Social returns briefing

Social Returns A Special Brieﬁng by 3 Pillars Network Research In association with WWW.3PILLARSNETWORK.COM.AU

2 EVENT Inaugural 3 Pillars Network MONDAY 25TH OCTOBER 2010 Social Returns Forum WESTPAC AUDITORIUM, SYDNEY Creating, measuring and investing in social change Presented by Morning keynote Establishing the business case Alex McDonald Executive Director of The Wise for corporate investors when Foundation; and The Body Shop Australia Director. How to move from the obligation of Corporate Social 25 October 2010 The Wise Foundation furthers community Responsibility to the opportunities of Corporate development and social commitments of Social Exchange. How to map and measure the value 8:30am – 6:00pm The Body Shop Australia, the Adidem group of exchange between companies and society. companies and the Wise family. Ross Wyatt Net Balance Reconciling financial and social returns where Afternoon keynote What do grant-makers, charitable trusts and Glen Saunders Board member and Treasurer of the Westpac Auditorium corporations need to gauge the impact of the social ventures they support? What methods are available United Nations PRI, chair of Prometheus Finance, 275 Kent Street senior adviser to Triodos Bank, chair of the In association with to these organisations to measure the return on Sydney 2000 Sustainable Business Network and of Sustainalytics. investment and efficiently manage an expanding portfolio of social and environmental services Social enterprise in action they provide? Kevin Robbie Social Ventures Australia Four social enterprises that are making a difference discuss the challenges of finding sustainable funding. contact Connecting the head and the heart Chaired by Jerry Marston JJCSR Consulting Anne Cameron A panel discussion featuring experts from Social Returns: Phone 02 9810 2164 foundations, not-for-profits and advisory groups Tapping the capital markets on the challenges of measuring social return on What are the most appropriate financial instruments anne@3pillarsnetwork.com.au investment. Is there a danger of overlooking the S ecial rie n ro to drive the development of social enterprise? www.3pillarsnetwork.com.au more intangible, harder-to-quantify social benefits – A panel discussion with Social Ventures Australia those that are often exactly the reason why charities CEO Michael Traill, Unitus Capital MD Kylie Charlton exist in the first place? Social enterprise in action: 3 Pillars Network and Foresters Community Finance fund manager Peter Ball. measuring returns The Eaglehawk Recycle Shop is a community Social enterprise in action: social investing enterprise providing cheap secondhand materials Funding social enterprises through the community, to central Victoria and creates jobs by encouraging featuring Hepburn Wind chairman Simon Holmes people to reuse and recycle. a Court and Embark’s Mary Dougherty Rebecca Dempsey CEO, Future Employment SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

3 FOREWORD and effective ways of applying their resources to Social Impact – Change for the Better the creation of social change. Like many outcomes that are difficult to quantify, by Ross Wyatt organisations are quick to put measuring social returns in the ‘too hard’ basket. They shy away Investment in social causes takes many forms. But they all have one thing in common. from evaluation frameworks that would be The investments all look to create change. Positive change. Change for the better. applied as a standard to other investments, for a variety of reasons. Sometimes there is a lack There are as many views on the best way And it’s not just the social sector which seeks of knowledge or understanding about what to create change as there are people and to articulate the benefits. Just concentrating tools or measures are available. Organisations organisations involved. Investors themselves on the corporate sector for the moment, each can struggle with how to communicate less also come in numerous shapes and sizes: year, Australian companies invest several billion tangible outcomes, sometimes with long time- private philanthropists, trusts and foundations, dollars in the social economy (mostly through the lags making direct attribution complicated, to government departments, corporate investors, NFP sector) with only scant attention paid to the different parties. Some companies have not even to name just a few. impact of the investment. identified exactly what outcomes will signify Some are seeking to alleviate human suffering success for their endeavour. through aid. Some advocate economic But like every discipline, the measurement of empowerment through community enterprise. This forum is a must for anyone social investment continues to evolve and we are Some invest in capacity building. Some in involved in investment for social seeing a wave of momentum for more robust education. Some in research. wellbeing. Whether you represent a measurement driving the issue up the agenda for Ross Wyatt The means of investing in social challenges are corporate community investment, social both corporates and community partners. Net Balance many but the number of organisations that invest This is an age where transparency and enterprise, a trust, foundation or private often significant amounts of money and other accountability are regarded an essential pillars resources without first evaluating which means of philanthropist, I urge you to attend. of risk management. And for good reason. investing is most appropriate and most effective Transparency and accountability for outcomes for their particular needs is still too high. helps maintain reputational integrity and has Social Returns: “We invest in communities because it is the right the added benefit of driving internal process Which is best? Which creates the most thing to do,” a well intentioned CEO might say. improvement. Measuring the impact of any social change per dollar invested? And most Yet only 4 per cent of the top 150 companies in investment in social change is one of the greatest importantly, how do you measure and decide? This is the topic at the heart of the 3 Pillars Social Returns Forum. S ecial rie n ro Australia interviewed as part of the Centre for Public Affairs’ Corporate Community Involvement challenges and opportunities facing this sector. I look forward to seeing you at the Social Survey (September 2006), actually said they This forum is a must for anyone involved in investment for social wellbeing. Whether you sought “no benefit” from their community 3 Pillars Network investment. Forty-four per cent seek a focused Returns National Forum to see how the leaders are meeting this challenge and embracing this represent a corporate community investment, opportunity. business case and the remainder seek some other social enterprise, a trust, foundation or private generalised benefit. Ross Wyatt is General Manager of the philanthropist, I urge you to attend. This event is Net Balance Foundation and chair of the So clearly, Australian companies have a desire to 3 Pillars Social Returns Forum. SR all about driving the most beneficial outcomes understand the benefit they derive from making for society, both here and abroad. This event is an investment in community. Philanthropists, about bringing a new level of understanding to foundations, trusts and government are joining the last bastion of unmeasured investment – the drive to better understand the most efficient social investment. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

4 FEATURE “I don’t think it’s outrageous for there to be – Putting a Number to it depending on the size of the organisation – this kind of focus on being able to measure and value the impact an organisation has, be it through Measuring social returns is becoming increasingly important to business-savvy social someone externally or within the organisation.” enterprises. But wider adoption does not come without significant challenge. Alnoor Ebrahim, an associate professor in the general management unit at Harvard Business School, says initially measurement can be done The push in recent years to measure the impact To complete the SROI analysis, which gave the inside the organisation, even if it’s a very small of non-profits has made many organisations venture a score of 3.9 – meaning that for every organisation. consider using social return-on-investment dollar invested, there was a return of $3.90 – a “And it can be done almost like a back-of-the- (SROI) analysis. But some are uncomfortable consultant engaged by sector advisory firm Social envelope kind of calculation.” about its use. Ventures Australia (SVA) spent about a month The Fred Hollows Foundation has studied its David Britton, director of public affairs at the Fred talking with stakeholders to gather evidence of impact along the same lines as SROI analysis, Hollows Foundation, says studying a program’s change. although the methodology wasn’t formally outcomes is naturally part of his organisation’s adopted. management plan. All ventures great and small Simon Faivel of SVA says small social ventures “What we’ve done is a number of studies that “I can say that it does improve opportunities for look at socio-economic benefits of cataract that think they might lack the time or skill set fundraising,” he says. “But that’s not its primary surgery, which is our main form of work,” Britton required for SROI analysis can measure impact purpose. Its primary purpose is to look at whether says. during their regular planning process or when we’re getting ‘bang for our buck’.” doing their budget. One study showed improvement in income and Peter Cox, of Future Employment Opportunities educational opportunities, among other things. Peter Cox – a Melbourne-based non-profit that operates “We tried to look at what was the level of benefit Future Employment Opportunities several ventures – places value on the understanding that is generated by careful “For those who are hesitant about SROI, for each person,” Britton says. analysis. once they’ve identified their two or three Transparency: SROI’s greatest asset “Non-profit organisations usually get bogged down in the day-to-day running of their operations,” he says. “We see [measuring impact] main benefits that they want to derive Social Returns: May Lam, research and policy manager at from their work, they can try quantifying Social Traders, a Victorian government-funded in a completely different light.” it and see how they feel about it once they’ve tried it” S ecial rie n ro company that supports the development of social enterprises, says seeing the monetary This new perspective was valuable when value created for each of the social enterprise’s discussing with potential investors plans for a – Alnoor Ebrahim, Harvard Business School Pillarsand outputs provides transparency, which 3 inputs Network new operation to be modelled on an established is SROI’s greatest asset. But Lam thinks the recycling centre (see profile p.6). To gain it, Cox SROI methodology hinders its use when seeking collected evidence of change that had been “We’re talking about evaluating the impact of competitive funding. gathered a few years earlier via social return-on- your organisation, which is pretty much the “Each of [the ventures] will define their own investment (SROI) analysis. reason for your existence,” he says. “So it’s quite forms of value and their own way of putting “The SROI certainly helps people to understand important.” monetary value on that,” Lam says. “But it’s all of the benefits associated with the enterprise,” another process again to review them all, decide says Cox. how comparable they are,” she says. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

5 Lam says the Victorian government has focused “There was lots of comment and discussion and is OK, provided that you’re constantly paying on purchasing employment services from the debate. It was one of the liveliest discussions attention to ‘Can I improve the data to help me non-profit sector in the past couple of years. I’ve seen,” says Walsh. get a better handle on this? Can I try different “In its employment services system, the “After we’d done that, [SVA] said to me, kinds of assessment?’ government currently has a completely ‘Look, we’re going to take some of this on board, “And for those that are hesitant about SROI, once standardised way of doing those things, in how it definitely’,” she says. “We’ve had a debrief with they’ve identified their two or three main benefits measures the performance of job services,” them since. I said I’m not going to roll this out and that they want to derive from their work, they she says. promote this to the arts sector until I’m sure that can try quantifying it and see how they feel about “They take account of a variety of context it works.” it once they’ve tried it.” variables, like labour markets and the Missing the point? characteristics of disadvantage that come Providing value Some stakeholders think putting a monetary with each jobseeker. SROI can’t match that in SVA’s Faivel says that SROI analysis begins the value on social outcomes is inappropriate. any sense.” debate about creating value. “Some of [the] foundations I talk to say, ‘We are “If someone is feeling better about themselves, An engaging approach not going to demand that. We just think that should we be putting a dollar value on that?” that’s also too onerous on the non-profit sector,’” Like Lam, Artsupport Australia director Louise he asks. says Walsh. Walsh thinks performance measurement is “My argument is: Well, it’s helpful. It’s not the critical. And she is also sceptical about the value most important part. [But] it’s necessary that we of SROI analysis. begin to talk about that value.’ “There is a new breed of philanthropist “Moving forward, we’re very hooked into the “Because if we start to talk about the value with philanthropic sector – to the foundations sector and foundation coming through. It’s respect to the dollars for that, then you begin - and there is a new breed of philanthropist and an engaged philanthropist. They’re to be able to at least look at that outcome in foundation coming through,” Walsh says. “It is more hands-on. They want to measure comparison to other outcomes which are easy to an engaged philanthropist. They’re more put a dollar value on.” hands-on. They want to measure impact.” impact” SROI is something the Fred Hollows Foundation Louise Walsh Three years ago, Artsupport – a division of – Louise Walsh, Artsupport Australia is going to increasingly push towards, Social Returns: Director, Artsupport Australia the Australia Council for the Arts that works says Britton. to develop philanthropy – acknowledged Harvard’s Ebrahim says, “It would be useful, I “Unless you can tell the individual stories and the this curiosity by organising a master class for think, for any organisation to take a step back broader stories then we’re not communicating fundraisers by an impact consultant. But Walsh pulled the pin before the date because she wasn’t S ecial rie n ro and ask itself ‘What are the top two or three things that I want to change with the work that our work, and therefore it’s only really doing half the job,” he says. SR convinced there was a tool that was adequately developed, reliable and comprehensive. I’m doing?’ 3 Pillars Network “And in some instances you might find that it Last year Artsupport commissioned SVA to helps to try and quantify that. In other instances undertake SROI analysis on two non-profits – you might find that you have other ways of one a social venture, the other a theatre measuring it, that you’re satisfied with, that company. At a forum where results of the aren’t necessarily quantifiable. I think either analyses were presented, fundraisers questioned the suitability of SROI analysis in their sector. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

6 CASE STUDY Social Enterprise in Action: CASE Eaglehawk Recycle Shop STUDY With the help of sector consultancy Social Ventures Australia, this successful Victoria- based social enterprise managed to put a number to its social return on investment. Analysing social return on investment (SROI) ERS also didn’t cost much to set up. “We started “You need to be able to tell the power of the helped Eaglehawk Recycle Shop (ERS), in the with a grant of about $20,000 and then we got story around how you are supporting them, Victorian town of Bendigo, articulate what it some jobseekers to stay on their unemployment and subsequently the savings to government does and see the operation in a different light, benefit to see if they could run a business in the and the value that’s created because of that,” according to Future Employment Opportunities first six months,” Cox says. Social Ventures Australia’s (SVA) (FEO) projects manager Peter Cox. Simon Faivel says. FEO operates a number of social enterprises in “Rather than the government ERS contracted SVA to conduct the SROI Victoria, including ERS, which started taking in paying unemployment benefit, those analysis. At the time, FEO was part of the domestic waste, sorting it and selling used items portfolio of enterprises that SVA supported. back to the public in 1994 after managers saw an jobseekers are given the opportunity SVA contractor Caroline Cox judged that for opportunity in an article in the local paper about to create work for themselves and every dollar invested, ERS produces $3.90 plans for a new waste landfill. therefore create wages for themselves” worth of value for the community. But that’s not Eaglehawk Recycle Shop “Future Employment Opportunities works with the whole story, Faivel says. a lot of people out of work,” Cox says. “So people – Peter Cox, Future Employment Opportunities “It’s the equivalent, in the for-profit space, asked the question, ‘Why are we burying all this if I was to tell you my ROI for my business is stuff in the first place?’ ” ERS now employs 14 people who had been long- 9 per cent or 20 per cent. You’re going to go term unemployed. Rather than the government With $15,000 of federal government money ‘So what? Tell me more’. It needs to be part paying unemployment benefit, those jobseekers FEO did a feasibility study and, after getting of that bigger picture.” SR Social Returns: are given the opportunity to create work for advice from Revolve, a Canberra-based recycling themselves and therefore create wages for organisation, started recycling. themselves, Cox says. S ecial rie n ro The SROI analysis, conducted in 2006, shows Finally, the operation helps reduce greenhouse many positive impacts on the immediate – and gas emissions as well as energy spent larger - community. “I could list probably five areas where the social return on investment is very pertinent,” says Cox. the community reuse things. 3 Pillars Network manufacturing new items, since it lets people in FEO recently attracted seed funding to construct ERS turns over $550,000 annually and “made a an industrial recycling centre. The SROI analysis, lot of other people acknowledge that we needed and the story it enables FEO to tell, helped attract to do better”, says Cox, a revelation that helped $1.5 million from the federal government for a extend the life of the landfill by decades. Staff at work new shed and concrete apron. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

7 SECTOR EXPERT Terry Alan Farris, CEO Unitus Capital SECTOR EXPERT Terry Alan Farris, CEO of the Asian financial You have an American accent. Are you from Unitus Capital invests mostly in microfinance. services company Unitus Capital, has been a there and where do you live now? What other areas are you likely to invest in? key player in an ambitious movement to lift I grew up in Hawaii and California. I now live in The great thing about microfinance is that it has the underprivileged in the Asia-Pacific from Singapore with my wife and four kids and we’ve provided investors the opportunity to see it’s poverty. Achieving this, he maintains, depends been there for seven years. possible to create something that’s scalable, less on charity and more on the growing global has impact, and gives a financial return. phenomenon of “social impact investing”. To What inspired you to work for social change Now we’re able to look at other sectors that that end, Unitus Capital advises and arranges in Asia? might not have been exposed to social impact funding for microfinance institutions and social Well, my dad ran hospitals and from a very young investing before – health care, agriculture, businesses that strive for positive social outcomes age it was engrained in me that you could use education, water, renewable energy, affordable in addition to financial success. business models for social good. In my early housing – and to introduce investors who have We interviewed Farris when he visited the twenties I travelled to Micronesia and saw a lot of seen the success of microfinance and have an company’s Sydney office in June. appetite to go into some of these new areas. 3 PILLARS: What’s the short history of your “Financial planners and their clients, ‘Social enterprise’ is a newer concept in long career? including charitable foundations, Australia than it is in the UK and US. Do you think it will gain traction here? TERRY FARRIS: I started off doing estate are starting to ask if they can take a Yes. It’s been starting to pick up here over the Terry Alan Farris planning in the (San Francisco) Bay Area, mostly portion of their investable assets and Social Returns: past few years with many people doing wonderful for Asian clients. Then I headed up the University make a difference, while also getting an Unitus Capital work to develop the sector. One of the challenges of Hawaii Foundation before moving to Hong Kong to run several social enterprises. In 1998, acceptable financial return on is we haven’t yet seen the development of a I put together a consulting business to help Asian families move away from traditional philanthropy their investment.” S ecial rie n ro sustainable funding market for social enterprises. But financial planners and their clients, including charitable foundations, are starting to ask if into more business-like, venture philanthropy and to include that in their wealth plan. Subsequently, 3 Pillars Network philanthropic dollars had been spent there, but after 20 years they had made little social impact. they can take a portion of their investable assets and make a difference, while also getting an as head of philanthropy services for Asia-Pacific I decided to devote my life to finding ways to help acceptable financial return on at MeesPierson and UBS, I helped 225 family- people at the bottom of the pyramid in Asia- their investment. SR owned companies and 150 non-profit clients in Pacific. I believe one or two individuals can make 12 countries look at these issues. an enormous impact. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

8 FEATURE The Westpac Foundation’s focus on social enterprise began in 2006 when Dr Zappala was Foundation Funding Falling Short asked to review its focus. Since 2006, he notes a big increase in funding applications from social Stymied by regulatory hurdles, a shortage of retail social investment products and enterprises, while traditional charities and not- unhelpful entrenched attitudes, foundation funding is falling short of what’s needed to for-profits have started to move towards a similar kickstart the social enterprise sector. organisational structure. “We have found this quite challenging because we are getting two types of applications: from Australia’s not-for-profit sector is changing. “Don’t get me wrong. I’m very optimistic about established social enterprises that have been An increasing number of organisations are the future of the sector: firstly in terms of growth, operating in that way for a number of years, with spurning traditional cheque-book philanthropy because it is tiny; and secondly being a bit smarter. perhaps 98 per cent of their revenue coming from models in favour of financially sustainable social The philanthropic dollar in this country is tiny.” trading activities; to traditional not-for-profits, enterprises, new types of ventures that not only Dr Gianni Zappala, an associate professor at the where perhaps 98 per cent of their income comes deliver a social return but a potential profit. But Centre for Social Impact, the University of New from fund-raising.” philanthropic investors such as family trusts and South Wales, and a co-executive officer of the For instance, Mission Australia is a beneficiary foundations are not stepping up to the plate in Westpac Foundation, offers an insider’s view. of Westpac Foundation funding – an example of sufficient numbers, hindered by a confusing and a big national charity with a small internal unit inconsistent regulatory framework, a shortage that focuses on social enterprise; while small of financial products designed to funnel much- “Australia is lacking a shift in thinking; community-focused social enterprises, such as needed cash into good causes and, perhaps a shift away from grant-making into the Nundah Community Enterprise Co-operative more worryingly, a reluctance to shift putting endowments to work” that also benefit from the foundation’s funding, Gina Anderson entrenched attitudes. are at the other end of the spectrum. CEO, Philanthropy Australia Gina Anderson is CEO of Philanthropy Australia, – Gina Anderson, Philanthropy Australia Zappala says being a charitable foundation Australia’s national peak body for philanthropy. Westpac can only support not-for-profit Its members are trusts and foundations, families “The big issues are harmonisation of legislation organisations. and individuals who want to make a difference across different states and the importance of Social Returns: through their own philanthropy. creating regulations to enable new types of legal “Because we are a foundation we can only forms which can embrace commercial activities, provide funds to charitable or public benevolent “Australia is lacking a shift in thinking; a shift institutions – so we can only fund social away from grant-making into putting endowments such as capital-raising,” he says. to work. From a foundation’s point of view it should be about how they might use 10-15 per Westpac’s social enterprise support S ecial rie n ro enterprises that are not-for-profit legal entities. “Our preference is to support those organisations social enterprises that tackle problems in Pillars Network 3 cent of their endowment to invest rather than The Westpac Foundation invests directly in with social innovation and where any commercial make grants.” activity is related to their mission. They are the Australia’s disadvantaged communities. The ones that are likely to be both sustainable and Peter Winneke, the head of philanthropic services have a greater social impact,” Zappala says. charitable foundation operates independently at the Myer Family Office, says grant-makers to the commercial interests of Westpac Banking could do a lot more to make their dollar go further: Regulatory barriers Corporation. Since providing grants to external “There’s lot of ‘feel good’ stuff going on, but there’s organisations in 1999, over $19m has been The government is under increasing pressure to not much innovation. There should be far more awarded in grants to over 120 organisations. reform laws and regulations governing the sector. monitoring and evaluation by grant-makers.” A 2009 Productivity Commission report yielded SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

9 little in the way of change, much to the companies and also those that are a generation The American state of Maryland a new regulation sector’s chagrin. Philanthropy Australia’s or two removed from the founder, because they defining a “benefit corporation”, essentially to Anderson says Australia is a long way behind have to be guided by the prudent enable entrepreneurs to commit their for-profit both the US and UK. person principle. ventures to a specific public good, and requires “We have a much too complex system: we have “Many will go by the letter of the law that them to report on contributions to that goal and two tax endorsements – DGR (Deductible Gift says you must get maximum return for the submit to auditing of their impact. Status) and TCC (Tax Concession Status), while beneficiaries. A lot of those social investments other countries have just one. may be low on return; the question then becomes “We are made up of states – income tax is federal, ‘Is that what a prudent person would do? And “The big issues are harmonisation of but charity and state law is state-based – so it is that hasn’t really been tested under case law.” legislation across different states and highly complex, inconsistent and until we have the importance of creating regulations one regulator or one registrar we will see Changing the terminology little progress.” PA’s Anderson dislikes the term ‘not-for-profit’, to enable new types of legal forms, Westpac’s Zappala says: “If there was a wholesale since it creates a perception that profit is which can embrace commercial unnecessary to these organisations and that activities, such as capital-raising” review of that regulation, together with what profit or lack of it is a defining factor. legal forms foundations could support, I think Peter Winneke “While we do need these organisations to be – Dr Gianni Zappala, an associate professor at the that could provide much bigger impetus for social Myer Family Office sustainable, properly capitalised and funded, the Centre for Social Impact enterprise to grow.” term not-for-profit is misleading as profit is not Overcoming risk the issue,” Anderson wrote in a 2009 Charter article. Having official “benefit corporation” status allows Anderson of Philanthropy Australia says entrepreneurs to consider stakeholders like foundations have tended to invest in the top- PA has recommended using the term community employees, communities, or the environment in performing charities. benefit entity. business decisions. Under existing US corporate “The community in this context can then be as law, company directors can face lawsuits if large or as small as the various stakeholders considering outside stakeholders is seen to “There is lot of feel-good stuff going on, require and would overcome the existing damage the financial interest of shareholders. but there’s not much innovation. There should be far more monitoring and Social Returns: confusion in terminology and application to public or private sector entities,” she wrote. The same applies today, she tells 3Pillars. A similar proposal is pending in Vermont. California lawmakers are considering evaluation by grant-makers” related legislation to allow “flexible purpose – Peter Winneke, Myer Family Office “We suggest that community benefit entity would be a better term to describe these S ecial rie n ro corporations” that would let companies protect their social missions, without the affirmative Dr Gianni Zappala Westpac 3 Pillars Network organisations whose primary objective is to provide goods or services for community or requirements that the “benefit corporation” law puts in place. “The first issue is if you are starting up you are social benefit and where any equity has been usually not incorporated. The second issue is the Kylie Charlton, fellow at the Centre for Social provided with a view to supporting that primary whole notion of equity and getting that capital Impact and managing director of Unitus Capital, objective, rather than for a financial return to back. It’s that which causes a disconnect between says the introduction of new legal forms “could equity holders.” foundations/trusts with social enterprises. have significant positive influence on how social Substantial progress towards defining ‘for enterprises think about their capital structure and “This issue is especially pertinent to those purpose’ corporations is being made abroad. to what sources they look to raise capital.” SR foundations and trusts managed by trustee SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

10 FEATURE But we have a long way to go, agree financial advisers and social fund managers. Investing For Good “I think it’s at a very nascent state here,” says Kylie Charlton, a managing director at Unitus A rising class of investors is actively seeking to place capital in businesses and funds Capital and a social investment fellow at that can provide solutions at a scale that purely philanthropic interventions usually Australia’s Centre for Social Impact. cannot reach. “I do hold great hope, though, that we can catch up quickly. People across various stakeholder groups are starting to see that if we can really Reeling from a global financial crisis whose full Investing for Social and Environmental Impact establish sustainable social enterprises across size and shape is unknowable, organisations report by the Monitor Institute in 2009. Australia, we can potentially drive social change across the spectrum – from the purely “Instead, they actively seek to place capital in and social inclusion better than if we just rely on philanthropic to the multinational – are being businesses and funds that can provide solutions the traditional non-profit model.” forced to reassess all aspects of their culture, at a scale that purely philanthropic interventions Foresters Community Finance warns against product and conduct to ensure their survival. usually cannot reach.” a degree of hype it senses in the Australian Paradoxically, the calling seems to be for Supported by specialist financial vehicles and landscape. businesses to behave with wider, genuine social global philanthropies, such as the Rockefeller and “Social enterprise is not, in our opinion, a magic and environmental concern, while traditional solution for addressing wicked social problems, non-profit organisations are being required to nor is it an alternative pathway for social sector Kylie Charlton act with real business smarts. “People across various stakeholder organisations wishing to find ways to get off the Unitus Capital Enter social enterprise. groups are starting to see that if we funding treadmill,” writes author Ingrid Burkett can really establish sustainable social in Foresters’ 2010 report, Financing Social Difficult to define Enterprises: Understanding Needs and Realities. While an exact definition is yet to be hammered enterprises across Australia, we can “Rather, it is an addition to the stable of ways in out – even in the UK and US, where the concept potentially drive social change and which we can address the most pressing issues is much more developed – social enterprises are social inclusion better than if we just facing our society today. loosely understood as new forms of organisation rely on the traditional non-profit model” “Social enterprise is a hard road – it asks us to that aim to strike just the right balance between social, environmental and financial goals. Alongside the concept, proponents often – Kylie Charlton, Unitus Capital Social Returns: tread the slippery path between social objectives and commercial practices. It is neither for the S ecial rie n ro faint-hearted nor for idealists. It calls for ‘practical speak of “impact investing” – highly creative, visionaries’.” Bill and Melinda Gates Foundation, microfinance collaborative funds and businesses where investors accept a below-commercial (but not absent) market return in exchange for social and mature arena for impact investing. 3 Pillars here will require practical changes, too in developing countries is considered the most Success Network The challenges environmental benefits. In Australia, there is a growing buzz about the – particularly adjustments that offer structural potential of social enterprises to deliver deep support and attract a robust flow of capital. “These impact investors want to move beyond solutions for a range of problems, especially ‘socially responsible investment’, which focuses First, because social enterprises are a hybrid those that plague the most downtrodden. primarily on avoiding investments in ‘harmful’ entity, they face certain legal impediments under companies or encouraging improved corporate Correspondingly, efforts are beginning in current Australian regulations to accessing funds. practices related to the environment, social multiple quarters – from entrepreneurs to Organisations with a social purpose often rely on performance, or governance,” explained an lenders, government and others – to help foundations or philanthropies for their initial cash cultivate its growth. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

11 injection, yet can’t accept grants unless they are development venture capital fund and now Social Investments Australia, Foresters expects to a bona fide non-profit entity. requires additional disclosure by banks about raise at least $6 million for its new Social Impact On the other hand, if they establish as a non- their lending activities. Property Fund. profit, they will be unable to offer equity and “It’s not been enormous amounts of flow but at Peter Ball, Foresters’ social investment business distribute financial returns to socially minded least it’s started the conversation and allowed manager, says the fund will provide long-term investors, who typically bring capital later in an a much more active engagement,” remarks property leases to about 30 community sector organisation’s development. Charlton about the UK experience. organisations and build their capacity to purchase Next, traditional lenders, particularly banks, The driving force behind SITF was the serious the property at lease maturity, while providing a grapple to understand what “social purpose” is and common acknowledgement of the need for target return of 5.5 per cent to investors. and how a “social enterprise” can turn a profit and sustainable investment among those who are GoodStart (see profile p.12), a consortium of repay debt the way a conventional business can. economically disadvantaged, “if free market large Australian charities, recently acquired “We don’t have in Australia any specific legal form societies are to maintain cohesion”. the childcare centres of ABC Learning through where someone can go out and say I’m going to a competitive and inventive joint venture. establish a social enterprise and that’s what I’m Investors, who bought unsecured notes for an really going to be,” explains Charlton. “Social enterprise is a hard road eight-year term, returning 12 per cent per annum, are focused on achieving a long list of social Overcoming these and other hurdles will – it asks us to tread the slippery returns in the childcare sphere. require intense educational dialogue and some path between social objectives and significant tax and regulatory modifications. In May, the Western Australian government commercial practices. It is neither for announced a $10 million Community There are examples to follow, however. Peter Ball the faint-hearted nor for idealists. It Development Investment Fund, which will offer Business Manager, Foresters Learning from others calls for ‘practical visionaries” low-interest loans to eligible groups. The UK has been consciously and methodically Such initiatives spell promising potential for a – Ingrid Burkett, Foresters Community Finance future social capital market in Australia, nurturing the social investing phenomenon for the past decade, with a Social Investment Task says Peter Ball, of Foresters. Force (SITF) presiding. “I think we’re heading in that direction because In April 2010, SITF’s final and widely read report, SITF was charged with illuminating how there is progress,” he says. “The way to get there Social Investment Ten Years On, states the recent Social Returns: entrepreneurial practices could be applied in the is to have more organisations and more product.” recession has brought that need to a critical level. UK for higher social and financial returns, To really kick-start the market, government and The report recommends the establishment of a in addition to addressing economic regeneration philanthropies, which are often risk-averse, may dedicated organisation, a Social Impact Initiative, and discovering ways to unleash private and public investment. S ecial rie n ro to take impact investing to the next level, and the creation of new financial tools, such as Social need to take the plunge with some high-risk capital to “crowd in” private investment, adds 3 Pillars Network In response to SITF recommendations, the British Charlton. Impact Bonds. government has introduced various legislative “Let’s not just over-analyse this and write another and regulatory changes to allow and encourage Where we’re headed report,” she says. “Let’s be willing to take some charities and foundations to invest in community Financial intermediaries and more specialist risk, let’s acknowledge failure may occur, but we development finance, in addition to new funds will be essential to opening the gates of should achieve greater success and learn from Community Investment Tax Relief. Among other capital in Australia, too. those failures.” SR changes, it also matched finance to help set up Meanwhile, a handful of forward-thinkers are the first community already paving the way. Through a subsidiary, SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

12 CASE STUDY Social Enterprise in Action: CASE GoodStart Childcare STUDY One of the most impressive examples of attempting to advance a social agenda through creative business financing occurred in Australia in May. Three of the nation’s biggest charities – Mission It took a full 12 months to build the consortium. In exchange for their below-commercial-market Australia, the Benevolent Society and the The initial commitment came from the charities financial return, investors are expecting the Brotherhood of St Laurence – banded together themselves, with each investing $2.5 million for a consortium to deliver on a host of with Social Ventures Australia, the National 15 per cent return. social outcomes. Australia Bank, the federal government and high- Over time, about 40 individual investors came Not least among these is moving Australia’s early net-worth individuals to buy the centres on board, bringing between $100,000 and childhood care, development and learning from of collapsed company ABC Learning. $1 million in exchange for 12 per cent unsecured a fragmented system to a sustainable one that is Known as GoodStart Childcare Ltd, the newly notes over an eight-year term. accessible and affordable. founded consortium beat out several private GoodStart also is charged with influencing equity rivals to acquire 678 centres for about “If social investment can ultimately related national policy and research. $100 million. be defined as a legitimate asset class, In a country where impact investing and social Motivating GoodStart was the belief that, given enterprises are yet to take hold, the acquisition the chance, tried and proven business principles it will attract not just philanthropists is somewhat risky, yet it’s acknowledged also as could greatly improve social outcomes in the but the mainstream superannuation a possible model for building other large-scale critical area of early childhood care and learning. industry, unlocking significant capital social businesses. “Entrepreneur Evan Thornley contacted me which to-date has been difficult for Traill says he’s very confident GoodStart can shortly after ABC Learning was placed in deliver on its social goals in addition to meeting Michael Traill receivership in November 2008, asking if there’d social enterprises to access” its financial obligations to NAB and others. Social Returns: CEO, Social Venture Australia been consideration given to the possibility of – Michael Traill, Social Ventures Australia Social Ventures Australia is looking for similar converting the business into a ‘for purpose’ investment opportunities, he says, but admits operation,” explains Michael Traill, Social Ventures Australia chief executive. Later, National Australia Bank approved $120 S ecial rie n ro million in loans and guarantees, to be repaid over the for-purpose market is yet to be properly recognised here. “Evan, like myself and the other non-profit sector leaders who I spoke to about the idea – some of which are now members of the GoodStart five years. The federal government provided an additional $15 million loan over seven years. 3 Pillars Network “If social investment can ultimately be defined as a legitimate asset class, it will attract not Now the acquisition has succeeded, GoodStart just philanthropists but the mainstream syndicate – recognised this as a once-in-a- faces the challenge of meeting a complicated superannuation industry, unlocking significant generation opportunity to significantly change combination of promised returns. capital which to-date has been difficult for social Australia’s childcare sector for the better.” enterprises to access,” Traill says. SR Raising the money to make the bold idea happen was arduous, requiring a type of focus and collaboration rarely seen. SOCIAL RETURNS – A SPECIAL BRIEFING FROM 3 PILLARS NETWORK RESEARCH

Social returns briefing

by Private Wealth Network on Aug 20, 2010

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Social returns briefing Presentation Transcript