Government's vision for social impact investing

In a speech to the Impact Investment Summit, Treasurer Scott Morrison has outlined the government's 'vision' for social impact investing in Australia, including the six principles that will inform the government's approach to involvement in the growing sector.  The Treasurer stated that the 'Government’s approach to social impact investing is beginning to take shape — and the principles and budget measures provide us with a starting point.  From here, we are partnering with states and territories to carry out trials, we are building capacity, and we are looking at ways to reduce regulatory barriers.  We know our approach is new and that we may need to make adjustments…We are playing the long game; our aim is to ensure the market can continue to grow and become more sustainable.'  A brief overview of the key points of his address is below.

Key Points

• Areas where social impact investing may assist vulnerable Australians: The Treasurer identified a number of areas in which social impact investing may assist vulnerable Australians including: early education and child care; employment education; social and affordable housing; rural and regional aged care; financial inclusion; health services; and disability services. 

• Growing demand for investment options: The Treasurer stated that there is growing demand for social impact investment options in Australia and cited various examples in support of his statement including: the estimated 10% increase in assets in the category of impact investing and community finance over the period 2015-2016 according to the Responsible Investment Benchmark Report and the fact that Impact Investing Australia had found that two thirds of all investors expect impact investing to become a more significant part of the investment landscape in the coming years.  (This is in line with the findings of a recent RIAA report: From Values to Riches: Charting consumer attitudes and demand for responsible investing in Australia (discussed in a separate post). 

• Government plans to put in place a framework to guide government involvement in the social investment market: Commenting on the role that government should play, the Treasurer stated that in line with the Financial System Inquiry recommendation that 'the government explore ways to facilitate development of the impact investment market and encourage innovation in funding social service delivery' the government is 'putting in place a framework to guide our involvement in the social impact investment market'. 

• Limited role: In stating that the government would implement a framework to guide government involvement in social investment, the Treasurer commented that the role would be limited: 'we know that social impact investing is not the answer for funding every type of outcome'. 

• Six principles to guide commonwealth government involvement in the social investment market: The Treasurer outlined six principles to guide government involvement in the social impact investment market, informed by consultation.  The Treasurer described the principles as 'a comprehensive set of principles underpinning our involvement in social impact investing'.

  The six principles are as follows:

1. The Government will take on the role of market enabler and developer: 'where possible, we will be working with you to identify and remove regulatory barriers' the Treasurer stated.

2. Value for Money: The Treasurer stated that 'Social impact investments will only go ahead where we reasonably expect them to offer a net-benefit and are cost effective'.

3. Outcome-based measurement and evaluation: The Treasurer commented '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. Risks and returns should be shared fairly: The Treasurer commented as there is no investment without risk, that risks should be shared 'fairly' and that this is 'exactly as it should be'. 

5. Alignment with government priorities: The Treasurer commented that in order for the government to be involved 'there needs to be a well-developed case to address a social or environmental issue in line with the Government’s priorities'.

6. Collaboration with government: The Treasurer commented that 'co-design' would be key to achieving the desired result: 'To get the best result it is imperative that Government collaborate far and wide. We will call on industry experts, local communities, and stakeholders'.

• Existing and ongoing commitment to social impact investing: The Treasurer concluded his address by outlining the government's existing and ongoing commitment to developing a strong social impact investing market including (among other initiatives) the $8 million commitment over four years to establish to establish a Social Impact Investment Readiness Fund to build capacity in the non-government and private sector to develop social impact investment proposals.