NSW Office of Social Impact Investment
NSW has been a trailblazer nationally and globally in impact investing, pioneering Australia’s first two social impact bonds and launching Australia’s first whole-of-government impact investment strategy in 2015. We spoke with Kirrin Winning, Director of the NSW Office of Social Impact Investment about the importance of government leadership in growing the opportunities for impact investing.
1. What are the fundamental drivers for NSW in pursuing impact investing and adopting a whole-of-government approach?
NSW has been exploring impact investing since 2010. The launch of our social benefit bonds in 2013 generated a lot of interest and goodwill, so it was only natural for us to start thinking about opportunities in other areas to build on that momentum. The NSW Government launched the Social Impact Investment Policy in February 2015. At the same time, it established the Office of Social Impact Investment, a joint Treasury-Premier and Cabinet team, to lead implementation of the policy. We work closely with other agencies and market stakeholders to grow impact investing in NSW and Australia. Impact investing is still a reasonably new area, but it is one that potentially can be applied to a range of policy problems. For that reason, it makes sense for us to take a whole of government approach. We want to learn as we go, and be able to share and apply those lessons – not just for the next investments but also for how government does business more broadly.
Fundamentally, I think impact investing offers opportunities to drive better outcomes for communities in NSW. It has such a strong focus on measuring and paying for outcomes, and on developing strong partnerships that can share the risks and benefits of service delivery. At the same time, there’s greater freedom for service providers to deliver services how they want to, instead of government telling them how it should be done. This is a different way of doing things and, hopefully, will help us shift outcomes in the right direction.
2. NSW has recognised the multi-faceted role government needs to play as both an impact investment market enabler and market facilitator. Can you explain how this has taken shape for you, and what you’ve learnt so far?
Impact investing is developing in Australia. I think it’s fair to say that it’s still early days for the market. There is a lot to learn and quite a bit of awareness raising and capability building needed. That is on top of actually putting more deals together and providing more investment opportunities so the market can grow. Our Social Impact Investment Policy includes actions that position the Government as both a market participant and facilitator.
As a participant, the Government has committed to bringing two investments to market each year. To fulfil this commitment, we regularly request social impact investment proposals. We signal our interest in priority areas through a periodic Statement of Opportunities and comprehensively consult on them through our market sounding events. While our requests for proposals (RFPs) may identify priority areas, they are open to ideas from any policy area. We have learned a lot through the two RFPs held last year, and we have published these lessons on our website. A key lesson in all of this has been a need for ongoing capability building. In this area, we act more as a market facilitator.
One of our flagship initiatives has been the Expert Advice Exchange (EAX), which connects eligible social sector organisations with pro bono expert advice from leading law firms, professional services firms and financial institutions. We have held three application rounds since April 2015, connecting 77 NGOs with participating advisory firms that provided nearly 1,400 hours of advice in the first two rounds. Connections resulting from the third round will commence shortly. Over time, we hope that these initial connections lead to lasting relationships between the private and non-profit sectors.
As a result of the strong demand for advice through the EAX, some of our advisory firms have used their pro bono hours to develop introductory information packages to support NGOs in areas like governance, intellectual property, and changing legal structure.
We also recently redeveloped our website to make it easier to find information and resources on social impact investing. Some of these resources include a suite of standard form legal documents for use in investments with the NSW Government and a technical guide on outcomes measurement.
3. Much of the recent interest in impact investing has focused on social impact bonds. What other models and kinds of impact investments does NSW see potential in for tackling social or environmental issues?
Social impact bonds are probably the best well-known impact investing model and the one that we get asked about most. SIBs are a lot of work and I’d say they sit at the more complex end of impact investing. In our work, we talk about impact investing models falling on a spectrum and try to highlight other models to illustrate the options that are available. We are interested in simpler payment by results or outcomes-based contracts, where service providers invest in their own program and take on some risk for achieving pre-agreed outcomes. And we are open to combining different types of capital in innovative ways, as with layered investments and pooled investments. We don’t want to limit ourselves to bonds and we encourage ideas that look to creatively share the risks and rewards of service delivery.
4. What do you see as some of the barriers to realising the potential of impact investing, and what role is there for governments in addressing these barriers?
We are constantly told that the dearth of deals in Australia is not due to a lack of investment capital, but because there are few investment-ready opportunities. One of the barriers is that lack of investment pipeline and forward planning so investors can see what’s coming next. We’ve tried to address some of that uncertainty with our commitment for two investments a year, but in the grand scheme of things, the market needs more than one government working on this.
I think there is a need for the intermediary sector to grow and strengthen so those connections between for-purpose organisations and investors can occur more often. More intermediaries would also help build capability and capacity in the non-government sectors.
Improving data quality and outcomes measurement could also make a big difference. The truth is that it’s hard to measure outcomes in some of the areas that we’re trying to tackle. When we’re talking about children being happy and healthy in their families, or improving quality of life, or building self-esteem – it’s not easy to measure these.
Finding proxy outcomes can help bridge the gap but we need to make sure that these are closely aligned to the higher order outcomes being pursued. I think a shift is already underway in governments around Australia and the world is moving from inputs and activities to outputs and outcomes – but there is still a way to go.
5. How important is data to impact investment and how do you see the role of government in making data available to the market?
In impact investing, measurement is so important and good measurement requires good data. The social benefit bonds have brought so much rigour to collecting and analysing data, which has given us more confidence in the outcomes we are reporting. It has also had unexpected ripple effects, both in the Department of Family and Community Services and our bond partners, Uniting and The Benevolent Society.
Governments hold a lot of data, though I’ll admit, the quality can be variable. There is a lot of work underway to facilitate both better quality data and better access to that data. For example, the Government recently established the Data Analytics Centre in the Department of Finance, Services and Innovation to help maximize the value of government-held data. Part of their work will be to help make more data publicly available, taking into account privacy and security concerns.
We are also working on a unit cost database that will provide the unit costs of selected government services or activities in a range of policy areas. We are hoping to publish it later this year so that proponents will be able to have confidence that we will accept their initial modelling where our unit costs have been used.
I think that as we develop more investments, it will push us to improve our data collections and to look at new ways to use data we already have.
6. Are there things that investors and the community sector can do to increase government involvement in impact investing?
A lot of governments around Australia are already involved in impact investing. South Australia and Queensland are commissioning or negotiating investments at the moment, and the Victorian Government recently signaled its intent to go to market for a social impact bond. We’ve been talking to other governments as well who are in the early stages of exploring opportunities in their jurisdictions.
I think it’s also important to note that not all impact investing needs governments as direct participants. We don’t need to be involved in everything. Plenty of investments are being made without direct government involvement and usually, they are less complex.
Interested investors and community organisations should continue to learn as much as they can about impact investing and communicate their interest in participating to governments. They should also continue to participate in discussions that explore what roles governments should have in this market – both direct and indirect. We don’t have all the answers and the Office is always interested in the views of market stakeholders.