This document summarizes a forum on measuring social returns on investment. The forum will discuss how organizations can evaluate the impact of social ventures and investments to understand the social benefits created. There is growing interest from corporations, foundations and others in systematically measuring social returns, but also challenges in quantifying harder-to-measure social impacts. The forum aims to help organizations better understand available tools and methods to assess their social returns on investment.

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

2. 2 EVENT
Inaugural 3 Pillars Network MONDAY 25TH OCTOBER 2010
Social Returns Forum WESTPAC AUDITORIUM, SYDNEY
Creating, measuring and investing in social change
A not-for-profit event
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 Afternoon keynote
where
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
In association with 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
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
Social Returns:
A panel discussion featuring experts from 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
more intangible, harder-to-quantify social benefits – S ecial rie n ro
to drive the development of social enterprise?
A panel discussion with Social Ventures Australia
www.3pillarsnetwork.com.au
those that are often exactly the reason why charities
exist in the first place? 3 Pillars Network
CEO Michael Traill, Unitus Capital MD Kylie Charlton
and Foresters Community Finance fund manager
Social enterprise in action: 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. 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. 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. 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. 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. 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 ingrained 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. 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. 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. 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. 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. 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