Impact Investing Australia released a report that presents the first attempt to capture the impact of green and social benefit investing in Australia.
The International Capital Markets Association recently announced updates to the Green Bond Principals, which included expansion of the range of acceptable
uses for green bond proceeds to include projects with social objectives.
Thus, social benefit bonds and green bonds are now considered together, within the context of the benefits that each provide to society as a whole.
The report prepared by Impact Investing Australia, "Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2016", observes that in 2015, funds raised or being utilised for socially beneficial projects are dominated by green bonds issued by Australia’s major banks. Indeed, ANZ had A$600 million of green bonds outstanding and nab had A$300 million, at the cut-off date.
Green bonds are nevertheless important, because the bonds introduce social impact investing to institutional investors, who can provide substantial funds to the sector in the future. The report also notes that aside from the impact of these green bond issues, over 60,000 vulnerable Australians benefited from the capital that was deployed during the year.
The greatest impediment to participation in impact investing is difficulties with measuring outcomes. The inconsistencies in global measurements are highlighted in the report, while the report attempts to make a strong contribution to measuring impact in the Australian context.
Thus, the report presents the first set of aggregated, market-based data on the performance of Australian impact investment products. Over time, the data collected should shape expectations for the financial and impact performance of impact investment products.
Looking at the performance of the 15 impact investment products domiciled and active in Australia, as at 30 June 2015, the aggregate value of the products was A$1.2 billion. It is clear that the green bonds issued by ANZ and nab account for 75% of this aggregate value.
The funds raised from these bonds were aimed at environmental outcomes. The remaining funds were aimed at social outcomes.
Of the 60,000 beneficiaries of these social outcome projects, 126 schools were supported, 319 jobs were created, 1,072 people with disabilities were supported and 669 mental health sessions were delivered. As for environmental outcomes, 4,493 tonnes of e-waste was diverted from landfill, 11,501 MWh of renewable energy was generated, and 3.9 tonnes of CO2 was avoided.
Measuring financial performance, the report finds that financial returns from all projects have been positive. Where debt has been provided directly, returns range from 5.4% to 17%, bond returns range from 3.25% to 12%, and returns on real assets employed range from 0% to 12.6%.
The report concludes that investors are finding ways to measure social impact as well as financial returns. However, more work is needed to develop meaningful metrics that inform better understanding of the value that is being created.
Philip is the Principal of ADCM Services, publisher of The DCM Review an independent online commentary, analysis and data on Australia & New Zealand's debt capital markets. He is also a contributing editor to Banking Day and a director at Australia Ratings.