John McLeod shares insights and experiences from the recent impact investing workshop series, ‘How to unlock your corpus for impact’.

While it could be argued that impact investing has been conducted for many years by charities, governments and even some for profit organisations, there is no doubt that the level of interest has risen dramatically in recent years.

The Impact Australia report in 2013 documented activity levels and spelled out the potential for solving many social problems and scaling activity by generating self-sustaining businesses with a social outcomes focus. Since then, there have been an increasing number of impact projects proposed and generated and funders sought.

One of the more obvious sources for funding has always been philanthropic capital which has been put aside to achieve social outcomes. Traditionally, this has been done by using that capital’s income in the form of grants, but for many years the concept of also using the capital to achieve more than just produce income has been explored.

The fast growing pool of philanthropic capital in Australia has also become interested in this potential and was the audience for a recent seminar series hosted by Philanthropy Australia, NAB and JBWere.

The series was conducted in May and June in each of the capital cities and attracted around 300 people, predominantly representatives from trusts and foundations.

Presentations were given by Philanthropy Australia (Chris Wootton), Impact Investing Australia (Dan Madhavan), NAB (Katherine Leong) and JBWere (John McLeod and Luke Branagan).

Presenters explained the why, how and how-not-to aspects of impact investing followed by a number of trusts and foundations who related their experiences of becoming interested, involved and invested in various projects. These included Paul Madden (The Wyatt Trust), Sylvia Admans (RE Ross Trust), John McKinnon (McKinnon Family Foundation), Leonard Vary (Myer Foundation and Sidney Myer Fund), Catherine Brown (Lord Mayors Charitable Foundation), Gemma Salteri (CAGES Foundation), Andrew Tyndale (Grace Mutual) and Amanda Miller (Impact Generation Partners).


Why impact investing?

The “why” focussed on the ability to use all of a foundation’s assets to produce positive social return, rather than just the “5%”.  While almost all investments produce some positive social value (jobs, goods, services etc), most traditional assets focus is predominantly on financial returns.

To maximise a foundation’s social effect, large improvements could be gained through choosing investments which focussed on much greater social outcomes.

Often, this is done by negative screening or the exclusion of industries likely to offset any of the social aims of the foundation and/or implementing environmental-social-governance (ESG) analysis on the portfolio. Impact investments, however, can further enhance the alignment of mission and investments.

The growing range of options for impact investment across all asset classes (for example, fixed interest to longer term private equity) and across all sectors (health, environment, housing, education and more) was highlighted.

It was acknowledged that while the range of investments is rapidly expanding, most are still relatively small, as is the universe, compared to traditional investment options. However, this is changing with many individual investments and a number of funds being put in place to offer impact options to both foundations and for profit investors.

The other “why” that was highlighted was the low historical ability of the social sector to fund innovation, compared to the for-profit sector which has had a much wider range of risk capital available for investment. The combination of this need for new capital, plus the currently high level of philanthropic capital (now estimated at $15 billion), with the growth in private ancillary funds has created an attractive new potential partnership.

The potential for private ancillary funds (as well as other charitable trusts) to undertake these investments has been recognised by the Australian Tax Office which has added examples of how this would be treated in its PAF guidelines. These include the ability to count lower returns for sub-market rate loans to DGR 1 organisations as part of the PAF’s annual donation requirements.

It also includes situations such as a PAF providing a guarantee for a DGR’s loan and being able to count the reduced interest rate charged as a benefit provided to that DGR, or in the case of the guarantee being called, the value of the loan repaid by the PAF being counted as a benefit provided.

These guidelines have added certainty and widened the options for foundations that are contemplating using their corpus for impact.

One word of warning was that these situations only apply when dealing with DGR type 1s. Any other impact investments are easily undertaken by foundations but they need to be made with the expectation that financial returns will be attractive compared relative to the expected risk.  This is because the main purpose of a PAF is to provide assistance to DGR type 1s and for a charitable trust, it is to support charities. This means that despite potentially high social returns offered by a non DGR/charity, they also need to offer acceptable risk adjusted returns. The trust deeds and/or investment policies of foundations also need to allow impact investments in whichever form they are made.

There is a high level of interest by a growing number of philanthropists in impact investing which is being matched by a growing number of opportunities being presented to these investors.

As we see more matching of these investment opportunities to the social interests and risk profile of foundations we will see strong growth in impact investments and the opportunity to have 100% of philanthropic capital doing good, rather than just the current “5%”.



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Image courtesy of David Castillo Dominici at

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