Speaking at an event in Sydney recently, Treasurer Scott Morrison said the government is working on a framework which will guide its involvement in the social impact investment space.
He said social impact investing “brings together the sharpest minds within our investment community with our best and brightest in social services, providing market discipline, financial nous and program experience to improve service delivery”.
“And it gives those investors an opportunity to be involved in effecting measurable social change while still managing to secure financial returns for their shareholders.”
Mr Morrison explained that the government’s impact investing framework was informed by the nearly 90 submissions the government received in response to a discussion paper released on the topic.
The impact investment strategy
He told the Impact Investment Summit that the government has formed six principles with the responses in mind.
1. “The first principle involves the government taking on the role of market enabler and developer,” he said.
“What does this mean? Well, it means, where possible, we will be working with you to identify and remove regulatory barriers.”
2. The second factor is value for money, and according to Mr Morrison, this principle “speaks for itself”.
He said the government is “swimming between the flags here” and that social impact investments would only go ahead if they can be reasonably expected to offer a net benefit and are cost effective.
3. This leads into the third principle: outcome-based measurement and evaluation, Mr Morrison said.
He explained: “This is not just something you do at the end of project and leave in the bottom drawer — it is much more than that.
“Ongoing outcomes-based measurement is the key to determining whether social or environmental outcomes will be achieved.”
4. Noting that all investments have risk, Mr Morrison said risks and returns need to be shared fairly and that that is “exactly as it should be”.
5. Continuing, Mr Morrison said the fifth principle is that the investment aligns with government priorities.
“For us to get involved there needs to be a well-developed case to address a social or environmental issue in line with the government’s priorities.”
6. The final principle “goes to co-design”, Mr Morrison said, acknowledging that the “best” result for the government will be gained through collaboration.
He said the government will call on communities, stakeholders and industry experts for feedback and will “make a decision soon”.
Concluding, Mr Morrison said the government was “playing the long game” and that its aim is to “ensure the market can continue to grow and become more sustainable”.
According to the Responsible Investment Benchmark report, an estimated $4.1 billion in impact investing assets were under management in Australia last year. That’s a 10 per cent increase on the 2015 figures.
Meanwhile, economist Dr Falko Paetzold of the Group for Sustainability and Technology has said investors have the opportunity to promote a “social and fair capitalism” by investing in sustainable ventures.
Speaking in particular to ultra-high-net-worth investors, Mr Paetzold said: “Around 100 trillion Swiss francs – over half of global wealth – is held by significantly fewer than 1 per cent of the population.
“Imagine what could be achieved if this 1 per cent were to invest its capital in such a way as to combat poverty or climate change at the same time.”
Speaking in a Credit Suisse insight, Mr Paetzold added that he’s not suggesting the ultra-wealthy simply put their money in charity.
He explained that promoting fair supply chains, “massive scalable health solutions” and renewable energy cannot be done just through philanthropy.
“I am talking about sustainable investment as the wide spectrum of investments available today that have a business case, investments that generate returns both for the investor and for society.
“You can invest in companies that will use that capital to actively develop solutions to the challenges we face – and that are financially worthwhile.”