Social Impact Investing – Shaping Australia’s social investment landscape

WHO SHOULD READ THIS

• Registered charities, not-for-profits, social enterprises, philanthropists, impact investors, community service providers, accountants, investment advisers, and lawyers.

THINGS YOU NEED TO KNOW

• The Australian government is exploring its role and the associated legislative and regulatory framework to help foster a robust social impact investment environment. Submissions on the Discussion Paper are due on 27 February 2017.

WHAT YOU NEED TO DO

• Review the Discussion Paper and, if applicable, prepare and lodge a submission before 27 February 2017 – and be sure to let us know your thoughts.

In light of public sector budget constraints and the trend towards non-profit organisations and social enterprises looking to leverage private sector investments and efficiencies, governments are focusing their attention on how to meet the ever growing social and welfare needs through social impact investing.

Social impact investing has slowly gained momentum in Australia, following the lead of many other countries. The Commonwealth Government has provided the strongest indication yet that social impact investment is the future for Australia, publishing the ‘Social Impact Investing – Discussion Paper’ on 28 January 2017.

The discussion paper invites input from the community on a range of issues including potential legislative and regulatory barriers, the role of governments, challenges around data collection and distributions and potential structures and opportunities for organisations engaged in social impact investing.

What is social impact investing?

By drawing together the efforts of governments, service providers, investors and communities, social impact investing uses an outcome based approach to tackle a range of social, environmental and community issues combined with a financial risk and return element.

While the models adopted are not limited, the discussion paper outlines the three main forms of social impact investing:

• social enterprises – businesses aimed at achieving social goals through their work (e.g. STREAT in Melbourne, which employs disadvantaged youth in its café and coffee roasting business)
• social impact bonds – a form of payment-by-results contract, wherein investors receive payment if particular results are achieved by service providers, and
• social impact investment funds – larger-scale funds which may invest in several social impact investments.

Principles of the social impact investing market

One of the biggest questions posed by the discussion paper is the principles that should guide the market. The discussion paper proposes the following principles:

• delivering value for money
• adopting a robust approach to outcomes-based measurement
• demonstrating a fair sharing of risk and return between government, investors and service providers, and
• delivering a relevant social and/or environmental outcome that has been identified by the government as a priority.

Potential areas of opportunity

The Commonwealth Government is actively exploring its role in the market, including:

• as a potential participant, where appropriate in partnership with State and Territory Governments, and
• as a steward by establishing a regulatory framework which enables the growth of the social impact investment market.

A report in the discussion paper identifies a number of areas where social impact investing may align with the responsibilities of the Commonwealth Government:

• early education and childcare for vulnerable and disadvantaged children
• programs addressing youth unemployment including further education and training
• infrastructure capital to social and affordable housing
• innovative delivery of aged care especially consumer directed aged care in rural and regional areas
• measures promoting financial inclusion for Australians unable to access mainstream financial services
• health services targeting service shortages and the lower health outcomes for disadvantaged groups, and
• disability services to complement the roll out of the National Disability Insurance Scheme.

How can you be involved?

Organisations and members of the community with an interest in social impact investment are encouraged to prepare a submission and contribute to the foundations of social impact investing in Australia.

Key questions to consider include:

• What investment model and organisational structures are best suited to facilitating particular social impact investments?
• What are the legislative or regulatory barriers constraining the market, particularly for private ancillary funds and super funds entering the market?
• What data will be required for the investment, where will the data come from and how will it be verified and shared?

Written submissions on the issues raised in the discussion must be submitted by no later than 27 February 2017.

McCullough Robertson’s Social Infrastructure team helps clients across a range of sectors to understand the social impact investment opportunity and to execute projects designed to position those businesses for growth. We have established and act for some of Australia’s most prominent non profit and charitable organisations spanning health, education, arts and culture and family and community services as well as community and affordable housing, Indigenous affairs and aged care.

Should you wish to submit a response to this discussion paper, we are more than happy to assist with drafting submissions and navigating the commercial, social and legal issues that the discussion paper seeks to address.

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.