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

Australian Ecosystem Overview: Impact Investing Rosemary Addis Social Impact Investment Taskforce June 2014

The Australian National Advisory Board Rosemary Addis (Chair) Sandy Blackburn‐Wright Richard Brandweiner Exec Director Impact Strategist; Co- Exec Director Impact Strategist; Director of Investments founder Impact Investing Australia, Co‐founder Impact Investing First State Super; Chair Senior Fellow Impact Investing Policy Australia; Social Investment Chartered Financial Collaborative; Member NSW Social Fellow Centre for Social Impact Analysts Australia Investment Expert Advisory Group David Crosbie Stephen Dunne Stephen Fitzgerald CEO Community Council Australia Managing Director AMP Capital Board of Governors, Future Fund; NSW Social Investment Expert Advisory Group Carolyn Hewson AO* Steve Lambert Paul Peters Member Financial System Inquiry, Executive General Manager Debt GVP Capital Advisers Non‐Executive Director including Markets, Products & Markets, BHP Billiton, BT Investment National Australia Bank Management * On leave for duration of the Financial System Inquiry 2014 Carol Schwartz AM Paul Steele Peter Shergold AC Trawalla Foundation; Chair Our CEO Donkey Wheel; Co-founder Chancellor University of Community; Women’s Leadership The Difference Incubator Western Sydney; Chair NSW Institute; Non‐executive Director Social Investment Expert (various) Advisory Group, Member Prime Minister’s Indigenous Advisory Council Christopher Thorn Michael Traill AM Partner Philanthropic Services & CEO, Social Ventures Australia Social Investment Evans & Partners; Founder & Chair Share Gift Australia

Australian Context: Snapshot of the “Lucky C ountry”  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

Australian Context: Snapshot of the “Lucky C ountry”  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

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

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

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

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

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

Impact Investing in Australia: Levers & Strengths Supply Demand Capital Availability of funds not a constraint, incl. Product development & innovation capability & long term savings pool governed by fiduciaries; Australian examples scalable in design institutions strong & economically significant Significant latent demand socially oriented Credit enhancement Early products provide strong organisations and communities will need range examples of credit enhancement & risk reduction of financing options to support their work strategies Ecosystem Intermediaries Prudential system & regulation strong History of community and cooperative enterprise Government & policy directed to impact investment has been catalytic Field growing Early adopters have track record and have attracted investment Other fields provide strong precedents eg infrastructure Leadership Measurement Data strength in government and related Talent pipeline building to develop the sector institutions such as Productivity Commission and return with international experience Focus through not for profit reform and early Network strengths strong personal networks deals on developing impact metrics backbone of leadership in Australia Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014

Impact Investing in Australia: Challenges Supply Demand Product development not yet delivering Barriers to entry Lack of available products and spectrum of quality investable propositions high transaction costs Capacity building for entrepreneurs and non- Risk-return Insufficient information and profits to make ideas and initiatives investable understanding of risk and return for products is is lacking a barrier to take-up Intermediaries Ecosystem More and better intermediation with scale, Education Awareness of context, track record, depth, diversity and reach needed potential, and practical entry points, remains low Aggregation and/or clearing capacity required Policy focus and targeted initiatives to catalyse to reduce inefficiencies and improve economies the market, remove barriers and encourage of scale participation lacking Measurement Leadership Leadership required to develop beyond Measurement systems allowing comparisons disparate activities and personal networks, into between investments, is lacking critical mass Benchmarking data required to enable investors Capability Attracting talented people requires to source and make useful comparisons on entry points, skill enhancement and career path completed or prospective transactions Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014