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Impact investing plan sent back to bank CEOs

“This will include how institutional investors can provide wholesale capital and support new and emerging organisations with a social mission to bring their good ideas to market and scale up their initiatives.”

Taskforce chairman Michael Traill has been talking to the major banks since last year, in an attempt to encourage each to provide $50 million in seed funding for the “wholesaler”. The plan was for the banks’ $200 million to be matched by the government to create a $400 million entity.

It would develop deal opportunities and arrange capital for intermediary funds, that would invest in areas like social housing, aged care, early education or disability services. Returns would be paid to investors if pre-determined outcomes relating to service delivery are achieved.

However, the banks are yet to be convinced to contribute the funding. Industry sources point to several questions, including uncertainty around expected returns, the recoverability of funding if projects fail, the governance model for the body including its leadership, and the regulatory treatment of contributions by APRA.

Banks seem more interested in providing debt funding to the organisation, as opposed to equity which Mr Traill had originally been seeking. Banks are also pursuing their own investment strategies in areas like social housing, with some reluctant to pool funding and knowledge into an industry-based effort.

However, the budget papers suggest Dr Chalmers will push the roundtable group to consider how a wholesaler could be structured. The banks will want comfort about the long-term recoverability and returns from any commitments made under a co-funding model with government.

If it gets off the ground, a wholesaler would catalyse private investment into social services, help the government develop outcomes-based measurements for its funding of social services, and reduce pressure off the budget by co-funding various services with the private sector.

A local wholesaler would be modelled on Big Society Capital, a similar venture in Britain, which has grown the social impact investing market in the UK to about £8 billion ($14.9 billion) over the past decade.

Big Society Capital got off the ground with support from four of the largest UK banks, Barclays, HSBC, Lloyds Banking Group and NatWest Group, which collectively contributed £200 million in equity funding from a pool of unclaimed deposits.

“Momentum around impact investing has been growing in Australia. However, we have not reached a point where it is at a scale required to bring significant social impact,” Mr Traill said.

The budget’s backing of the outcomes fund and commitment to pursue the taskforce’s core recommendations “is a good start to achieving this”, he added.

The federal budget made some additional funding in the social impact investing space. It said it would deliver an $11.6 million “Social Enterprise Development Initiative” to provide grants and online education and mentoring for organisations to build capability to access capital and support improved social outcomes.

And it will expand the Emerging Markets Impact Investment Fund from $40 million to $250 million over four years, to provide financing for SMEs operating in the Indo-Pacific and support the mobilisation of private and multilateral finance for development, in a sign that untied grant-based foreign aid is starting to shift towards securing particular outcomes.