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NAB, QBE back social impact investing

by Marion Williams | 17 Sep 2014

National Australia Bank (NAB) and QBE are putting their money where their mouth is, both announcing measures to take impact investing in Australia to the next level, in line with a G8 taskforce.

Social impact investing brings profit and purpose together so it is “doing profit for good,” said Professor Peter Shergold, chair of the New South Wales social investment expert advisory group, at the launch of the Australian advisory board’s strategy on how Australia can participate in the sector.

Overnight the social impact investment taskforce published its report which outlines “relatively simple, inexpensive and practical steps” that have the potential to quickly unleash up to US$1 trillion of new investment in the next decade to tackle social problems more innovatively and quickly.

Although not a member of the G8, Australia was invited to participate due to some of its early work in the area including two social benefit bonds that were launched last year.

It hopes to capture $32 billion of the US$1 trillion in social impact investment, with a belief it is possible to achieve at least $10 billion in impact assets under management within the next five years.

NAB’s $1m fund

At the launch in Sydney this week, Paula Benson, who heads up NAB’s corporate responsibility area, announced it is establishing a $1 million fund to help organisations with financial solutions to important social functions because “access to capital is critical”.

In this way NAB can use its business acumen to help others to access capital. Benson said corporate responsibility at NAB has evolved to the concept of shared value and the belief that only the business community can address the societal issues that government and philanthropists can’t.

They have the scale to address the big issues that haven’t been addressed in the past.

Benson said since 2009 NAB has changed the way it does business as demonstrated by its fair value campaign.

“By removing fees and charges we have grown our business,” so social impact investment “is an obvious fit”.

Low correlation with other asset classes

Gary Brader, group chief investment officer at QBE Insurance, said the group intends to make an allocation of $100 million over three years to social impact investment, particularly social impact bonds and other innovative investment instruments that link social performance with financial return.

That money won’t be just invested in Australia but globally, consistent with its broad geographic footprint and its vision to be involved in the communities in which it operates.

Again, it is a commercial proposition.

Brader said social impact investment has low correlation with other asset classes and “we like being an early adopter to influence and lead developments”.

Logical conclusion to ethical investment

One big hurdle will be getting superannuation funds on board and this will require patience, persistence and good returns.

Paul Steele, chief executive officer of charitable trust Donkey Wheel, said social investment projects must be commercial for institutional investors to look at them.

“We have to be able to demonstrate risk-adjusted returns to the Luddites,” he said in a panel discussion.

Brader made the point that a decade ago all infrastructure was funded by government but today there is plenty of private sector capital invested in the sector.

So to make social impact investment “look and feel like an investable sector” there needs to be enough supply of social benefit bonds, for example, to develop an index. Tax treatment should also be considered.

Steele said doing good and making money have always been considered quite separately. Instead people should be thinking “you have to make money and do good” and then make investors aware of their responsibilities.

"This is taking ethical investment to its logical conclusion," he said.

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