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2nd Edition | Social Impact Hub| 2018

How to use this Field Guide


This Field Guide is the result of the collaborative effort of experts from the field, investors, investees, students, and other passionate people keen to see Australia's impact investing ecosystem grow and thrive.

Special thanks in particular to contributors, interviewees, and the supporters listed below.

Advisory committee

Kylie Charlton - Chief Investment Officer, Australian Impact Investments

Lisa George - Global Head, Macquarie Group Foundation, Macquarie Group

Michael Lynch - Executive Director, Impact Investing, Social Ventures Australia

Sally McCutchan - Executive Director, Impact Investing Australia

Belinda Morrissey - Chief Executive Officer, English Family Foundation

Will Richardson - Head of Venture Capital, Impact Investment Group

David Rickards - Executive, Co-Founder, Social Enterprise Finance Australia

David Ward - Technical Director, Australian Philanthropic Services

Researchers, writers and editors

Jessica Roth, Social Impact Hub

Mia Sturrock, Social Impact Hub

Kylie Marks, Social Impact Hub

UNSW student research and writing teams

Rajarshi Roy; Daniel Brockwell; Joel Nasrallah; Erica Balilo; Fanny Fontaine (Semester 2, 2018)

Alecia Duong; Christopher Chan; Jasalina Patel; Margaret Kesaris; Marit Olstad; Mark Lin; Simone Chaikin (Semester 1, 2018)

James Li; Naoko Lambert; Celine Tia; Christopher Joannes; Raghav Iyer (Summer 2017-2018)


This, the Second Edition of the Field Guide to Impact Investing, was created to update and refresh our 2015 First Edition. The Field Guide provides practical strategies and support for Australian charitable trusts and foundations that use, or are interested in using, impact investing to amplify the impact they can make in their communities and the world more broadly.

The Field Guide includes a step by step guide to help answer the questions:

  • What is impact investing?
  • How does it compare to traditional investing and how is it different to philanthropy?
  • How is impact investing evolving worldwide? And in Australia?
  • Why is it important for foundations?
  • What are Australian charitable trusts and foundations doing about it?

Parts 1 and 2 provide a general introduction to impact investing, an overview of the global and Australian markets in impact, and explore the range of asset classes, funds, and sectors directed at impact.

Parts 3 to 8 of the Field Guide provide more detailed guidance to Australian charitable trusts and foundations looking to begin, advance or deepen their journeys in impact investing. Challenges and myths that can get in the way of impact investing efforts are explored and debunked, and initiatives and ideas to overcome barriers, both real and perceived, are illustrated.

Case studies from a range of Australian impact investors help to illustrate how impact investing works in practice and provide recent examples of initiatives and experiences from the field. Each story links to extended content - interviews, videos and other material - created to support your journey.

Read on to learn about opportunities, strategies and tactics for advancing your impact investing journey.



Impact investing… harnesses entrepreneurship, innovation and capital to power social progress… By bringing a third dimension, impact, to the traditional capital market priorities of risk and return, impact investing has the potential to transform our ability to build a better society for all.” Social Impact Investment Taskforce (1)

A vibrant impact investing market is growing worldwide, as the private sector and governments seek innovative solutions to address the world’s most pressing challenges. At the same time, investors’ increasing recognition that their investment decisions have an impact on the world and its communities are leading them to seek out opportunities that not only minimise the negative impacts of their investments, but intentionally drive positive impact.

Emerging as a response to the growing challenges facing the world, impact investing has the potential to bring game-changing capital to challenges too large and complex to be addressed or funded by the government, the social sector, or philanthropy alone.

Some defining elements of impact investments

Impact investments are investments made into companies, organisations, and funds with the intention to generate measurable social and environmental impact alongside financial return.'

The Global Impact Investment Network (GIIN) (2)

Impact investing is characterised by three key elements:

  1. 1.Intention - the investment opportunity must be designed with a specific objective to achieve social and/or environmental impact. Investments where the impact is unintended are not considered impact investments.
  2. 2.Measurable impact - the impact is able to be measured and reported.
  3. 3.Financial return - the return on investment can range from concessionary (below market) through to market-rate and market-beating returns, but there is an expectation of at least return of capital.

Based on definitions from the Global Impact Investment Network (GIIN)

In the past decade, impact investing has developed to provide capital across a range of sectors including sustainable agriculture, conservation, renewable energy, microfinance, and affordable and accessible housing, healthcare and education. (3)

Allowing investors to make a meaningful financial return whilst investing in social and/or environmental objectives, impact investing directs the flow of capital towards funding and sustaining the innovative, scalable solutions needed to address the world’s most pressing social and environmental challenges. (4) While impact investing is still in an emergent phase, its growth presents excellent opportunities for forward looking investors who know that the only profitable future is a sustainable one.

Figure 1.1 sets out the potential of impact investing for investors, government, not-for-profit organisations (NFPs), social ventures, and the community.

Figure 1.2 Adapted from Case Foundation’s A Short Guide to Impact Investing: A primer on how business can drive social change 2015.


The expectation of financial return differentiates impact investing from philanthropy, and the specific objective of making and measuring impact differentiates it from traditional forms of investment.

Figure 1.3 Impact investing in context, financial return and impact.

The terms impact investing, Environmental, Social and Governance (ESG) investing and Socially Responsible Investing (SRI) are often used synonymously, but impact investing is distinctly different from ESG and SRI and other forms of ethical or socially responsible investing and it is helpful to understand these differences. Figure 1.4 shows the spectrum of common investment typologies.

ESG and SRI generally apply a set of negative or positive screens to an investment. Negative screening involves avoiding or excluding investments with low environmental, social or governance metrics, and screening companies under certain criteria. In contrast, impact investing goes beyond passive screening by seeking investment opportunities with the goal of affecting either or both social and environmental change with returns that may be below, at, or above market.

As Figure 1.4 shows, across the spectrum of impact investments, there are varying levels of financial return, reflecting the differing risk appetites and requirements for financial return from various investors. (5) Adapted from Impact Investment Spectrumby Sonen Capital. (6)

Impact-first, finance-first, or blended value?

The following terms are sometimes used to describe approaches to impact investment with respect to financial and social/environmental return.

Finance-first Impact Investments seek to maximise financial return while aiming to make a real and measurable impact. This means that investors set minimum impact objectives that must be considered when selecting investments, however the expectation is that these investments will generally achieve financial returns that are competitive with traditional investments.

Impact-first Impact Investments seek to maximise social and/or environmental impact while still making some financial return, be those above or below risk-adjusted market rates of return. Impact-first investors are primarily driven by their desire to create impact and are therefore willing to accept a below market financial return and/ or take higher risks to achieve these objectives. Philanthropic trusts and foundations are more likely to use this type of investment as an adjunct to their granting strategy, rather than institutional investors.

While impact-first and finance-first distinctions may be helpful in characterising opportunities and investment styles for some, there is a growing trend towards investors managing for total performance. (7)

‘Both/and’ or Blended Value Investments seek to create sustainable, long-term solutions to global challenges through strategies that neither prioritise economic return nor social return, but rather a blend of both. They are located in a space between philanthropy, where no financial return is expected, and pure financial investments, which does not focus on social or environmental outcomes.

While some investors fear impact investments will lead to smaller returns, with a trade-off between financial return and social impact, history has shown this is generally not the case.

There’s a persistent myth that impact investing automatically necessitates a trade-off in financial performance… But it’s quite feasible for impact investors to make competitive returns.”

Abhilash Mudaliar, GIIN Director (8)

Figure 1.5 adapted from The GIIN's Annual Impact Investor Survey 2018

The GIIN’s 2018 survey revealed, based on the activities of 218 leading global impact investors, 15% of respondents had their expectations exceeded in terms of both financial and impact returns, 76% received financial returns in line with financial expectations, 82% in line with impact expectations. Just 3% of respondents have fallen short of their impact expectations and 9% of their financial expectations. (9)

This means that 97% of impact investors who responded to GIIN’s survey had their impact expectations met or exceeded, and 91% had their financial return expectations met or exceeded.

Figure 1.6 adapted from The GIIN's Annual Impact Investor Survey 2018

The GIIN’s conclusion was that impact investors can achieve market rate returns, as general funds for impact investment can perform at similar levels to traditional investment. (10) GIIN Research Director, Abhilash Mudaliar, does indicate, however, that below market capital plays a critical role in the industry and will continue to do so. One role the submarket plays is as a bridge between philanthropy and investing. This is explored further in Parts 2 and 8.

The global impact investing landscape

Just over a decade since a coalition of philanthropists and investors introduced the financial-services industry to the term ‘impact investing’, interest and participation in impact investing has accelerated globally.

The majority of impact investment capital originates from America, Europe and the Asia-Pacific region but demand for impact investment extends worldwide. This includes investments made throughout the world into for-profit, hybrid and non-profit ventures spanning a broad range of social and environmental objectives. (11)

Figure 1.7 details the impact investing environment in 2017, source the GIIN's Annual Impact Investor Survey 2017 (12)

It is difficult to accurately determine the current size and potential of the global market due to the broad range of definitions and approaches to impact investment, and estimates data vary significantly from organisation to organisation. A current market snapshot for the size of the impact investing market, derived from data gathered from the GIIN Annual Survey Report 2018, a survey of 229 of the world’s leading impact investing organisations, provides the best-available 'floor' for market size — US $228 billion. (13) This is a significant increase on the previous forecast by the Global Social Impact Investment Steering Group that the market will exceed US $300 billion by 2020. (14)

Impact Alpha describes a shift of capital into a broader set of 'sustainable' and 'responsible' assets. In 2017, the capital pointed toward negatively and positively screened public equity and green bonds hit $23 trillion, a 25% increase in two years. (15)

Figure 1.8 adapted from the GIIN's Annual Impact Investor Survey 2018

Moving towards the mainstream

This strong growth is supported by policy developments in many countries, the emergence of pioneering market builders, and a growing investment appetite worldwide. Globally, millennials and female investors are emerging as significant forces in impact investing. (16)

Studies by Morgan Stanley’s Institute for Sustainable Investinghave found that 18 to 34-year-olds are twice as likely to invest in a portfolio or individual companies if they seek positive environmental or social impact (17) and US Trust’s 2016 Wealth & Worth Survey of 684 individuals revealed that impact investing by millennials has increased, inspired by a belief that their own investment decisions have the ability to influence social issues like climate change and poverty.

Figure 1.9 adapted from Morgan Stanley Institute for Sustainable Investing, Sustainable Signals Report, 2017

There is also a growing interest in impact investing among high-net worth Gen X (aged 35-51) and those with at least $10 million in investable assets. (18)

As evidence that impact investing is appealing to a more mainstream market, investment managers like Bain Capital, BlackRock, Credit Suisse, Goldman Sachs, and JPMorgan Chase are just some institutions that have added impact products to their portfolios. (19)

As new products emerge from mainstream players with varying benchmarks for ‘impact’, initiatives like the Impact Management Project (explored in more detail under Measuring Impact) mark a significant step toward achieving a common language and shared fundamentals in the context of impact investing. Investors need to think through the impact that they are seeking to make with their own portfolio choices and risk/return considerations.

Figure 1.10 source Morgan Stanley Sustainable Investing Survey 2017 shows the growth in impact investing among different categories.

The UN's Sustainable Development Goals and impact investing

The United Nations’ Sustainable Development Goals (SDGs), launched in 2015, provide a global agenda to end poverty and protect the planet by 2030. Each of the 17 goals, shown in Figure 1.11, has targets that require financial investment. The UN estimates that funding initiatives to achieve the SDGs will require an additional USD 5–7 trillion per year, and it has emphasised the critical need for collaboration of the private, public, and philanthropic sectors to resource the initiatives needed to achieve the goals to end poverty and ensure environmental sustainability by 2030.

Impact investing will play a pivotal role in unlocking private capital to achieve the goals.

Figure 1.11 The United Nation's Sustainable Development Goals

The SDGs provide an unprecedented and convenient framework with which to structure and modify portfolios to define the impact they aim to make. Investors have been encouraged to consider how their investments might contribute to achieving the goals and some of the largest pension funds, asset managers, and increasingly charitable trusts and foundations are taking up this challenge and are aligning their strategies with the SDGs.

Dutch pension fund PGGM, for example, identified six SDG focal goals in which to invest and, more locally, QBE are mapping their portfolios to the SDGs at a higher level. Importantly, often investments cross multiple goals (for example, a water waste management project involving wetlands development could promote clean water and sanitation, and life on land through biodiversity).

Figure 1.12 adapted from the GIIN's Annual Impact Investor Survey 2018

The GIIN has created profiles on a variety of impact investors to understand their motivations for tracking performance to the SDGs, and to demonstrate how aligning to the SDGs is helping them develop impact strategies and goals, communicate with stakeholders, and attract new capital. (20)

Figure 1.13 adapted from the GIIN's Annual Impact Investor Survey 2018

Australia's impact investing landscape

A commercial laundry changing lives one wash at a time. An artisan bakery baking into its business model employment pathways for refugees and asylum seekers. A website empowering people with disabilities to choose their own caregivers. An ecotourism venture using animal attractions to create jobs and conserve precious bushland. A funeral business supporting dignified bereavement through affordable, meaningful and personalised undertaking services. These are all examples of Australian impact investment deals.

Here is a map showing Australia's impact investing ecosystem. It illustrates the interactions among the six identified stakeholder groups involved in impact investing in Australia - asset owners, product issuers, social enterprise support, governments, intermediaries, and peak and industry bodies.

In line with global trends, Australia’s impact investing market has grown rapidly in recent years. RIIA's Benchmarking Impact 2018 (21), a snapshot of impact investing activity from June 2015 to December 2017 across 24 organisations, shows:

  • the impact investing market in Australia is growing and there is a diversity of investable products, investment strategies, and types of impact being measured;
  • the market has quadrupled during the period to reach $5.8 billion in investor commitments across 51 wholesale and retail products;
  • 143% growth over the past year alone, with forecasts indicating that by 2022 the Australian impact investing market will reach $33 billion;
  • growth is driven largely by the increase in green bonds (accounting for $4.9 billion of the data set); and
  • other types of impact investment products (including social impact bonds, private debt and investments in property) have also grown from $300 million to $1 billion over the period.

Figure 1.14 source RIAA's Benchmarking Impact: Australian impact investment activity and performance report 2018. The data set includes $4.9 billion of green bonds (or 84% of products by dollar weighting). Excluding the 14 green bonds, the aggregate product value for the remaining 37 products is $948 million, which is a significant increase from $288 million at 30 June 2015.

Figure 1.15 adapted from RIAA's Responsible Investment Benchmark Report 2018, The growth of impact investing in Australia.

This growth corresponds with the sentiments reflected in Impact Investing Australia’s (IIA) 2016 Investor Report (22), a survey of 123 Australian investors which demonstrated that Australian investors have a positive outlook for impact investing. 70% of respondents indicated they believe impact investing will become ‘most relevant’ in the next five years. The diagrams below present data extracted from IIA’S 2016 Investor Report, showing where impact investors are located, their motives for impact investing, and their preferred areas for investment.

Figure 1.16 Australian impact investors locations, source IIA's Investor Report2016

Figure 1.17 Snapshot of Australian impact investors; who they are; why they impact invest; the instruments they use; and the impact areas in which they prefer to invest. Adapted from IIA's Investor Report 2.

Realising the potential of impact investing in Australia

This is an exciting time for impact investing in Australia. As more players enter the market, and new collaborations result in diverse impact investment opportunities, Australians are set to realise the many benefits of a growing and maturing impact investment market. However, Impact Investing Australia (IIA) indicates that the market is still challenged in areas of scale, availability of data, flow of information and market infrastructure. (23)

The Australian Advisory Board on Impact Investing (AABII) maintains that scaling will require a concerted effort from all key stakeholders, with efforts directed to:

  • increasing mainstream awareness of what impact investing is;
  • educating investors about opportunities in the space; and
  • learning how to design for scale and replicate good ideas. (24)

IIA adds the Australian Government must continue to be actively involved to assist the market in reaching its potential scale by identifying new solutions to issues, and investing to reduce risks for new entrants and enhance investor confidence. (25)

Recent developments in the space do show that some concerted effort from key players, coupled with government support, is paving the way for stronger growth. The Federal and State governments are stepping in to assist in catalysing roles. The Federal Government recently committed to allocating a further $30 million to developing the Australian social impact investing market, with $8 million to establish the Social Impact Investment Readiness Fund which will help build capacity to develop social impact investment proposals in the non-government and private sectors. (26) (27)

In addition, the Federal Government has announced a $40 million Emerging Markets Impact Investment Fund (EMIIF) that aims to address the financing gap for small to medium enterprises (SMEs) in the region. (28) Indigenous Business Australia has also recently injected $50 million into impact funds supporting Indigenous communities. (29)

Another big player is the $85 billion superannuation fund, First State Super, which has partnered with the NSW Government to stimulate job creation. The super fund will commit $100 million, while the Jobs for NSW unit will invest $50 million into the “GO NSW Equity Fund” that will screen for investments with a job creation strategy. The fund is estimated to create up to 2,500 new jobs and a further 2,400 by 2025 using recycled funds.

Other market building initiatives include the launch of the Impact Investing Hub in late 2017, providing Australia’s first ‘impact deals hub’ to connect impact investors with opportunities in the Australian impact investing market. The Hub’s aim is to support the growth of the Australian impact investment sector by improving access to information about Australian impact investing deals and the market, and by helping to connect investors with investment opportunities.



The three main areas where impact investments are used are:

  1. scale a business or social enterprise;
  2. access real assets (eg. property or infrastructure); and
  3. finance program delivery. (1)

Asset classes and instruments

Impact investing is an investment philosophy that can be applied across a broad range of existing asset classes. The figure below shows the range of asset classes in which impact investments can be made:

Figure 2.1 adapted from World Economic Forum, An introduction to mainstreaming impact investing initiative, 2013 (2)

Figure 2.2 adapted from the GIIN classification

In practice, impact investors fund many asset classes using a range of instruments, and blend various types of capital in innovative hybrid funding instruments and structured deals to drive impact across the sector. (3)

The GIIN 2017 Investor Report revealed the range of instruments that respondents use to deploy capital to impact investments. Private equity is used by over 75% of respondents, and over half of respondents use private debt. Excluding outliers, roughly 41% of assets were allocated through private debt, 27% through private equity, and 14% through real assets. (4)

Figure 2.3 adapted from the GIIN’s 2017 Annual Impact Investor Survey

Direct investments

Examples of recent impact investment deals in Australia are showcased on the Impact Investing Hub. Click hereto view details.

Fund managers and funds

In Australia, most products offered by intermediaries have been private equity, bonds, and property or loan funds.

Examples of some Australian impact investment funds and fund managers are profiled on the Impact Investing Hub. Click here to view details.

Social Impact Bonds

Social Benefit Bonds or Social Impact Bonds (SIBs) are a relatively new type of financial instrument, and a form of social impact investment that have become increasingly popular - particularly in OECD countries - in recent years. (5)

Combining in a single tool three core elements - entrepreneurship, innovation and investment - SIBs enable private investors to provide up-front funding to service providers to deliver improved social outcomes and address public concerns. If these outcomes are delivered, resulting government savings pay back the original investment plus a return. (6)

As pressures on public budgets increase, a financing mechanism for social initiatives that promises to mitigate public sector risk, increase effectiveness, and pay for services now while requiring public contributions later, is likely to attract support. (7) Since the first SIB was launched in 2010, 108 further SIBs have been established in 24 countries representing an investment of over $392 million in capital to reach up to 738,000 people. Globally, SIBs are mobilising investments towards programs that are tackling complex social issues such as refugee employment support, loneliness among the elderly, rehousing and re-skilling homeless youth, and diabetes prevention.

Social Benefit Bonds provide a mechanism to share risk across investors, service providers and government. They offer their investors a blended return combining both financial and social outcomes. (8)

Figure 2.4 shows how a SIB works.

There are several Social Impact Bonds already in the market in Australia, with eight bonds issued, and a handful more under development. At present, four State governments (New South Wales, Queensland, South Australia, and Victoria) are active in the Social Benefit Bonds market. (9)

Figure 2.5 updated for 2018 from Emma Tomkinson, SIBs in Australia, 2017.

Spotlight on..

Aspire: a SIB focused on homelessness

Aspire Program

The Aspire Program is based on a housing first intervention model, and founded on the principle that people benefit more through first being given suitable housing followed by support in areas like health, education and employment. Participants will be provided stable accommodation, job readiness training, pathways to employment and life skills development. They will also have the long term support of a dedicated Case Manager to connect them with wider support services.


Aspire SIB is Australia’s first social impact bond focusing on homelessness and offers investors the opportunity to obtain a competitive financial return while making a lasting difference to the lives of people in Adelaide experiencing homelessness. The bond, underwritten by the South Australian Government, funds the Aspire Program, run by the Adelaide based homelessness services specialist Hutt St. Centre, in collaboration with community housing providers Common Ground Adelaide and Unity Housing Company.

The bond was oversubscribed and raised $9 million from private and philanthropic investors.

Key Features

  • Investor returns are determined by Government payments to the Aspire SIB Trust, which are based on savings generated.
  • Outcomes are determined by measuring health, justice and homelessness service utilisation relative to a historical baseline.
  • A bond term of 7.75 years with a 2% p.a. fixed coupon over 4.75 years, then performance coupon based on the level of the Trust’s assets.
  • In the event targets are met, investors can yield an estimated 8.5% per annum.
  • Termination rights for poor performance to limit downside loss to approximately 50% of principal.
  • Target scenario estimated return 8.5% p.a. (objective only).

Anticipated Impact

Approximately 600 adults who are experiencing homelessness are expected to be referred to the program over a four-year period, where each person will be provided support for up to three years.

An investor

The Aspire Bond presented a unique opportunity for the WC Rigby Trust, established to provide 'low cost housing for the poor'. Ben Clark of Australian Executor Trustees, which was appointed trustees of WC Rigby Trust in 1913, realised that Aspire presented an opportunity for the trust to invest capital to achieve a mission-aligned outcome. As Ben notes, before deciding to invest:

Our investment committee determined that critical to calculating the investment risk, was an understanding of the 'social' or program risk. In order to provide a qualified opinion, we needed to conduct additional due diligence on the capacity and capability of the charity partner delivering the Aspire program and it was not until we'd met with the CEO of Hutt St Centre and toured their premises, were we able to complete our due diligence and make a decision to invest.'

Green bonds

“Green bonds are innovative financial instruments where the proceeds are invested exclusively (either by specifying the use of the proceeds, direct project exposure, or securitisation) in green projects that generate climate or other environmental benefits...Their structure, risk and returns are otherwise identical to those of traditional bonds.

UNDP, Financing Solutions for Sustainable Development (11)

The market for green bonds (also known as climate bonds) is one of the fastest growing in the world, with up to 50% annual increase taking it over USD 120 billion in 2017. (12) The Australian green bond market is still relatively small; but current trends indicate it should grow rapidly as a diverse range of funds from institutional to ‘mum and dad’ investors subscribe for its bonds. Indeed, RIAA’s Benchmarking Impact 2018 report indicates that green bonds make up more than three-quarters of Australia’s impact investment asset class by dollar volume, and growth in Australia’s impact investing market is driven largely by the increase in green bonds, which account for $4.9 billion of the 2018 data set. (13)

2017 saw seven major green bonds valued at USD 2.563 billion issued to more than 100 Australian institutions. (14) In 2015, the $600 million ANZ Green Bond was one of the largest green bond issuance by any bank in the world. Other Australian organisations that are issuing green bonds include CBA, NAB, Westpac, Stockland, and Queensland Treasury Corporation. (15)

Blended finance and catalytic capital

The wide variety of types of capital available in social finance - and the complex set of risk and return calculations attendant on each type - offers opportunities for innovative structured deals and funds that do not exist outside of this [social impact] sector. It is suggested… that only such blends of capital may offer the critical support needed by socially entrepreneurial organisations if they are to tackle the ‘wicked problems’ currently confronting the world.”

Alex Nicholls, Rob Parson and Jed Emerson, Social Finance 2015 (16)

Blended finance involves bringing together investors with different risk and return requirements to enable transactions that may struggle to attract pure commercial funding.

To leverage the significant capital needed to accomplish large-scale and sustainable impact, structures are needed that appeal to investors seeking full risk-adjusted returns. By deploying instruments such as grants, guarantees and impact-first capital to de-risk investments and lower the cost of capital, blended finance helps attract investors with a lower risk tolerance. Indeed, blended financed transactions do not require that all investors must have a social impact motivation.

Figure 2.6 Adapted from Blended Finance Vol 1: A primer for development finance and philanthropic funders, OECD & World Economic Forum, September 2015. (17)

Blended finance enables each public or philanthropic dollar to go further than it would on its own. For example, for every $1 received as a grant (eg. from a foundation), a deal may attract $5 from the private sector, given the improved risk-return profile attributed to the donor taking a first-loss position in a deal, or by providing a risk-sharing instrument like a guarantee. (18)

Globally, there is increasing interest in using blended finance to achieve the Sustainable Development Goals (SDGs). Blended finance transactions have effectively mobilised over USD 51.2 billion towards the 17 SDGs. These ambitious targets require a new level of global cooperation to fund the required projects. As Lord Malloch-Brown, a former UK diplomat who chairs the Business and Sustainable Development Commission said (19):

Action is needed end-to-end across the whole investment system to scale up the use of blended finance, if we are serious about closing the funding gap for the sustainable development goals.

Figure 2.7 source GIIN

*Note: if a Private Ancillary Fund (PAF) guarantees a financial institution’s loan to a Deductible Gift Recipient, the PAF can claim the discount between its income and the market interest rate as part of its distribution requirements (see Part 4, example 5).

Figure 2.8 highlights the differences in structure between regular finance and blended finance

The term 'catalytic capital' refers to grants, guarantees, letters of credit, collateralisation, subordinated loans, concessionary or cornerstone investments that trigger additional capital not otherwise available. Catalytic capital often accepts lower returns to accommodate the economics of high-impact organisations that are profitable but not profit-maximising, whether due to an early stage of business development, tough markets, or a focus on impoverished populations.

Examples of how blended finance and catalytic capital have been used to bring high impact potential opportunities to life are explored in the Spotlights on the Vanguard Laundry Services, and the Journey to Social Inclusion deals below.

Spotlight on...


The most exciting part about getting this deal up from the ground is seeing the impact it’s creating and its potential for replication. We are changing people’s lives with a blended finance model that really works, showcasing its massive potential.”

Alex Oppes, SVA

Vanguard Laundry Services is a custom-built commercial laundry with a social outcome purpose of creating employment opportunities for Australians with mental illness. Involving over 50 parties, the Vanguard deal financed the building of the largest industry in Toowoomba, Queensland. The lead arrangers included Social Ventures Australia (SVA) and Vanguard’s founder, Luke Terry. Minter Ellison and King & Wood Mallesons provided pro bono legal assistance with Vanguard’s contracts and legal structure. This remarkable project demonstrates the challenges of leveraging social procurement and how to overcome them. (1)

Deal structure

The Vanguard Laundry Services deal was funded and developed through a complex blend of monetary and in-kind donations, government grants and fee waivers and debt financing, including:

  • 1. The land for the laundry site was donated by Hallmark Property (alongside a project management fee waiver). The total value of the land and fee waiver was over $500,000.
  • 2. $850,000 in monetary donations were committed by partners, including $600,000 from the Paul Ramsay Foundation.
  • 3. Over $1,200,000 of debt was obtained through Westpac for the purposes of equipment financing. This debt was secured against the land donated by Hallmark Property.
  • 4. $1,000,000 in Federal Government funding as well as a waiver of $150,000 in council fees by the Toowoomba Regional Council. The Federal Government funding was secured over the course of five instalments, with certain conditions precedent to funding (e.g. funding from other partners confirmed).


In the first year of operations, Vanguard Laundry Services reduced the number of participants reliant on Centrelink payments from 90.5% to 76.2%, and increased the median fortnightly income of participants by $392. This represented a 38.9% reduction in housing affordability stress.

After one year, all participants were able to record some employment experience (compared to 13.6% noting ‘no employment experience’ prior to commencement). Furthermore, 56.5% of employees recorded a history of ‘significant employment experience’ after a year of operations (compared to 31.8% 6 months prior to commencing). 78% of participants in the Vanguard Laundry Services program reported an improvement in health since commencing employment, with direct hospital savings estimated at just under $200,000.

The estimated five-year welfare savings to the government as a result of the program are estimated to be over $8.7m.


Spotlight on...


Traditional funding models for homelessness services don’t cut it for the client groups we’re targeting... J2SI's Social Impact Investment enabled us to access different types of capital, the types of capital that will allow us to provide support for sustainable change." Catherine Harris, Sacred Heart Mission

Sacred Heart Mission's (SHM) Journey to Social Inclusion (J2SI) is an innovative departure from traditional short-term, re-active homelessness interventions. It takes a housing-first approach and seeks to address homelessness and its associated challenges by providing relationship-based, long-term support for mental health and well-being issues, as well as resolving any drug and alcohol issues. J2SI also helps people to build skills and contribute to society through economic and social inclusion activity.

Structure of the deal

The J2SI Social Impact Investment (SII) is a unique partnership between government, the social services sector, investors and philanthropy, where the risk of achieving the outcomes for clients is shared between the parties, with the aim of achieving positive social change. The J2SI SII is the first social impact investment negotiated with the Victorian Government. The financing structure pays a return, based on agreed achieved social outcomes such as people staying housed and a lower use of healthcare services.

In contrast to a traditional Social Impact Bond, the SII accesses lower cost debt which is guaranteed by philanthropy if the outcomes for clients are lower than expected. In accordance with paragraphs 19 of the Private Ancillary Fund Guidelines 2009 and Public Ancillary Fund Guidelines 2009, the guarantee qualifies as a benefit and forms part of the annual distribution, as a below market rate guarantee fee is payable.

Social impact

Around 116,400 Australians are experiencing homelessness, and it is estimated between 23,400 and 38,300 of those people are adults trapped in a cycle of long-term, chronic homelessness with compounding challenges impacting their health, well-being, and employment. SHM, through J2SI, takes an evidence-based approach to homelessness, helping people with complexities put homelessness to bed and instead build a stable, independent life. J2SI SII will expand SHM’s J2SI program, to help 180 people in Melbourne break the cycle of homelessness over five years with three cohorts receiving three years of service. Service delivery commenced in August 2018. This will create lasting positive social change for communities and individuals.

Catalytic effect

In combining government financing, philanthropic guarantees, and low-cost debt, this transaction represents the first time low-cost debt with guarantees has been used to finance a SII in Australia, and demonstrates the strategic role of philanthropy in enabling social finance deals.

Catherine Harris, General Manager for Business Development at Sacred Heart Mission, says philanthropists were interested in the approach, however, a few were deterred by the concept of a “zero fee”, which was difficult for some investment committees even when the activity aligned with the foundation's mission. Harris commented:

Negotiating such a complex finance model was no easy feat. We've brought philanthropy and investors into the financial structure to share the risk. We did face challenges securing the partnerships, however. The challenge lay in getting people to understand the nature of the transaction and the benefits of long-term investing. The SII shows philanthropists can use their money, not as a handout, but also to enable programs such as J2SI to happen.”

Longer term, this transaction allows the J2SI model to be scaled and replicated under licence by social service organisations and state governments across Australia. SHM is developing a “J2SI product suite” and an Evaluation and Learning Centre to continue to refine the model so there is a real opportunity to expand J2SI around Australia to end chronic homelessness nationally using the new lower cost financing structure.

The NAB Foundation was one philanthropic party and provided a contingent pledge (similar to a guarantee) in the deal to ensure J2SI's access to low-cost debt capital. Lucy Doyle, Manager of the NAB Foundation commented that:

As a corporate foundation aligned with one of Australia’s major banks, we believe we have a responsibility to engage in financial innovation to help address complex societal challenges. Impact investing has the potential to unlock philanthropic capital, giving us an opportunity to move beyond traditional grant making to support the scaling and sustainability of proven impactful projects like J2SI.



“If philanthropy’s last half-century was about optimizing the five percent, its next half-century will be about beginning to harness the 95% as well, carefully and creatively.”

Darren Walker, President, Ford Foundation

A compelling opportunity for charitable trusts and foundations

Where consistent with their Deeds, through deploying part or all of their corpus into impact investments, charitable trusts and foundations can engage with a greater set of solutions to address social and environmental challenges. They can amplify the positive impact they wish to have on on society, domestically and globally.

Charitable trusts and foundations are uniquely positioned to explore the opportunities presented by impact investing and to take the lead in shaping and developing the impact investing movement.

Firstly, they are experienced. Charitable trusts and foundations have engaged in mission or social investing long before the term ‘impact investing’ was first coined, and they have a deep understanding and fundamental commitment to social impact.

Secondly, charitable trusts and foundations can often provide more flexible, risk-tolerant, and patient capital than other types of investors.

Thirdly, impact investing can help charitable trusts and foundations to pursue their philanthropic mission more effectively by providing opportunities to direct more, and different, types of capital into delivering social and/or environmental good. Using the power of markets to address social and environmental challenges opens up new ways to complement and enhance the impact of grants. In particular, charitable trusts and foundations can deploy their capital in ways that catalyse and leverage capital from mainstream investors towards addressing social challenges; much larger amounts than they could mobilise on their own. (1)

And finally, impact investing can deliver social impact alongside financial returns—which can enable reinvestment of those funds in pursuit of even more social good. (2)

Figure 3.1 Experienced, adaptable, and mission driven

Funds under management represent the vast majority of a charitable trust or foundation’s assets but most commonly, these are applied primarily to achieve a financial return. Indeed, when invested in more traditional investments, these funds can even drive negative impacts, which undermine the purpose of the trust or foundation itself.

Impact investments allow for investment in opportunities from which all stakeholders can feel comfortable generating financial returns. They help ensure that your investments aren't working against the world you want to create.

To be clear, impact investing is not a replacement for philanthropy; some challenges simply cannot be tackled through market-based initiatives, and trustees are still required by law to abide by their distribution obligations. Instead, impact investing should be considered an additional tool in the toolkit of charitable trusts and foundations in maximising impact.

An impact investing strategy allows charitable trusts to align the values of their investment strategy with their grant making strategy. If they choose, foundations can intentionally seek out impact investments that directly advance the mission of the organisation.

Figure 3.2 adapted from Charlton et al in the First Edition of the Field Guide (3)

What are Australian charitable trusts and foundations currently doing?

Impact Investing Australia’s (IIA) recent survey of Australian investors found that 42% of Australian charitable trusts and foundations are now making impact investments. IIA suggests this shows that the majority of these value-driven organisations have an opportunity to align more investment activities with their mission in the future, subject to suitable impact investments being available. (4)

Figure 3.3 adapted from Impact Investing Australia, Investor Report 2016 (5)

Spotlight on...


Since our inception in 2009, there has been a shift in the Australian impact investment sector. The market has grown extensively, there are more players in the field and more people making investments. Instead of just talking about it, investors are putting their money where their mouths are and deploying capital into the market. To get involved, you just have to be prepared to jump in somewhere and not get too caught up in the definition of what an impact investment is and how to define what you are doing.”

Gemma Salteri, Executive Director, CAGES Foundation

CAGES Foundation is a family-run foundation inspired by Paul and Sandra Salteri’s beliefs in giving back. Paul and Sandra established CAGES Foundation as a Private Ancillary Fund (PAF) in 2009. CAGES Foundation funds organisations working to improve the lives of Aboriginal and Torres Strait Islander children aged pre-natal to five years old. They direct their funding towards organisations that are locally owned and they have partnered with The Australian Literacy and Numeracy Foundation, Indi Kindi and several others.

Contributing to improving outcomes for Aboriginal and Torres Strait Islander People, CAGES Foundation’s Executive Director, Gemma Salteri notes that 'not all social issues that we are trying to solve can be solved by a loan. Apart from government, charitable trusts and foundations are one of the only entities that can effectively straddle both grants and investments. It is about balance and working with all of the assets that you have available to you.'

CAGES made its first impact investment in 2014 and currently has 40% of its portfolio in impact investing. They have investments across a variety of asset classes and consistently apply a strong ESG screen. CAGES actively pursues impact investment opportunities and as Salteri notes 'Hopefully the sector grows so that we will one day be able to achieve 100%.'

Their portfolio consists of both investments that generate a strong financial return as well as some higher risk capital deployed to principally create social impact, especially in the aligned area of stimulating Indigenous businesses. In the past, CAGES classified their impact investments as either Impact A or Impact B investments, where although both types of investments aimed to have a measurable social or environmental impact, the main intention of Impact A investments was to drive financial return, while Impact B investments had a bigger focus on social impact and did not have a market risk return profile. Rather than distinguishing between the two classifications, CAGES is now more focused on directing all their higher risk impact investments to supporting Indigenous businesses and impact investments that are more aligned to their mission.

CAGES aims to generate a financial return of 8% with its portfolio and being able to meet that target is important to them in being able to continue providing grants. Impact investing is very powerful but not all social issues can be resolved through investments alone. Having a balance between the two is very important and as Gemma says ‘There is no silver bullet, it has to be a mix.'

Busting myths and overcoming perceived barriers

Despite the intuitive rationale of impact investing and the fact that the approach has been well received internationally, Australian charitable trusts and foundations have been slow to adopt it. A relatively conservative culture around trustees’ duties and a lack of precedent have amplified trustees’ reluctance to experiment beyond the tried and true execution of their fiduciary responsibilities.

There are also a number of common myths and perceived challenges that have precluded charitable trusts and foundations from active participation in the impact investment market. Some of these common myths and challenges are addressed in the report Impact Investments: Perspectives for Australian Charitable Trusts and Foundations (6) and are explained in the table below.

(7) (8) (9) (10)

Leveraging capital to maximise impact

Philanthropic capital has and will continue to play an important role in the impact investing ecosystem. Indeed, philanthropic capital is increasingly being used in innovative and catalytic ways to de-risk individual investments or markets, and attract other types of investors—including those from the private sector and government— and so mobilise greater resources.

This leverage of philanthropic capital is accelerating the impact investing’s potential to drive change. Today, the more innovative foundations in Australia proactively use philanthropic capital to support organisations to become truly investment ready, to de-risk deals to attract additional capital from more risk-averse investors, and to support the growth of the impact investment sector.

Catalytic impact investment is explored in more detail in Part 2. For charitable trusts and foundations, it represents a powerful opportunity to mobilise additional capital from mainstream investors to social and environmental solutions.

Some of the examples explored in the SPOTLIGHT ON sections here demonstrate how guarantees or similar instruments have been used in recent deals in Australia.

Guarantees can have several attractive features for charitable foundations. They:

  • may have greater impact than a direct one-time loan or investment, as they can open up new sources of financing and build the credit-worthiness of grantees;
  • may not necessarily require an upfront outlay of funds, meaning those resources can do 'double duty' by also being invested elsewhere and earning a financial return.

Part 2 of this Guide provides further examples of deals deploying blended and catalytic finance to mobilise capital and maximise impact.

Part 8 of this Guide explores these ideas more fully.

Spotlight on...


Medicines Development for Global Health (MDGH) is a Melbourne based not-for-profit global health organisation founded in 2005. MDGH’s vision is to eliminate neglected diseases by developing, seeking regulatory approval and delivering affordable medicines and vaccines for people who need them most. To achieve this, MDGH operates a social enterprise and reinvests all profits back into the company for its purposes.

Recently, MDGH completed the development of moxidectin, the first new treatment for river blindness in 30 years. River blindness is a neglected tropical disease affecting 16 million people in sub-Saharan Africa, and it causes severe skin reactions and, in some cases, leaves the victim blind. Moxidectin is a broadly used veterinary product for parasitic worms and mite infections but this is the first registration for human use worldwide.

MDGH’s development of moxidectin has been funded by various investment structures. The Global Health Investment Fund (GHIF) invested US$13 million to finance MDGH’s development activities. The GHIF is a social impact investment fund designed to provide financing to advance the development of drugs, vaccines, diagnostics and other interventions against diseases that disproportionally burden low-income countries. In particular, the GHIF seeks to invest in opportunities that have a clear impact on public health in developing countries, while still providing value in high-income countries. GHIF’s funding enabled MDGH to submit a New Drug Application (NDA) to the United States Food and Drug Administration (US FDA) to register moxidectin to treat river blindness in humans.

MDGH has also recently received AU$450,000 funding from seven Ancillary Funds to help them in the development of further human uses for moxidectin, particularly as a treatment for scabies. Scabies is caused by microscopic mites embedding themselves into the human skin and causes debilitating itching and more serious secondary infections. MDGH sought the funding, in the form of impact investment loans, to bridge the gap between current cash flow constraints to continue the development of moxidectin for scabies, without diverting funds away from the development of moxidectin for river blindness, which was still awaiting US FDA approval at the time.

As of 13 June 2018, the US FDA approved moxidectin for the treatment of river blindness in patients aged 12 years and older. Accordingly, MDGH were awarded a priority review voucher (PRV) under the FDA’s reward initiative for registration of new treatments designated for neglected tropical diseases. MDGH will trade their PRV on the market to repay the loans that were provided by the seven PAFs.

Spotlight on...


Wildlife Wonders, Photo credit Doug Gimesy

When finance and funding come together to support a project’s purpose the results can be incredible.”

Lizzie Corke, CEO Conservation Ecology Centre

Wildlife Wonders is an ecotourism project of the Conservation Ecology Centre (CEC). Situated on the Great Ocean Road, the attraction will enable visitors to experience the unique environment of the Otways, observing and photographing iconic animals in a natural, predator-free setting. Visitors will be guided by qualified conservationists, and the overall experience will be heightened with design and creative input from Brian Massey, Art Director of ‘The Hobbit’ films and landscape designer of NZ attraction, ‘Hobbiton’.

Wildlife Wonders is set to become a significant employer in the region, providing jobs in tourism and conservation. As a social enterprise, the profits will be reinvested back into the activities of the CEC to ensure that the wildlife and natural habitats of the Otways are protected through ecosystem restoration, ecological research, species recovery programs, community education program, and community skills development.

Other key long term benefits of Wildlife Wonders include:

  • Creation of local jobs: at least 44 jobs during construction and 35 new full-time positions in both ecotourism and conservation once operational;
  • Enhanced visitor experience: amplified experience of the Great Ocean Road, directly increasing stay and spend;
  • Providing a leading example of social enterprise: an economically sustainable approach to environmental conservation.

The project has been spearheaded by CEC’s CEO, Lizzie Corke, who said the challenge for CEC had been securing reliable funding for its conservation work.

We needed a funding stream that was reliable and secure for furthering the conservation effort.”

Behind this project is an innovative multi-party, layered finance structure which blends government venture funding, philanthropy and private grants, patient loans and debt capital.

To date, the Wildlife Wonders project has received a $557K Tourism Demand Driver Infrastructure Grant from the Commonwealth Government to initiate preliminary work, planning and the financial model. An additional $2 million was secured from the Regional Jobs and Investment Packages program through the Commonwealth Government and $1.5 million has been announced from the Regional Tourism Infrastructure Fund by the Victorian Government, to total a combined $4 million in venture funding from the Federal and State Government. The investment is expected to deliver ongoing and sustainable economic and environmental benefits. The RE Ross Trust, SEFA and a private investor have provided debt capital for the purpose of purchasing the project site and commencing on ground works.

As a result of these grants and investments, Wildlife Wonders has raised $6.5 million, which marks the halfway point in reaching its goal of raising a total of $12.5 million.



First steps

There is no single right way to get started with impact investing. It takes time, commitment and a willingness to just ‘give it a go’. Some trusts and foundations in Australia started by executing a deal, then reflecting on their impact investment strategy later; others spent considerable time drafting policies and procedures to actively engage in the market in accordance with their strategy. Regardless, designing and activating an impact investment strategy is more likely to be an iterative rather than a linear process. This is discussed at length in Part 5.

Before developing an impact investment strategy, it is best to start by checking the Deed of your Trust to see what it allows, and checking the obligations and restrictions that may arise from your legal structure. For example, all Australian charitable trusts and foundations require valid internal buy-in from the trustees.

The steps below provide a preliminary guide for how trusts and foundations might consider getting started with impact investing. The steps are presented linearly, but your trust or foundation's roadmap may not follow a linear path. It’s best to think of these steps as 'stepping stones' towards getting started:

Considerations for trustees

The foremost duty of any trustee is to give effect to the terms of the trust. (1) Below are five key questions for trustees relating to their trust’s current obligations and legal structure to consider before getting started in impact investing. Individuals looking to set up a new charitable trust may want to consider these questions in advance, so that their trust deed allows for impact investments to be made.

1:What does the trust deed say?

The trust deed is the crucial starting point for understanding the rules governing the investment of the assets of a charitable trust. (2) Most trust deeds set out the power of investment broadly. The trust deed should be examined to determine if there are any positive powers or restrictions limiting impact investing. If there are restrictions, a trustee may consider making changes to the deed if allowed.

2: What are my legal duties to administer the trust in accordance with the trust deed?

It is critical that all trustees be mindful of their legal duties. If a trustee is unclear or uncertain about any of their duties, they should seek legal advice from a qualified trust lawyer before executing an investment decision.

3: Is the trust or trustee classified as a ‘sophisticated investor’ under corporations law?

This consideration is presently very important because many impact investment funds or social benefit bond offerings can only accept investment from sophisticated investors.

4: Is there an Investment Strategy to consider?

There is a legal requirement that all PAFs and PuAFs formulate and adhere to an investment strategy. In the case of a typical charitable trust, there is no legal requirement for an investment strategy but there is a requirement for prudent investing and annual reviews.

5: What role, if any, is there for Fund Managers?

Trustees should consider the role their current fund manager or an alternative potential manager could play in facilitating impact investing. The capability of fund managers to source and impact invest may differ and as such the Trust should ensure they pick the right person(s).

Working within your legal structure

It is important to understand the legal structure of your particular trust or foundation, as this will determine whether there are constraints (which may be addressed by a change in the trust deed if that is allowed) or if it is necessary to implement a formal investment policy.

The table at Figure 4.1summarises the three most commonly used legal structures:

Figure 4.1 relevant legal structures and their requirements

If you are unsure of your legal structure, you can check ABN Lookup, the public view of the Australian Business Register:

For further detail, please refer to the Philanthropy Australia Trustee Handbookon the role and duties of trustees of charitable trust and foundations in Australia by David Ward. (3)

Distribution requirements for PAFS and PuAFS

PAFs and PuAFs have particular distribution requirements that must be fulfilled in order to maintain their status as ancillary funds. Specifically both entities are required to distribute a proportion of the market value of their net assets – at least 4% in the case of PuAFs and 5% in the case of PAFs.

The trustees of PAFs and PuAFs are able to include in that calculation any discount to the return received that is attributable to the delivery of a social benefit (eg. through subsidised rental) to an eligible recipient. This is explained further in Part 3.4. This is an important concession, but it does not actually empower the trustees of PAFs and PuAFs to invest in non-financial-first investments where such power does not exist (eg. under the trust deed). However, the trustees who have such powers may have a preparedness to invest in arrangements where at least some of the return is delivered directly to the charitable objects, as long as those arrangements can satisfy their other obligations under the trust deed.

This points to the important first step: examine the trust deed.

When it comes to impact investing, it is important to know that a benefit to an eligible entity on concessional terms can count towards the minimum distribution requirements of both PAFs and PuAFs. Section/Guideline 19 of the Public Ancillary Fund Guidelines 2011 (Cth) provides that (4):

...distribution includes the provision of money, property or benefits. If the fund provides property or benefits, the market value of the property or benefit provided is to be used in determining whether the fund has complied with this guideline [that is, the fund has distributed at least 4 percent of the market value of its net assets as dictated by Guideline 19].

Section 19 of the Private Ancillary Fund Guidelines 2009 (Cth) is almost identical to the corresponding section in the Public Ancillary Fund Guidelines 2011 (Cth) aside from the fact that there is an increase in the market value of the net assets that need to be distributed to 5%. The difference between what the recipient pays and what would have otherwise been paid is the quantum of the benefit provided and can be recorded as a contribution towards the 5% minimum distribution. The 2016 amendments to Guideline 19.3 contained additional examples of how PAFs can provide such benefit to eligible DGRs, and how these activities can contribute to meeting the PAF’s minimum granting obligation under Guideline 19.

Note: The Commissioner may approve safe harbour valuation methodologies to assist trustees in calculating the market value of a benefit provided to a deductible gift recipient – see Subdivision 960-M of the Income Tax Assessment Act 1997.

While this area of providing non-monetary benefit will continue to develop, it must be emphasised that for PAFs, only eligible DGR entities can be the counter-party for rent subsidies, guarantees or below market loans.

Other legal & tax implications of impact investing

Investment strategy

There is a legal requirement for all PAFs and PuAFs to formulate and adhere to an investment strategy. These requirements are set out further in Part 5, along with a more detailed guide to constructing an impact investment strategy. In the case of other charitable trusts, there is no legal requirement for an investment strategy but there is a requirement for prudent investing and annual reviews (which is best done by having an investment strategy - see also Part 5).

Grant making vs investments

There is an important distinction at the heart of charity laws between the investment of the assets of a charitable trust or foundation and the distribution of monies in the form of grants. While a trustee may take into account its beneficiaries’ desire to prioritise social, ethical, and environmental issues, this in itself cannot justify reducing the financial well-being of the trust. (5)

In recent changes to PAF and PuAF guidelines (detailed in paragraph 4.4), the Australian Taxation Office demonstrated its willingness to look at more creative approaches for PAFs to engage in impact investing. These changes have been viewed in the sector as enablers for impact investment. Similarly, the ATO’s AUSiMED Tax ruling, provided for a Private Ancillary Fund to make a loan on commercial terms to facilitate commercialisation of breakthrough research and to treat the loss as a grant in certain circumstances if the venture is unsuccessful. (6)

A number of constraints remain, however, including limitations on the capacity of PAFs to make grantsto organisations other than not-for-profits with DGR status. This limits their capacity to provide grant-style development or venture funding for many social enterprises (which may not have DGR status) or other impact ventures, or to non-DGR incubators and accelerators.

Fiduciary duties

Despite advances in ESG disclosure requirements for asset owners and investment managers and growing awareness amongst fiduciaries of a need to pay attention to ESG issues in their investment practices and processes, Australian laws linking these issues with fiduciary duties have been slow to catch up.

The Australian government has an opportunity to assist trustees to make well-informed considered decisions about ESG factors and impact investing by developing guidance on the interplay and priorities between impact considerations and fiduciary duties.

In the meantime, while caution is appropriate, the requirements imposed on trustees can be navigated in ways that permit trustees to provide capital to enterprises and funds that pursue impact. There is no difficulty with finance-first impact investments, as they deliver a risk adjusted commercial return with the bonus of social impact. There may be challenges with impact first investments where there are discounted returns, depending on the structure. For impact-first investments, there needs to be explicit alignment with the Trust purpose as set out in the Deed. See also below information about discounted returns counting towards distribution requirements.

Tax considerations

Different types of charitable trusts and foundations are eligible for certain tax concessions as they are not-for-profits and sometimes DGRs. The amount contributed to a PuAF or a PAF is tax deductible in the year of contribution, as opposed to when the philanthropic gifts are donated to the ultimate beneficiaries. As a result tax and charitable gifts can be strategically managed. For instance, in a year of significant tax liability, a lump sum may be placed into a PAF and then gifted to a charity in the following years. (7)

Assessing needs and leveraging internal competencies

Designing and implementing an impact investment strategy (which we look at in Part 5) requires an honest assessment of existing internal infrastructure and staff capacity to determine if external support is required. A trustee or foundation that has no demonstrable expertise in impact investing, or perhaps inadequate resources, would probably be expected to seek advice as a consequence of the duty of care it owes at law.

Approaches taken by charitable trusts and foundations can vary from informal ‘ad hoc’ investments to highly structured and formal processes spanning part of, or the entire portfolio. Some larger organisations may establish a separate portfolio within the investment team, while others have elected to bring the entire organisation in line with their impact mission by creating a single team to manage both their grant making and investment activities using a 'whole institution' approach. (8) This has the advantage of ensuring both financial and social returns are considered and can be highly valuable for attaining trustee approval on the initial impact investing strategy and subsequent investment opportunities. For example, the FB Heron Foundation use a 'whole institution' approach in which they have created a single team to manage both the grant making and investment activities of the foundation.

Sometimes charitable trusts and foundations already have a team of financial advisors and asset managers to help manage their investments and the foundation and advisor enter the impact investment journey together. Some trusts and foundations have encountered resistance to impact investment from their traditional or existing advisors and have made the decision to source new advisors who are experienced with impact investing or at least values-aligned. Depending on the level of understanding of impact investing concepts, external support from experienced financial consultants and investment advisors positioned to help develop and execute the strategy can help to ensure the success of an impact investing strategy. (9)

The size and objectives of the program, level of expertise and desired engagement will help to determine whether external support is needed. Below are some key questions that can help guide the decision to ‘go it alone’, build a team internally or work with external advisors.

Source: Adapted from JB Jacquier, Guide to Impact Investing for Family Offices and High Net Worth Individuals, 2011 (10)


What is an impact investment strategy?

An impact investment strategy is a clearly defined plan which investors use to achieve their impact and financial objectives, trustees follow in the execution of their investment decisions and their duties, and executives implement in the operation of the trust or foundation.

An impact investment strategy contains answers to questions such as does the organisation prioritise financial return or impact? What is an impact?, and How will it be achieved? (1)

An impact investment strategy does not need to be created from a ‘blank slate’, and can generally be incorporated into an existing investment strategy. PAFs and PuAFs are required to prepare and maintain a current investment strategy, (2) and this investment strategy is a good starting point for an impact investment strategy. An impact investment strategy can simply entail additional considerations in relation to impact. In fact, many of the investment management practices discussed in this section are used in mainstream financial investments, they have just been modified to include an impact lens.

An impact investment strategy can be developed internally among trustees and/or executives or with the help of external advisors. This decision requires a careful examination of existing capabilities and desires in relation to the level of participation in the process. See Part 4 for a discussion of internal and external advisors.

Designing your impact investment strategy

The following questions are a good starting point if you are working from an existing investment strategy:

Figure 4.1below sets out steps to consider in designing your impact investing strategy.

STEP 1: Define mission and values

A clear understanding of your charitable trust’s or foundation’s mission and values provides the most useful start for articulating intended impact and the investment strategy thereafter.

Most trusts and foundations have existing mission and vision statements- a formal summary of the aims and values of the organisation. A few key considerations in articulating or changing the mission and value statement are:

  1. 1.Why do we exist?
  2. 2.What are our underlying reasons for investing?
  3. 3.What is important to us?
  4. 4.Is there a particular area where we want to create an impact?
  5. 5.What do we hope to accomplish as an organisation?

Below are some examples showcasing the varying extent to which investment strategies can relate to the specific mission of the foundation.

STEP 2: Articulate intended impact

Once you have articulated your mission and values, it is time to articulate your intended impact. This can be approached a number of ways in varying levels of detail.

The Impact Management Project, a multi-stakeholder, international initiative by a consortium of over 700 organisations, seeks to assist on the fundamentals of how to understand, measure and manage impact. The result was the following five dimension approach to managing impact, which can you to consider and articulate your intended impact:

Considerations for impact:

Do you have any impact goals? If so, what are they and where are they focused?

Your goals may be broad such as ‘doing good’ in whatever ways are possible, or you may have specific social or environmental goals. They may be place-based or focus on a specific issue. Questions to consider include:

  • Do you want to focus on your local community? Australia? Developing countries?
  • Do you want to focus on a particular industry?
  • Do you want to focus on a specific issue?

How large do you want your impact to be?

It is important to consider if you wish to primarily invest in impact-first, finance-first or blended value impact investment (see Part 1 for additional information). For finance-first investments it is important to set an impact ‘floor’ – a minimum amount of impact that the investment must generate in order to meet your criteria.

Do you want your investment strategy to relate to your grant strategy?

This may appear logical, however, there may be a lack of impact investment deals that directly align with your grant strategy. At the same time, some trusts and foundations do centre their impact investing approach around key program areas (program-related investing).

Do you want your investment strategy to align with your specific mission?

Some trusts and foundations may choose to align their impact investment strategy with the mission of the foundation (mission-related investing). If your investments directly align with your mission, consider including your mission in the investment objective. However, it is not imperative that the investment strategy be directly related to the organisation’s mission or programs, and if there is a financial return trade off due to the social impact, it must be aligned with the charitable purpose of the foundation.

Making a firm commitment to a strict alignment with a specific mission in the current Australian climate can be a barrier due to lack of deal flow. Currently, many charitable trusts and foundations in Australia have decided to ‘dip their toe in the water’ and make impact investments not strictly aligned with their mission, simply to start gaining experience in the impact investment market. Notably, some Australian charitable trusts and foundations have invested abroad, in part due to the more extensive deal flow, which allows increased opportunities for alignment between investments and mission.

Impact time horizon

You may wish to consider when you want to see the intended impact of the investment. Do you have a specified time frame when you want the impact to occur? Immediate impact? Short term impact? Long term impact?

STEP 3: Set preliminary financial investment objectives

The next step is to explicitly set out the broad financial investment objectives. Indeed, a common characteristic of successful investment organisations is that they are able to clearly define their investment objectives and articulate the principles that they will follow in seeking to achieve their objectives.

The investment objectives will depend on an individual trust’s aims, operating model, timescales and resources. A charitable trust must be clear on what it wants to do and the investment objective will articulate how the trust can go about doing so.

For example, a trustee may consider different investment objectives for different needs:

  • Immediate distribution needs may induce a charitable trust to aim to maximise immediate income
  • A charitable trust with large future commitments may induce a trust to preserve the real value of capital and source investment opportunities for potential growth
  • A charitable trust with a long-term purpose may need ongoing, stable income

Setting targets for financial returns

The financial returns can vary from concessionary to highly competitive, so deciding where you want to sit on the spectrum of finance or impact first is an important part of creating your impact investing strategy.

If you are incorporating impact investing into your strategy, you may be willing to prioritise social impact over financial returns. In such situations, impact first investors should consider the floor on their financial returns. If there is a financial return trade off due to the social impact, it must be aligned with the deed and the charitable purpose of the Foundation. Further, onerous financial targets and benchmarks may discourage impact investing with lower financial return.

The structure of your trust or foundation may also influence the target for financial return. As PAFs need to distribute 5% of their net assets each year, the target for financial return needs to be at least 5% if the size of the fund is to be maintained. The target may need to be 5% plus CPI capital growth if the fund is to maintained in real terms. On the other hand, a will trust or private charitable trust is only obligated to give away the income it receives each year, so the trustees have more flexibility in balancing income compared to capital growth.

Setting a benchmark

Trustees may want to adopt a financial benchmark in which the trust can compare its returns to. A benchmark can be any financial metric that can be appropriately aligned to the investment objective of the charitable trust. For example, Australia’s Future Fund adopted an average return of at least the Consumer Price Index plus 4.5% to 5.5% p.a. over the long term as the benchmark return on the Fund. (3)

Financial time horizon

A trustee may want to include in this section the expected time horizon of the charitable trust’s investments. The time horizon should align with the objectives of the trust. As charitable trusts often exist into perpetuity, investments should be managed to meet this long term objective. Hence, setting an investment policy that allows for long-term investments may be appropriate.

Investing in earlier stage impact investment may be associated with a longer investment period of seven to ten years. This concept is known as patient capital and should be a consideration when investing, especially in direct investments. However, there is merit as it provides the capital required to nurture an enterprise to fruition and to thus create a greater impact.

We think of most impact investments being of a private equity nature in terms of timeframe (and probably valuation as well). Part of a portfolio would be available for very long term capital. This also suggests there is a place for short term, more capital stable impact investments, probably in the shape of debt rather than equity.”

John McLeod, PAF


It is important to understand the type of liquidity you need and whether you are able to invest in illiquid assets.

Given the lack of any formal exchange on which the impact investments can be traded or brokers that can facilitate deals, impact investments will be relatively more illiquid when compared to traditional financial investments. However, the investments can still be privately traded among the increasing base of impact investors, and with the increasing maturity of the industry, more opportunities can arise to improve liquidity.

As capital calls are rare, foundations may wish to invest in illiquid investments as they often generate higher returns.

STEP 4. Evaluate your assets

Investors should evaluate the types of and relative weightings of investment asset classes (e.g. cash and property), so as to determine their risk/reward appetite consistent with their impact goals. This will involve an examination of monetary assets, focusing on the dollar value of the portfolio, as well as non-monetary assets, such as the knowledge, skills and resources that could be deployed in impact investments. Careful consideration of the value and appropriateness of joint ventures and co-investing partnerships is also recommended. (4)

STEP 5: Consider your risk tolerance

One method of distributing your risk, is to diversify your assets. Impact investing presents a unique opportunity to diversify the risks of your portfolio as impact assets by nature tend to be less correlated to the public debt and equity markets. Impact investors may find that they experience lower levels of market risk but conversely may experience greater liquidity risk. It is important for impact investors to consider this balance when incorporating an impact investment into their portfolio.

In order to diversify your portfolio and reduce the risk associated with early-stage or start-up investments, it may be optimal to invest less significant amounts of money in a number of social impact deals. For investors with a low risk tolerance, it may be ideal to invest in funds or other special purpose vehicles, which in turn invest in social impact deals. (5) See Part 5.3 for a detailed discussion on indirect investments.

It is also beneficial to assess your impact risk, that is the likelihood that the investment will have the intended impact. Investors should obtain information concerning the metrics that will be used to assess if an investment is successful in meeting or exceeding its expected social impact. (6) See Part 6 for a detailed discussion on impact measurement.

How to identify your risk is considered in more detail Part 4and in Part 6.

STEP 6: Determine your impact measurement approach

Impact investments are expected to produce a desired social or environmental outcome so in designing your strategy, bear in mind how you will monitor your impact investments for financial and impact performance. Developing an impact measurement approach will help you determine if you are producing the outcomes you intended, and whether an investment has performed in line with your expectations. For more about this step see Parts 6 and 7.

AND FINALLY… implement, invest, iterate

Implement your strategy, start impact investing, and learn. Strategy is always an iterative process - based on your experiences, you may decide to stay your course and invest more deeply, or perhaps make some changes to your strategy and approach, seek help from advisors or consult with peers, and try again.

Identifying risk

Trustees should recognise, within their investment policy, the categories of risk that the portfolio faces and the proposed mitigators of these risks. The following are examples of risks that trustees, fund managers and other individuals or organisations face with their investment portfolios. These risks are known as investment risks.

With impact investments, some of these risks may be greater or lower. Some impact investments, such as social impact bonds, are often not correlated to other investments, and this can provide diversification benefits which may lower the risk.


Reviewing the investment policy

Under State Trust Law a charitable trust’s investment policy and performance against the objectives must be reviewed annually and investments rebalanced if required. With changing circumstances in the financial market and with the ever-changing impact investing landscape, trustees should be able to develop and subsequently add new policies, in order to promote the best way to maximise a trust’s corpus.



Once you have identified your broad objectives for impact investing, it is time to think about the specifics of your investments. This section outlines important considerations in sourcing and assessing impact investments. As this section does not provide in-depth assistance that is tailored to your circumstances, seeking professional advice is recommended.

Sourcing investment opportunities in Australia

Whilst impact investments exist in many forms, across asset classes, sectors and geographies, finding and executing impact investments can be challenging. The industry is maturing rapidly, however, and new initiatives are emerging in the field to connect investors with impact opportunities.

The September 2017 launch of the Impact Investing Hub’s ‘Current Deals Library’ has become an invaluable resource for connecting impact investors to impact investment opportunities. The Current Deals Library outlines the basic information of current deals in the impact investing ecosystem, including information such as the forecasted financial return and social impact of an investment. (1)

“The Current Deals site is a ground-breaking shift in how Australians can access the impact investment market. It facilitates access to impact deals, increasing the amount of capital for good. The number of listings on launch shows the growth of the market in recent years, and this is set to accelerate especially as more superannuation funds start to impact invest.” -Jessica Roth, Social Impact Hub

Direct and indirect investments

Depending on your impact investment strategy, you may have a preference to make direct or indirect investments. A direct investment is when you directly invest in an entity creating impact, while an indirect investment is when you make investments into a fund or another investment vehicle that will invest in entities that create impact.

Part 2showcased a range of direct and indirect investments. Click here to view a list of select Australian impact investment fund managers

Australian intermediaries and networks

Using a network or intermediary is a way to help with making an investment. Joining a network allows investors to share investment opportunities, or pool financial and human capital together to source investments outside the reach of an individual investor. Using an intermediary for indirect investment can simplify the process of sourcing and assessing opportunities and structuring a deal, as this can be a challenge given the early nature of many of the social enterprises.

While there is no central social or impact stock exchange in Australia, there are several organisations who are building a track record in sourcing and structuring impact investments.

Below are examples of intermediaries which provide assistance on impact investment readiness and sourcing opportunities:

Social impact or enterprise incubators and accelerators provide professional and financial assistance to enterprises in their early or growth stages, helping to connect them with potential investors. For investors looking for early stage social enterprise investment opportunities, something innovative for their portfolio, or opportunities to provide catalytic capital, social enterprise incubators are a great place to find new opportunities.

Networks operate at varying degrees of formality, but generally have at the heart of them an ability to share investment opportunities. For trusts and foundations, it may also help expose opportunities to become involved in earlier stages of impact investing, such as providing grants for capacity building prior to or alongside an impact investment. An example of a domestic impact investing network is Impact Club, which is a private Australian Impact Investing Network by invitation. Examples of international networks have been listed below.

Finding opportunities overseas

Although the impact investing market has been growing in Australia, it is still young compared to Europe and the United States. Investing in opportunities overseas could also be a way to diversify a portfolio and access a wider choice of deals.

The impact investment field in Asia is far less developed than Europe and the United States. Among the Asian countries, the Indian impact investing market is the most developed with many microfinance companies emerging in the early 2000s. In the last decade there has been a shift towards a broader sector-agnostic investment strategy in areas such as healthcare, communications and technologies, as well as agriculture. Within India, there are also developments in self-regulation by key players in the social impact space such as the emerging Indian Impact Investing Council (IIIC).

The wider Asian impact investing market has also experienced an influx of government support and of tools that can be used to source and stimulate impact investment opportunities.


Examples of international impact investment funds include:

International Networks

Examples of international impact investing networks include:

Creating your own impact investment opportunities

Many seasoned impact investors are starting to create their own impact investment opportunities. For example, trust or foundations with longstanding relationships with a not-for-profit, and a good understanding of their operations, could, in appropriate circumstances, suggest that a particular project may be more suitable for a loan than a grant.

Outside investing in social enterprises and intermediaries, charitable trusts are encouraged to think laterally and explore how investments in traditional businesses can be used to generate social impact.

Below are some suggestions of how charitable trusts can think about harnessing traditional for-profit investment for social impact:

  • Growth capital for a business that has a product or a service that is already servicing a social need such as housing, health or education.
  • Ownership or control of a business and improving the accessibility of a product or service to the market through innovating the business model.
  • Working with an investment opportunity in order to revitalise the business’s operations and/or culture to become more socially sustainable.
  • Working with an investment opportunity to improve an asset’s operations, such as an office building, to become more environmentally sustainable.
  • Turn-around of unsuccessful businesses that serve a social purpose.
  • Undertaking place-based investing by focusing on a specific geographic locality and investing in-need areas in that area.

It is important to assess an investment across all three dimensions of to ensure that the risks associated with the investment, the resulting financial return, and impact are aligned with your goals. One way of considering the overall attractiveness of an impact investment opportunity is to consider how it can be reasonably forecast to be positioned when IMPACT/RETURN/RISK are triangulated as below. This approach is considered in more depth as part of impact measurement in Part 8.

Initial screening of impact investment opportunities

A clear decision-making and review structure is essential for effective execution of an impact investing strategy. Once people know your strategy is in place, you may be faced with an avalanche of requests for investment. Good governance is required to be sure that the stated goals and policies of the foundation are used in practice.

In an initial screening of an impact investment, you want to consider what the investment is, and

  1. 1.Its proposed impact
  2. 2.Its financial return
  3. 3.Its risk profile.

Figure 6.1 adapted from Australian Impact Investment's due diligence framework

Depending on the size and structure of your charitable trust or foundation, the initial review of investment opportunities may be a function for the board or staff. The initial review should include, at minimum, fit with mission, goals and strategy; potential for social return and preliminary assessment of potential for financial return. It should fit within the foundation’s impact investment portfolio parameters.

When the potential investment clears the screening and reviewing process, the investment can proceed to a due diligence process, where a more in-depth research process is conducted on the investment to determine its suitability prior to deciding whether to invest.

Some considerations for initial screening are set out here:

Figure 6.2adapted from McConnell Foundation Canada, Impact investing due diligence guide, 2017

Due diligence: financial performance and impact assessment

Due diligence refers to an organisation’s research and investigation of impact investment opportunities. After an initial screening of impact investment opportunities, a foundation or their financial advisor should assess the opportunity in more detail before agreeing to make the investment.

Financial due diligence

Financial due diligence usually entails a full review of financial statements or offering documents and other relevant organisational materials, as well as project-specific documentation, such as projections and business plans. Reviewing the documentation in detail, especially items such as fees and redemption conditions, is also very important to properly discharge trustee duties from a legal perspective.

The financial analysis of an impact investment will usually be similar to that of a traditional investment, with the completion of a cash flow analysis and also the determined projected internal rate of return. A key factor is the return that the investor should expect in relation to the risk undertaken. Each investor will need to develop their own metrics for risk mitigation during the due diligence phase in order to determine whether the internal rate of return meets the risk-adjusted hurdle rate.

Fund managers

In conducting due diligence on fund managers, it would normally be recommended to ensure that they have a strong track record in delivering results that match your organisation’s mission, values and objectives. This consideration may have less emphasis in the Australian context at this point in time, as there are few specialist fund managers in the impact investment space with substantial track record.

Finance and impact

While standard due diligence checklists for traditional investments may be helpful in assisting the determination of whether an impact investment is suitable in relation to financial performance and risk, attention should also be paid to the qualitative factors in an investment. In the relatively undeveloped market of impact investments, it is helpful if investors remain flexible and are able to take into consideration different factors. For example, in the context of direct investments, it may be helpful to collaborate with other investors to conduct due diligence.

The quality of management is another important factor to consider, especially when supporting a direct impact investment. The team driving the enterprise will be key to ensuring that not only financial performance can be delivered but also the projected impact will be created.

Figure 6.3 adapted from Impact Engine’s Impact Due Diligence: The Questions We Ask, Maggie Stohler 2017

Standard templates for performance review of impact investments can help institutionalise the evaluation process and facilitate external communication. A possible template for impact due diligenceis available for download on the Impact Investing Hub.

It is also important to be aware that investments can have unintended impacts that may be conflicting. Most investments have a positive impact and a negative impact, and it may sometimes be unclear whether the positive impact outweighs the negative impact. For example, there may be a conflict with an investment that has the potential of having a positive social impact whilst producing a negative environmental impact.

Whether or not a conflict arises will depend on the individual foundation’s impact investing strategy and policy. For some foundations the sole impact focus may be social and there will be no environmental consideration in their investments. It is important to be mindful that impacts are not mutually exclusive and unintended conflicts should be anticipated. Foundations should actively investigate and be aware of the potential for conflicts of impact that may not align with their impact investing strategy and determine whether the conflict can be resolved before a decision to invest in a particular project is made.

Spotlight on...

WC Rigby Trust

The Aspire Bond presented a unique opportunity for the WC Rigby Trust, established to provide "low cost housing for the poor”.

Ben Clark of Australian Executor Trustees, which was appointed trustees of WC Rigby Trust in 1913, realised that Aspire presented an opportunity for the trust to invest capital to achieve a mission-aligned outcome. As Ben notes, before deciding to invest,

our investment committee determined that critical to calculating the investment risk, was an understanding of the 'social' or program risk. In order to provide a qualified opinion, we needed to conduct additional due diligence on the capacity and capability of the charity partner delivering the Aspire program and it was not until we'd met with the CEO of Hutt St Centre and toured their premises, were we able to complete our due diligence and make a decision to invest.

Balancing your portfolio

It is definitely possible to start impact investing in only one asset class. But as your portfolio develops, a well-diversified investment portfolio will help to reduce the overall risk of the portfolio. Trustees should consider investing in assets of different classes to ensure a balanced portfolio is formed.

“As we view impact investments as a lens over asset classes, rather than a separate asset class, we don’t have an allocation to them as such.” John McLeod, PAF

Trustees may consider placing a restriction on total exposure on any one investment class. Overall, how the investments are split across each category should be aligned with the trustees’ investment objectives. As impact investing is a lens across all asset classes, it generally does not make sense to prohibit investment in certain asset classes.

The table below summarises the key investments of Australian Impact Investments Public Ancillary Fund, offering an example of a diversified impact investment portfolio across all asset classes.

Generally, investors should attempt to keep categories broad as this minimises the risk of overlooking a potentially attractive investment opportunity because it does not fit the narrow definition of an allowable asset class.

Note that private ancillary funds and public ancillary funds are generally not permitted to give a security over, or in relation to, an asset of the fund. Exceptions are made for an agreement to guarantee the repayment of any money for the benefit of one or more DGR1s. The current status of this restriction for eligible entities should be checked at the appropriate point in time.

“In addition to diversifying across asset classes, impact investors can increasingly diversify across impact sectors as markets deepen.” World Economic Forum

Portfolio rebalancing refers to the process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain a desired balance of asset classes.

As the value of any portfolio changes during a given period of time, due to factors such as market movements and varying levels of performance for different investments, trustees must rebalance a charitable trust’s investment portfolio in order to ensure that a diversified portfolio is maintained. For example, if public equities perform well during a period, this will result in equities now representing a greater proportion of the portfolio and may result in disproportionate asset weightings.

Portfolio oversight

Depending on the size of your foundation and its modus operandi, a standing impact investing committee of the board — perhaps an offshoot of the initial strategy development committee — can be a useful structure for selecting investments, reviewing performance, and suggesting course corrections where necessary.

This committee may:

  • Submit potential investments for a vote by the board or have authority delegated by the board to make investment decisions.
  • Set policies for approval by the board and set standards for managing the investment process.
  • Monitor financial and social performance of investments.
  • Make suggestions for developing strategic impact investing program areas (or collaborate with the foundation’s grant making committee to align overall strategy).
  • Coordinate with the foundation’s investment and finance committees to ensure that impact investing is integrated into your foundation’s overall budgeting process.

Once your impact investing strategy is developed and approved by the appropriate governing bodies, it’s time to bring it to life with investment action!

Part 7:


Introduction to impact management and measurement

Intentionality and measurable impact are the fundamental concepts that differentiate impact investing from traditional forms of investment. As the impact investing marketplace grows and becomes more dynamic, attention has turned to the importance of understanding and measurement impact - in understanding both the financial and social return on impact investments.

The increasing interest in impact measurement marks new and exciting opportunities for growth in the space. It is a chance to address the challenges that exist, in order to provide a more comprehensive understanding on how different tools and methodologies to measure impact can be adopted. The progress that has been made thus far, as explored in this document, is indicative of the extraordinary developments that have been made in the field. However, a strong potential still exists for development in the area - in order to further improve the consistency, effectiveness and applicability of impact measurement.

This section aims to provide an overview of the impact measurement tools and frameworks currently available. It does not, however, aim to provide a definitive answer on best practices. Rather, it aims to drive forward the impact measurement conversation and to fill in knowledge gaps experienced by charitable trusts and foundations.

It is important to recognise that the use of these tools and frameworks should be commensurate with such factors as the scale, complexity, and available resources of the investor and investee. Ultimately, an investor’s approach to impact measurement will be dependant upon, and reflect, their goals, objectives and capacities.

Defining impact measurement

Impact measurement can be defined as the activities taken to evaluate and report on the financial and social change generated by an investment. (1) Some studies have identified impact management as a separate process for data generation and analysis. For the purposes of this Document, impact measurement encompasses both concepts of measurement and management.

Why and when to measure impact?

There is a clear sense that more work is needed to strengthen measurement systems….Some people noted that they have been seeing investments they regard as “impact light” entering the market, that is, investments delivering relatively low social or environmental returns or where accountability for outcomes is limited and little effort is being put into measuring those impacts. There was concern that if not managed appropriately, this could undermine the credibility of the developing market.”

Australian Advisory Board on Impact Investing (2)

Relevance to stakeholders

Impact measurement is not only integral to making effective impact investments but is a unique opportunity for all impact investing stakeholders. These stakeholders include: investors, investees, intermediaries, and the government.

For investors, impact measurement serves to facilitate understanding, accountability, and value creation. (3) Impact measurement is a powerful way for investors to assess the intended impact of prospective opportunities as well as the ongoing impact of their investment portfolios. By understanding the extent to which their investments can achieve or have achieved social and environmental goals, investors can hold themselves accountable and allocate their resources accordingly.

Similarly, investees can use metrics to determine their progress towards organisational goals and to improve their impact by continually monitoring and evaluating functions. (4) Investees also have an intrinsic motivation to measure impact particularly for forecasting and impact optimisation. For example, analytics around impact can inform investees of optimal distribution, geography, and pricing decisions to help increase real-time impact on the ground. Notably, this area is in its nascent stages and likely requires greater research and testing.

Measuring impact also benefits the broader impact investing sector, including intermediaries and government, as it can assist with institutionalising credibility and transparency. More than 90% of respondents in GIIN’s annual impact investor survey noted that a lack of sophistication in the practice of impact measurement was a challenge to the growth of the impact investing industry. (5) Therefore, greater focus in the measurement space is important to increasing deal flow and participation in the industry.

Application across the investment cycle

Impact measurement has been driven primarily by investors in the screening and due diligence phase of investments. As impact investors must balance the dual purposes of pursuing both social change and financial return, impact measurement tools (see for example, the Balanced Scorecard at Section 6.2) can assist investors in making informed investment decisions by balancing risk with potential return across various opportunities. Speaking to various Australian Charitable Trusts and Foundations, fund managers typically avoid implementing stringent impact measurement frameworks once due diligence is completed, instead expecting that there will be some form of social return or impact.

Figure 7.1 estimating, planning, monitoring, and evaluating impact. (6)

While the focus has typically been on the due diligence phase, impact measurement has a role to play throughout the investment cycle and to various stakeholders. The cycle can be segmented across four key activities relating to impact: (7)

  1. 1.Estimating impact: pre-investment or due diligence processes to estimate the amount of impact that can be created with an investment;
  2. 2.Planning impact: post-investment or during negotiation, deciding on approaches and tools to measure impact;
  3. 3.Monitoring impact: ongoing monitoring of progress to inform whether investee performance is on track;
  4. 4.Evaluating impact: evaluating the impact created by an investment at the end of the investment cycle.

Figure 7.2 at each stage, impact measurement can provide useful insights to the stakeholders involved. (8, 9, 10)

Challenges faced

It is clear that there is uncertainty surrounding measuring impact, particularly as there is no right way to do so, and the best method of impact measurement is generally investment specific. Here are some of the challenges that charitable trusts and foundations may face when measuring social outcomes:

  1. 1.Social problems are complex:Social problems are inherently complex, and so are their solutions. When tackling the root-cause of a social problem, impact outcomes may only be realised many years after implementation. Due to this, attribution issues also arise - this being whether the line of causality can be made between a particular intervention and impact. (11) Furthermore, it is often difficult to place an exact time-frame on the measurement of impact, particularly when accounting for the complex cultural and political factors involved in social change. (12) It is difficult to know whether the full result is ever fully captured.
  2. 2.Resources are hard to come by:Foundations may face constraints on investing the time and resources into adopting a formal impact measurement strategy. Measuring impact requires a level of research expertise, allocation of resources and commitment to longitudinal study, (13) which can stretch beyond the capabilities of the charitable trust or foundation.
  3. 3.Tools and frameworks are difficult to navigate:The complexity of tools and frameworks may make it difficult to even begin to approach measuring impact. Trusts and foundations may be faced with questions such as “what tool or framework best fits our current investment?” or “what outcomes should we measuring?”.

Despite these challenges, recent developments are creating a greater sense of clarity and feasibility in measuring the impact of investments. The remainder of this chapter focuses on these developments as well as the tools and frameworks currently available to assist with addressing and overcoming the challenges discussed.

Recent developments in impact measurement

The increasing interest and participation in impact measurement has given rise to notable trends and developments in the space internationally. Firstly, in response to the greater desire for consistency and benchmarking, the United Nations’ Sustainable Development Goals are increasingly emerging as a universal anchor point for investors. Secondly, the Impact Management Project, a global collaborative initiative, has marked a significant step forward in achieving a common language and shared fundamentals for impact measurement in the context of impact investing. Indeed, the next few years will be particularly exciting as the broader impact investing field grows, and hopefully with it, the focus on impact measurement.

Mapping impact investments to the UN Sustainable Development Goals

Figure 7.3 UN Sustainable Development Goals

With the launch of the United Nations’ Sustainable Development Goals (SDGs), a global agenda to end poverty and protect the planet by 2030, investors have been encouraged to consider how their investments might contribute towards achieving these goals. Each goal has targets that require financial investment and the UN estimates that developing countries alone face a USD2.5 trillion gap in financing initiatives to address them. Impact investing will hopefully play a pivotal role in unlocking more private capital to achieve these goals. Some of the largest pension funds, asset managers, and increasingly charitable trusts and foundations have already taken up this challenge.

The 17 goals, shown in the chart above, are proving to be a convenient framework for investors to to communicate and articulate the relationship between their investments and impact goals. Although the goals are not equally investable, and not all goals are relevant to all organisations, some investors are viewing the SDG framework as a simple and effective entry-point and finding it helpful to focus on initiatives that address a few of them. (14) Others have grouped together multiple goals, such as reducing poverty, increasingly gender equality, providing access to clean and affordable energy, and creating more sustainable cities and communities.

The GIIN annual impact survey has recognised the unique role that impact investing will play in achieving the SDGs, and this is reinforced by the finding that more than 60% of organisations surveyed actively track their investments against the SDGs or plan to do so soon. (15)

Figure 7.3 RIAA’s Benchmarking Impact: Australian Impact Investment Activity and Performance Report 2018, 33

Impact Management Project

The Impact Management Project saw the collaboration of over 700 organisations, hailing from different geographies and disciplines, to agree upon the shared fundamentals that should underpin how we talk about, measure and manage impact, including in the context of impact investing. The work emerging from this Project was driven by the recognition that in finance, shared fundamentals about performance allow financial goals and investor expectations to be managed. This common understanding is crucial in ensuring that investors are given the opportunity to achieve their intentions and goals. As such, a need for shared fundamentals also finds its place in the impact investing space, to ensure that investor intention and goals can also be met when managing impact.

The result was the following five dimension approach to managing impact:

Figure 7.4 from the Impact Management Project, 5 dimensions to impact management

The Impact Management project was an opportunity to spark conversation about the norms that would enable investors from all over the world to share reliable information about impact. The Project’s underlying philosophy, of having a shared understanding into how best address the effects experienced by the people and planet, is a step forward in exploring new and innovative ways to create and measure impact.

Approaches to impact measurement

“We need to connect people to impact investing through story and experience….We see [impact investing] as a rational movement that is driven by measurement. Measurement is important but does NOT move people. In almost all cases it supports our belief system. Very occasionally people change their beliefs due to data, but mostly they change their beliefs due to emotional experiences.”

Australian Advisory Board on Impact Investing (17)

There is no single approach to measuring impact. The wide range of tools and frameworks available means that approaches to impact measurement can be tailored to the specific objectives and capabilities of the particular social enterprise and investor. Approaches can span different combinations of quantitative and qualitative measurement and ideally both in impact investing context as it is often difficult to define impact with numerical figures alone. In determining your approach, you should take into account the nature and complexity of the social enterprise, and time, resources and capabilities available to you.

From the perspective of a charitable trust or foundation, there are three main approaches to impact measurement:

Approach 1: Do It Yourself - Measurement by an investor and/or investee

It is possible for charitable trusts and foundations to develop their own impact measurement plans although their level of involvement may vary. On one end of the spectrum, measurement may be a collaborative effort between the social enterprise and the charitable trust or foundation, who may be heavily involved in decisions around metrics and benchmarks. At the other end, the social enterprise may work independently to provide impact assessments to the trust or foundation, who in turn can audit the impact reporting when necessary. This is based on the belief that the social enterprise itself is generally best positioned to report on its own social impact, just as it provides financial reports to investors. Of course, impact measurement approaches in this category may fall between these two ends of the spectrum.

Approach 2: Measurement through a fund manager

Individual investors may elect to have a fund manager invest on their behalf. The fund managers will often conduct impact assessments as they see appropriate to the investment, and report to the investors. An example of this approach would be that taken by Australian Impact Investments, described later in the chapter.

Approach 3: Measurement through a third-party or intermediary

Another alternative is to leverage services offered by third party intermediaries that can help social enterprises and investors conduct impact measurement. Typically, these intermediaries will have their own proprietary approach to measuring impact. A one-off fee or subscription may be required to access these services.

Impact measurement tools


There are many impact measurement methodologies that have arisen alongside the growth of the impact investing industry.

The purpose of this section is to provide an overview of the types of impact measurement tools that are relevant to and currently being used in the impact investing industry.

Importantly, the impact measurement framework chosen should be appropriate and scaled to the investment. The alignment of the goals of the charitable trust or foundation against those of the investees should also be considered, as output information linked to business success becomes more useful to the running of the business. (18)

Impact measurement tools are explored in greater detail, complete with case study and worked examples here.

Spotlight on.

Australian Impact Investments impact framework

A great example of an impact measurement approach that has been adopted in Australia is the impact framework developed by the Australian Impact Investments team. It demonstrates a way in which many concepts and methodologies related to impact measurement can be utilised to create something unique to a specific organisation’s goals and impact outcomes.

Australian Impact Investments ( is a financial advisory group specialising in designing, implementing and managing impact investment portfolios for wholesale investors.

The Australian Impact Investments team has developed a three-dimensional impact framework to assess impact investments. Their framework draws upon the team’s three prior years of impact investing experience, as well as insights from the Impact Management Project and J.P. Morgan.

Sycamore School example

Sycamore School is an educational institution providing full-time primary school education for up to 70 autistic children a year in Alexandria Hills in south east Queensland. The impact goal of Sycamore School is to lay the foundations for good social interaction skills and enable their students to become positive, independent contributors to society. This fits the goal under SDG 10: Reduced Inequalities to promote the social and economic inclusion of people with disability.

The Sycamore School scores highly for ‘Impact’ on the Australian Impact Investments framework. It produces deep and sustainable impact for participating children, can manifest itself relatively quickly and has a high likelihood of achieving the impact.

However, there are some risks associated with the Sycamore School project. In particular, the investment risk of the Sycamore School is regarded as high.

In terms of financial return, the target return of the Sycamore School project to investors is around 7-10% per annum. This represents below market return relative to other investments with a similar risk profile.



Ways to develop the market

As active participants in the market, or even as non-investors who believe in its potential, there are many opportunities for charitable trusts and foundations to support the developing impact investment market and help it to thrive. We have identified three key capacities in which Australian charitable trusts and foundations can and do provide crucial support for the impact investing ecosystem:

  1. 1.As investors and catalysts: investing financial capital in social enterprises and organisations in the form of impact investments for principally social return, or utilising capital to catalyse or de-risk impact investments;
  2. 2.As capacity builders: providing grants, technical assistance, sharing expertise, or providing investments that build capacity in social enterprises and non-profit organisations; and
  3. 3.As engagers: supporting the ecosystem, including intermediaries, building awareness through research and advocacy, and sharing insights and opportunities in the impact investing space with donor and investor communities.(1)

Investors and catalysts

Active participation by charitable trusts and foundations as investors in the impact investment market builds track record, contributes to the growth of the ecosystem, and helps build market scale. (2)

Catalytic impact investment by charitable trusts and foundations represents one of the most powerful opportunities to maximise and leverage impact by attracting additional flow of capital from mainstream investors to social and environmental solutions. Early stage investment from charitable trusts and foundations can build credibility and de-risk investment opportunities that would have previously not have attracted mainstream investors. Further, impact investment by charitable trusts and foundations can also be used to build volume and credibility in organisations and businesses.

Blended Finance

Blended finance instruments (explored in more detail in Part 2) are an emerging mechanism through which capital can be strategically leveraged for impact investments. A blended finance instrument typically consists of a combination of grant funding, guarantees, debt and equity, providing mechanisms through which investments can be de-risked. This encourages greater participation in the impact investing ecosystem by investors with differing risk appetites, and contributes to expanding overall deal volume.

Charitable trusts and foundations are uniquely placed to provide different types of capital, including grants, in blended finance structures. The development of standardised and scalable blended finance products is a key area that would support the growth of the impact investing ecosystem. It needs investors willing to get on board to test structures and products, and in so doing, inspire others to join.

See below for a closer look at the Tender Funerals transaction, for which Social Enterprise Finance Australia (SEFA) developed an innovative social finance model, collaborating with the Vincent Fairfax Family Foundation (VFFF) to co-finance a deal that combined debt and philanthropy to enable conversion of a building into a mortuary for a start-up funeral business.

Further information about blended finance and examples of recent blended finance transactions can be found in Part 2.

Spotlight on...


“Death affects us all and is an integral part of life. We will all die and we will all, at some time, face the death of beloved family members and friends.”

Tender Funerals provides a holistic, caring, and personalised approach to after death care and funeral services, with a focus on ensuring that cultural, family or community traditions are respected and met.

Established in 2014 as a not-for-profit, social enterprise initiative of the Port Kembla Community Project, Tender is a unique example of how blending different types of capital enabled truly impactful collaboration between a community organisation, a foundation, a social lender and the public.

Tender was able to use the proceeds a very successful StartSomeGood crowdfunding campaign for seed funding to get to market. Further funding from mission-aligned partners helped Tender to move beyond start-up phase. Social Enterprise Finance Australia (SEFA) which is at the forefront of developing innovative social finance models in Australia, then collaborated with the Vincent Fairfax Family Foundation (VFFF) to co-finance a deal that combined debt and philanthropy - a loan from SEFA Partnerships assisted with the purchase of the former Port Kembla first station, and a grant from VFFF enabled conversion of the building into a mortuary.

What SEFA said about the transaction:

Tender is the first partnership of its kind in Australia. It demonstrates the power of a collaboration between a community organisation, the public (via crowdfunding), a foundation and a social lender that together create a very strong base for a sustainable social enterprise start-up.’

What Vincent Fairfax Family Foundation said about the transaction:

The free flowing communication between the three organisations, and SEFA’s willingness to share its insights on financials, streamlined the Foundation’s processes and opened the door for collaboration in our newest strategic program – impact investment.’

De-risking and catalytic first-loss capital

As potential providers of first-loss capital and other de-risking instruments, charitable trusts and foundations can drive greater capital flow into the impact investing market. Providing first-loss capital typically involves the use of grants, guarantees, subordinated debt or junior equity to absorb any first losses that are incurred. This reduces the risk to other investors, and catalyses investment by investors that otherwise would not have participated. (3)

*(4) Note: if a PAF guarantees a financial institution’s loan to a Deductible Gift Recipient, the PAF can claim the discount between its income and the market interest rate as part of its distribution requirements (see Part 4, example 5).

By taking first-loss capital positions, charitable trusts and foundations can help develop and enhance the pipeline of investments that are fundable by the wider impact investing market. This will help demonstrate the long-term commercial viability of the impact investing ecosystem to wider investors, encouraging them to continue to impact invest without credit enhancement.

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The role that PAFs played in providing first loss protection to investors in the Diversified Impact Fund was important to maximise fund size. This was particularly relevant for new impact investors because it allowed them to gain exposure to the space while having their risk significantly reduced. Our hope is that with the continued development of the market, and growing investor confidence, we may not need this support in future funds but it was critical at this point in the evolution of the social impact investing market.”

Michael Lynch, Executive Director, Impact Investing, Social Ventures Australia

Social Ventures Australia closed the raise of a $15 million Diversified Impact Fund (DIF) in March 2018. The DIF is investing in social and affordable housing, social enterprises, impact businesses, non-profits and social impact bonds. The Fund has replaced SVA’s $9 million Social Impact Fund (SIF), which had $4 million of government grant money. The SIF made 10 investments, created more than 160 jobs for disadvantaged Australians and enabled the construction of 22 social and affordable dwellings, and returned approximately 6.7% p.a. since inception.

The DIF features an innovative 20% downside protection structure ($3 million) which is supported by 11 leading Australian PAFs and philanthropists. It is structured as a series of callable loans, with the money only called in the event of a shortfall at the end of the Fund. PAFs are not paid for providing the guarantee, but are able to count the implied market value of doing so against their 5% Minimum Annual Distribution. PAFs can count the following notional distributions:

  • Annual commitment fee = 3% of callable loan amount for the full 10 years of the DIF (or until the loan is called)
  • Interest rate = 3% + RBA cash rate of any amount of the Loan drawn down for the duration it is called; and
  • Loan forgiveness = any amount of the Loan drawn and later forgiven.

Below is a summary of how the downside protection works:

  1. 1.Investors commit $15m into the Fund and PAFs severally commit $3m of downside protection via a series of callable loans. The Fund invests in a series of impact investments.
  2. 2.At the end of 10 years (or the early termination of the Fund), the Trustee calculates whether investors have received $1.00 per unit in combined capital and income distributions.
  3. 3.If a shortfall exists, SVA will call upon the callable loan from the PAFs, up to $0.20 per unit.
  4. 4.SVA provides the PAF moneys to the Fund via a back-to-back callable loan.
  5. 5.The callable loan will be repaid to the extent that the Fund realises assets following the Fund termination. PAFs agree to forgive the remaining amount of the loan.

Capacity builders

Charitable trusts and foundations can support the ecosystem by building the capacity of social enterprises and the broader impact investing ecosystem.

For example, a foundation may make a seed grant to help a social enterprise with a pilot program to prove their model, and then once they have revenue, make a loan to the social enterprise out of their corpus to help them scale the program.

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The KL Felicitas Foundation provides grants alongside many of its impact investments in order to help build the capacity and strength of the recipient enterprise. Often, in the early stages of starting a social enterprise, a subsidy is required to help pay the cost of operations until breakeven or profitability is reached. In other instances, these high-potential social enterprises may need some technical assistance, such as more robust accounting systems, to perform to their full potential and attract additional investment.

Grants from KL Felicitas can be single events, or may be part of a multi-year strategy to help social enterprises gain scale and increase social impact over time. Grants made by the foundation are viewed as a separate investment category, but one that is complementary to the overall impact investing strategy.


One challenge often cited to be impeding growth of the impact investing sector is a lack of investment-ready social enterprises. There are more than 20,000 social enterprises in Australia and, while the number is growing, many social enterprises struggle to find and connect with the right knowledge and funding opportunities. This is where incubators play an important role in connecting social entrepreneurs with mentors, advice, assistance and, importantly, investors. Charitable trusts and foundations can assist by providing support to incubators through funding incubator’s operational costs, offering grants for aspiring social entrepreneurs, providing loans to organisations participating in incubator programs, or assisting with mentoring and skills sharing.

Foundations have the capacity to share capabilities and expertise through tailored programs. For example, KickStarter is a business planning competition and small grants program funded by the Macquarie Group Foundation which leverages the capability of Macquarie staff to support social enterprises.

Philanthropy for early stage impact ventures

Philanthropy alone generally cannot solve large-scale and complex social problems, but it can play a key role in supporting innovative ideas to address these problems. (5) Philanthropic grants, or donations with no expected return, are especially important in allowing early-stage enterprises to show proof-of-concept and to gain scale. These grants can support the function of enterprises in pioneering stages which require capital input to build their sustainability and reach. For example, Social Ventures Australia’s (SVA) venture philanthropy model connects philanthropists to ventures, and the funds are used not only to increase impact but to prove what they are doing works. (6)

Similarly, the Impact Investment Ready Discovery Grant program provided not-for-profits with grants up to $50,000 to explore pathways towards financial sustainability and enable capacity building towards future impact investment propositions. The initiative was established by Philanthropy Australia in partnership with NAB. In 2018, Philanthropy Australia received 110 applications for Discovery Grants, and awarded 12 grants with a total value of $530,000. A further 12 applications were strong and fundable, but did not receive Discovery Grants due to limited funds available. With more philanthropic capital available, more promising ideas and initiatives can be funded to kick-start more journeys towards impact investment readiness.

In order to address the social and environmental challenges facing Australia, we need a strong and vibrant not-for-profit sector with the capacity to develop and implement high quality impact investing programs. The Discovery Grants aim to kick-start this process.”

Sarah Davies, CEO, Philanthropy Australia

Impact investment readiness work

Grants supporting impact investment readiness can help an organisation to deliver impact at scale by enabling it to focus on developing its capacity and capability to seek and utilise impact investment. While this section addresses financial help via grants, examples of non-financial impact readiness support include mentoring, seminars and workshops, courses, and bespoke professional advice.

The Impact Investment Ready program is comprised of two grant programs: the Impact Investment Ready Growth Grant managed by Impact Investing Australia and the Impact Investment Ready Discovery Grant managed by Philanthropy Australia (discussed above).

The Impact Investment Ready Growth Grant provided impact businesses and mission-driven organisations with grants of up to $100,000 for business, legal and other capacity building support from providers to help secure investment. (7) The Growth Grant was originally established as the Impact Investment Readiness Fund with seed funding from NAB. Since its launch, the Fund has supported over 22 organisations on their journey to investment readiness, unlocking over $41 million in impact investment capital. (8)

The Impact Investment Ready Growth Grant is playing an important role in driving social innovation in Australia. It is supporting for-purpose businesses to connect with and attract impact investors, helping them to achieve scale and deliver greater social and environmental impact.”

Daniel Madhavan, Chair, Impact Investment Ready Growth Grant Panel (9)

Hopefully the Australian Government’s Social Impact Investment Fund will continue the great work of the Impact Investment Ready Growth Gr