Investing in social change

Perpetual

The emerging field of 'impact investing', which aims to generate both positive social change and financial returns, has the potential to transform the philanthropic and not-for-profit sectors in coming years.

Impact investing enables enterprise, governments and not-for-profits to generate greater financial resources to leverage positive social change; for investors it provides the opportunity to make a positive contribution to society and may also provide positive financial returns.

A new report 'Benchmarking Impact', by Impact Investing Australia, shows that impact investment initiatives launched in recent years have demonstrated positive outcomes on both fronts. Impact Investing Australia was established in 2014 and is supported by key sector participants, including Perpetual, to promote the concept and develop the market.

The 15 Australian impact investment products surveyed in the report are valued at over A$1 billion, and cover a broad range of societal objectives, from environmental initiatives such as wind farm financing to empowerment programs for the disadvantaged, ranging from disability support to mental health services.

The Chief Executive Officer of Impact Investing Australia, Daniel Madhavan says that impact investing is being driven by the need for greater scale and innovation in addressing pressing societal issues.

“Impact investing provides an enormous opportunity to transform the way we use capital and investment to enable more effective and innovative solutions to face up to our social and environmental challenges,” says Daniel.

IMPACTDaniel Madhavan, CEO of Impact Investing Australia

“Economies face growing gaps between societal needs and the ability to pay for them. Governments and philanthropy alone can’t deliver a prosperous and sustainable society and a healthy economy. We need different ways of doing business.”

The report also highlights the diversity of impact investment approaches available to investors wishing to align their portfolios with their community and ethical investment interests.

 

Social Impact Bonds

A powerful way to approach impact investing is through social impact or social benefit bonds. These bonds are a form of finance designed to raise capital from private investors for programs that address social needs. If outcomes are achieved, government costs savings are used to repay investments plus a dividend.

 

The Benevolent Society has been involved in a number of impact investments, including Social Benefit Bonds and social enterprise development, which have provided positive financial and social returns. Perpetual acted as Trustee for these instruments.

Perpetual's National Manager Not for Profit Endowments, Scott Hawker, says the outcomes shown in the report are very encouraging for the future of these kinds of initiatives.

"It's early days in Australia, but it certainly shows the concept can work, both for not-for-profits to help them fund their programs, but also for a broad range of investors, including philanthropic foundations, super funds and private investors wanting to make a positive social impact.

"It encourages and amplifies private capital to help community organisations fund vital social programs, while enabling no- for-profits to upscale their initiatives for a much wider impact. There is already a strong track record overseas for this sort of investment and it's great that we are starting to build strong expertise and experience in Australia."

Scott says it is vitally important for investors, as well as not for profits looking to raise money this way to leverage their potential, to be clear about their objectives, both social and financial.

"There is no reason why this sort of investment can't be included in many portfolios, but it needs to be carefully considered and clearly articulated in investment guidelines and strategy. It is a broad and rapidly emerging field.

"Australia is ripe for greater investment into this area with the philanthropic sector in particular ready to lead the way."

Caitriona Fay, Perpetual’s National Manager Philanthropy and Non-Profit Services, says that philanthropists are increasingly looking to use their capital in line with their approach to their grant making. “We’re increasingly seeing a move from philanthropists who want to ensure that the social and financial investments of their foundations are aligned. That means both the provision of an ethical overlay as well as opportunities to proactively use their capital to support social and environmental investments.”

Scott agrees but doesn’t think that impact investments need to be limited to philanthropists; super funds and corporate trusts are setting aside funds for social impact as well. QBE, for example, has earmarked over A$100 million for social impact bond investment – and has found it a slow and difficult process to deploy into this emerging market.

"Many investors already pursue responsible investing, incorporating environmental, social and governance factors which screen out negative investments. This is taking that a whole step further and looking at investing to effect positive social change," Scott says.

As charities and not-for-profits have a significant opportunity to develop alternative sources of finance by tapping the social impact financing market, so  Investors and philanthropists have the opportunity to amplify their invaluable commitments to their chosen cause – or to make a positive decision to invest only in “social added value” through the impact investment market.

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Perpetual’s Philanthropic Services are provided Perpetual Trustee Company Limited (PTCo), ABN 42 000 001 007, AFSL 236643. This publication has been prepared by PTCo and contains information contributed by third parties. It contains general information only and is not intended to provide you with advice or take into account your personal objectives, financial situation or needs. The information is believed to be accurate at the time of compilation and is provided by PTCo in good faith. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. PTCo does not warrant the accuracy or completeness of any wording in this document which was contributed by a third party.