Pushing the Role of Government in Growing Impact Investment

Governments have a number of diverse roles to play to help develop Australia’s growing impact investment market, according to a visiting UK expert.

Kieron Boyle, who has been a major player in the establishment of the impact investment market in the UK, has been speaking at forums around Australia organised by The Difference Incubator (TDi).

He is the CEO of a place-based health charity called Guy’s and St Thomas’ Charity and was previously the head of social investment and finance in the UK Cabinet Office.

Boyle said there were “classic” things that governments could do as a regulator and legislator in developing the impact investing market.

“But governments are also very important in terms of market-making and in terms of giving the market a bit of a boost to get going,” he told Pro Bono News.

“We have been talking [in Australia] quite a bit about Big Society Capital which is the UK’s social investment bank. We have been talking about how can the government interact with the whole space either if it is investing money itself – maybe with money that it used the grant – but also how it buys things as well,” Boyle said.

“The thing that I would particularly focus on is that the social investment market will happen anyway. What governments can do is to help accelerate just how quickly that develops and how broad that market-place is when it does develop.

“So I think there are initiatives such as an impact investment wholesaler like Big Society Capital as well as government thinking about how it’s buying, not just what it is buying ….this is critical.”

He said another aspect for Australia to consider was a piece of legislation in the UK called the Social Value Act.

“What this did was allow public procurement officials to think about the broader value of the service when buying, not just what is the cheapest. Things like that I think are really really helpful for government in playing its part in developing the market place,” he said.

In August the Turnbull government announced a set of principles to help develop Australia’s social impact investing market.

Treasurer, Scott Morrison said the guidelines reaffirmed the government’s $30 million commitment to develop a strong Social Impact Investing (SII) market in Australia, in a bid to deliver positive outcomes for those at risk of homelessness and juvenile detention or those battling long-term welfare dependency.

The impact investment principles included:

• the government operating as a market enabler and developer;
• value for money;
• co‑design with stakeholders;
• fair sharing of risk and return;
• robust outcomes-based measurement and evaluation; and
• outcomes that align with Australian government policy priorities.

“I think direction from government is important. Actions can help even more. Certainly from the UK experience we have quite an active government involved in this space over lots of different political parties,” Boyle said.

“Beyond that, for example, with Big Society Capital, the UK government directed £400 million (A$654 million) of dormant bank account funds to make a major statement that the government wants to get behind this and that it is an important market place to grow for its economic impact and for its social impact.

“So I think government guidelines are important but there is also a lot of activity the government can do. The important thing is signalling to the market-place that people are serious about this.

“As well, other important factors include the rise of businesses looking to having a greater mission in what they do. Consumers looking to buy slightly differently with products with more social and environmental footprints. And thinking about how an impact investment market can take advantage of those bigger trends,” he said.

Boyle addressing a TDi event

Boyle said he had become aware of the Australian impact investment sector gaining prominence in 2011-2012.

“It has been fascinating for me to be here in 2017 to see over the last couple of years how much it has developed. That is familiar to me as it’s how things happened in the UK – where a lot of things seemed to happen at once with a network effect occurring and the whole thing lifted off from there,” he said.

“If the UK experience is anything to go by there appears to be a steady match of supply and demand and new capital becoming available and where work is needed to think about how organisations can take advantage of that.

“I am hearing that there’s a lot of work underway around things like investment readiness programs, which is super important. Quite often you just hear about people thinking about where’s the money coming from rather than organisations ability to take it on.

“If the UK again is anything to go on, this can sometimes be a bit lumpy.

“It would be great to say it all happens bang-in-unison but rather sometimes the money comes and then work is needed to figure out how do you structure the deals, how are organisations finding out about what’s available and how they think about using it.”

He said Australians had also asked some familiar questions about the impact investing market similar to those being discussed in the UK.

“In Australia there has been a lot of interest in Social Impact Bonds (SIBs) or Social Benefit Bonds (SBBs),” Boyle said.

“I have been involved in the development of them so I am a really big fan. But they really are quite a niche aspect of the social investment market.

“[They are] really important but in the UK social impact bonds are about 10 per cent of the investment that’s out there. And with me as an ex-government official we found SIBs really useful and an important area to focus on. But there are lots of other products out there and lots of other ways and even simpler ways for people to use social investment… there is other stuff out there and we shouldn’t lose sight of that.

“Much simpler things. The majority of social investment in the UK historically has been in fact secured debt and increasingly there are unsecured options in UK.”

He said SIBs were critical tools for public service reform.

“The big problem for governments is that when they want to innovate all of the money for innovating is essentially trapped in the delivery of the key services. So where do you get the funds to test out different things to see if they work? And if they work how do you scale them up? I think SIBs are really important for this but the social investment market can be much much bigger than that,” Boyle said.

When asked to rate the maturity of the social investment marketplace he said: “I am not sure that there is a mature social investment market available anywhere in the world, UK included, but certainly it feels to me that Australia has a very robust investment market starting to move and I would be really interested to see where it is in four or five years time based on its current trajectory.

“One of the things we are seeing around the world is this continuum of impact investment or social investment capital,” he said.

“So you have at one end of the continuum social investment capital which is seeking to capitalise some sort of new social outcome and can often accept less competitive financial return and then you have on the other end of the spectrum impact investment capital that can only accept a competitive financial return.

“You might have organisations like mine, Guy’s and St Thomas’ Charity, a place-based health charity.  We would be on one side of the continuum but on the other side you might have large organisations like Goldman Sachs starting to come into this area.

“It’s all social impact investment but it is doing slightly different things and a lot of that is focusing on things like the environment which is fantastic. I think the important thing about it is it means there are more and more ways in which we can spend or save our money in ways that reflect our values.”

Boyle said that there were also lessons and learnings from Australia that he would take back to the UK.

“Another thing that really stood out for me here which is currently what our charity does… We look at health challenges in urban areas and I have been really struck by some interesting work around ‘place-based’ collaborations,” Boyle said.

“It seems to me that there is lots and lots of policy work going on and activities thinking about ways in which you can really engage with communities and how you can have a slightly more holistic approach to dealing with social problems rather than dealing with just one particular aspect of a problem for one set of people in one place.

“[For example] how can you try to deal with a lot of social issues a group of people might be dealing with in a particular place. That’s really interesting and some of that looks pretty important. I look around the world at who else is doing that work and some of it  looks very very sophisticated here So I will be taking that back to the UK.

“In Australia is seems more than just words. It seems there are some quite considered thoughts about but how do you direct it, how do you evaluate it, how do you incentivise it. I have definitely learnt from this and have been taking notes.”