments have announced pilot programs, while Western Australia and the Federal Government are considering adopting the funding model.
Since the first social impact bond was launched in London 2010, over 60 projects have commenced in 15 countries. More than 21 of them have already reported positive social outcomes and four projects have fully repaid investor capital.