Government sits on social impact report for a year
Leaders in the emerging social impact investing market are frustrated about the lack of action by the federal government, which commissioned an expert taskforce to advise on policy reform only to sit on the final report for more than a year.
Players in the nascent space, which aims to multiply public spending on social services by attracting private capital and focusing on outcomes, say the Morrison government has missed an opportunity to influence standards and direct capital to where the need is greatest.
Canberra’s dragging of the chain comes as interest in the area is surging, as more investors seek not only financial returns but investments that make a positive contribution to society.
“Australia has one of the largest pension systems in the world, huge volumes of private capital, deep-seated social disadvantage, and we also have a worsening fiscal position,” says Richard Brandweiner, chief executive of Pendal Group and chair of Impact Investing Australia, the peak group for the industry.
“The major question is, why isn’t the government looking for opportunity to leverage private sector capital to help solve these social issues?”
Impact investing sees investors aim for social outcomes, such as reduced poverty or disadvantage or better health, in addition to returns.
Most investors are wary of the space due to a lack of standardised data and bespoke and illiquid private market deals, which makes it tough to assess risk and measure ultimate social outcomes, which influence the returns.
The social impact investing taskforce, which was chaired by Michael Traill, the co-founder of Macquarie’s private equity operations and founding CEO of Social Ventures Australia, made several recommendations designed to support the market, by encouraging the government to play a leadership role to reduce such risks.
Traill says he cannot comment on his taskforce’s recommendations given they have not been published. But industry sources who participated in the report say they include a call for an early stage foundation to encourage entrepreneurs and an office in the federal bureaucracy to provide holistic leadership.
Michael Traill, chairman of the social impact investing taskforce: “There has been widespread consultation and strong support around key recommendations.” Louise Kennerley
The flagship recommendation is understood to be the creation of a national impact investment ‘wholesaler’, like Big Society Capital in the UK, to anchor capital and due diligence to support further capital raising from private investors.
Impact Investing Australia, which has advocated for a similar body in Australia for many years, wants the government to commit a minimum of $200 million to the fund to be matched initially by financial institutions.
The report also calls for more outcomes-based funding, which would provide government with an alternative to grant funding for organisations to deliver social services. The recommendations could be applied to management of the aged care, mental health, disability, social housing and education sectors.
In a year-long review, the taskforce, which was set up by the Department of the Prime Minster and Cabinet (PMC) in 2019, consulted more than 140 organisations and all levels of government. The Australian Council Social Services and Business Council of Australia are broadly supportive of the recommendations.
Rosemary Addis, who has represented Australia on the Global Steering Group for Impact Investment and the G8 Social Impact Investing Taskforce, said the lack of government leadership in recent years has slowed down development of the local market, including benchmarking and building investor awareness.
“There hasn’t yet been the coordinated and sustained effort needed to drive the potential of this market to scale,” she says.
Rosemary Addis, co-founder of Impact Investing Australia: “Releasing the report is one thing, but what people are really looking for is action and delivery.” Jesse Marlow
“Just at the time when urgency is crystallising, government has taken its foot off the pedal. We need government to be embracing its role as a market builder. Releasing the [Traill taskforce] report is one thing but what people are really looking for is action and delivery,” says Addis, who also co-founded Impact Investing Australia.
Without a wholesaler in the market, “the government will miss the opportunity to direct some of that capital to where it is really needed and to get better value from the public dollar by leveraging it both in terms of the additional capital and the impact it can achieve,” she says. “The government is not building the muscle and helping the market do these things well, in a way that Australia can set what the framework looks like rather than responding to it being set elsewhere.”
Loss of momentum
The decision by PMC not to publish, let alone respond, to the taskforce report – which was delivered to government at the end of 2020 – contrasts with momentum that built up behind social impact investing in 2018 and 2019.
The financial system inquiry in 2014 called for the government to play a “catalytic role”, which kicked off a 2017 discussion paper that saw the government engage with the states and Treasury develop a set of high-level principles for guiding its involvement in the market. There was some funding in the 2017-18 budget, then Traill’s Social Impact Investing Taskforce was announced in the 2019-20 budget.
Traill says there was “widespread consultation and is strong support around key recommendations for ‘three pillars’ flagged in the interim report [published in January 2020] that have the capacity to transform the impact investing market”.
Ecostone co-founder Daniel Madhavan: “The federal government is missing the opportunity to shape the development of the impact investing market.” Elke Meitzel
“Part of the extensive consultation process involved detailed dialogue with foundations, financial institutions and impact investors which reinforced their appetite and prospective commitment to appropriately matching government investment across the three pillars,” he says.
The “three pillars” are: an early stage foundation to support entrepreneurs; the impact investing “wholesaler”; and more outcomes-based government funding.
Traill along with fellow taskforce members Danny Gilbert, Amanda Miller and Sally McCutchan will join the board of Impact Investing Australia, to continue to advocate for the policy changes.
Others in the sector say while the sector is growing, the federal government’s voice is missing which contrasts to a growing number of countries.
“The federal government is missing the opportunity to shape the development of the impact investing market with a more deliberate focus on public outcomes,” says Dan Madhavan, co-founder of Ecotone Partners.
Richard Brandweiner, chairman of Impact Investing Australia: “Why isn’t the government looking for opportunity to leverage private sector capital to help solve these issues?” Peter Braig
“Foundation stones are being laid without government as an active participant and this is a missed opportunity for the country. Despite almost three years without the delivery we had hoped for, the window for government action remains open and the opportunity remains live.”
Wholesalers have been created in other markets including Japan, South Korea and Canada. In the UK, Big Society Capital has played a huge role creating partnerships between government, investors and social enterprises.
Big Society Capital has unlocked 1.7 billion ($3.2 billion) of capital for impact investing since it was established in 2012 and helped bring 50,000 people into employment, 26,000 people move into suitable housing, 6700 children access to childcare and 255,000 people receiving online support for mental health.
“That’s the frustrating bit, the British government can see it clearly and has taken huge steps to leverage private capital to solve social problems,” Brandweiner says.
“The government is missing an opportunity. It is not clear to what extent it thinks this is important policy to take to the election, but we encourage the government to publish the report, and act on the recommendations to better leverage private sector capital to make a positive difference in this country.”
The recommendations in the report will help unlock superannuation fund capital to support the social sector. “We still haven’t been able to unlock mainstream institutional capital and the role of the wholesaler will be to help facilitate that,” Brandweiner says.
“There is a lot of interest in the space and funds being raised, but the huge opportunity is mainstream institutional capital.”
Article from The Australian Financial Review, 13 January 2022, by JAMES EYERS, Senior Reporter