Australia’s world class public service provides strong foundations upon which to build the APS for the future. The APS has before it now an opportunity to look beyond traditional practices such as the purchaser provider model and harness new activity and resources targeted at delivering greater public value. A future-ready APS will be one that enables development of ecosystems which foster creation and scale for new solutions to societal issues, incentivising innovation and drawing upon untapped and additional resources for the public good. This will require expansion of the existing policy toolbox, new and additional capabilities, and structural reforms to the APS.
Download (1.43 MB)Transforming the APS to
unlock social innovation
Submission to the Independent Review of the
Australian Public Service
July 2018
Written by: Sabina Curatolo, Sally McCutchan and Rosemary Addis
© Impact Investing Australia 2018
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Disclaimer
This document has been developed by Impact Investing Australia Ltd on behalf of the Australian
Advisory Board on Impact Investing. The views expressed represent a consensus view of those
involved informed by consultation with practitioners and stakeholders, research relating to the
Australian and global context, and international collaboration. Views expressed do not reflect views
of individual members of the Australian Advisory Board or its Working Groups, or other National
Advisory Boards. Members of the Australian Advisory Board and its Working Groups have
participated in a personal capacity and no views expressed here represent a view or position of the
organisations they represent or in which they hold positions. Nothing in this report should be
construed as financial or other expert advice. This document does not constitute an offer of
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ii AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Contents
Introduction ......................................................................................................................................... 1
Summary of recommendations ............................................................................................... 1
The APS of the Future .......................................................................................................................... 2
Social innovation as a key area of focus .................................................................................. 2
Impact investing as an essential policy tool ............................................................................ 4
Addressing market gaps and creating better societal outcomes at scale. .............................. 5
Recommendations ............................................................................................................................... 6
Driving innovation and productivity in the economy .............................................................. 6
Delivering high quality policy advice, regulatory oversight, programs and services .............. 7
Tackling complex, multi-sectoral challenges in collaboration with the community, business
and citizens............................................................................................................................... 8
Ensuring our domestic, foreign, trade and security interests are coordinated and well
managed................................................................................................................................... 9
Improving citizens’ experience of government and delivering fair outcomes for them ......... 9
Acquiring and maintaining the necessary skills and expertise to fulfil its responsibilities.... 10
Conclusion .......................................................................................................................................... 11
REFERENCES ....................................................................................................................................... 12
APPENDICES ....................................................................................................................................... 15
Appendix 1: About impact investing ...................................................................................... 16
Appendix 2: Impact Capital Australia .................................................................................... 18
Appendix 3: Innovation lessons to be learnt ......................................................................... 25
Appendix 4: About us ............................................................................................................. 28
About the Australian Advisory Board on Impact Investing .......................................................................... 28
Impact Investing Australia ........................................................................................................................... 29
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | iii
iv AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Introduction
The Australian and Advisory Board on Impact Investing (AAB) and Impact Investing Australia (IIA) welcome
the opportunity to respond to this review of the Australian Public Service (APS). The AAB, comprised of
business and community leaders, provides leadership and strategy to accelerate growth of the impact
investment market operating in and from Australia. Impact Investing Australia is the implementation arm of
the AAB, dedicated to growing opportunities for investments that deliver positive social and environmental
impact alongside a financial return.
The AAB is a foundational member of the Global Steering Group on Impact Investing (GSG), the successor
to the G7 Social Impact Taskforce (2013). With 18 country members and the European Union (EU), the GSG
is a multi-lateral organisation supporting the development of the impact investing market globally.
Impact investments are intrinsically linked with more efficient and effective outcomes for government
spending. This is achieved through the mobilisation of private capital to potentially enable more social
innovation, greater cross-sector collaboration and an outcome rather than output focus. For the APS,
impact investing extends existing tools of economic policy to social policy, increases public value creation
and draws on a broader range of ideas and actors to deliver better outcomes.
This submission draws on lessons from local and international experiences in impact investing and from the
development of other parts of the financial system. It reflects significant work that has already been done,
including the strategy and initiatives led by the AAB, to build on the strengths and address the challenges
that exist in the Australian market for impact investment.
We address the terms of reference for this review through our experience and expertise, working with the
private sector, community sectors and government to drive Australia’s impact investing market to scale.
This includes significant time spent advising and consulting with numerous representatives across a number
of departments within the APS. We agree it is timely to enhance the capability, culture and operating
model of the APS to harness future opportunities including those presented by impact investment. Our
recommendations for the changes required form part of this submission.
Summary of recommendations
Our eight recommendations below set out actions to shape the APS for a future in which social innovation
and impact investment have an important role in framing policy for greater positive societal impact and
public value outcomes.
Recommendation 1: Develop the whole of government advisory remit of Innovation and Science Australia
by including social innovation and relevant expertise on the Board.
Recommendation 2: As part of the Australian Government’s commitment to explore impact investing
market building opportunities, establish Impact Capital Australia (ICA) to catalyse and champion the
impact investing market by investing $150m to be matched by Australian financial institutions. ICA will
be a game changing $300m wholesale institution with the capital, mission and mandate to improve
people’s lives by driving the impact investment market in Australia to scale.
Recommendation 3: Establish protocols for data sharing (including across government jurisdictions) to
inform efficacy and innovation and facilitate more efficient and effective allocation of existing resources
to achieve social impact.
Recommendation 4: Promote a culture of, and ensure APS capability and organisational alignment, to
encourage measured risk taking enabling social innovation and better policy outcomes.
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 1
Recommendation 5: Establish an Office of Social Impact Investment within the APS to provide a centre of
excellence and capability and drive public sector capacity to engage with the market and private sector for
a more efficient and effective allocation of existing resources to achieve social impact.
Recommendation 6: Encourage a designated Minister to champion development of impact investment,
ideally supported by the Departments of Prime Minister & Cabinet and Treasury, who can lead engagement
with banks and financial institutions, major corporations, venture capital providers, entrepreneurs,
community sector, philanthropy and government agencies and encourage collaboration.
Recommendation 7: Once established, Office of Social Impact Investment to work with Austrade to build
capability and promote and develop Australia as a key market in impact investing for the region.
Recommendation 8: Establish a dedicated Outcomes & Innovation Fund to support proof of concept and
scaling what works through outcomes-based commissioning, including social impact bonds.
The APS of the Future
Social innovation as a key area of focus
Australia’s world class public service provides strong foundations upon which to build the APS for the future.
The APS has before it now an opportunity to look beyond traditional practices such as the purchaser provider
model and harness new activity and resources targeted at delivering greater public value. A future-ready
APS will be one that enables development of ecosystems which foster creation and scale for new solutions
to societal issues, incentivising innovation and drawing upon untapped and additional resources for the
public good. This will require expansion of the existing policy toolbox, new and additional capabilities, and
structural reforms to the APS.
So often, innovation is framed in economic terms but the need for its extension into the social sphere is well
known. A recent CEDA Community Pulse report1 highlighted this once more. This study found that while
Australia has enjoyed 26 consecutive years of economic growth, only 5% of Australians feel they have shared
in the benefits. The highest priorities for people go to issues at the heart of our social fabric like well-
functioning affordable health care. At number one in the OECD for economic growth, Australia is well down
the leader board on other measures including employment of people with disabilities2. In Australia, inequality
and social disadvantage still have a post code3.
The need for social innovation arises from the recognition that the next wave of economic growth is not just
a number. It requires finding solutions to difficult social issues and reflecting the clear message that
Australians’ expectations of what constitutes “prosperity” for our nation are changing. It means potentially
looking beyond simply disrupting existing systems, to social innovations that may change systems
themselves.
1 Committee for Economic Development Australia, Community Pulse: The Economic Disconnect
2 Australian Human Rights Commission Willing to Work: National Inquiry into Employment Discrimination against Older Australians
and Australians with Disability Issues paper: Employment discrimination against Australians with disability (2015); Productivity
Commission Inquiry on Disability Care and Support (2011)
3 Committee for Economic Development Australia, How Unequal? Insights on Inequality
2 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Key benefits of social innovation for Australia include the following:
▪ Australia’s position at the forefront of this field globally could be leveraged in domestic policy to
advance the innovation agenda, including capital flows to support enterprise, and encourage talent
and capital into the field. This will benefit innovation in jobs, housing, health, disability services and
education as well as manufacturing, science and technology.
▪ New financial models that combine purpose and capital are developing and filling gaps in the
innovation ecosystem. This includes blended capital structures addressing gaps to prove up
innovative delivery models and open up new markets for health and agricultural applications.
▪ Social innovation provides concrete opportunities to design for and create positive social and
economic impacts and to target outcomes like employment directly rather than rely on spill-over
effects from the activity of the entrepreneur or the firm.
Our future reality is that public demand for financial support across a breadth of social issues from health, to
affordable housing to aged care and disability services is growing. This is already playing out now.
Government budgets, even with support from philanthropy cannot fill the escalating gap. There is increasing
recognition that social innovation is critically needed to find new ways to address our societal issues. Impact
investments across a broad range of asset classes from venture capital to private equity and physical assets
such as property can be a potential enabler of this social innovation. Irrespective of asset type, impact
investments are all designed to deliver both positive measurable social outcomes and financial returns. They
target efficacy and efficiency of capital around societal outcomes and are essential to the evolving policy
toolbox - now and into the future.
Globally, impact investing is already making strong contributions to tackling entrenched social and
environmental challenges by unlocking new and additional capital and resources. In Australia, this approach
is emerging to address a wide range of issues, from quality job creation to social housing, and services for
people with disabilities aligned with the goals of the NDIS.
The APS plays a large role in social service delivery and innovation policy. The recent Innovation and Science
Australia report, Australia 2030: prosperity through innovation, recommended the Australian Government
“further strengthen the policy environment to encourage investors to pursue opportunities that provide
both social and financial returns”4. This accords with: the recommendation of the Financial System Inquiry5;
establishment of social impact investment (SII) principles that guide government involvement in this market6;
more than $38.7 million of impact investing measures included in the Australian budget in 2017-187 and
2018-198; and a stated commitment from the Australian Government to work in partnership to build
Australia’s impact investing market9. The opportunities for government engagement in impact investing are
also evident in Australia’s international development program, where private capital can multiply the impacts
of Australia’s aid efforts10.
A more focused approach and constructive engagement from the APS around social innovation, impact
investment and its enabling policy is critical for a flourishing innovation ecosystem in Australia. This will
change the frame and provide opportunities to focus on prevention and innovation rather than dealing with
the consequences of social, environmental and cultural issues. There is also the opportunity to deploy policy
tools that expand the pool of available resources and generate more sustainable solutions.
4 Australia 2030: Prosperity through Innovation, 2017 (www.industry.gov.au)
5 Financial System Inquiry Final Report 2014 (fsi.gov.au)
6 Social Impact Investment Principles (treasury.gov.au/programs-initiatives-consumers-community/social-impact-investing/)
7Australian Budget 2017-18 (www.budget.gov.au/2017-18/content/glossies/factsheets/html/HA_19.htm)
8 Australian Budget 2018-19 (www.budget.gov.au/2018-19/content/bp2/download/bp2_combined.pdf)
9 Australian Budget 2018-19, Paper 1 (www.budget.gov.au/2018-19/content/bp1/index.html)
10 JSCFADT Inquiry into the role the private sector in promoting economic growth and reducing poverty in the Indo-Pacific region,
Partnering for the greater good, 2015 (www.aph.gov.au)
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 3
Impact investing as an essential policy tool
A focus on impact investment and the social innovation it enables can position the APS as a valuable
aggregator of resources and facilitator of outcomes. As it is designed to attract private capital, impact
investment can also produce a significant multiplier effect on government and philanthropic funds meaning
more can be done to drive better societal outcomes. A thoughtfully designed approach could see the
foundations are in place quickly to:
▪ Accelerate development of customised policy options for Australia
▪ Significantly reduce time to market for new initiatives building on what has been proven elsewhere
▪ Work with and through local and international networks to deliver high-impact collaboration and
investments.
Targeted government policy and action can catalyse activity, reduce risks for new entrants, build track
records and enhance investor confidence. The Australian Government has three important roles to catalyse
and enable a robust impact investing market:
▪ Building the market: provide leadership, contribute to development of market infrastructure and
platforms and provide catalytic capital to mobilise additional resources and impact
▪ Market stewardship: exercising the role of regulator and legislator to remove unnecessary
regulatory barriers and create incentives for participation
▪ Participating in the market: to influence where capital is directed, in particular to priority policy
areas, and orient more commissioning to achievement of better outcomes.
Proactive roles for government as market builder, market steward and, where appropriate, market
participant were supported by the Social Impact Investment Taskforce and the National Advisory Boards
across the G7 countries and Australia and the EU after examining the market ecosystems across those
countries11.
The policy objectives of government’s role in each of those functions is summarised in the tables below in
relation to the twin goals identified by the FSI of facilitating market development and encouraging innovation
in service delivery and to tackle social issues.
Facilitate Market Development
Role Market Builder Market Participant Market Steward
Policy Objective ▪ Increase resources to ▪ Better targeted ▪ Remove barriers to
impact driven government spending and investment
organisations direct capital to policy
▪ Reduce red tape
priorities
▪ Develop impact preventing greater
investment system with a ▪ Increase flow of participation by
range of participants investment to social investors
purpose organisations and
▪ Provide incentives to
social objectives
encourage greater
participation and scale in
early stages of market
development
11Thornley et al 2011; Social Impact Investment Taskforce Report 2014; Australian Advisory Board Strategy 2014, Addis in
Nicholls et al (eds), 2015
4 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Encourage Innovation in Social Service Delivery
Role Market Builder Market Participant Market Steward
Policy Objective ▪ Increase resources to ▪ Increase focus on efficacy ▪ Ensure regulatory
impact driven and outcomes frameworks enable a
organisations range of impact –
▪ Orient funding to provide
driven organisations
▪ Encourage willing talent to incentives for innovation
tackle issues affecting and effective solutions ▪ Remove red tape that
society and build and grow impedes sustainable
effective social purpose blended models of
organisations profit and purpose
Adapted from Social Impact Investment Taskforce, 2014 and Addis in Nicholls et al (eds) 2015
Addressing market gaps and creating better societal
outcomes at scale.
Emerging fields of market-based activity and innovation exhibit a number of common challenges. These
factors can push up the price and reduce the flexibility of finance. Impact investment adds the additional
complexity of delivering social, environmental and/or cultural outcomes thus amplifying some of the gaps
and challenges. Private markets do not readily promote delivery of public goods or optimal social and
environmental outcomes. Data, where available, does not easily cross sector boundaries which further
complicates pricing and tracking performance.
The key levers to overcome market failures, accelerate development and support more - and more effective
- participation are well documented. Similar approaches have been successfully employed in fields such as
venture capital, infrastructure investment, the corporate bond market, community finance and microfinance.
The role government has in financial markets is well established. That includes setting the regulatory
environment and fiscal policy addressing market failures and stimulating new market opportunities. The role
for government in promoting innovation is also relatively well established, although not as routinely
applied in the social policy domain. That includes priming the pump for appropriate capital, encouraging
new enterprises and talent, sharing data and promoting collaboration. The FSI expressly agreed with the
OECD’s assessment of the role of governments and concluded it ‘sees merit in government facilitating the
impact investment market’.
To ensure these benefits are realised, infrastructure for the market needs to be developed, the regulatory
and enabling environment needs to be supportive and not present unnecessary barriers to effective
participation. In the short to medium term this may require some government investment to catalyse the
market, reduce risks for new entrants, build track record and enhance investor confidence.
To achieve scale in the impact investing market a range of issues, often seen in new markets, need to be
addressed. These include:
▪ Lack of co-ordination
▪ Infrastructure development
▪ Growth in intermediaries, and
▪ Capacity shortfalls.
A more active role for the Australian Government in expanding impact investment is critical to enable
Australia’s impact investing market. In the short to medium term, targeted policy and prudent investment
can catalyse activity, reduce risks for new entrants, build track records and enhance investor confidence.
Without that, progress in growing the market will be slower and less impactful.
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 5
Recommendations
The preceding section sets out why we need more social innovation and impact investment and the
important role of government. Strengthening the capability, culture and operating model of the APS within
each of the focus areas of this review can enhance Australia’s impact investing market. Our
recommendations below turn to implementable actions to shape the APS for a future in which social
innovation and impact investment have an important role in framing policy for greater positive societal
impact and public value outcomes.
Driving innovation and productivity in the economy
Recommendation 1: Develop the whole of government advisory remit of Innovation and Science Australia
by including social innovation and relevant expertise on the Board.
Adopting this recommendation will provide an opportunity to link other areas such as data effectiveness and
the National Innovation & Science Agenda. It will raise awareness of the potential for improved policy design
and service delivery and further increase understanding of the mechanisms which facilitate impact
investment.
Recommendation 2: As part of the Australian Government’s commitment to explore impact investing
market building opportunities, establish Impact Capital Australia (ICA) to catalyse and champion the
impact investing market by investing $150m to be matched by Australian financial institutions. ICA will be
a game changing $300m wholesale institution with the capital, mission and mandate to improve people’s
lives by driving the impact investment market in Australia to scale.
Experience from international markets shows that a wholesaler investor and market champion is needed to
drive market transition and stimulate growth in impact investing.
Importantly, the market development mandate of ICA is designed to help build capacity and capability in
impact investing across both the private and public sectors including within the APS. ICA’s 10 outcome areas
are cross-departmental including aged care, disability, health, education and employment. It also involves
central agencies in its execution. Capacity and capability development are important aspects in order to
maximise government outcomes in social innovation and an institution that targets many areas of
government in this respect is an important enabler.
In an environment where government budgets are under-pressure ICA would help increase the productivity
of the APS by:
▪ Measuring and managing to specific outcome areas to maximise the efficacy of government spending
against policy priorities i.e. Better outcome return on investment
▪ Unlocking private capital for direction towards policy priorities i.e. More outcomes for a given level
of public investment
▪ Enabling social innovation which may result in more productive and efficient ways of delivering
existing government programs
▪ Critically important is the cultural shift that has been evidenced with engagement around impact
investing which focuses participants on outcomes not outputs. This cultural dimension is particularly
important not just for the impact investing transactions themselves but a more holistic focus of the
APS around societal return on its broader program and procurement activities.
If executed effectively, ICA would see more and better outcomes achieved with less government spending
and is likely to result in future savings to government, particularly given the demand profile of social needs.
6 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
The design for ICA is based on leading practice in market development and market and innovation policy.
This recommendation builds on the Australian Government’s initiatives to develop the social impact
investment market in Australia, including the 2017 and 2018 Budget measures. ICA also meets the Australian
Government’s Principles for Social Impact Investment. More detail on ICA can be found in Appendix 2.
Delivering high quality policy advice, regulatory
oversight, programs and services
Recommendation 3: Establish protocols for data sharing (including across government jurisdictions) to
inform efficacy and social innovation and facilitate more efficient and effective allocation of existing
resources to achieve social impact.
Data availability, including data relating to the cost of social services, can highlight where there is room to do
better, sending signals to the market for more entrepreneurial approaches to tackling issues. This is
recognised in the data sharing elements of the National Science & Innovation Agenda. The Government’s
recent response to the Productivity Commission report into Data Use and Availability Inquiry12 is a step in the
right direction.
Initiatives around the world are putting greater focus on measurement of the efficacy of social initiatives
through the provision of relevant data. For example, Inspiring Impact (UK) is a collaborative initiative
between the UK Cabinet Office and others to drive more effective measurement and evidence-based decision
making. The unit cost of over 600 areas of social service provision has been published to send signals to the
market and promote innovation and encourage new financing mechanisms based on results. Related work
underway in NSW as part of its Social Impact Investment Policy includes the publishing of cost and
performance data. A Statement of Opportunities including data on four areas of service delivery was first
published in February 2015 to inform market soundings and expressions of interest for impact investment
opportunities.
There are sensitivities about privacy for some data. However, within privacy limitations, key information and
metrics can still be identified as useful to the market and agencies to encourage more open engagement
about the relationship between the investment in prevention and the true costs of dealing with the effects
of social issues. Important in all this is breaking down departmental siloes to frame the data around the
citizen.
In the context of Australia’s Federation data sharing and protocol development between the States and the
Commonwealth is undeniably a challenge. Inertia on this issue will however result in the persistence of high
transaction costs and lost opportunities for social innovation. Key data initiatives if implemented effectively
could reduce establishment risks and costs, encourage innovation and may reduce the quantum of seed
funding required to enable impact investments.
Recommendation 4: Promote a culture of, and ensure APS capability and organisational alignment, to
encourage measured risk taking enabling social innovation and better policy outcomes.
A successful approach to innovation (including social innovation) needs to recognise that there will be
failures. A culture which allows for and learns from policy failure is critical to enabling the growth and
success of social innovation. As is often evidenced in the private sector a separate area or hub of the APS
focused on social innovation may need to be established which operates on a meritocracy basis and uses
innovation aligned KPIs.
12Department of the Prime Minister and Cabinet response to the Productivity Commission Inquiry into Data Use and Availability
(www.dataavailability.pmc.gov.au)
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 7
More broadly, the APS needs to develop a capability to better assess risk and be rewarded for taking it (ideally
through a broader organisational meritocracy). Risk and return considerations should factor in the different
elements of risk that should be applied in the context of the role that government is exercising.
When government is acting in its role as market builder, where the intention is to have a catalytic effect on
market activity or mobilise capital for areas of higher impact, government may accept greater risk to achieve
a result that would not be likely to occur otherwise. The public value from catalytic government investment
includes the multiplier effect through the outcomes and impact achieved for people and communities, and
from the focus brought to more diverse and effective approaches to issues affecting society.13
Where government is acting in its role as market steward, the risk and return assessment needs to balance
appropriate incentives for action and innovation and removing barriers, with the risk of distorting the market.
Other considerations relevant to regulatory reform and prudential standards may also need to be applied.
Political risk is a significant consideration for investors as well as for government, though it manifests
differently. Primary considerations are relationship risk, policy coherence and consistency. Where possible,
initiatives that either provide some degree of certainty or deliver structures or processes (for example, new
impact investment funds) that can operate with a degree of independence are helpful in building market
confidence and engagement.
Tackling complex, multi-sectoral challenges in
collaboration with the community, business and
citizens
Collaboration is an important part of impact investment and it will often see actors from government,
philanthropy, the community and business sectors all working together to achieve the targeted societal
outcome. Social innovation itself pivots on the diversity of ideas, actors and resources. This means inviting in
outside knowledge by: bringing together public servants from different parts of government and people
outside government to tackle policy issues; and encouraging the transfer of knowledge through secondments
or inter-departmental and inter-jurisdictional movement of APS staff, as well as with the private sector,
community organisations and universities.
Working across boundaries is central. This allows access to different resources and experience from all
sectors to achieve outcomes beyond what any of them could reach alone.
Recommendation 5: Establish an Office of Social Impact Investment within the APS to provide a centre of
excellence and capability and drive public sector capacity to engage with the market and private sector for
a more efficient and effective allocation of existing resources to achieve social impact.
Developing an Office of Social Impact & Investment provides structure for a whole of government approach.
For many in government, a focus on measurable outcomes, an investment mindset and the involvement of
the private sector represents a new way of working. An Office of Social Impact Investment would enable the
development of a centre of excellence and capacity to achieve more targeted spending of government
resources that: maximises the contributions from market-based solutions; facilitates engagement and
collaboration with other actors; and encourages innovation for social purposes and unlocks private capital.
A dedicated function of this nature could work with The Treasury and other government agencies to develop
guidance and tools to promote evidence and innovation.
13Addis, R in Nicholls, A et al (eds), Social Finance, OUP, 2015; Addis, R, McCutchan, S, Munro, P, Blueprint to Market: Impact
Capital Australia, Impact Investing Australia, 2015.
8 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Recommendation 6: Encourage a designated Minister to champion development of impact investment,
ideally supported by the Departments of Prime Minister & Cabinet and The Treasury, who can lead
engagement with banks and financial institutions, major corporations, venture capital providers,
entrepreneurs, community sector, philanthropy and government agencies and encourage collaboration.
A Ministerial Champion for impact investing would provide leadership for engagement with banks and
financial institutions, major corporations, venture capital providers, entrepreneurs, community sector,
philanthropy and government agencies and importantly encourage collaboration. It would also extend
opportunities for the APS and Ministers to lead public dialogue including on the opportunities for
collaboration and local economic development, and new approaches to stimulate capital and business model
innovation to tackle priority policy and social issues. Creating a ‘go to’ place will also provide a much more
informed position for the Government on the nature and extent of the opportunities and where the interest
and appetite lies and can be developed in the market.
Ensuring our domestic, foreign, trade and security
interests are coordinated and well managed
Beyond domestic policy, developing engagement of the private sector in Australia in impact investment will
support the foreign affairs policy of private sector engagement and greater focus on development
investment. The Joint select Committee on Foreign Affairs, Defence and Trade recognised this in their report
on private sector engagement in the Indo-Pacific. They recommended that the Australian Government,
through the Department of Foreign Affairs and Trade (DFAT), engage with the Australian Advisory Board to
develop awareness. Since 2017, DFAT has supported the global-facing work of the AAB on the GSG.
Recommendation 7: Once established, the Office of Social Impact Investment to work with Austrade to
build capability and promote and develop Australia as a key market in impact investing for the region.
This recommendation recognises the proactive approach that the UK has taken to marketing impact investing
and its domestic capability (and products) to foreign investors and into export markets. Australia has a similar
opportunity to become a “go-to place” for impact investment and related capability in the region.
Improving citizens’ experience of government and
delivering fair outcomes for them
There is increasing citizen focus on what is being achieved with public funds. In recognition of this, more
options for outcomes-based contracting are being explored in a range of jurisdictions including Queensland,
South Australia, ACT and NSW. That includes the development of Social Impact Bonds (SIBs), a financial
instrument (not actually a bond) that links investor payments to the achievement of societal outcomes,
reducing risk and in many cases costs for government.
We now have nine SIBS in Australia, issued in NSW (4), Queensland (3), South Australia (1), Victoria (1) and
a further one in Victoria currently raising capital. These SIBs cover issues such as out of home care, youth
homelessness, mental health, and recidivism. To date there has been no SIB issued by the Commonwealth
Government. There are currently over 108 SIBs globally with a collective US$392m of capital raised using
this approach.
Despite good progress, SIBs in Australia remain relatively small in terms of capital raised, and are
characterised by high transaction costs. Further government support and engagement is required to enable
replication and scale in this market to capitalise on the innovation, evidence and opportunities for
collaboration.
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 9
Recommendation 8: Establish a dedicated Outcomes & Innovation Fund to support proof of concept and
scaling what works through outcomes-based commissioning, including social impact bonds.
A powerful approach would involve a dedicated Outcomes & Innovation Fund to support State and even local
Government activity through funding for feasibility, proof of concept and top up payments to account for
benefits of overlapping responsibility between State and Federal Government.
Design is critical for such an Outcomes & Innovation Fund to be successful for the Australian federal system
and yield credible evidence of program or policy impacts enabling direction of a larger share of resources
towards evidence-based, outcomes oriented practice. Robust design will also help ensure the initiative builds
capability, yielding better social impact measurement, better commissioning of services and stronger
engagement with citizens and communities to reward innovative and scalable solutions to complex social
challenges.
Well designed, such an initiative would solicit the strongest proposals from the market nationally in areas of
key social and service delivery challenges. It would enable the first concrete action at Federal level on SIBs in
a manner that facilitates collaboration, investment and learning at a scale that cannot be achieved in a single
transaction. The Australian Government would benefit from the data collected and lessons learned and all
jurisdictions could benefit from opportunities for replication and scaling of what works. In addition to the
multiplier effect of increased focus on efficacy and innovation, this would provide a structured opportunity
for collaboration with State Governments.
Similar approaches have been utilised elsewhere. For example, the US Federal Government will provide $92
million Social Impact Fund to provide incentives for Federal, state and local governments to fund feasibility
and other approaches to outcomes-based funding. A Social Impact Bond Bill (US)14 passed in February this
year also intended to promote more evidence based and innovative solutions. The Social Impact Investment
Taskforce (2014) concluded that “a decisive move to focus on purchasing outcomes (by governments and
other commissioners) is clearest way of simulating flow of revenue to impact-driven organisations that
rewards them more directly for the social value they create. This can have a profound effect on the way impact
is delivered as well as ensuring that innovation and effectiveness is incentivised”.
Acquiring and maintaining the necessary skills and
expertise to fulfil its responsibilities
Adding to the policy toolkit requires new skills, including: working in networked and collaborative ways;
delivering joint outcomes; purchasing goods and services collectively; and organising and managing in new
ways with new approaches to governance.
Social innovations are often hybrids borrowing solutions from other disciplines, cutting across sectors, and
forging new value social relationships. The skills and capabilities required for the APS of the future must
be developed for this new focus area. Our proceeding recommendations have attempted to address the
capacity, culture, performance and organisational aspects that should be addressed to position the APS
for the future.
In order to address the societal challenges we are facing and find a more effective way of delivering public
value, it is clearly necessary for government to build its capacity to engage effectively and to partner with
the private, community and philanthropic sectors. Through stronger connections with citizens, and the co-
production of effective responses, there is an opportunity to leverage local knowledge through accountable
and efficient mechanisms that achieve real and sustained social impact.
14 Social Impact Partnerships to Pay for Results Act (SIPPRA)
10 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Conclusion
Governments are faced with the competing challenges of tighter fiscal conditions in an increasingly more
complex society where the demand for more responsiveness to societal issues is increasing. The solutions
will not be found by governments acting alone, nor in simplistic approaches that use the market to deliver
pre-determined outputs through complex contractual arrangements that stifle innovation.
At the same time, market-based approaches to tackling social issues are growing in size and sophistication.
Entrepreneurs are finding innovative solutions to the complex social problems that have eluded
governments, but they have not yet been able to scale these solutions or apply them in a wider variety of
situations. Community sector leaders are seeking more creative ways to fund and finance their work and are
willing to take more accountability for outcomes in return for reliable streams of working capital and
investment.
Change is clearly required to take the APS into the future. New skills need to be built to effect a focus on
social innovation and impact investment and bring private capital to the table to work together with
government and philanthropy in addressing our societal needs. This paper sets out eight recommendations
including a number of practical quick wins such as establishing an Office of Social Impact Investment and
supporting Impact Capital Australia which will accelerate skills and capability development in the APS.
Recommendations which go to cultural transformation around risk taking and building data sharing protocols
will be longer tailed but are fundamental to success outcomes in social innovation.
The AAB and Impact Investing Australia thank you again for the opportunity to make this submission and
would welcome any further questions you may have around our recommendations.
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 11
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12 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Clark, C., Emerson, J. and Thornley, B. (2014) The Impact Investor: Lessons in Leadership and Strategy for
Collaborative Capitalism, Jossey-Bass
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▪ (2016) Achieving the Sustainable Development Goals: The role of Impact Investing
▪ Mudaliar, A., Schiff, H. and Bass, R. (2016) Annual Impact Investor Survey 2016
▪ Mudaliar, A., Bass, R., Dithrich, H. and Schiff, H. (2017) Annual Impact Investor Survey 2017
Godsall, J. and Sanghvi, A. (2016) How Impact Investing can reach the mainstream, McKinsey&Company
Jackson, T. and Harji, K. (2012) Accelerating Impact: Achievements, Challenges and What’s Next Building the
Impact Investing Industry, Rockefeller Foundation
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role of the private sector in promoting economic growth and reducing poverty in the Indo-Pacific region
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fingBook45p/WelfareCost
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 13
Koenig, A. (2014) Creating Social Impact Investing Markets—where are we now and where do we want to
go?, Impact Investing Policy in 2014: A Snapshot of Global Activity. Impact Investing Policy Collaborative,
www.iipcollaborative.org
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it needed and where can it come from?, National Roundtable of Non-profit Organisations Limited
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Thornley, B., Wood, D., Grace, K. and Sullivant, S. (2011) Impact Investing: A Framework for Policy Design
and Analysis, InSight at Pacific Community Ventures and the Initiative for Responsible Investment at
Harvard University, supported by the Rockefeller Foundation
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Innovation, www.weforum.org
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▪ (2014) Impact Investment: The Invisible Heart of Markets, Social Impact Investment Taskforce,
www.socialimpactinvestment.org
▪ (2014) Social Impact Investment: Policy Levers & Objectives
UK Cabinet Office (2013) Achieving social impact at scale: case studies of seven pioneering co-mingling
social investment funds, https://www.gov.uk/government/publications/achieving-social-impact-at-scale
Wilson, K. and Silva, F. (2013) Policies for Seed and Early Finance: Findings from the 2012 OECD Financing
Questionnaire, OECD Science, Technology and Industry Policy Papers, No. 9
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14 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
APPENDICES
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 15
Appendix 1: About impact investing
The distinguishing feature of impact investing is the intention to achieve both a positive
social, cultural and/or environmental benefit and some measure of financial
return…Financial return distinguishes impact investing from grant funding; intentional
design for positive benefit to society distinguishes it from traditional investments.
IMPACT-Australia, 2013
Impact investments can be found across all financial product types and a variety of sectors. Impact
investments can be made in both emerging and developed markets. They target a range of returns from
below market to market rate, depending upon the circumstances. Essentially, impact investment is defined
by three key characteristics:15
▪ Intentionality: The intent of the investor is to generate social, environmental or cultural impact
▪ Investment: They are financial instruments designed to generate a financial return on capital and,
at a minimum, a return of capital
▪ Measurement: A commitment to measure and report the social and environmental performance
and progress of underlying investments
The key point of difference is introducing a third dimension, namely impact, to the more conventional
investment decision making framework of risk and return. The impact dimension opens up a range of areas
and ways in which capital can be applied to increase resources and drive different results for public benefit.
Figure 2: Impact as the third dimension of investment
Source: Addis, R adapted from Saltuk, 2012 & Social Impact Investment Taskforce, 2014
Impact investments can be developed across all investment types. As in the rest of the investment market,
impact investment products ultimately stem from three basic categories: cash, debt and equity. Different
structures and conditions further segment the product types. Different investment products carry different
expectations of risk and return.
15 Global Impact Investment Network, www.thegiin.org; Wilson, K and Silva, F, Social Impact Investment: Building the evidence base, OECD, 2015
16 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Impact investing has contributed financial innovation, most notably impact bonds, sometimes called social
impact bonds. These instruments, often not technically bonds, despite the name, link financial performance
to achievement and improvement of targeted social outcomes. These instruments are being applied in
domestic policy and development investment. They are an important for a range of reasons referred to in
this Submission. However, impact bonds are only one type of impact investment product and currently
represent a small proportion of the overall market16.
Fund structures bring together a number of investments in one investment vehicle. This enables investors
to place capital with a fund manager who then makes the individual investment decisions. Fund structures
leverage fund manager expertise and processes that can create efficiencies and better enable scale.
Impact investing opportunities can also be categorised through the lens of the assets and activity they
finance. Broadly, this can be grouped as: organisations and enterprise, services and program delivery, and
real assets and infrastructure. Each classification lends itself to different investment products, different
results and different market players, including different investors.
Figure 3: The forms of social impact investment
Source: Impact Investing Australia, 2016
Impact investments carry different return expectations based on a number of factors, including the type of
investment product and the assets or activity being financed. The available evidence confirms that there is
no necessary trade-off between financial return to achieve impact.17 However, one or more parties may
choose to trade off return for greater impact or to achieve a result that would not otherwise occur.
Impact investors range from progressive foundations and family offices to companies, banks, insurance
companies, pension and investment funds, to governments and individuals. Different groups often have
varying priorities and appetites for impact, risk and return.
Collaboration between different groups and the forms of capital they control is a common feature of
impact investments. In particular, impact investments can combine modest amounts of government or
philanthropic grant capital with private capital. This can encourage investors to enter new markets or
reduce the (actual or perceived) risk and enable demonstration of investments and impact that would not
otherwise occur.18
16 Social Impact Bonds: The Early Years, Social Finance, 2016 http://socialfinance.org/social-impact-bonds-the-early-years/
17 GIIN and Cambridge Associates, Introducing the Impact Investing Benchmark, 2015; Wharton Social Impact Initiative, Great
Expectations: mission preservation and financial performance in impact investing, 2015; Castellas, E, Findlay, S & Addis, R,
Benchmarking Impact: Australian Impact Investment Activity & Performance Report, Impact Investing Australia, 2016
18 UK Cabinet Office, Achieving Social Impact at Scale: Case Studies of Seven Pioneering Co-mingling 2013, GIIN Issues Brief #1,
2013, ImpactAssets Issues Brief #10, 2012
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 17
Appendix 2: Impact Capital Australia
Extract: Executive Summary from our pre-Budget Submission 2018-19
Full proposal can be found at:
https://impactinvestingaustralia.com/wp-content/uploads/2018_19-Impact-Capital-Australia-pre-Budget-
Submission-FINAL.pdf
18 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Executive Summary
(Extracted from the AAB and Impact Investing Australia 2018-19 pre-Budget Submission, December 2017)
Like any new market, impact investing1 in Australia will grow faster with an effective catalyst. A go to
place to help co-ordinate fragmented efforts, and support intermediation and demonstration of new
approaches to solving our societal issues. International experience has shown the effectiveness of a
national impact investment wholesaler in catalysing the market.
The Australian Government has taken some good first steps in support of impact investing both in initial
policy moves in the 2017 budget and through supportive speeches and commentary from Ministers and
Senators. There is now a significant choice to be made and that choice is in the hands of the Australian
Government. The Government can continue to take incremental steps and not realise the impact
investing markets potential, or it can enable a game-changing institution and unlock the opportunity to
drive positive societal outcomes at scale. Australian communities need the Government to make the right
choice.
Recommendation:
Create a step change in Australia’s impact investing market by committing $150m in 2018/19 to be
matched by Australian financial institutions and other societally focused investors to establish Impact
Capital Australia (ICA). ICA will be a game changing $300m wholesale institution with the capital,
mission and mandate to improve people’s lives by driving the impact investment market in Australia to
scale.
This submission outlines how the Australian Government can adopt an implementation-ready policy
proposal to help drive the impact investment market to scale in Australia. It involves the establishment of
a $300m predominantly wholesale institution, Impact Capital Australia (ICA), as a partnership between
the government, the private sector and the community sector.
A one-off $150m of government capital to seed ICA would unlock a critical mass of investment and
innovation that would deliver meaningful social, environmental, cultural, and economic benefits for
Australians.
The path to impact at scale
A recent Australian Advisory Board on Impact Investing (AAB) field scan re-enforced that while there is
strong appetite and potential for impact investing from a broad set of stakeholders, including
governments, the market lacks scale. Significant gaps to growth remain, including gaps in the intermediary
market. Other key gaps include: lack of origination capacity, lack of long term capital, viability of
new/existing intermediaries and aggregators, misalignment of funding terms and incentives, mispriced risk
and information asymmetries and under-developed secondary markets.
Capacity also needs to be built in impact management, measurement and risk assessment, and
associated transaction structuring with the “right” capital. The involvement of private financiers,
(including philanthropist), governments and the community sector necessitates significant cross-sector
collaboration. These gaps and barriers to growth are not insurmountable and a go-to institution, such as
ICA, which houses both flexible capital and extensive capacity would go a long way towards addressing
many of these issues.
Experience from international markets illustrates that impact investment wholesalers, whether broadly
focused or sector specific, can provide a catalytic effect in stimulating market growth.
Big Society Capital (BSC) the UK wholesaler was established in 2012 and over the last 5 years, has
unlocked £1bn of capital for impact investing. Support for intermediaries has been a key driver of growth
with the number of UK impact investing intermediaries managing over £50m going from only one in 2012
to seven in 2017.
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 19
The European Social Impact Accelerator, an EU focused fund of funds, invests in social impact funds
targeting SMEs. Since it was established in 2013, it has helped to support 10 intermediaries in bringing
new funds to market.
The Global Energy Efficiency and Renewable Energy Fund is sector specific and demonstrates the leverage
of the wholesaler model. In 2016 its €154m of committed capital, through a fund of fund model, helped to
unlock €2.4bn of private sector funds for energy projects. This created 5,000 jobs and brought energy to
308,000 developing market households.
The lessons from these international wholesalers’ have been built into the design of ICA. It will be an
independent organisation with a mission, investment mandate and sufficient catalytic capital at $300m, to
significantly accelerate market development.
As a predominantly wholesaler investor and market champion, ICA will also support two critical
dimensions of the market that drive scale:
▪ the support of existing and new intermediaries through seed funding and capacity support; and
▪ the proving up of new and innovative business and financing models to address risk and pricing
anomalies
The policy case for ICA
In an environment where government budgets are under-pressure two things are particularly critical:
▪ Maximising efficacy of government spending against policy priorities i.e. Better outcomes
▪ Unlocking private capital for direction towards policy priorities i.e. More outcomes
More and better outcomes could be achieved with less money and result in savings to Government if
effectively executed.
Recent policy announcements and Ministerial statements suggest the Government has recognised that
impact investing has an important role to play in delivering these critical factors. They appear supportive of
the market’s development.
Game-changing policy, in establishing ICA, is now required to drive the impact investing market to a state
of development where it can meaningfully contribute toward the Government’s policy priorities.
A Government commitment of $150m in 2018/19 would crowd in private capital immediately through a
combined contribution from financial institutions including major Australian banks. The Government
contribution could be structured as a grant and/or an approved investment.
ICA cannot be implemented to achieve its objectives without the Australian Government as a partner.
There are a number of key reasons:
▪ Government is potentially both a key beneficiary and major participant in Impact Investing. The
signalling effect of its early collaboration and commitment is therefore critical in instilling market
confidence;
▪ In order for ICA to be self-sustaining, provide flexible capital and operate as a public good, it needs
its own capital on the right terms. The private sector is prepared to partner with government to
achieve this but would not be prepared to fund ICA alone; and
▪ The national nature of ICA’s remit means the Australian Government is the more natural
government partner to fund ICA. Once ICA is capitalised, there will be an important role for State
governments in co-investment with ICA and its intermediaries.
The design for ICA is based on leading practice in market development and market and innovation policy.
This proposal builds on the Government’s initiatives to develop the social impact investment market in
Australia, including the 2017 Budget measures. ICA also meets the Australian Governments Principles for
Social Impact Investment.
20 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
The outcome areas which will be the focus of ICA’s investment mandate include Government policy
priorities in: housing; employment and training; healthcare and disability, childcare and; financial and
community inclusion.
In pursuing the growth of intermediation and focusing on efficacy and efficiency of capital, ICA’s work will
be highly aligned with the objectives of Government around the delivery of both more and better
outcomes for Australian communities.
ICA creates a multiplier effect
*blended leverage on Government funds forecast to reach 16x
Source: Impact Investing Australia, 2017
ICA is implementation ready
ICA’s design is based on a broad evidence base and is the product of a collaboration between cross-sector
leaders, locally and globally. A three year process of robust co-design and planning has brought ICA to a
point where it can be readily implemented.
ICA would be an independent, purpose-driven organisation with standards and processes that ensure
accountability for proper and effective use of resources. Governance would be the responsibility of a highly
experienced board utilising appropriate committee structures.
Other aspects of accountability and transparency such as performance monitoring and management and
risk mitigation strategies, would all be essential in the formalisation of ICA policies on implementation.
A clear and accountable implementation plan has been developed for ICA. The plan has four stages with
identified work-streams, milestones and time-frames:
▪ Stage 1: concept design;
▪ Stage 2: pre-funding implementation;
▪ Stage 3: formation and capitalisation; and
▪ Stage 4: post-funding implementation.
Stage 1 has been completed and Stage 2 has been progressed to the final stages. The next major milestone
is securing capital commitments from significant stakeholders including the Australia Government.
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 21
An important aspect of ICA’s implementation is pipeline development and this process has already
commenced. This early identification of opportunities and adoption of initiatives around building pipeline,
will accelerate the speed of ICA’s market impact, once capitalised.
ICA’s proposed initiatives for Pipeline Development
Source: Impact Investing Australia, 2017
Conclusion
This year’s pre-Budget submission focuses in on the highest priority action to achieve a breakthrough in
enabling and supporting the market for impact investment, ICA.
ICA is not the only constructive step the Australian Government could take, or the only one that will be
needed. However, it is the one that will make the biggest difference and is the measure most likely to put
the market on a path to scale. ICA will change the game because it is unique. It exists not to make a surplus
profit or compete against others in the market but to act as an independent, designated market champion
with the capital and mission to grow the market.
The AAB and Impact Investing Australia welcome the opportunity to have input into this pre-Budget
process. We urge the Australian Government to take up the opportunity for targeted action to fuel
development of impact investment. Members of the AAB and Impact Investing Australia Executive will be
happy to meet to discuss any aspect of this Submission and the design and analysis for ICA.
22 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Case study 1: Drawing on the UK experience – an Australian place based investment fund
UK experience: Bridges sustainable growth fund:
▪ Bridges’ Sustainable Growth Funds invest in ambitious growth businesses that are helping
to tackle some of society’s biggest challenges – in areas like healthcare, education and the
environment.
▪ Bridges invest £2m-£20m in businesses pursuing organic growth, buy and build, and multi-
site roll out strategies across any of their impact themes.
▪ Since its first fund was launched in 2002, Bridges have built a strong track record resulting
in 10 successful exits generating multiples ranging from 1.6-22x.
▪ In 2013, the fund won best British private equity exit for the partial sale of its stake in the
Gym Group at 3.7x generating an IRR of 50%.
Health & Education & Sustainable
Well-being Skills Living
Underserved Markets
Australian concept for a sustainable growth fund:
▪ Building on work already done to adapt leading community investment models for the
Australian context, ICA could cornerstone an Australian sustainable growth fund.
▪ Like the Bridges fund, it will seek to invest in SMEs in communities which have experienced
sustained under investment.
▪ Impact will be targeted at economic development, employment and training opportunities
and improved societal outcomes within the communities.
▪ Ultimately designed to shift long term dependency on public funds in these communities
and create a demonstration effect to encourage further innovation and private investment.
Source: Impact Investing Australia, 2017 from information collected on Bridges Sustainable
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 23
Case study 2: Drawing on its UK Experience – Cheyne Capital Australia disability
housing impact fund
Cheyne social property impact fund, (SoPro):
▪ Cheyne Capital is one of the largest alternative asset managers in Europe with ~US$14bn in assets under
management of which over US$2-3bn are in real estate funds [2017].
▪ In 2014, it established SoPro to address the chronic shortage of supply in UK social property. At 30
September 2017 the fund had £250m under management.
▪ The UK wholesaler, Big Society Capital was an The structure of the rental arrangement:
important seed investor in the Fund.
▪ The fund’s objective is to increase the capacity of
social sector organisations, (SSOs) for the delivery
of their front line services. Properties are bought
or built for the needs of the SSO and their
beneficiaries, and leased on attractive and
extended terms (circa 20-40 years).
▪ New Philanthropy Capital (a social consultancy)
ensures all investments are socially responsible.
▪ Overall targets for the fund are for an IRR of 10-
12% with 5-6% expected in annual distributions.
▪ SoPro is a part of the New Communities Partnership, (with Kier Living, the HCA19 and Lloyds Banking
group), a unique £1bn housing delivery fund with ambitions to help the public sector to build 10,000
new homes across the UK.
▪ SoPro is delivering over 1,500 homes across disability, key worker, social and elderly housing without
the need for any government grant.
Cheyne Australian disability housing impact fund, (CADIF)
▪ Cheyne is exploring investor appetite for its CADIF which would be launched in
partnership with Ability First Australia (AFA), a large strategic alliance in the specialist
disability service sector.
▪ The fund will be dedicated to investing in Specialist Disability Accommodation (SDA), helping to support
the estimated 110,000 person increase in housing support requirements identified under
the roll out of the National Disability Insurance Scheme (NDIS).
▪ The fund will purchase or develop property for long term SDA use, with tenant rent paid
from the NDIS program, with leases on a triple net basis20 and over a 20 year period.
▪ Social impact will be independently audited annually including an assessment of care provision by SDA
Providers.
▪ The fund will assist governments in the roll out of the NDIS by helping to support supply and
privatisation of stock into a growing rapid demand for SDA properties. The value of these properties is
estimated to be $11.5bn of which 43% will be stock new to the sector.
▪ Indicative return expectations, [IRR basis net of fees], for the assets within the portfolio over the funds
20 year horizon are: 6-7% for existing stock [unlevered], and 9-10% on new stock [levered].
▪ Should the Cheyne fund be launched, a capitalised ICA would be well positioned to provide investment
to catalyse the fund and its impacts.
Source: Impact Investing Australia, 2017, from discussions with Cheyne Capital
19 Homes and Communities Agency
20 This means the fund would have a rental claim on the AFA, the Disability Service provider and the tenants
24 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Appendix 3: Innovation lessons to be learnt
Opinion Editorial:
Rosemary Addis, Chair, Australian Advisory Board
Sydney Morning Herald
AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA | 25
Sydney Morning Herald, Sydney
24 Nov 2015, by Rosemary Addis
Business News, page 28 - 654.00 cm²
Capital City Daily - circulation 107,291 (MTWTFS-)
Copyright Agency licensed copy
(www.copyright.com.au) ID 501967659 PAGE 1 of 2
Innovation lessons to be learnt
Rosemary Addis
I
n April 2012, Harvard Pro- tions addressing social challenges. enterprise, and encouraging talent
fessor Michael Porter Impact investment is the grow- and capital into the field, we are
launched the Social Pro- ing field for achieving this, where- unlikely to reap the benefits of in-
gress Index, to be used in by investments are purposefully novation in the Australia we want
tandem with GDP. designed to deliver positive social for our children that is fair and full
He said that leaving the social impact and a financial return. Im- of opportunity. Just like the com-
dimensions out of competition and mercial sphere, there is no silver
pact investing is an innovation
economic theory had been a huge bullet, but we can take positive and
story in its own right. It is a new
mistake. targeted steps.
conception of how we can integrate
As we embark on a new national The big game-changer needed is
social purpose and finance.
conversation about innovation, it’s the creation of an independent fin-
The inquiry notes, it could ‘‘be-
important to ensure that we don’t ancial organisation that can unlock
nefit government and taxpayers by
repeat the same mistake. the potential of impact investing,
reducing costs and improving so-
I have spent nearly three dec- accelerate the pace and scale of its
cial policy outcomes’’.
ades in innovation, within the priv- development and create a signific-
It is also an enabler of innova-
ate, community, philanthropic and ant multiplier effect in capital and
tions, providing the capital to fin-
public sectors, including as social impact. Last month we launched a
ance new models, infrastructure
innovation strategist in the Austra- Blueprint for Impact Capital Aus-
and entrepreneurial activity fo-
lian government. tralia, an institution that would do
cused on addressing issues affect-
The more time I spend in the just this. Its investment activity
ing our society.
field, the clearer the interrelation- would be predominantly whole-
ship between social and economic Promising developments here
have put Australia at the forefront sale, providing finance to existing
progress becomes, and the more participants to grow their reach
mystified I become as to why we of this field globally, including be-
ing the only country outside the G7 and impact and encouraging oth-
don’t utilise the same toolkit for ers to enter the market.
innovation in how we tackle the and EU invited to participate in the
G8 Social Impact Investment Examples could include a fund
most pressing issues for society, as to finance affordable accommoda-
we do in economic policy and other Taskforce. We have an opportunity
to lead in this field and reap the tion for people with disabilities, or
areas of R&D.
benefits in our communities. a social impact bond fund investing
The toolkit for social innovation
With social services expendit- in innovations and prevention that
is the same: enterprise develop-
ure at around $154 billion and de- improve social outcomes in areas
ment, capability and talent, meas-
mand in key areas growing faster such as early childhood develop-
urement, regulatory settings and
the need to consider alternatives is ment or type 2 diabetes.
capital. The role for government is
clear, even if our federal budget As a market champion, it would
the same: as a market builder con-
target barriers to growth and de-
tributing to the market infrastruc- was not under stress. velop new, scalable opportunities
ture and incentivising participa- While there are promising de- for innovation and impact.
tion; as a standard setter; and as a velopments, wider uptake of the Impact Capital Australia can be-
market participant using targeted toolkit for social progress lacks come a reality with appropriate
funding to create a multiplier ef- scale and is fragmented. Without a capital and resources. There is po-
fect. Our recent Financial System focus on innovation for social bene- tential to mobilise capital at scale
Inquiry agreed, particularly as it fit, we risk further entrenching dis- and transform how we achieve so-
relates to mobilising private capit- advantage. Without a focus on de- cial change. Government has a crit-
al as a vital enabler of the innova- veloping capital flows to support ical role to play in developing the
Sydney Morning Herald, Sydney
24 Nov 2015, by Rosemary Addis
Business News, page 28 - 654.00 cm²
Capital City Daily - circulation 107,291 (MTWTFS-)
Copyright Agency licensed copy
(www.copyright.com.au) ID 501967659 PAGE 2 of 2
opportunities for impact investing
and what it can enable, and in do-
ing so, ensure innovation benefits
for all Australians into the future..
.
Rosemary Addis is chairman of
Impact Investing Australia and
the Australian Advisory Board on
Impact Investing and represents
Australia on Global Social Impact
Investment Steering Group.
Appendix 4: About us
About the Australian Advisory Board on Impact Investing
The Australian Advisory Board on Impact Investing (AAB) provides leadership and strategy for accelerating
the growth of the impact investment market in Australia. It is Australia’s national advisory board to the
Global Steering Group for Impact Investment (successor to the G8 Social Impact Investment Taskforce)
The GSG has 19-member jurisdictions with plans to build to 30+ member countries by 2020. At the annual
meeting in Chicago (July 2017) strategies were agreed to drive global market to a tipping point by 2020.
The AAB led strategy to catalyse the market in and from Australia, Delivering on Impact, has seen a program
of leadership, action and policy delivered. Experienced leaders spanning the finance, business, not for profit,
philanthropic and community sectors committed to growing the opportunities for impact investment
contribute to the AAB and its work.
Members:
Rosemary Addis (Chair) Impact Strategist; Global Steering Group for Impact Investment
Adrian Appo OAM First Australians Capital
Christopher Thorn AM Ernst & Young
David Crosbie Community Council of Australia
David Bennet SEFA and Macquarie Foundation
Fabienne Michaux NED, previously CEO Standard & Poor’s ANZ
Louise Sylvan AM (Vice-Chair) University of Sydney
Peter Munro A.T. Kearney
Richard Brandweiner (Vice-Chair) Pendal Group
Rob DiMonte NED; The Australian Centre for Social Innovation
Sally McCutchan (ex-officio) Impact Investing Australia
Sandy Blackburn-Wright Social Outcomes
Sarah Davies Philanthropy Australia
Eric Williamson National Australia Bank
Ambassadors:
Carol Schwartz AM Trawalla Foundation
Carolyn Hewson AO Non-Executive Director
Peter Shergold AC Western Sydney University
Additional ICA Ambassadors:
Greg Hutchinson AM Paul Ramsay Foundation; Bain & Co
Jillian Segal AM Non-executive Director
The Hon. John Brumby AO Non-executive Director; Professorial Fellow
Peter Hunt AM Greenhill Investments
Rob McLean AM Philanthropy Australia; McKinsey & Co
Simon Longstaff AO The Ethics Centre
Simon McKeon AO Monash University; Macquarie
28 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA
Impact Investing Australia
Impact Investing Australia was established in 2014 in response to an industry-identified need for
dedicated leadership, facilitation and capacity building. Its primary role has been to provide strategy
development and execution support for the Australian Advisory Board on Impact Investing.
Responsible for driving the implementation of the Australian Advisory Board on Impact Investing’s
strategy to catalyse the market for impact investing, Impact Investing Australia provides a focal point
for market development in Australia, as well as participating in international efforts to grow the
market globally.
Impact Investing Australia’s work is made possible through generous support from our partners and
supporters and contributions of time and experience of a dynamic group of skilled volunteers.
Market Building and impact is made possible with collective action and resources. We thank our
partners and supporters and welcome others who would like to contribute to realising the potential
of impact investing in and from Australia.
29 AUSTRALIAN ADVISORY BOARD AND IMPACT INVESTING AUSTRALIA