Impact Investing Rosemary Addis Social Impact Investment Taskforce - - PowerPoint PPT Presentation

SLIDE 1

Australian Ecosystem Overview: Impact Investing

Rosemary Addis Social Impact Investment Taskforce June 2014

SLIDE 2

Rosemary Addis (Chair) Exec Director Impact Strategist; Co- founder Impact Investing Australia, Senior Fellow Impact Investing Policy Collaborative; Member NSW Social Investment Expert Advisory Group Sandy Blackburn‐Wright Exec Director Impact Strategist; Co‐founder Impact Investing Australia; Social Investment Fellow Centre for Social Impact Richard Brandweiner Director of Investments First State Super; Chair Chartered Financial Analysts Australia David Crosbie CEO Community Council Australia Stephen Dunne Managing Director AMP Capital Stephen Fitzgerald Board of Governors, Future Fund; NSW Social Investment Expert Advisory Group Carolyn Hewson AO* Member Financial System Inquiry, Non‐Executive Director including BHP Billiton, BT Investment Management

* On leave for duration of the Financial System Inquiry 2014

Steve Lambert Executive General Manager Debt Markets, Products & Markets, National Australia Bank Paul Peters GVP Capital Advisers Carol Schwartz AM Trawalla Foundation; Chair Our Community; Women’s Leadership Institute; Non‐executive Director (various) Paul Steele CEO Donkey Wheel; Co-founder The Difference Incubator Peter Shergold AC Chancellor University of Western Sydney; Chair NSW Social Investment Expert Advisory Group, Member Prime Minister’s Indigenous Advisory Council Christopher Thorn Partner Philanthropic Services & Social Investment Evans & Partners; Founder & Chair Share Gift Australia Michael Traill AM CEO, Social Ventures Australia

The Australian National Advisory Board

SLIDE 3

Australian Context: Snapshot of the “Lucky Country”

 Australia is a Federation, with 3 levels of government  Population less than 25 million  On the doorstep of Asia; changing regional dynamics  Relative wealth has grown in recent decades  Pockets of significant and entrenched disadvantage: indigenous Australians, long- term unemployed  People experiencing disadvantage increasingly being left further behind

SLIDE 4

Australian Context: Snapshot of the “Lucky Country”

 Economy in transition due to range of factors including changing terms of trade and structural adjustment  Real GDP (and real GDP per capita) growth rates forecast to fall between 2010 and 2050  Over decade to 2012-13 government spending grew by 45.2% (3.8% annually) compared with GDP growth of 34.3% (3.0% annually)  Welfare and health key pressure points expected to reach combined 52% Federal budget by 2018  Over past decade, welfare costs up 34%; health costs up 76%  Recent cuts in government spending announced in Federal Budget 2014 - translates to reduced funding for social services  Estimated ~A$54 billion year on year gap between current service provision and demand by 2025

Sources: APH, Budget 2012-2013; Grattan Institute, 2014; Australian Federal Budget May 2014; Oxford Economics; Australian Treasury Intergenerational Report 2010

SLIDE 5

Australian Context: Snapshot of the Market

Relative to other countries, Australia has:

 Concentrated banking sector:

 4 large domestic banks represent ~80% of market share (2012)  Few intermediaries providing community finance

 Large pool of institutional capital:

 National, compulsory retirement contributions at 9%, due

to rise to 12% of pre-tax wages

 Pension funds: ~A$1.8 trillion 2013, projected to rise to

~$4.2 - $5 trillion by 2025

 Most institutions UN PRI Signatories but limited pools in

responsible or ethical funds (~16% or A$152 billion)

 Approx. 10% of this is in socially responsible and ethical

investment (~1.6% or A$15.2 billion)  Particular strengths in infrastructure  Less traction with venture capital & entrepreneurship

Sources: Responsible Investment Australasia Benchmark Report 2013; ASFA 2014; DEEWR & PMC Submission to Senate Economics Committee; field research for IMPACT-Australia: Investment for Social & Economic Benefit (2013);Senate Economics references Committee Enquiry into Post GFC Banking

SLIDE 6

Australian Context: Philanthropic Sector

Relative to other countries, Australia has:

 Small but growing philanthropic sector:

 ~5,000 philanthropic organisations give A$600 million - A$1 billion

per year

 Estimated ~A$30 billion in philanthropic funds  Recent growth driven by private wealth; ~A$2 billion in private

ancillary funds

 No structured provision for mission or program related investment  Limited tax incentives and constraints on where some foundations

can make grants  Strong spirit of generosity

 Total $11 billion estimated to be given by Australians (2005);

$7.7 billion by individuals, $3.3 billion by businesses

 Strong response to crises: $300 million donated in response

to December 2004 tsunami

Sources: Giving Australia 2005; Productivity Commission 2010

SLIDE 7

Australian Context: Social and “for Purpose” Sector

Relative to other countries, Australia has:

 Rich history of co-operatives & mutuals

 Member-owned co-operatives & mutuals

combined annual turnover ~A$17.8 billion (2012)

 Many demutualised in last 20 years

 Diverse and economically significant social sector

 ~60,000+ not for profit organisations contributing

$43 billion (4.1%) GDP, and 8% employment (2006- 07)

 ~20,000 social enterprises in range of industries

(2010), although data is limited

 Significant direct government funding for services

 ~A$25.5 billion pa (in 2007), which was increase

from $10.1 billion in 2000

Sources: Giving Australia 2005; Productivity Commission 2010

SLIDE 8

Impact Investing in Australia: Introduction

 Impact investing is occurring and gaining interest and attention  Rising awareness and activity across sectors, though not clearly led from either government or market  Transactions demonstrate innovation, impact, diversity, and some scale; examples across market segments  Government action has been limited, but important; current policy interest driven from the States.  Capability, including collaboration and brokering new generation public private partnerships needs building  Market still in early stages of marketplace building  Significant potential, including beyond domestic market and strong foundations to build on

• Imperative to translate interest to action & fragmented

activity to more coherent practice

SLIDE 9

Impact Investing in Australia: Flagships

Impact funds and private equity created social enterprise at scale Microfinance & micro-insurance from Australia Impact funds – Social enterprise finance Affordable housing (to 2014) Safe & affordable power alternatives Social Benefit Bonds:

• ut of home care

SLIDE 10

Data strength in government and related institutions such as Productivity Commission Focus through not for profit reform and early deals on developing impact metrics Talent pipeline building to develop the sector and return with international experience Network strengths strong personal networks backbone of leadership in Australia Capital Availability of funds not a constraint, incl. long term savings pool governed by fiduciaries; institutions strong & economically significant Credit enhancement Early products provide strong examples of credit enhancement & risk reduction strategies Product development & innovation capability & Australian examples scalable in design Significant latent demand socially oriented

• rganisations and communities will need range
• f financing options to support their work

Supply Demand Intermediaries Ecosystem Measurement Leadership

Impact Investing in Australia: Levers & Strengths

Prudential system & regulation strong Government & policy directed to impact investment has been catalytic Other fields provide strong precedents eg infrastructure History of community and cooperative enterprise Field growing Early adopters have track record and have attracted investment

Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014

SLIDE 11

Measurement systems allowing comparisons between investments, is lacking Benchmarking data required to enable investors to source and make useful comparisons on completed or prospective transactions Leadership required to develop beyond disparate activities and personal networks, into critical mass Capability Attracting talented people requires entry points, skill enhancement and career path Barriers to entry Lack of available products and high transaction costs Risk-return Insufficient information and understanding of risk and return for products is a barrier to take-up Product development not yet delivering spectrum of quality investable propositions Capacity building for entrepreneurs and non- profits to make ideas and initiatives investable is lacking Supply Demand More and better intermediation with scale, depth, diversity and reach needed Aggregation and/or clearing capacity required to reduce inefficiencies and improve economies

• f scale

Education Awareness of context, track record, potential, and practical entry points, remains low Policy focus and targeted initiatives to catalyse the market, remove barriers and encourage participation lacking Intermediaries Ecosystem Measurement Leadership

Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014

Impact Investing in Australia: Challenges

SLIDE 12

Impact Investing in Australia

Will it create significant changes in impact investing practice or opportunities that will drive a step change in the field? Does it create more opportunity for and remove barriers to more participants to be active and mobilise capital and demand in ways that clearly demonstrate potential and “prime the pump” for pipeline? Does it drive toward practical delivery and identify clear and actionable steps for effective action or solutions?

Ambitious & Catalytic Enabling Broad Based Focused on Doing & Delivery

Will it garner support from across sectors and political orientations, rather than narrowly tailored to a given industry or ideology?

SLIDE 13

Building Blocks of the Australian Strategy

Drive deal flow Expand catalytic capital & remove barriers

Leadership dedicated

focus, identity & narrative  Australian Advisory Board meet industry identified need for leadership  Galvanise action with sense of urgency to seize opportunity for Australia to be significant contributor  Create a clear narrative, socialised through strategic communications plan  Set aspirational, grounded 5 year target for impact assets with strategic roadmap for implementation  Demonstrate strength of interest and appetite across sectors, backed up with capital  Encourage allocations from institutions  Enable doing and delivery through feasibility, prototyping and incubation of transactions  Build from industry strengths, e.g. infrastructure  Stress test products targeting latent demand e.g. social sector  Platform of expertise, including sources of funding, investment models, project supply, and measurement  Build bottom up data and surveys to measure industry growth  Create meaningful engagement with government and regulators on priorities  Target value add for government including social issues that are pressure points  Identify quick wins linked to priorities  Build economic case for tax incentives & catalytic capital  Seek central contact point in governments for social impact investment activities, and links to and between them

Policy

Engagement, education & clear priorities

SLIDE 14

Impact Investing in Australia: Priority Outcomes and Actions

Educate and Mobilise Capital Drive Deal Flow Set Aspirational Goals Develop Universe of Investable Products and Enterprises Practical Delivery short term

 5 year target for impact assets  Social Investment Bank/ Fund > A$350m, to catalyse SIBs, social infrastructure and entrprise  Benchmarks for % allocations  5 year target for number

• f deals and funds

 Robust metrics and performance data for key social issue and service areas  Clearing House/ Exchange  Measurable change in awareness & appetite of advisers/ gatekeepers  More & better intermediation  Multi-disciplinary teams undertake feasibility  Mobilise latent demand  Guidance on fiduciary requirements & structures  Platform for case studies, tools and what works  Design to build product existing asset categories

• eg. infrastructure,

government credit, fixed interest  Investment & contract readiness fund >A$20m  Demonstrate strength of interest and appetite from across sectors  Allocations from key institutions  Mission & program related investments

SLIDE 15

Impact Investing in Australia: Engaging Government

Policy Initiatives Practical Actions

Catalytic capital, drive impact deal flow Expand reach of programmes to boost impact Improve metrics to support mainstream adoption Build ecosystem & impact enterprise capacity Remove barriers; enhance supporting regulation, guidance

 Reorient budget based

funding to catalytic capital

 Initiate impact funds,

toward Social Impact Bank/Fund

 Expand range of funding

and financing options for social policy

 Enable mission & program

related investment

 Support and enable

intermediaries, including CDFIs

 Mobilise local government  Improve & evolve

procurement & commissioning with focus on outcomes & quality

 Extend

entrepreneurship support to social entrepreneurs

 Develop

international development investment strategy

 Focus data and metrics

• n outcomes & impact

 Review and publish

existing costs for social issues and what they measure

 Increase disclosure

requirements for institutions to include positive screening

 Educate and

increase capacity from policy makers, public service, community sector and investors

 Develop model

budget treatments and agreements for social impact bonds and impact funds

 Enable platforms

for expertise, excellence and evidence

 Review & simplify

regulation to promote enterprise and intermediation

 Review constraints on

deployment of philanthropic capital

 Conduct study of

efficient, targeted tax incentives to promote impact investment

 Review barriers to entry

for CDFIs

 Encourage reorientation

eg OMB memo

 Guidance for funding

and financing tools for social policy

 Guidance for fiduciaries  Promote CDFIs and

product

 Incentivise State and

Local government action

 Centralised expert

hub for impact investment

 Outcomes based

commissioning

 Cross agency & inter-

governmental support & secondments

 Refresh guidance for

fiduciaries and trustees

 Support , create, and

systematise metrics and measures

 Share evidence and

lessons where results based funding is already utilised

 Lead by example with

• pen data sharing and

transparency

 Use “bully pulpit” to

good effect

 Reward policy

entrepreneurs

 Create a central

contact point in government

SLIDE 16

Impact Investing in Australia: Market Potential 2018

 Limited bottom up data, hence estimates made top down  Estimates based on US and UK market growth rates (assuming lag of ~two years) and accounting for relative size of capital and charity markets, as well as projected impact investment growth  Tested against what potential sources of capital would need to be mobilised over that period and sources from it could reasonably be expected to come in the Australian market  By 2018: cumulative total of ~>A$3 billion, new annual impact investments of ~A$500 million

Estimated potential for cumulative impact assets 2018 ~>A$3 billion

Source: IMPACT – Australia Appendix 4, and analysis courtesy John Mcleod 2014

SLIDE 17

Impact Investment in Australia: Where Will Growth Come From

Di Disabil ilit ity

A$6.9 billion (2011-12)

Ear arly ly Chi Child ldhoo

• od

A$5 billion (2011-12) Af Affor

• rdable

le Ho Housin using A$3.9 billion (2011-12) Ag Aged ed Car Care A$12.9 billion (2011-12)

A number of social issues stand out for scale of need and spending

Hea ealth & & Hosp

• spitals

A$97.8 billion (2011-12) Indi ndigenous pr prog

• grams

A$3.5 billion (2011-12)

Source: Review of Government Services 2014, Australian Institute for Health and Welfare

Une nemployment A$6.1 billion (2010-11)

SLIDE 18

Impact Investment in Australia: Where Will Growth Come From

New Market Opportunities

 Significant budget changes and structural adjustment means changing needs  A$8.8 billion of capital investments (2006-07) 61% funded from operating surplus  Potential for bond market or other aggregation

Social Sector Finance Focus on Place & Community Infrastructure

 Disadvantage has a postcode in Australia with persistent & concentrated joblessness  Australian communities need infrastructure, economic dynamism & jobs  That includes soft infrastructure of shared services & infrastructure for human capital, the engine of productivity

Outcomes Based Contracting

 Government outsourced ~>A$25 billion to the social sector (2007; new data due 2014)  Little currently oriented to outcomes  Growing interest in Social Impact Bonds  @ 1% of (2007) outsourced funding potential ~A$250 million; at 10% ~A$2.5 billion

SLIDE 19

Impact Investment in Australia: Where Will Growth Come From

Philanthropic sources Superannuation trustees Social purpose

• rganisations

Fund managers  Private Ancillary Funds  Public Ancillary Funds  Corporate foundations  Other trusts and foundations  HNWI  Member based funds  Commercial funds  Faith based funds  Large NFP  Smaller innovative NFP  Social enterprise  Community enterprise  Churches  Institutional fund managers  Insurance funds  Social investment funds  Property trusts  Ethical funds  Responsible investment funds