In its 2018-19 pre-budget submission, Impact Investment Australia has laid out an “implementation-ready” policy plan that would create a $300 million entity called Impact Capital Australia.
The proposed entity would be funded by a $150 million government commitment in the 2018-19 federal budget, matched by an additional $150 million from private investors.
“A one-off $150 million 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 submission said.
The submission warned that the government is faced with a stark choice: it can continue to take “incremental steps and not realise the impact investment market’s potential”, or it can enable a “game-changing institution” and “unlock the opportunity to drive positive societal outcomes at scale”.
To date, only a handful of institutional investors have made significant forays into impact investment, which generate financial returns while creating measurable social and/or environmental outcomes.
QBE Insurance announced a $100 million allocation to social impact bonds in 2014, and industry super fund HESTA launched a Social Impact Investment Trust in 2015 that committed $30 million to invest in housing, employment, health and education.
Ten per cent of Christian Super’s funds under management are invested for impact, and NAB launched climate-certified green bonds in 2014 and 2016.
However, “significant gaps” to growth in impact investment remain, according to the submission – 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,” said the submission.
The policy case for Impact Capital Australia is based on two core premises, according to the submission.
First, it will maximise the efficacy of government spending against policy priorities; and second, it will unlock private capital for direction towards policy priorities, said the submission.
