Australian Strategy Key Elements & Questions DRAFT: 25 June 2014

Building Blocks of Australian Strategy Drive Deal Flow Target for Growth + Aspirational Goals Government engagement & policy Working Groups operationalise Goals Design – Governance - Implementation Focused leadership & clear narrative Driving practical actions toward doing & delivery Mobilise Capital Investable Products and Enterprises

Building Blocks of the Australian Strategy Drive deal flow Expand catalytic capital & remove barriers Leadership dedicated focus, identity & narrative  Australian Advisory Board meet industry identified need for leadership  Galvanise action with sense of urgency to seize opportunity for Australia to be significant contributor  Create a clear narrative, socialised through strategic communications plan  Set aspirational, grounded 5 year target for impact assets with strategic roadmap for implementation  Demonstrate strength of interest and appetite across sectors, backed up with capital  Encourage allocations from institutions  Enable doing and delivery through feasibility, prototyping and incubation of transactions  Build from industry strengths, e.g. infrastructure  Stress test products targeting latent demand e.g. social sector  Platform of expertise, including sources of funding, investment models, project supply, and measurement  Build bottom up data and surveys to measure industry growth  Create meaningful engagement with government and regulators on priorities  Target value add for government including social issues that are pressure points  Identify quick wins linked to priorities  Build economic case for tax incentives & catalytic capital  Seek central contact point in governments for social impact investment activities, and links to and between them Policy Engagement, education & clear priorities

Filtering Criteria Will it create significant changes in impact investing practice or opportunities that will drive a step change in the field? Does it create more opportunity for and remove barriers to more participants to be active and mobilise capital and demand in ways that clearly demonstrate potential and “prime the pump” for pipeline? Does it drive toward practical delivery and identify clear and actionable steps for effective action or solutions? Ambitious & Catalytic Enabling Broad Based Focused on Doing & Delivery Will it garner support from across sectors and political orientations, rather than narrowly tailored to a given industry or ideology?

Priority Outcomes and Actions Educate and Mobilise Capital Drive Deal Flow Set Aspirational Goals Develop Universe of Investable Products and Enterprises Practical Delivery short term  5 year target for impact assets  Social Investment Bank/ Fund > A$350m, to catalyse SIBs, social infrastructure and entrprise  Benchmarks for % allocations  5 year target for number of deals and funds  Robust metrics and performance data for key social issue and service areas  Clearing House/ Exchange  Measurable change in awareness & appetite of advisers/ gatekeepers  More & better intermediation  Multi-disciplinary teams undertake feasibility  Mobilise latent demand  Guidance on fiduciary requirements & structures  Platform for case studies, tools and what works  Design to build product existing asset categories eg. infrastructure, government credit, fixed interest  Investment & contract readiness fund >A$20m  Demonstrate strength of interest and appetite from across sectors  Allocations from key institutions  Mission & program related investments

Policy Levers & Actions Policy Initiatives Practical Actions Catalytic capital, drive impact deal flow Expand reach of programmes to boost impact Improve metrics to support mainstream adoption Build ecosystem & impact enterprise capacity Remove barriers; enhance supporting regulation, guidance  Reorient budget based funding to catalytic capital  Initiate impact funds, toward Social Impact Bank/Fund  Expand range of funding and financing options for social policy  Enable mission & program related investment  Support and enable intermediaries, including CDFIs  Mobilise local government  Improve & evolve procurement & commissioning with focus on outcomes & quality  Extend entrepreneurship support to social entrepreneurs  Develop international development investment strategy  Focus data and metrics on outcomes & impact  Review and publish existing costs for social issues and what they measure  Increase disclosure requirements for institutions to include positive screening  Educate and increase capacity from policy makers, public service, community sector and investors  Develop model budget treatments and agreements for social impact bonds and impact funds  Enable platforms for expertise, excellence and evidence  Review & simplify regulation to promote enterprise and intermediation  Review constraints on deployment of philanthropic capital  Conduct study of efficient, targeted tax incentives to promote impact investment  Review barriers to entry for CDFIs  Encourage reorientation eg OMB memo  Guidance for funding and financing tools for social policy  Guidance for fiduciaries  Promote CDFIs and product  Incentivise State and Local government action  Centralised expert hub for impact investment  Outcomes based commissioning  Cross agency & inter- governmental support & secondments  Refresh guidance for fiduciaries and trustees  Support, create, and systematise metrics and measures  Share evidence and lessons where results based funding is already utilised  Lead by example with open data sharing and transparency  Use “bully pulpit” to good effect  Reward policy entrepreneurs  Create a central contact point in government

Starter Questions  Views on aspirational market sizing and timeframe - current “top down” analysis ~$3 billion cumulative assets  What are your top picks in aspirational goals across the three areas of mobilising capital, product development and stimulating deal flow  Other key levers that should be highlighted  Views on target size for a social impact fund/wholesale funder  Working group membership – where are you most interested to participate and suggestions for additional membership

Appendices: Context  Impact Investment in Australia overview  Strengths & levers  Challenges  Potential market Size  Where Growth may come from  Potential Investment Pools

Impact Investing in Australia: Overview  Impact investing is occurring and gaining interest and attention  Rising awareness and activity across sectors, though not clearly led from either government or market  Transactions demonstrate innovation, impact, diversity, and some scale; examples across market segments  Government action has been limited, but important; current policy interest driven from the States.  Capability, including collaboration and brokering new generation public private partnerships needs building  Market still in early stages of marketplace building  Significant potential, including beyond domestic market and strong foundations to build on  Imperative to translate interest to action & fragmented activity to more coherent practice

Data strength in government and related institutions such as Productivity Commission Focus through not for profit reform and early deals on developing impact metrics Talent pipeline building to develop the sector and return with international experience Network strengths strong personal networks backbone of leadership in Australia Capital Availability of funds not a constraint, incl. long term savings pool governed by fiduciaries; institutions strong & economically significant Credit enhancement Early products provide strong examples of credit enhancement & risk reduction strategies Product development & innovation capability & Australian examples scalable in design Significant latent demand socially oriented organisations and communities will need range of financing options to support their work Supply Demand Intermediaries Ecosystem Measurement Leadership Impact Investing in Australia: Levers & Strengths Prudential system & regulation strong Government & policy directed to impact investment has been catalytic Other fields provide strong precedents eg infrastructure History of community and cooperative enterprise Field growing Early adopters have track record and have attracted investment Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014

Measurement systems allowing comparisons between investments, is lacking Benchmarking data required to enable investors to source and make useful comparisons on completed or prospective transactions Leadership required to develop beyond disparate activities and personal networks, into critical mass Capability Attracting talented people requires entry points, skill enhancement and career path Barriers to entry Lack of available products and high transaction costs Risk-return Insufficient information and understanding of risk and return for products is a barrier to take-up Product development not yet delivering spectrum of quality investable propositions Capacity building for entrepreneurs and non- profits to make ideas and initiatives investable is lacking Supply Demand More and better intermediation with scale, depth, diversity and reach needed Aggregation and/or clearing capacity required to reduce inefficiencies and improve economies of scale Education Awareness of context, track record, potential, and practical entry points, remains low Policy focus and targeted initiatives to catalyse the market, remove barriers and encourage participation lacking Intermediaries Ecosystem MeasurementLeadership Source: IMPACT – Australia field work 2012 & Impact Investing Australia stakeholder survey 2014 Impact Investing in Australia: Challenges

Sizing Market Potential 2018  Limited bottom up data, hence estimates made top down  Estimates based on US and UK market growth rates (assuming lag of ~two years) and accounting for relative size of capital and charity markets, as well as projected impact investment growth  Tested against what potential sources of capital would need to be mobilised over that period and sources from it could reasonably be expected to come in the Australian market  By 2018: cumulative total of ~>A$3 billion, new annual impact investments of ~A$500 million Estimated potential for cumulative impact assets 2018 ~>A$3 billion Source: IMPACT – Australia Appendix 4, and analysis courtesy John Mcleod 2014

Impact Investment in Australia: Where Will Growth Come From Disability A$6.9 billion ( ) Early Childhood A$5 billion ( ) Affordable Housing A$3.9 billion ( ) Aged Care A$12.9 billion ( ) A number of social issues stand out for scale of need and spending Health & Hospitals A$97.8 billion ( ) Indigenous programs A$3.5 billion ( ) Source: Review of Government Services 2014, Australian Institute for Health and Welfare Unemployment A$6.1 billion ( )

Impact Investment in Australia: Where Will Growth Come From New Market Opportunities  Significant budget changes and structural adjustment means changing needs  A$8.8 billion of capital investments ( ) 61% funded from operating surplus  Potential for bond market or other aggregation Social Sector Finance Focus on Place & Community Infrastructure  Disadvantage has a postcode in Australia with persistent & concentrated joblessness  Australian communities need infrastructure, economic dynamism & jobs  That includes soft infrastructure of shared services & infrastructure for human capital, the engine of productivity Outcomes Based Contracting  Government outsourced ~>A$25 billion to the social sector (2007; new data due 2014)  Little currently oriented to outcomes  Growing interest in Social Impact Bonds 1% of (2007) outsourced funding potential ~A$250 million; at 10% ~A$2.5 billion

Impact Investment in Australia: Where Will Growth Come From Philanthropic sources Superannuation trustees Social purpose organisations Fund managers  Private Ancillary Funds  Public Ancillary Funds  Corporate foundations  Other trusts and foundations  HNWI  Member based funds  Commercial funds  Faith based funds  Large NFP  Smaller innovative NFP  Social enterprise  Community enterprise  Churches  Communities  Institutional fund managers  Insurance funds  Social investment funds  Property trusts  Ethical funds  Responsible investment funds