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Supply can’t keep up with demand for impact investment

Most of the investments adding to growth in the Australian impact investment sector were the green bonds issued by NAB and ANZ

Demand for impact investments is tipped to grow to at least $18 billion over the five years from 2014-15 and there is not enough supply to meet demand.

In FY2015, the domestic-based sector grew to at least $1.2 billion in investment, and a further $800 million was added in the first quarter of FY 2016, according to The Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2016 released at the Impact Investment Summit Asia Pacific today (Wednesday).

In order to grow, however, the industry also needed consistent benchmarking across impacts achieved.

Chief executive of the Global Impact Investing Network Amit Bouri said a more sophisticated and rigorous approach to impact measurement was central to growing the market.

“The better we can measure impact and agree what constitutes success, the more effective we can be at directing investments to areas and issues of greatest need.”

Most of the investments adding to growth in FY2015 in the Australian impact investment sector were the green bonds issued by NAB and ANZ, accounting for $900 million. Most transaction volume was debt finance for social enterprises.

The report noted that green bonds have “relatively simple metrics that tend to focus on outputs, such as greenhouse gas emissions avoidance, tons of CO2 abated or number of properties acquired/managed.”

“This may reflect that environmental metrics are easier to count and the greater maturity and standardisation in this outcome area.”

For example, investments in renewable energy in FY 2015 had the outcome of 11501 MWh of renewable energy being generated.

In terms of people-impact projects, measureable outcomes identified by the researchers included 126 schools supported, 319 jobs created, 1072 people with disabilities supported and 669 mental health sessions delivered.

“The data reveals a diversity of investment activity, that is meeting financial expectations and touching the lives of thousands of people,” report co-author and chair of Impact Investing Australia Rosemary Addis said.

“This provides a concrete baseline for the robust data that is needed to encourage those who remain on the sidelines to enter the impact investment market.”

The researchers interviewed a number of stakeholders in the sector that had Australia-domiciled impact investment products active in FY 2015 to establish what is regarded as important in terms of outcomes and metrics, what is being measured and how it is being measured.

The stakeholders included ANZ, NAB, Benevolent Society, Community Sector Banking, Ethical Property Australia, Indigenous Business Australia, Hepburn Wind, Goodstart Early Learning, Nature Conservancy and Southern Cross Venture Partners.

In terms of financial performance, the analysis showed financial returns have been tracking within the issuer’s expected ranges. Debt is returning between 5.4 to 17 per cent; fixed income products between 3.25 and 12 per cent, and real assets up to 12.6 per cent.

“The data shows that investors are finding ways to measure impact as well as financial returns,” the report said.

“It also shows that more effort is needed to develop meaningful metrics that inform better understanding of what value is being created. The work ahead will benefit from an active and inclusive partnership involving parties along the value chain from investors to beneficiaries.

“Access to clear measurement and data is consistently cited by investors and other stakeholders as a key challenge to growth of impact investment.”

  • Read the full report here

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