The Australian Government is getting better at impact investing – just not at home

A couple of decades ago I spent some time working with peak bodies in Asia to better use information in responding to alcohol and drug harms.

One of the many things I learned was that sometimes our approach to development assistance in our international aid programs can be more insightful and better informed than the approaches we apply at home in Australia.

In our approach to reducing alcohol and drug related harm in Asia, it was acknowledged that the drivers of behaviour are a complex interaction between individual factors, culture, economics and social realities.

This meant we knew one-dimensional approaches like a ‘just say no’ campaign with the hill tribe communities around Chiang Mai would not work. And yet in Australia, there were many who strongly advocated for exactly this zero-tolerance prohibitionist approach.

In practice, our international aid funded harm reduction programs were more evidence-based than many of the drug programs funded by our Australian Government at home.

I raise this example only to contextualise what I now see reflected in the newly announced federal government international development funding.

The Government will establish Australian Development Investments (ADI), a new vehicle providing up to $250 million as a catalyst for private impact investment in the Indo-Pacific.

ADI greatly expands the Australian Government’s capacity to mobilise private sector investment to expand small and medium enterprises in the Indo-Pacific region to drive climate and gender outcomes.

ADI provides early stage and concessional investment to impact investment funds. These funds in turn give critical early-stage finance to businesses in the Indo-Pacific. This finance helps these businesses to innovate, grow their employment, and deliver goods and services to their communities.

ADI builds on the results of the Emerging Markets Impact Investment Fund (EMIIF) pilot, which achieved some remarkable outcomes including 10,737 jobs created of which 42 per cent are for women, 20,000 students with improved educational services, over 1 million micro enterprises provided with finance.

What we are talking about here is bringing new capital into small and medium organisations including charities, community groups and businesses to promote the achievement of positive economic and social outcomes.

The question that needs to be asked is: If it is good enough for our government to fund $250 million in impact investment funds to strengthen communities in the Asia Pacific, why isn’t the same rationale leading to increased support for impact investment in Australian charities and NFPs?

There are at least three areas where the Community Council for Australia believes there are significant benefits for the Australian community, if charities and NFPs had better access to investment funds.

Carbon reducing energy transition

Cost-saving and carbon-reducing energy transition is clearly one area where investment can unlock many benefits to organisations, communities, and the planet.

Many larger charities and NFPs may be able to recoup the upfront investment in energy saving technologies available in things like LED lighting, solar panels, batteries and electric vehicles over a period of time – usually five to ten years.

Small businesses involved in energy transition are provided with tax incentives that significantly shorten the time it takes to recoup the upfront costs including accelerated depreciation and instant write offs.

A charity or NFP needs to divert funding from its main purpose to meet upfront energy transition costs or borrow the money.

Government-backed impact investment finance at low interest would be appealing for many smaller organisations who would be able to recoup energy transition costs over time.

When charities and NFPs can reduce their carbon emissions and associated costs, it is a win for everyone, but it requires initial upfront investment that is often difficult for charities and NFPs to source.

Additional revenue streams

A second area where impact investing may be beneficial is the development of potential additional revenue streams.

It is often the case that establishing new revenue streams (including fundraising) can take time and initial investment before they are established as a reliable source of income.

Providing access to government-backed longer term investment funds at low rates would enable some charities and NFPs to invest in building different approaches and revenue streams that take time to mature.

For example – an aged care provider might need additional funding to build a dementia ward with additional beds. Over time these beds will provide a revenue stream, but finding the upfront capital can be difficult.

Line of credit access

Another area where impact investing can make a difference is provision of a line of credit facility that would enable larger charities and NFPs to smooth out income streams (and risk) over longer periods, freeing up greater investment in the capacity of the organisation to serve their community.

In research CCA undertook during the pandemic, we found about 50% of our larger members would be keen to take on a longer-term low interest line of credit that they could draw down on if income streams temporarily reduced.

Access to a line of credit over a five-year period for instance, might lessen the risk of relying on fluctuating revenue streams like fundraising and bequests returning a set income within 12 months.

There are many good examples of impact investment approaches in Australia, and globally, that are providing real benefits to many communities by leveraging capital for public benefit.

The Albanese government has recognised the value of impact investment and the capacity to leverage new capital in the expansion of our international development program.

The Australian government is now invested in leveraging new capital to generate increased public benefit, but not in Australia.

If the Australian government could provide the same opportunities for impact investment in Australian charities and NFPs desperate for upfront capital to leverage their own good work, it could make a real difference.

The Australian Impact Investing Taskforce’s original recommendations included: "... the Government co-financing an impact investment wholesale fund to catalyse and scale for-purpose solutions and setting up a social enterprise growth fund in order to develop a pipeline of businesses tackling social and environmental issues."

Stronger charities and NFPs able to access the capital they need to improve and enhance their services makes good sense.

An investment in this area would not only benefit our sector, but also generate income, jobs and tangible benefits to the communities that charities and NFPs serve.

If we are serious about improving productivity in Australia, governments around the nation should be falling over themselves to establish accessible impact investment funds to leverage the huge social and economic potential waiting to be realised when we invest more in our charities and NFPs.

David Crosbie has been CEO of the Community Council for Australia for the past decade and has spent more than a quarter of a century leading significant not-for-profit organisations, including the Mental Health Council of Australia, the Alcohol and other Drugs Council of Australia, and Odyssey House Victoria.