Coalition budget commits $20m to study and stimulate social impact investing

By Stephen Easton

Thursday April 11, 2019

Michael Trail, chair of the PM&C Social Impact Investing expert advisory panel.

The Department of the Prime Minister and Cabinet scored $5 million in last week’s budget to consider how the Commonwealth can encourage private investment in positive social outcomes, and the government has appointed two social impact investing gurus to advise them.

The funding is to support a new Social Impact Investing Taskforce in PM&C. According to the Coalition’s proposed 2019-20 budget:

“Building on work already undertaken, the taskforce will develop the next stage of a strategy for the Commonwealth’s role in the market, leveraging international, private sector and state and territory government experience to identify a way forward for the Commonwealth’s social impact investments, including how these investments can provide solutions for entrenched disadvantage.”

Michael Traill (pictured), chair of the Social Ventures Australia leadership council and the organisation’s founding chief executive, will chair an expert panel to advise the taskforce. The deputy chair is Amanda Miller, who co-founded the company Impact Generation Partners and is a member of the Philanthropy Australia council.

The idea of marshalling private investment behind outcomes governments are expected to achieve is tantalising, but the challenge is finding efficient and reliable mechanisms that provide good social returns on public resources put into them. Various efforts to combine public and private resources in this way, often called social impact bonds, have had mixed success in terms of achieving outcomes that are consistently as good or better than simpler public service funding models, in terms of quality, reliability and overall cost to the public purse.

Social Ventures Australia has just finalised the sale of its fifth set of social impact bonds, with investors lending a combined $5 million to support Sticking Together, a program that aims to address youth unemployment in New South Wales. It is run by a not-for-profit service provider under a payment-for-outcomes arrangement with the NSW Department of Planning and Industry.

The potential returns to investors depend on goals being met — in this case related to the number of hours participants spend in paid work or “work-like activities” — and are theoretically offset by long-term savings to government.

Traill spent 15 years as executive director of Macquarie Direct Investment, the banking group’s private equity management subsidiary which he co-founded, and now sits on a range of boards including as chair of Goodstart Early Learning.

“I am excited about the opportunity for the expert panel to develop the kind of practical recommendations that can accelerate growth broadly in the impact investing market,” he said in a statement from the government.

“Working with government to develop smart policy and enabling mechanisms will be a key part of this. While the market has continued to evolve, there is in particular the potential for developing larger scale impact investments that appeal to major institutional funders which has the capacity to transform the size of the market.”

Read more: Social impact investing ‘promising’ — but beware the risks

Miller said government had a “critical role to play in nurturing and building the social impact investing market” in Australia. “This will build on the significant work already being done in this space, both in Australia and globally, to create an ecosystem that encourages and enables the investment of capital into enterprises and initiatives that are solving pressing social issues, and generating measurable social outcomes as well as financial returns,” she added.

Previous social impact initiatives at Commonwealth level include specific trials and a discussion paper in 2017, which led to a $30m commitment over 10 years and a set of six principles to define the federal government’s role in the market, and further funding the following year.

Senator Jane Hume, chair of the upper house Economics Committee, will assist the government in assembling the PM&C taskforce and coming up with its exact marching orders. Broadly, it will be asked to “take into account international, private sector and government experience” and pay particular attention to the approach taken by the United Kingdom government in 2013.

In the UK, a similar group of “government officials and senior figures from the worlds of finance, business and philanthropy from across the G8 countries” was asked to “catalyse” growth in the UK’s social impact investment market. Led by social-impact investing proponent Sir Ronald Cohen, it reported in 2014 and later morphed into the independent Global Steering Group for Impact Investment.

According to a joint statement from Senator Hume and the Minister for Families and Social Services, Paul Fletcher, the social impact investment market in Australia grew from $1.2 billion in mid-2015 to about $5.8 billion at the end of 2017. Globally, however, there is about $700 billion in the market and only 1% of it is in the Oceania region, according to a new report billed as “the first rigorous analysis and estimate of the size of the impact investing market” by its authors at the Global Impact Investing Network.

Amit Bouri, co-founder and CEO of the GIIN, points out it’s equally important that investors are “committed to driving intentional and measurable impact” and promises the organisation will work towards supporting “scale with integrity” in the next three years.

The new funding commitments did not arouse widespread interest in early budget responses, although one immediate positive reaction came from the investor side of the equation: the money “answers the banking industry’s call” according to the Australian Banking Association, which is no doubt very keen to rebuild public trust after the Hayne Royal Commission.

“Addressing entrenched disadvantage will not only lift individuals out of poverty but its benefits will also be felt across the economy,” said ABA chief and former Queensland Premier Anna Bligh. “Banks look forward to playing their part in this new policy area to ensure it’s a success in achieving its goals.”

Millions more for new trials

On top of the $5m for the PM&C taskforce, the proposed budget for 2019-20 also commits $14.1 million over five years to three more social impact investment trials.

“The trials will be of payment-by-outcome arrangements for initiatives that increase the workforce participation of people who receive income support payments and strengthen the wellbeing and self-reliance of families with children,” according to the budget papers.

Separately, the federal government has also allocated a $500,000 grant from the Indigenous Australians’ Health Programme to a feasibility study, looking at a specific proposal to use social impact investment to make life better in the north Queensland Aboriginal community of Yarrabah, near Cairns.

Indigenous Health Minister Ken Wyatt said the study would assess “strategies, required investment and governance arrangements” for what sounds like a highly ambitious proposal:

“Strategies to improve health, housing, employment, infrastructure, economic development, education and legal practices as well as support programs for community members to use upgraded services will make up the comprehensive approach to positively develop the Yarrabah community.”

The proponent is a consortium whose members include Yarrabah Aboriginal Shire Council and Melbourne Business School, through its Murra Indigenous Business Masterclass program and the Asia Pacific Social Impact Centre, as well as management consultancy WD Scott Global and healthcare technology company BroadReach.

The feasibility study is to report on whether their pitch is realistic by the end of 2019.

About the author
Inline Feedbacks
View all comments
The Mandarin Premium

Insights & analysis that matter to you

Subscribe for only $5 a week

Get Premium Today