Unleashing the power of capital for good

Imagine a world where your investments reap financial returns, but also make the world a better place. That’s the world according to the growing impact investment community.

Impact investment is a relatively new term, but according to insiders, a growing global trend.

The industry body dedicated to growing the local market, Impact Investment Australia, describes it as a “field of investment that’s helping finance solutions to some of society’s biggest challenges”.

Put simply, it’s investment with a social bang for your buck. The field is wide but can include sustainable agriculture, renewable energy, affordable housing, gender equity and services like healthcare, education and aged care.

A wide spectrum of investors is participating in impact investing –  public and private foundations, family offices, banks, superannuation funds and insurance companies, governments, fund managers, community finance organisations and individuals.

Impact investments can be made directly into an organisation or via a managed impact investment fund. They’ll typically come in the form of a loan or equity, and can span different asset classes.

Marrying profit with social good

That’s not to say that financial returns don’t matter. The intention of impact investment is just as much to deliver financial returns as to generate measurable social good.

The Australian-based social enterprise Who Gives a Crap has generated $10 million for improving sanitation in developing countries from selling ethically made toilet paper since launching in 2012.

The company says a working capital loan was initially used to finance the purchase of inventory and increase production volumes. Over the duration of the loan term, Who Gives A Crap says its revenue grew more than 250 per cent.

Kerry Series is the founder and chief investment officer at Inspire Australian Equities which invests capital in ASX listed companies that are doing something positive for society or the environment. Series says impact investment challenges traditional views that social and environmental issues should be addressed by philanthropy.

This is a game changer because the pool of investment capital is so much larger than philanthropic grants.

Kerry Series

“The traditional model builds on that so investment capital can be used to do good and you still expect to get a return on you money,” he tells Australian Ageing Agenda. “This is a game changer because the pool of investment capital is so much larger than philanthropic grants.”

It might all sound very similar to ethical investing which was all the rage in the 1990s, or the more recent corporate trend of ESG – all of which has variously been dismissed by critics as ‘green-washing’ or even ‘woke-washing’. But Series says impact investing goes a step further.

“Ethical investing is focused on avoiding investments that have a negative impact, but instead of just screening out negative investments, impact investments are made to organisations, projects or funds which are generating measurable, positive social and environment outcomes,” he says.

Growing fast from a small base

The global impact investment market is huge. According to the Global Impact Investing Network, over 1,720 organisations were managing $US715 billion in impact investments as of the end of 2019.

According to the Responsible Investment Association of Australia’s latest benchmark report, responsible investment by AUM in Australia increased by $298 billion to $1,281 billion in 2020, while AUM managed by the remainder of the market shrank by $234 billion to $1,918 billion.

The RIAA report shows that out of the responsible investment approaches, impact investment is the smallest, with $29 billion by AUM in 2020, but it saw the largest increase (46 per cent) since 2019.

Where does aged care fit in?

Ageing and aged care has huge impact investing potential, Series says, and aged care operators should be seriously thinking about how they can present opportunities for investors.

“Impact investing can apply to all asset classes that can be shares in a company listed on the stock exchange, to investing directly into a private company or infrastructure, property investments, debt or lending to a company,” Series says

“When we start thinking about aged care, it could be investing in the physical asset, in actually building aged care homes, it could be investing in an operator, it could be some form of funding to help people pay for their aged care support. In theory there are many ways in which impact investing could be applied to aged care. But in practice it’s very early days.”

Financing a dementia village

Health and community services super fund HESTA has invested $19 million through its Social Impact Investment Trust to finance Australia’s first dementia village based on a successful Netherland’s model.

HESTA, not-for profit aged care provider Glenview, the Commonwealth Government and Social Ventures Australia partnered in developing the village.

As the former Head of Impact with HESTA, Mary Delahunty worked on getting the village off the ground. She says it’s a good model of innovative social outcomes.

“The village provides a study on how this model of care can improve the quality of life for participants, improve the quality of care provider jobs in a rural township and how institutional money can be employed in this manner and produce the right returns for the fiduciaries,” she says.

Sustainability-linked loans

In another example, ASX-listed aged care provider Estia Health last year refinanced its existing loans with a $330 million sustainability-linked loan to publicly demonstrate its environmental, social and governance commitment.

Estia’s Sustainability Linked Syndicated Financing Agreement embedded independently assessed targets, including reduction in greenhouse gases, improved resident satisfaction and employee wellbeing.

The four-to-five year loan is financed by the organisation’s existing lenders ANZ, Commonwealth Bank of Australia and Westpac and includes an additional $170 million of capacity for future growth.

“It does put an onus on us to further support our commitments with an accountability and there’ll be a financial incentive one way or another to support that, so we’re very pleased to be able to join that movement,” Estia Health CFO Steve Lemlin said at the time.

Meanwhile, not-for-profit social impact investor For Purpose Investment Partners has identified aged care as a target for impact investments, and recently raised a fund of almost $70 million.

It’s called out aged care as one of the areas where they want to put that money to work, along with skills eduction, mental health, disability and affordable housing. “You can invest in a good business and have good social impact,” Executive Director Andrew Thorburn says.

Disability housing

The Synergis Fund was established by Social Ventures and Federation Asset Management in 2019, and has committed over $70 million across 50 properties to provide homes for over 150 Australians living with a disability.

The fund last year announced that US giant Goldman Sachs had become a key investor with a $137 million equity deployment, joining the Paul Ramsay Foundation, HESTA, Laurie Macri’s Portcullis House and Suncorp Group to make Synergis one of the largest investors in Australia’s disability housing sector.

SVA CEO Suzie Riddell says it represents the emergence of disability housing as an investment class. “We hope this encourages a systemic change in the disability housing sector in Australia,” she says.

Enhancing sustainability and delivering outcomes

There are plenty of opportunities for the community sector and non-government organisations to use impact investment to enhance sustainability as well as deliver outcomes, according to Impact investment Australia. This can be via increased procurement opportunities, investing in other social impact initiatives or taking a leadership role in building the field within their sector.

Series says the aged care sector is yet to harness the opportunities presented by the impact investment movement. “There is a huge opportunity for the aged care sector to engage with impact investors and to drive long term capital into the sector to deliver better outcomes,” he says.

Collaborative efforts

While the impact market is still relatively new, investors are optimistic about its development and expect increased scale and efficiency in the future. According to the GIIN, there has recently been a new collaborative international effort to accelerate the development of a high- functioning market that supports impact investing.

In Australia, the Impact Investment Summit Asia Pacific provides a thought leadership forum for the impact investment community in the region, and aims to drive the gathering momentum. Later this month it will provide an opportunity for the sector to come together and explore how investment can be used as tool to build a sustainable and equitable future.

The Impact Investment Summit at the International Convention Centre in Sydney from March 29 – April 1 promises to bring together institutional, private and aspiring investors, entrepreneurs and impact funds, corporates and government, consultants and financial advisors, social enterprises,  peak bodies, academics and media.

It will also give funds and enterprises an opportunity to pitch to investors in a ‘speed dating format’ while a series of plenaries, panels, keynotes and deep dives will delve into specific pillars of impact investment including housing, climate, gender and diversity.

More information is available here.

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