Impact Investing

Impact investments intentionally seek out a social or environmental impact, as well as generate a financial return. The market is still emerging in Australia, but we do have multiple world-leading deals underway. It is estimated that impact investments in the country will reach around A$32 billion within a decade. Globally, investments are expected to reach between US$500 billion and US$1 trillion. In their latest annual survey of major impact investors across the globe, J.P. Morgan and the Global Impact Investing Network (2015) noted a 7% growth in capital commitments and a 13% growth in the number of impact investment deals, on the previous year.

In June 2013, UK Prime Minister David Cameron established an International Task Force on Social Impact Investing, sponsored by the G8. In September 2014, the Task Force released its global report, The Invisible Heart of Markets. In addition, each country participating in the Task Force released its own country report, available on the Task Force website. Australia’s report, Delivering on Impact, outlines the steps necessary to establish a thriving market here in Australia. The following explainer video was developed by the International Impact Investment Task Force:

 

 

Social Impact Funds

There are now over 250 impact funds globally. In Australia, a number have also been established in recent years, including those by Social Enterprise Finance Australia, Social Ventures Australia, Foresters Community Finance, Social TradersDonkey Wheel Foundation, Small Giants and Impact Investment Group. These all seek to provide impact investments to Australian enterprises which use business models to create positive social and environmental impact. In addition, in September 2014, QBE announced the establishment of  $100 million fund for social impact bonds. In February 2015, Impact Investing Australia and NAB launched a A$1 million Impact Investment Readiness Fund.

Investment is also increasing to support access to capital in developing countries. For instance, USAID established a $6.5 million fund in 2012, in collaboration with Rockefeller Foundation and the Omidyar Network, who are all key players in enabling this work globally.

Each year, Impact Assets publishes Impact Assets 50, an annually updated list of private debt and equity funds that allows investors and advisors to explore impact investing opportunities.

 

Green Bonds

A growing number of green bonds have now been issued around the world, including three here in Australia. Since their first issue in 2008, the World Bank has mobilized over $5.3 billion through 75 green bond transactions in 17 currencies, and the IFC has issued $3.4 billion in green bonds, including two $1 billion issuances in 2013.

  • In Australia, the World Bank and Westpac issued a AUD$300 million Kangaroo Green Bond in April 2014, with UniSuper being the cornerstone investor at $100 million.
  • Also in April 2014, Canada issued its first corporate green bond for $500 million which was 1.5 times oversubscribed, with many first time investors in these bonds.
  • In October 2014, Stockland issued Australia’s first corporate green bond valued at $380 million in European currencies, with funds invested in developing and redeveloping green star rated retail, commercial and residential properties. The issue was snapped up by European institutional investors and wholesale funds where appetite continues to grow.
  • In October 2014, SolarCity issued the first retail solar bond in the US, a $US200 million issue to retail investors. Institutional investors and accredited sophisticated investors have funded the majority of solar projects to date, largely on a project-by-project basis. This bond represents an offering to the general public, consolidating thousands of solar projects across the country.
  • The United States and Japan announced a $4.5 billion commitment to the Green Climate Fund during the G20 in Brisbane in November 2014.
  • In December 2014, NAB launched a AUD$150 million green bond, and within three days the bond was subscribed at AUD$300 million. The NAB Green Bond will invest in 17 solar and wind energy assets across Australia, and is expected to reduce over four million tonnes of greenhouse gas emissions.
  • Following on the success of that Bond, in March 2015, NAB partnered with BNP Paribas as Joint Placement Agents for the Hallett Hill No. 2 Wind Farm in South Australia. The A$205 million issue was the first Australian wind farm to be listed on the US Private Placement market.

 

Private Placement Platforms

Online platforms linking social enterprises and investors are now being created. They include Enable Impact and the Social Stock Exchange.

 

Fiduciary Duty for Investors

A key question raised by potential investors is whether investments are compliant with their fiduciary duty. Two helpful reports were published on this topic in late 2013 and early 2014, for superannuation funds and trusts and foundations. A working group of the G8 Task Force has also produced a useful report for investors on Asset Allocation.

 

Key Players in Australia

  • Impact Investing Australia is the leading national body seeking to catalyse a market for impact investing in Australia. IIA is also the Australian contribution to the International Task Force on Impact Investment, sponsored by the G8.
  • The Difference Incubator supports the development of investible social enterprises and partner organisation, Benefit Capital seeks the required capital.
  • Social Enterprise Finance Australia (SEFA) offers debt to grow social enterprises, as well as creating investment opportunities.
  • Foresters Community Finance offers an alternative to individuals and enterprises unable to access capital through mainstream financial institutions.
  • Impact Investment Group is an impact investment fund manager.
  • Small Giants invests in social enterprises and social businesses seeking to create positive impact.
  • Impact Academy is a Brisbane-based incubator for social enterprises that moves enterprises towards investment readiness.

 

The team at Social Outcomes brings decades of experience specialising in the design and implementation of impact investment programs. If you would like to speak with us further about this, please contact us at hello@socialoutcomes.com.au.