Impact Investing - Tokenism and words no longer enough

The Australian government has put its toe in the water of impact investing but we’re falling behind countries like the UK and Canada where governments have made significant investments to support the market, writes CCA CEO David Crosbie.

Impact Investing – Tokenism and words no longer enoughPro Bono News, 20 June 2019.

“Globalisation and growing inequality have led to a type of social divide in our societies. Many of our fellow citizens feel that only a minority of individuals and businesses benefit from the economic growth that comes with globalisation. 

“The invisible hand of the market, idealised by some conservative groups, is not up to the task, and leaves too many of our fellow citizens behind, alone and isolated.

“By making massive investments in a form of economy that aims to reduce these inequalities, we are strengthening our social fabric. This aligns perfectly with the political objectives that the government of Canada has been pursuing since being elected. We have always insisted on the importance of building a fairer, more inclusive society.

“With the Social Finance Fund, we – like you – are committed to supporting the development of innovative solutions and want to create favourable conditions to help our communities develop and flourish.”

– Jean-Yves Duclos, minister of families, children and social development, 12 June 2019, Montreal, Canada.

Last week the Canadian government committed over $750 million to supporting impact investing and a further $50 million for investment readiness support. This is a remarkable initiative and certainly a precedent Australia would do well to follow. 

In announcing the new Social Finance Fund, the government highlighted the failure of the economic markets to deliver fairness, and the need for new forms of investment that benefited the community rather than just the owners of a company.

Canadians have identified that 8 per cent of their GDP comes from social purpose organisations. The government is now investing to boost that market, not just for the social impact it delivers, but also for the thousands of new jobs and related economic benefits. The government knows their investment of around $800 million will stimulate a market they estimate to be worth billions of dollars.

The Australian government has put its toe in the water of impact investing, providing $7 million for impact investing readiness grants and allocating $5 million to establishing the Social Impact Investing Expert Panel (chaired by Michael Traill along with deputy chair Amanda Miller). The expert panel will work with Victorian Senator Jane Hume who has a background in the finance sector.

As part of the government’s commitment to impact investing, PM&C have developed a set of principles for impact investing and the role of government. This is the product of their work:

Where the Australian government is involved in social impact investments, it should take into account the following principles:

  1. Government as market enabler and developer.
  2. Value for money.
  3. Robust outcomes-based measurement and evaluation.
  4. Fair Sharing of risk and return.
  5. Outcomes that align with the Australian Government’s policy priorities.
  6. Co-design.

The contrast between the Australian approach to impact investing and the Canadian approach could not be clearer. The Canadian government is fully backing this market because it recognises the benefits. The Australian government is making very small investments and producing some nice sets of words that everyone can agree to. 

When it comes to impact investing, who can disagree with “value for money” or “evaluation” or “fairness” or “co-design”? But so what? Where we fall down is in our practice. 

Australian policy makers tend to be like the gold miner who spends so much time painstakingly pegging out his claim and putting in place all kinds of protections from possible encroachments into his territory that he never actually mines for gold. There is gold to be had in impact investing, but we are fiddling around on the surface.

When CCA launched its report into impacting investing forums held with charity leaders around Australia, we managed to attract quite a bit of media attention. Following one of the radio interviews, I received an email from a potential investor seeking investment options for his multi-million-dollar fund to be able to invest in the charities sector in his state. He was not alone.

It is estimated the Australian impact investing market is already worth over $5 billion and will grow to over $30 billion in the next five years. Everyone involved in the market acknowledges the biggest handbrake on the market is the lack of investment ready options. There are billions of dollars looking for investments in charities, but very few investment ready options are available.

Allocating $7 million to support more charities becoming investment ready is a tiny step forward when Australia could be making giant strides. Seeking advice from experts like Michael Traill and Amanda Miller is great, but we already know the Australian charities sector desperately needs more support to capitalise on this massive market. There are many charities that right now should be talking to intermediaries about their potential to improve their outcomes while increasing their capital base. But there are very few good intermediaries and little support for their role.

Australia is falling behind countries like the UK and Canada where governments have already made significant investments into supporting the market. As the Canadian government minister Duclos said in Montreal last week: “By collaborating and working together, we will boost our efforts to find solutions to the most complex social, economic and environmental challenges of our time. By doing this, we will not only create wealth and jobs for those who need it the most, but also help build a more fair society where every citizen has a real chance to flourish.”

It is time for the Australian government to stop playing word games and engaging in token support for a market that offers billions of dollars of benefits. Why are we waiting?

Read on Pro Bono News: impact-investing-tokenism-and-words-no-longer-enough