Are Social Impact Investors Making a Difference?

Community and shareholder expectations from government and corporate social impact spending and investing are increasing. The Not for Profit sector has experiences and lessons learned to help improve impact social reporting.

Are Social Impact Investors Making a Difference?

Community and shareholder expectations from government and corporate social impact spending and investing are increasing.

Shareholders and investors are expecting more from corporates regarding the impact they have on the community and the environment. The days of having a Corporate Social Responsibility (CSR) budget and spending it being enough are gone. Investors want to know what the real outcomes are for their investment.  They want to know “Are they making a difference?”.

Corporates as well as government are looking for new ways to measure, record and report the impact of the investment they make either directly or through the NGO and not-for-profit (NFP) sector. The social impact investment sector is getting increasing attention in Australia and globally. While most understand social impact as aligning to the government policy agendas or the not-for-profit sectors, this is rapidly changing, with many corporates and philanthropists taking the lead.  Andrew and Nicola Forrest’s Minderoo Foundation are funding investments in eradicating cancer, improving the education and lives of Aboriginal children and other areas.

We are witnessing the evolution of social impact investment as companies and commercial investors grow their role in financing and funding social impact. Over $622b, nearly half of all investment in Australia, incorporate responsible investment criteria including governance, environment and social factors in their decision making.  

More recently in Australia green bonds have emerged to fund companies delivering a social impact through commercial projects. These investments include public transport, environment, and health and wellbeing ventures. While the green bond market was worth only $1.5b in 2015, it has grown already to $6b in 2018, 145% in the last year alone. (Benchmarking Impact, Australian Impact Investment Activity and Performance Report 2018)

As the funds invested grow, the demand for transparency and information on the results and outcomes achieved has become more important to investors and the community.

Defining the Social Impact Sector

The social impact sector is broadly defined as investment made to deliver a benefit to the community, environment, health and wellbeing, international aid and social causes.

Investments made directly by government are well understood, funding grants and other programs with taxpayer funds. The NFP and charitable sectors are also well known, making up a significant part of the Australian economy, at over $142 billion in funding in 2017. This representing 3.8% of the gross value added (GVA) contribution to the economy (Australian Charities and Not-for-Profits Commission (ACNC) has released the Australia's Charities in 2014).

The commercial sector entry to the social impact market offers an exciting potential to address social and environmental issues. This emerging sector can benefit from the lessons learned from the NFP sector, while enhancing social impact outcomes through leveraging its investment capacity and capability. 

The demands of public accountability and transparency means NFP organisations have faced many challenges in developing measures, supporting transparency and reporting on outcomes to justify their existence and win the funding needed.  

  • Understanding What to Measure: Assessing social impact successfully means having clear and measurable KPIs aligned to the desired outcomes.
  • Transparency: Funders must be confident their investments are delivering the outcomes intended and communities and beneficiaries understand the value for the programs.
  • Data: Understanding impact relies on good data, and data availability. Managing data in this sector is complex with challenges including understanding the varying degree of impacts and additionality, which affect volume and quality of investment.
  • Reporting: Common systems and standards are being developed and implemented broadly so reporting is relevant, comparable and consistent and supports understanding outcomes, not activities.

As social impact investing grows a shared understanding of the sector, what is being achieved and how to analyse and compare outcomes becomes more critical.

Impact Reporting Frameworks

Globally, and in Australia, there are a variety of frameworks and standards for measurement and reporting. Because impact is complex to understand, these frameworks are critical. In Australia and New Zealand, the Responsible Investing Association of Australasia has a criterion to assess investments as the peak body representing the commercial sector.

Internationally there are a variety of standards, including IRIS which is managed by the Global Impact Investing Network (GINN). There are also sector specific initiatives, like the International Aid Transparency Initiative (IATI).

In the commercial and NFP sectors, the UN Sustainable Development Goals is gaining traction as the master framework for impact reporting worldwide (Benchmarking Impact, Australian Impact Investment Activity and Performance Report 2018).

Most participants in the market recognise the benefit of there being an accessible and single impact management framework that engages all parties including investors, stakeholders and beneficiaries.

Lessons from the Not-For-Profit Sector

As a former CEO of one of Queensland’s largest NFP natural resource management organisations, SEQ Catchments, I have first-hand experience in understanding how critical it is to measure and report on impact with transparency on the benefits achieved.

With the Tactiv team we spearheaded the development of the Enquire in 2005 to provide the capability to capture, manage and report on funded projects and their results. With this software system SEQ matured from talking about activities and inputs or what we were doing, to reporting on what we were achieving.

Our efforts to standardise reporting were successful, so much so that the Government of Queensland adopted Enquire state-wide for reporting on NRM funding delivered through their programs as well as the National Heritage Trust funds from the Commonwealth Government. Within a couple years Enquire was adopted in other parts of Australia by NRM bodies, resulting in over half of Australia’s landmass covered by the system’s reporting.

In 2007-08 the Australian National Audit Office noted "The Queensland Department of Environment and Resource Management has developed the first integrated web-based system [Enquire] to manage performance information about Natural Resource Management activities in Queensland." This pioneering capability was also recognised by the OECD noting Enquire’s sophistication in project management and reporting capability.

More recently, Enquire has integrated the GINN and IATI metrics and reporting standards for our work with the New Zealand Ministry of Foreign Affairs across their $700m international aid program. Similarly Enquire is well suited to adopting the UN Sustainable Development Goals framework and delivering the ease of use and accessibility demanded by government, NFP and corporate stakeholders.

The social impact and responsible investment market will continue to grow. It will become more sophisticated. The corporate sector, and for that matter Government and NFPs, will need to get much better at reporting against their impact on the environment and contribution to the community. Traditional finance and CRM systems are not built for this and will not meet the demand for flexibility and community engagement in outcome reporting.

The experiences of the NFP sector in addressing social impact can benefit the corporate sector. Sharing the lessons learned and collaborating on advancing impact management frameworks can only benefit both sectors as they combine to deliver the social benefits outcomes society demands.

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