Turnbull Govt Takes Positive Stand on Impact Investment

The Federal Government has voiced it support for impact investment, as part of its far reaching response to the Financial System Inquiry, pledging to examine how best to foster its growth in Australia.

And the Government’s response has been widely applauded by the sector.

The Inquiry, chaired by David Murray AO, was asked to make recommendations that would position the financial system to best meet Australia’s evolving needs and support economic growth. The Inquiry found that Australia has a well performing financial system.

“The financial sector is the largest in our economy, having contributed $139 billion over the past year and employing around 400,000 Australians,” Treasurer Scott Morrison said in the forward.

“The financial system has a vital role in commercial activity across the Australian economy, contributing to productivity and growth. The biggest decisions Australians make in life — buying a home, providing for their retirement, or starting a business — are all supported by our financial system.”

The Government said it has accepted the overwhelming majority of the Inquiry’s recommendations.

Under the heading of Innovation, the report recommended the Government explore ways to facilitate development of the impact investment market and encourage innovation in funding social service delivery.

In response the Government said: “The Government agrees that impact investing has the potential to benefit government and taxpayers.We will examine how best to foster the growth of impact investment in Australia to support private and for-profit investment funds being directed to projects with a social or environmental purpose.”

“We will develop legislative amendments to provide greater certainty for private ancillary funds wishing to invest in social impact bonds.

“We will prepare a discussion paper to explore ways to facilitate development of the impact investment market in Australia, and introduce legislative amendments if necessary.”

Morrison highlighted the importance of innovation and said it is likely to continue transforming the financial sector.

“New payment methods, innovative funding sources, better use of customer information and deeper cross-border linkages promise enormous opportunities, if properly harnessed. Our policy settings must facilitate entry of these disrupters rather than acting as a blockage,” he said.

He also said the development of a crowd sourced equity funding market in Australia is an urgent priority for the Government to support the funding needs of early stage innovators.

“We will consult on draft legislation to implement this framework before the end of 2015,” he said.

As well, the Treasurer said he would establish a public-private Innovation Collaboration Committee to give innovation champions a direct voice to contribute to the development of policy.

“We will develop a plan to ensure that our laws and regulations are technology-neutral. When implemented, this will have a major deregulatory impact,” he said.

The Government has also agreed to develop legislative amendments to raise the professional, ethical and educational standards of financial advisers by requiring advisers to hold a degree, pass an exam, undertake continuous professional development, subscribe to a code of ethics and undertake a professional year.

It said the details of the new standards will be set by an independent, industry funded body, which will be recognised in legislation and the Government will consult on appropriate transitional arrangements for existing advisers.

The Government said it will introduce legislation to raise the professional standards of financial advisers by mid-2016.

Impact Investing Australia has welcomed the Government’s response and the recognition of the potential for impact investing to benefit taxpayers as well as government.

“We are pleased the Government has taken on board a number of the recommendations of the Financial System Inquiry including exploring how it can facilitate development of the impact investment in Australia,” Chair of Impact Investing Australia, Rosemary Addis, said.

“Impact investing holds enormous potential to address some of our most intractable societal challenges. The Australian Government has a critical leadership role to play to realising these opportunities.

“International evidence and local experience demonstrates the powerful effect of government leadership and the difference that policy initiatives and relatively modest government spending, often re-purposing existing spending, can have on catalysing market activity.

“It is pleasing to see that the Government will be establishing an Innovation Collaboration committee. We strongly recommend that impact investing is given some prominence in this forum.

“We also welcome the Government announcing it will develop legislative amendments to provide greater certainty for private ancillary funds wishing to invest in social impact bonds.”

Professor Peter Shergold, a member of the Australian Advisory Board on Impact Investing and Chancellor of the University of Western Sydney, said the Board had provided an excellent foundation and strategy for catalysing the market for impact investing in Australia.

“We look forward to informing the preparation of the Government’s discussion paper to develop the opportunities for private capital to deliver measurable social and environmental impact,” Shergold said.

Social Ventures Australia (SVA) also applauded the Government’s intention to develop legislative amendments that will provide greater certainty for private ancillary funds wishing to invest in social impact bonds, and to prepare a discussion paper to explore ways to facilitate development of the impact investment market in Australia.

“We are delighted that the Government have taken the FSI recommendations on impact investing on board and that they will be actioning these through a discussion paper exploring the issues in more depth,” Executive Director of Impact Investing at SVA, Ian Learmonth, said.

“We have been advocating for a number of years for greater attention on the potential of impact investing to deliver positive and sustainable social change in the community. A more robust impact investing market will result in increased capital flow to the community sector, enable government to fund preventative social services with greater efficacy, and improve innovation, data collection and reporting.”

Philanthropy Australia CEO, Sarah Davies, said impact investing was a powerful giving tool.

“The Government’s focus on growing and developing the impact investing market in Australia is absolutely the right decision, and we applaud them for it,” Davies said.

“It’s terrific that the government has recognised that we need legislative changes to affect positive growth in the impact investing market. For Australians who have Private Ancillary Funds, legislative changes will allow them to more easily invest in social impact bonds.

“Philanthropy Australia has been lobbying for this change, so it’s welcome news.

“We’ve been pleased to have been able to contribute our thoughts on growing impact investing in Australia to the Prime Minister’s Community Business Partnership, which is already examining how the broad range of policy levers can help grow impact investing. The government’s proposed discussion paper should result in a positive jump forward in the facilitation of impact investing in Australia.”