Take a chance on the social impact zebras - an invitation from our CIO
Written by Hanna Ebeling, Chief Investment Officer
I would like to take you on a provocative safari across the Australian impact grasslands. Debate often intends to provoke by taking sides. So please take the following with a grain of salt, it’s not all black and white (no pun intended - as you will shortly find out). This is just an invitation for a fruitful debate to start. I look forward to hearing your contribution.
Impact investing in Australia has been centred on ‘social unicorns’– high impact and high return, i.e. ‘the best of both worlds’. A prime example is the $2m plus equity raise for Hire Up, an NDIS platform that connects carers with clients. Hire Up benefits from the ‘step up’ model: the more profit is generated, the higher the impact, whilst showcasing strong economies of scale. The conversation between existing investors in the market, and promises from new market entrants, have raised investor expectations. This can cause frustration on the investee side, when they are unable to meet market rate or risk profile expectations. On the flip side, frustration arises for investors with a lack of ‘investable’ pipeline.
Take the example of an employment based social enterprise trying to get working capital to build a track record. The training of disadvantaged cohorts presents a cost burden and means they are unlikely to afford an unsecured loan at a commercial market rate, expected by many investors.
In comes the analogy from one of my favourite articles on impact investing which compares zebras (companies that are profitable and improve society) with unicorns (companies that prioritise growth and shareholders).
For social zebras, success might come in different forms. Bigger and more profitable is seldom the sole purpose of a social organisation. There are many forms of measuring “social success” or the end game of a purpose-driven organisation.
Boards and management need to decide on the appropriate strategy to deliver their mission. Investors should take the uniqueness of social organisations into account and not expect to combine historic investor return hurdles, with social feel good outcomes as the icing on the cake. Why not take a chance at decommoditising finance and see impact investment as a true catalyser for disruptive and systemic change?
Whilst in Australia we are blessed with a diversity of people and cultures across the country, there is a challenge associated with remoteness. Added to the challenge are fragmented state-based operating environments. A national market of 25m people cannot compete with emerging markets such as Indonesia for scale and efficiencies.
I believe we need to create true equitable access for social businesses with funding solutions that fit their needs and most importantly take into account the social mission they are trying to deliver. Sometimes this will include an additional cost layer, as outlined above. If some investors such as foundations can afford it, concessionary debt (linked to social outcomes) is an arena in Australia that is still yet to be fully explored and inhabited by a strong number of participants. Yunus Social Business has created the Social Success Note in collaboration with the Rockefeller Foundation.
Sefa is by no means a herder of zebras, we are a work in progress like so many organisations out there. I wanted to take a moment and reflect on being bold and articulate the challenges that we are grappling with on a daily basis.
And now over to you – what are your thoughts, your experiences and your visions? We would love to hear from you…