14 November 2017

Address to the Impact Investment Summit Asia Pacific, Sydney


'Social Impact Investing: Activate and Accelerate'

Check against delivery

Thanks for your warm welcome.

It’s great to be here to talk about the Government’s vision for social impact investing in Australia.

I am particularly interested in this vital area because it marries my current responsibilities as Treasurer and my previous role as Social Services Minister and results in real change for communities that genuinely need our help.

It brings together the sharpest minds within our investment community with our best and brightest in social services, providing market discipline, financial nous and program experience to improve service delivery.

And it gives those investors an opportunity to be involved in effecting measurable social change while still managing to secure financial returns for their shareholders.

I was overwhelmed by the good intentions and passion of the people I worked with while I was social services minister.

And as Treasurer, I have come across some amazing people in the corporate world with the experience and judgment to make things happen.

Put these people together in same room and you can — as the name suggests — make an impact.

As former UK Prime Minister and impact investing advocate David Cameron said: the problem-solving potential is big.

Accounting firm EY identified several areas where social impact investing might assist vulnerable Australians.

This includes early education and child care; employment education; social and affordable housing; rural and regional aged care; financial inclusion; health services; and disability services.

So it is no wonder why the Turnbull Government has been forward leaning in this space.

However, while there is much to like about it — I think everyone here agrees — social impact investing is not suitable for funding every type of outcome.

Rather, we see it as an option to address problems where existing policy interventions and service delivery are not getting the outcomes we want.

As indicated by today’s theme — ‘activate and accelerate’ — it is an exciting time for social impact investing in Australia.

In the category of impact investing and community finance, the Responsible Investment Benchmark Report estimates $4.1 billion in assets were under management in Australia in 2016 — a 10 per cent increase since 2015.

And the outlook is upbeat according to Impact Investing Australia.

It says more than two-thirds of all investors expect impact investing to become a more significant part of the investment landscape in the coming years.

In fact the pie is already starting to grow.

A couple of months ago, I spoke at the launch of Social Ventures Australia’s new diversified impact fund – a $15 million fund that proves there is growing confidence in the market.

The fund is geared towards projects that provide jobs, homes and opportunities for disadvantaged Australians – certainly admirable goals; and it is pleasing to see innovation and enterprise potentially creating these types of opportunities.

At the launch, senior executive from Credit Suisse, Nigel Renton spoke of the mounting demand for investments that make a difference, claiming that growth in such investments was running at double digit rates.

He said impacting investing may be on the verge of becoming mainstream.

So what sort of role should the Commonwealth Government play? And how are we going to help harness this momentum?

We are putting in place a framework to guide our involvement in the social impact investment market.

This comes on the back of the Financial System Inquiry recommendation that we: “Explore ways to facilitate development of the impact investment market and encourage innovation in funding social service delivery’’.

The inquiry report said ‘impact investing has the potential to benefit government and taxpayers by reducing costs and improving social policy outcomes.’

But as I said earlier, we know that social impact investing is not the answer for funding every type of outcome.

The Director of the Centre for Social Impact at the UWA Business School agrees that impact investing is not a blanket solution. Professor Paul Flatau said: “It is important that governments, social purpose organisations, and investors take a case-by-case approach to considering impact investing as a viable funding approach.”

In line with the Financial System Inquiry recommendation we issued a discussion paper inviting your views on: the role of the Australian Government in the social impact investing market; principles guiding our involvement; and regulatory barriers to the growth of the market.

We ended up receiving close to 90 submissions — a strong indication of the interest in this area.

After considering your views, we came up with six principles to guide our involvement in the social impact investment market.

The first principle involves the Government taking on the role of market enabler and developer.

What does this mean? Well, it means, where possible, we will be working with you to identify and remove regulatory barriers.

The second principle — value for money — speaks for itself.

We are swimming between the flags here. Social impact investments will only go ahead where we reasonably expect them to offer a net-benefit and are cost effective.

This leads to the third principle: outcome-based measurement and evaluation.

This is not just something you do at the end of project and leave in the bottom drawer — it is much more than that.

Ongoing outcomes-based measurement is the key to determining whether social or environmental outcomes will be achieved.

No investment is without risk, so it makes sense that our fourth principle makes it clear that risks and returns should be shared fairly.

That is exactly as it should be.

The fifth principle guiding our involvement in social impact investment ensures alignment with the Government's priorities.

For us to get involved there needs to be a well-developed case to address a social or environmental issue in line with the Government’s priorities.

The sixth and final principle goes to co-design. To get the best result it is imperative that Government collaborate far and wide.

We will call on industry experts, local communities, and stakeholders.

All up, it is a comprehensive set of principles underpinning our involvement in social impact investing.

In dipping our toe in the water, I announced several social impact investment measures as part of this year’s Federal Budget that shared the principles of fairness, security and opportunity.

At the outset, we committed $30 million to develop a strong social impact investing market in Australia.

This relatively modest commitment partly reflects the fact the sector is still emerging.

Our support is about assisting the sector to be a true investment vehicle — we are not merely providing another form of grant funding.

In addition, we allocated $10 million over the next decade to partner with State and Territory governments to trial the use of social impact investing to help young people at risk of homelessness.

The trial will assist young people supported by specialist homelessness services, exiting the out-of-home care system, or exiting institutions such as juvenile detention.

This aligns with the Government’s priorities in looking at all housing needs — including those without a roof over their head.

The Department of Social Services has held roundtable discussions with all States and Territories and relevant stakeholders.

For complex issues like homelessness this can present many challenges.

For example, the outcome for a program may be to reduce levels of juvenile incarceration or re-offending.

However, the milestones and focus of a program may be to reduce the risk factors, such as skipping school, substance abuse, homelessness and family structure.

In setting up an impact investment it may more meaningfully focus on these factors rather than only focusing on the final outcome.

It is achievable. For example, the NSW Government used social impact investment to fund the Foyer51 initiative.

This project provides young people who have been in out-of-home care with access to accommodation, education, training and employment opportunities.

Outside of housing, we have allocated $12 million over 10 years to partner with state and territory governments to trial other social impact investing initiatives.

We also announced $8 million over four years to establish a Social Impact Investment Readiness Fund.

The Government is consulting on the final design of the fund and will make a decision soon based on expert advice.

The fund aims to build capacity in the non-government and private sector to develop social impact investment proposals.

While the framework of social impact investment continues to be built, the Turnbull Government has been busy testing the waters.

One of those formative programs that seeks to partner with the private sector to deliver social outcomes has been our Try, Test and Learn initiatives – a $96 million fund designed to break welfare dependency.

It was an initiative I initiated as Social Services Minister, building on the adoption of the NZ investment approach to social services, that I also set in train, during the nine months I served in that portfolio.

Through this program, almost 5000 students moved from student payments to income support between June 2015 and June 2016 – giving them a greater chance of becoming self-reliant through long-term employment rather than becoming dependent on welfare when they finish their studies.

That is a great outcome for those students and their families. But it also represents a substantial saving to the Budget and the Australian taxpayer; some $410 million in future lifetime welfare costs.

Pushing into this year, by the time June rolled around there were 27 per cent fewer students shifting to unemployment benefits after finishing their studies than under Labor in 2013.

And today, my cabinet colleague and Social Services Minister Christian Porter will launch the latest round of Try, Test and Learn initiatives; an investment of $12.8 million for seven trials aimed at helping young students at risk of unemployment – helping them find jobs.

One of those trials looks at pairing former students with business mentors in Perth to help support them through the employment process, while a trial in Brisbane is giving 240 TAFE students computer and face-to-face neuroplasticity training to hone their skillset.

Meanwhile, just yesterday we announced the Commonwealth Government agency Indigenous Business Australia was launching a $50 million initiative to encourage impact investment that supports economic development in Aboriginal and Torres Strait Islander communities.

The fund will partner with businesses to drive employment and economic growth in areas of Australia that could well do with a helping hand, while seeking to deliver a return of 4.5 per cent above inflation.

Having sold a number of its assets, IBA will invest between $4 million and $50 million per project in opportunities that:

  • Involve equity ownership by Aboriginal and Torres Strait Islander organisations;
  • are commercially viable;
  • will support Indigenous employment, supply chain and social outcomes;
  • and will ideally have private sector co-investment.

This is money that will directly help some of Australia’s most vulnerable citizens, and transform communities that are on the brink.

The fund will look at investment across all sectors, but will lean towards projects in the tourism, healthcare, energy, infrastructure and affordable housing spaces.

This is a tremendous opportunity for both private organisations looking for an avenue to invest with a social conscience, and the communities that are in dire need of such injection of capital and support, and I commend Minister for Indigenous Affairs Nigel Scullion for his work in supporting this fund.

So, as you can see, the Government’s approach to social impact investing is beginning to take shape — and the principles and budget measures provide us with a starting point.

From here, we are partnering with states and territories to carry out trials, we are building capacity, and we are looking at ways to reduce regulatory barriers.

We know our approach is new and that we may need to make adjustments.

In saying that, we welcome the continued involvement of the community and private sector in developing this market.

We are playing the long game; our aim is to ensure the market can continue to grow and become more sustainable.

Thank you.