Australian government to amend legislation to boost investment in social impact bonds

Follow-up from the sweeping Murray review

The Australian government plans to amend legislation to boost investment in social impact bonds and prepare a discussion paper on impact investing following a sweeping inquiry into the country’s financial system.

The Murray inquiry, handed down last December, added impact investment to the scope of its investigation mid-way through the process after intervention from the chairman of UniSuper, the $28bn superannuation scheme.

It recommended changes to the law to facilitate investment in social impact bonds and clearer guidance for superannuation trustees on the appropriateness of impact investment by the Australian Prudential Regulation Authority (APRA).

The head of the inquiry, David Murray, who formerly led Australia’s Future Fund and the Commonwealth Bank, also said he saw merit in the government facilitating the impact investing market.

The government responded to Murray’s review this week, saying that impact investment has “the potential to benefit government and taxpayers”, and has promised to look at reforms that give private ancillary funds greater certainty to invest in social impact bonds. Private ancillary funds (or PAFs) are a type of charitable trust, designed for personal or corporate philanthropy.

There are already signals that social impact bonds could become government policy after Federal Treasurer Scott Morrison, in his prior capacity as Social Services Minister, signaled his intention to use social impact bonds to tackle the country’s welfare responsibilities this summer.The government has also said it will prepare a discussion paper to explore ways to facilitate the development of the impact investment market in Australia, and introduce legislative amendments if necessary.

As to whether it is appropriate for super funds to pursue impact investment, the government says it is for the APRA to consider its guidance on fiduciary duty. The APRA has yet to make an official statement.

The emerging social impact investment market in Australia has seen unusually strong support from its pension fund market. The country’s first social benefit bond (SBB), its version of social impact bonds, is backed by institutional investors, including NGS Super and Christian Super.

And at least four super funds contributed to Impact Investing Australia’s inaugural Impact Investor Survey: Christian Super, First State Super, VicSuper and HESTA.

HESTA last month committed A$30m to a social impact investment fund managed by Social Ventures Australia (SVA) and the chairman of UniSuper tasked SVA to write a report which moved Murray to add impact investment to his inquiry.

Responding to the government this week, Ian Learmonth, Executive Director of Impact Investing at SVA, said: “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.” Link