The Commonwealth Government has released a Social Impact Investing Discussion Paper exploring ways to facilitate the growth of the Australian social impact investing market.
The discussion paper proposes that the Australian Government could primarily support social impact investing by creating an enabling environment for private sector-led social impact investing and by funding (or co-funding with State and Territory Governments) investments which generate savings or avoided future costs to fund reforms in social service delivery areas.
Many investors want to fund an investment which aligns with their own social or environmental goals, while also achieving a financial return and diversifying their investment portfolio. There are a diverse range of investors who are interested in social impact investing, from individuals to philanthropic and family foundations to institutional funds.
In particular the Discussion paper considers the Financial System Inquiry recommendation that the Australian Prudential Regulation Authority (APRA) provide guidance to trustees on the appropriateness of impact investment for superannuation trustees.
APRA’s current prudential practice guidance on investment governance (SPG 530) states that trustees can offer ethical investments (which includes social impact investing), provided trustees comply with the legal requirements described above and that a trustee can demonstrate appropriate analysis and a reasoned basis to support the formulation of an investment strategy that has environmental, social and governance issue (ESG) considerations.
In proposing any changes to APRA’s prudential practice guidance, the discussion paper notes the objective the Government has chosen for superannuation, which will be enshrined in legislation: ‘to provide income in retirement to substitute or supplement the Age Pension’.
The main forms of social impact investing include but are not limited to:
• social enterprises: businesses which aim to achieve both financial and social or environmental outcomes through their work;
• social impact bonds: contracts between the government, investors and service providers to trial innovative interventions — a form of payment-by-results contracts, wherein service providers
are paid on the results they achieve;
• social impact investment funds: larger-scale funds which pool funds from investors to invest in several social or environmental impact investments.
