John McLeod delves into the current global trends in impact investing and the opportunity for Australian philanthropists and charities to participate.
There are several factors currently combining globally to grow impact in a sustainable way. From the investor side, there is a growing volume and proportion of mainstream funds that are looking to invest for both socially positive (or at least not negative) and financially positive outcomes. They are joining an already active group of philanthropic capital holders who see the logic of using the 95% as well as the 5%.
At the same time, there are many people both within and outside of charities who are recognising that the sector’s current financial model isn’t sustainable and that projects which deliver social returns while also providing financial returns are a large part of the future. Connecting these two groups are an increasing number of governments and intermediaries trying to put in place the ecosystem that is needed to simplify and grow activity.
There is currently US$23 trillion in sustainable investments globally (stocks and bonds), representing 26% of all professionally managed funds. This has grown from US$4 trillion in the last decade. While negative screening and the use of environmental, social and governance measures represent around 60% of the strategies used by investors, impact and community investments have grown the fastest in recent years to now total US$248 billion.
There is also an evolving field of specific impact fund managers with which to invest for those without the considerable skills needed to evaluate both expected social and financial returns. Surveys of those managers show they currently manage around half of all impact investments. These surveys also indicate that the once dominant microfinance type of investment (pioneered by the Grameen Bank) has now been overtaken by housing and energy investments as owners of larger pools of capital search for scale.
In a promising indication of the development of the field, there are now investable projects available across nearly all assets classes and for different cause areas, ranging from fixed income in environment to equity in community development and real estate in education.
While activity is growing in Australia, compared to the size of capital markets or GDP, it is still small. Projections made in a recent report released for the Social Enterprise World Forum in Christchurch, Growing Impact in New Zealand, suggest 10-fold growth to around A$40 billion in Australia over the next decade.
The final part of the picture, the ecosystem, is also expanding with a range of government interest and support from simpler guidelines for philanthropic investors (PAFs) to the development of social impact bond offerings, and the increasing number of both niche and mainstream organisations offering support with either project development or funding assistance linking investors to social opportunities.
The goal of sustainable social impact is a worthy and grand target but with desire, knowledge and growing support it is an achievable one.
To view the Growing Impact in New Zealand report head to bwere.com.au/for-purpose-organisations/philanthropic-services/thought-leadership.
John joined JBWere’s Philanthropic Services team on its establishment in 2001 after 16 years in resource equity markets. He serves on multiple boards including the Council of Philanthropy Australia and is the co-author of IMPACT – Australia: Investment for Social and Economic Benefit and author of The Cause Report – 20 years of (r)evolution in the Not for Profit Sector and compiled the list of Australia’s largest donors for the recent Philanthropy 50 special in the Australian Financial Review.