Australia’s Financial System Inquiry has highlighted the potential of impact investing to fund social service delivery and the need to develop impact investing in Australia.

In its final report released on Sunday 7 December, the Financial System Inquiry has included impact investment among significant matters for consideration by Government in order to foster an efficient, competitive and flexible financial system.

Specifically, the Inquiry advises the Australian Government to:

  • Explore ways to facilitate development of the impact investing market and encourage innovation in funding social service delivery
  • Provide guidance to superannuation trustees on the appropriateness of impact investment
  • Support law reform to classify a private ancillary fund as a ‘sophisticated’ or ‘professional’ investor, where the founder of the fund meets those definitions.

The Inquiry report says “impact investing has the potential to benefit government and taxpayers by reducing costs and improving social policy outcomes. It can change the role of Government from paying for inputs to paying for outcomes. It can also benefit not-for-profits by diversifying their funding sources and helping them to develop technical expertise in benchmarking and measuring outcomes, as well as improving governance and accountability.”

“Government intervention can play a catalytic role both in facilitating the functioning of the ecosystem and targeting actions to trigger its further development. However, these actions should provide incentives for the engagement, not the replacement of the private sector and should be conducted in a manner conducive of the market”.

“The Inquiry sees merit in Government facilitating the impact investment market. Government’s involvement should include coordinating interested private sector parties, providing expertise on social service delivery and performance measurement, and offering explicit public endorsement for the significant private sector interest in this emerging market.”

The Inquiry was announced in December 2013, specifically charged with examining how the financial system could be positioned to best meet Australia’s evolving needs and support Australia’s economic growth.

The Treasurer Joe Hockey has announced a consultation period up until 31 March 2015 before making any decisions on the Inquiry’s recommendations.

To view Impact Investing Australia’s submission to the Financial Services Inquiry, click here.