Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Foreign Affairs, Defence and Trade References Committee
29/10/2018
United Nations Sustainable Development Goals

McADAM, Mr Matthew, Head, Australasia, Principles of Responsible Investment

McCUTCHAN, Ms Sally, Chief Executive Officer, Impact Investing Australia

O'CONNOR, Mr Simon, Chief Executive Officer, Responsible Investment Association Australasia

CHAIR: Welcome. Thank you for your time. Information on parliamentary privilege and the protection of witnesses and evidence has been provided to you. Would you each like to make a brief opening statement before we go to questions?

Ms McCutchan : Thank you for the opportunity to be here today to make a statement on behalf of the Australian Advisory Board on Impact Investing and Impact Investing Australia in relation to our submission to the inquiry. I'd first like to acknowledge the traditional owners of the land on which we meet and to pay my respects to their elders past and present. Our submission aims to highlight the role that impact investment and the social innovation it enables can play in the achievement of the SDGs, ideally as a key tool in an Australian national implementation plan to that effect. Impact investments target positive societal outcomes alongside financial returns and are seen globally as a means of expanding the capital available for tackling the SDG funding gap, estimated at $5 trillion to $7 trillion annually. Internationally, impact investments have already been used to finance initiatives including aged care, health, social housing, education, financial inclusion and international development.

There are two main points I want to emphasise in relation to this inquiry. The first is that if Australia wishes to be an effective contributor to the delivery of the SDGs both in our own country and in the region we must unlock more private capital towards this objective. Government budgets are already under pressure from the growing cost of addressing domestic societal issues, and this in turn is impacting official development assistance. In this context, ensuring efficient and outcomes-focused use of government spending and encouraging private sector investment, both of which can be achieved through impact investing, is critical for the achievement of the SDGs. The AAB and Impact Investing Australia have made a number of detailed submissions, including to the financial system inquiry in 2014 and the Treasury discussion paper in 2017, outlining the case for impact investing and providing comprehensive recommendations for impact investing sector development.

Secondly, catalytic action by the government is needed in order to drive the impact investing market to a scale where it can meaningfully contribute to the SDGs in and from Australia. Governments have a role in building the market to encourage growth, participating in the market to leverage more private capital in priority areas and in acting as a market steward to set standards and remove barriers for participation. Targeting policy in prudent investment can catalyse activity, reduce risks for new entrants, build track records and enhance investor confidence. This level of involvement is important for a well-functioning, efficient and mature market. With increasing focus from the corporate sector and institutional investors, Australia has an opportunity to broaden the policy toolbox and access additional resources for greater impact, including opening up further domestic and international collaboration and Australian trade in the region. The Department of Foreign Affairs and Trade have made some great first steps in supporting the development of impact investing, including the Emerging Markets Impact Investment Fund, EMIIF, and the Scaling Frontier Innovation Program.

While momentum is growing, impact investing within and from Australia still lacks scale, and a recent Responsible investment report, which Simon can talk about, sized the market at $5.8 billion, but most of that—$4.9 billion—is in fact in green bonds, with very little related to socially focused SDGs. Without rapid acceleration of scale, progress will be too slow to meaningfully help in meeting SDG 2030 targets. We've outlined an implementation-ready policy for a one-off government contribution of $150 million towards establishing a $300 million predominantly wholesale institution, which we're calling Impact Capital Australia. As a partnership between the Australian government and major financial institutions, this game-changing organisation will have the capital and mandate to drive impact investing at scale towards the development of the more socially focused SDGs. We'd welcome an opportunity to engage further with the committee to inform their inquiry, and we thank them for the opportunity to be here today.

Mr O'Connor : Thanks for the opportunity to provide evidence here today. The Responsible Investment Association represents about 230 investment organisations that manage over $9 trillion of assets across Australia and New Zealand. As Sally has outlined, we're well aware of the massive investment required in order to deliver on the SDGs. It's been well articulated the economic opportunity that can come from delivering on the SDGs, particularly through the Business and Sustainable Development Commission's report that the opportunity could open up a $12 trillion market of opportunities. Fortunately, we see a growing segment of the investment community in Australia who are committed publicly to a responsible investing approach that is understanding environmental, social and sustainability related issues and how they impact their investments. We've seen a quadrupling of this market over the last three years, reaching in the order of $860 billion of assets under management of investment organisations that consider sustainability issues and their role in helping to provide capital to support social and environmental outcomes.

So, there is a significant appetite there from this segment of the finance industry to be playing an active role in aligning capital with a sustainable economy and delivering on the SDGs and other such objectives at a national level, such as the Paris Agreement, as this part of the finance sector recognises very clearly that these goals will underpin a stronger and more prosperous economy and hence long-term future investment returns for these long-term investors. Already we're seeing a lot of progress from the finance community in delivering upon the SDGs. We've seen SDG investment funds coming to market, SDG bonds being issued, superannuation funds measuring their SDG impacts, and SDG impact investment funds. We have seen through some of our research that in the impact investment market SDGs already are the most commonly adopted impact measurement framework. About 35 per cent of all the impact actors that we looked at when we did a market review are already incorporating SDGs. We're seeing already a lot of mapping of investment across the SDGs, with the most investment flowing into goal 11, goal 9 and goal 13—that is, sustainable cities, innovation and infrastructure, and climate action—and, as I said, leading super funds are already setting targets against the SDGs.

More broadly, we believe that there is a great opportunity to align capital to the SDGs by some work that we're helping to progress with the PRI and others in the finance section which is establishing the sustainable finance road map, which is really about setting a coherent plan and aligning policy signals to ensure that the heavy weight of capital can be directed towards the achievement of the SDG and other national social and environmental goals and to ensure that capital markets are supporting and not hindering this progress on the SDGs. This work around the sustainable finance road maps follows very closely a lot of policy work going on internationally right now in the EU, the UK, China, Canada, Indonesia, New Zealand and beyond. I am happy to expand on some of the policy work that has been implemented in those countries.

There's significant support for this as an initiative in Australia. We had a conference together with these groups in July with 350 delegates. We have had over 40 financial organisations signing up to commit towards a process for delivering a sustainable finance road map. There is very much a sector here that has the ability, has the weight of capital and is prepared and ready to do the heavy lifting in delivering on the SDGs in Australia and to support the government's work in this area. What we think are some necessary steps to really unlock the capital markets to support the delivery of the SDGs is, very importantly, the national implementation plan from government, giving very strong signals and aligned policies to drive this agenda and government support also to support the delivery of the sustainable finance road map to ensure that those policies are all aligned and pointing capital markets in the right direction and, furthermore, Australian government support of international initiatives to create global SDG measurement and reporting standards, as is very important to underpin the businesses in reporting on their SDG impacts in contribution. As such, it is subsequently very important for investors to then understand how their portfolios are delivering against the SDGs. I'll leave it there.

Mr McAdam : Thank you for the opportunity to come and elaborate on our submission with you today. The PRI is a global investor network that was established just over a decade ago to help our members integrate material environmental, social and governance considerations into their investment decisions. We have two UN partners—the UN Global Compact, which is working with corporates on sustainability, and UNEP FI, based in Geneva, which works with the banking and insurance sector. We're really here committing to help them to embed the Sustainable Development Goals into the investment practices of our signatories, with the likes of RIAA and Impact Investing Australia to support and reinforce what they're doing.

Our view, like RIAA and Impact Investing Australia, is that institutional investors do have a really critical role to play in catalysing the Sustainable Development Goals, but they're a very evolving area of work for the PRI and for our signatories. We did a fairly extensive global consultation two years ago, as we developed a 10-year strategic plan for the organisation. One of the questions that we asked signatories was around the Sustainable Development Goals. I'd say that the views, globally, were at opposite ends of the spectrum in Europe. They see the PRI as needing to align more of its work with the Sustainable Development Goals, because this will help signatories to align their investment activities with the ultimate effectives of societies, which is what they commit to when they sign the six principles.

In Australia, the views were a little further behind. It underscored the need for more education and awareness raising. Investors didn’t see at first glance, in many cases, that these issues were material or how they could be material to their portfolios. So, we've done a lot of work on articulating the investment case for the SDGs. There's also a bit of a misconception that the SDGs are still focused only on emerging and developing economies, like the Millennium Development Goals. So, a lot of the work we do is at a very early stage on correcting some of the misconceptions and awareness raising.

When we look globally, it's an area that's evolving quickly. According to our own data, more than 450 investors allocated $1.3 trillion to impact investments worldwide in 2016, and there's an increasing demand for impact investing products and services. We have a signatory reporting framework that does not yet go into full detail to allow signatories to demonstrate what they're doing on the SDGs; that is planned for future years. But what it does show is that 234 of our 1,500 signatories that had to report on how they were implementing the principles last year referenced the SDGs in some way, shape or form, which is a 250 per cent increase on the previous year. So there's definite momentum behind signatories looking at the SDGs. I'll leave it there.

CHAIR: Thank you. Can I just provoke you a bit: what does an impact investment look like, what does it set out to do, how long is it for, and how much does it return? I would like three examples.

Ms McCutchan : Maybe I'll take that one first. I think impact investment is quite confusing as a concept in some ways because it cuts across lots of different types of investment. We typically frame it as three types of investments. The first are investments in organisations, in the same way as you make an investment on the ASX or in a venture capital fund or a smaller organisation. The second way is what many in government would be familiar with, which is the social impact bonds. That is a 'pay for success' model where investors typically invest in a program up-front and then the government will pay on the basis of a successful outcome, over a three- to five-year period for most of them, or possibly longer. The third area is what we would call the social infrastructure space. That might be an investment in an education facility, a school or something that enables transport to communities, sport or sanitation and so on. So they're very different types of investment. It could be debt. It could be equity. It is very varied. So, when we talk about impact investing in a broad context, it cuts across all those different areas.

Mr O'Connor : Just to add to that, I would say that our expectation is that anything calling itself an impact investment would be able to report measurable environmental and/or social outcomes and quantify those outcomes as part of the returns profile of that investment. As Sally said, there could be all kinds of different outcomes it's aiming to achieve, but you would expect to see that investment stating at the outset what it is aiming to achieve and reporting in a quantified manner against that.

Beyond that, in the broader spectrum of responsible investing that includes impact investing, there is a whole discussion around the full portfolio of a superannuation fund, for example, as to how elements of that portfolio might be contributing to an SDG or multiple SDGs. That is less specific and dedicated impact investing, as such, but it is aiming to invest with some intentional outcomes and positive contribution to society and environment. But we're going see, at that level, much less quantification of the outcomes and less clear reporting and quantification of the social and environmental metrics around that.

Senator LINES: Chair, just before we move off that topic—

CHAIR: We're not moving off it. We're here till 1.40.

Senator LINES: No, the question you asked. I just had a follow-up to that question.

CHAIR: I think we will see if Mr McAdam has a contribution.

Mr McAdam : I was just going to add that an increasing number of our signatories, particularly European signatories, see impact as the third dimension of all of their investments across all of their portfolios. So you have a risk element, a return element and then an impact. All of their investments have real-world impact. Some of that is intentional. Some of that's not intentional. Some of it's positive. Some of it's negative. But there's an awareness that everything that they invest in will have an impact.

CHAIR: I didn't get any sense from those three answers of what the return is. Is it five per cent? Six per cent? Two per cent?

Mr O'Connor : That depends on which investment in which asset class. You might have a fixed-income investment that would be aiming for a three to five per cent return. You may have a listed equities investment.

CHAIR: So there are no quantifiers in this area?

Mr O'Connor : Yes, absolutely.

CHAIR: So the trustees of a super fund could say, 'We've got private equity, we've got fixed interest, we've got small caps and large caps, and we've got a social impact.'

Mr O'Connor : Absolutely, and it would be assessed against the returns profile of a similar asset class investment. So a CIO of a big super fund will be saying—

CHAIR: If we were to look for that, where is that published?

Mr O'Connor : Our Benchmarking impact report, which was launched in July this year, looks at the returns profiles, including financial returns, of investments across different asset classes and compares them to a benchmark of equivalent investment. I'm more than happy to present the committee with that report.

CHAIR: I think it's important to be able to present social impact investments in the same way as you would private equity, small caps, large caps, fixed interest, cash or whatever.

Senator LINES: In terms of responsible investing, how far down does the investor responsibility go? For example, does it look at proper payment of the workforce across a supply chain? In a private-public partnership, what level of subcontracting would occur? What level of wages would be paid? Where is that transparency to ensure that it is not just a headline of responsible investing but that that investor, even though they may not deliver the end product—whatever that might be—is ensuring that that integrity of responsibility continues along the supply chain to the worker actually doing the job?

Mr O'Connor : That is a very good question. In response to that, I would say that the notion of the fiduciary duty of trustees and investment trustees has really broadened over recent years with an acceptance that the responsibility of an investor managing assets on behalf of the beneficiary is to understand the full impacts down the chain of the companies and assets they are investing in, well beyond just the direct operations of a listed company, for example. And that is absolutely because they see that, where a company mismanages its supply chain or labour force in the supply chain—we have seen many textbook examples of that—it destroys shareholder value and ensures that companies are not operating successfully over the long term. As a result, we are seeing within our membership a very deep engagement with companies on how they are managing, for example, human rights in the supply chain. We have been very deeply engaged in the modern slavery legislation at a federal level, so there is an expectation—and we are communicating that expectation from investors to companies—that that responsibility does flow up into suppliers and into direct and indirect operations.

Senator LINES: If we can't manage responsible investing in Australia—there are plenty of examples and there was another example in the media this morning about backpackers—how do we manage it when we are in a foreign country? How can we go forward confidently that there is not a breakdown in that supply chain, that the person at the end of the piece doing the work is not getting ripped off? How can we manage that?

Ms McCutchan : What we are trying to do in a global effort around this and it has just recently been announced by the UN that there is a group that has been put together called the Impact Management Project network. That network includes the UNDP, the OECD, the UN PRI and a number of bodies that you would know well—IFC et cetera. Essentially, what that network is trying to do is come up with a set of standards which will form the basis of an accreditation system that will ensure that when a person makes the investments they know those things. They will know that labour practices are being accredited by a recognised organisation. That remains a work in progress. As I said, it has only just been announced but that is the goal so that there is that high level of understanding and certainty around the impacts that the companies are making.

CHAIR: I think you mentioned $5.8 billion. Was that the Australian domestic size of the impact—

Mr O'Connor : Of the impact investing.

CHAIR: And who is in that $5.8 billion space? How much is government and how much is industry super, retail super and international investors?

Mr O'Connor : That is domestic financial institutions. It is private organisations all of it, I believe, from recollection. It is a mix where that capital is coming from. Some of it would be coming from superannuation funds. A lot of that would be coming from private individual investors, sophisticated investors, high-net-worths and families. That is largely managed by around 15 organisations—private fund managers, banks.

Ms McCutchan : Just to add to that and for clarification, I said $4.9 billion is green bonds. Green bonds typically are in the domain of the institutional investor market. They are the things that the industry super funds and others would be investing in. They are the large-scale investors. But to Simon's point, the rest of it tends to be the high-net-worth individuals and so on.

CHAIR: I seem to recall some evidence we got in an earlier inquiry about New South Wales looking at social impact investment. Has that happened?

Ms McCutchan : Yes. New South Wales has probably been the most active of the states in this field, particularly in relation to the social impact bonds that I talked about earlier. New South Wales did the first social impact bond, around out-of-home foster care.

CHAIR: How much was that?

Ms McCutchan : From memory, around $9 million, so relatively small.

CHAIR: Was it successful?

Ms McCutchan : Yes, it's been hugely successful—successful in terms of the outcomes that have been delivered and successful in terms of the returns that have been achieved.

Senator LINES: I think it depends who you ask.

Ms McCutchan : Yes, maybe.

Senator LINES: There's been criticism as well. The unions might have a different perspective.

Ms McCutchan : The unions may have a different view but, in terms of the outcomes that were achieved and promised, it's actually done a very good job on that. But I agree the unions do appear to have a different view on some of those things.

In relation to some other initiatives of New South Wales, they've put together a Social and Affordable Housing Fund, which is over $1 billion. I don't know that that's included in your survey yet, because the consortia who were selected in phase one are still working through some of that investment, but that's another major initiative of New South Wales.

CHAIR: Is New South Wales the most active jurisdiction?

Ms McCutchan : The other states have come along now. We've seen Queensland, South Australia and Victoria start to issue social impact bonds. I'd say Victoria is more active in what we would call the social enterprise market, which is the small start-up space, but I think in terms of the larger-scale infrastructure and the bonds it's been more New South Wales. They also have their own dedicated Office of Social Impact Investment.

Senator SINGH: I want to ask a little bit about housing, just to single out some SDGs, affordable housing being one in Australia that is very much under pressure, I think, in every state and territory. I know you gave the example of the social impact bonds in relation to New South Wales but, of the businesses that you're engaged with, are any specifically looking at housing as an outcome for investment?

Mr O'Connor : From my constituency, from a superannuation fund perspective, I think housing and affordable housing have been identified as a major asset base where there is potential alignment from a long-term investing perspective for superannuation capital to be put to work to deliver or contribute to some affordable housing. I don't know that there's been a huge amount of investment to date, but I think there is certainly a lot of work trying to figure out how super can play a role in helping to deliver that growth in affordable housing assets.

Ms McCutchan : As Simon said, certainly the industry funds have been looking at housing. HESTA is a fund that services the healthcare sector, and a lot of its members are nurses. It's looking at ways that it can potentially enable its nurses to get affordable housing closer to their places of work. I know that's a key priority for HESTA. I don't think it's made any investments yet in that respect, but it's certainly something that it's looking to do.

The other area that I think people are very focused on is the disability accommodation space, looking at how we get more affordable housing in that space. We run a grant program for social enterprises. One of those social enterprises that's come through is Nightingale Housing. I don't know if you're aware of what Nightingale is doing, but it's a group of architects and it's looking at design for affordable housing and mixed housing outcomes, particularly in Melbourne. That's a new social enterprise that's evolved through Impact Investing.

Senator SINGH: I'm interested in how your two organisations work, in the sense that we know that the super funds are outstanding in addressing SDG impact—and housing obviously is one example of that—and you've got these SDGs but, if we look domestically, there are some that we are not on track to meet, compared to others. I'm talking about No. 11. I could talk about housing. How do you as organisations play a role in addressing the SDGs that need more investment than others—or do you leave it open slather?

Mr O'Connor : That's a great question. This is an emerging conversation and I think to date the industry are saying, 'Yes, these are a global set of goals that make sense for us.' The second stage has been to start mapping portfolios against those global goals to identify the logical fits where there are already some easy contributions going on. I don't think we're up to stage 3 where we say, 'There are some big gaps against the Australian targets here; how can we redirect capital to fill some of those gaps?' That piece of work could be facilitated and helped by a very clear national implementation plan at a government level so we can put both sides of this together and say, 'Right, here are four goals that need capital,' where there are some big gaps: what can we do jointly in partnership to deliver on those? I see that as where we need to take this conversation beyond the mapping of existing portfolios, but I would say we're not yet at that stage.

CHAIR: So line of sight in that respect could be a responsibility for the federal government to consider?

Mr O'Connor : That would be helpful for the investment community to understand precisely how we are tracking under those SDGs and the gaps where the most work is needed. Then the conversation has to be had between Finance and government to say, 'How can we play a role to fill some of those gaps?'

Senator SINGH: That's why I raised housing. Some of them are obvious. You won't need to do a lot of work to know already. You talk about this 'investing capital Australia'?

Ms McCutchan : Impact Capital Australia. I was going to talk about that in response to your question. The government has already announced the bond aggregator for affordable housing, which I'm sure you're all aware of, and the National Housing Finance and Investment Corp, which includes the bond aggregator and about a billion dollars of spending to be directed towards local council infrastructure around new housing development. That's something that we worked on with the Department of Treasury. We were involved in consultations around that. The design of Impact Capital Australia is to help seed new funds to focus on some of the key priority areas—one of which is housing; the other is special accommodation for disability. Against current policy priorities they're key areas that we think need to be addressed but also against the broader SDGs. Impact Capital Australia would be designed to target 10 different issue areas, but broadly those issue areas are aligned with the SDGs. That's why we're trying to get something like that into the market, a go-to place for people looking to do this kind of investment to get capital to start some of the funds and to get some of the private finance flowing into these critical areas. Does that make sense?

Senator SINGH: Yes.

CHAIR: If I just go back to 2008 or 2009, when I was a trustee director and chairing the investment committee, one of the problems we had is we knew what we wanted to do but we couldn't get there. In an age where transport workers retire with not a lot of money and invariably are looking for accommodation either in an aged-care facility or in affordable housing, we wanted to invest in that space but we didn't know how to do it, because the sole purpose test, APRA, ASIC and all the education we had at the time didn't allow us to say: 'Why don't we open up an aged-care facility? It's a good investment; plenty of people have done it.' Has that changed in the last seven or eight years?

Mr O'Connor : That understanding of fiduciary duties and the sole purpose has evolved in light of our understanding very clearly that these not only are a good idea and make logical sense, as you've suggested, but also underpin strong investment returns. What has changed largely is that, now we have this pool of $2.6 trillion worth of capital sitting there in superannuation, those capital allocation decisions shape the future that our beneficiaries and members will retire into. If there are no aged-care facilities or if there is growing inequality, high pollution and a warming climate then this is not a quality outcome for our members. The fiduciary duties are about delivering quality outcomes for members, including the size of the financial balance at the point of retirement, but not solely that. I think there's understanding that, to deliver those outcomes, trustees really are required to consider environmental and social elements as much as the financial elements. I think there's been an emerging consensus globally and certainly some updates to law globally, such as the UK pensions law, whereby trustees must consider environmental and social factors as part of their fiduciary duties.

Right now APRA is reviewing SPG 530, which is the governance guideline on trustees' duties, and we've been speaking to them about consideration of this broader concept of fiduciary duties as it's currently evolving. This is very much a moving discussion globally right now, and the outcome is looking to be an understanding that trustees that still deliver on diversity, returns and risk management can indeed deliver on other elements that will deliver for their members. So these kinds of investments, I think, will emerge.

CHAIR: If you were to look at it in terms of the traditional asset allocation of an industry super fund, where we would this investment sit?

Mr O'Connor : From a housing perspective, likely in unlisted or real assets.

CHAIR: Like private equities—in that space?

Mr O'Connor : It could be that, yes. Take HESTA, for example. They have made some investments through an impact investing lens in their unlisted assets class, such as one aged-care facility they've invested in. Cbus, for example, are looking at property investments in their property asset class, and it will compare to that particular asset class from a returns profile and a risk profile.

I think we have found from a portfolio perspective that impact investments, investments that deliver impact, can be quite strong from the broader portfolio perspective, delivering returns and being quite countercyclical to other market changes. There's been some good research around that as well to support these investments.

CHAIR: If you were a member of a superannuation fund, where would you find this, when you're looking at the publication you get, in terms of asset allocation? If you're in a balanced fund, where would you find that you're actually investing in SDG type investments?

Mr O'Connor : It's going to be different for different funds. There could be elements of it in a listed equities component and property elements of it in unlisted assets, alternatives, fixed income. There are increasingly specialised options, ethically or socially responsible options, that will have a higher leaning towards these kinds of investments. But I think increasingly, with the larger super funds, we are seeing this being built into the mainstream default portfolios as part of their asset allocation models, and that will be in different asset classes.

CHAIR: If we were to look at a sharia fund, it would have no sin stocks—no gambling, alcohol or tobacco. Increasingly, a lot of funds are offering that ethical standard. Is there a complementary offering here that's visible to people so they can say, 'I'm into ethical investment and I want to tick this box here'?

Mr O'Connor : That's where the ethical investing options are increasingly heading to—both avoiding harmful industries and trying to gain positive impacts and support more sustainable companies and assets. Often that ethical option now has both the negative screen plus the positive, impactful screens as well. Those options are certainly emerging very strongly. A lot of the major super funds have recently updated their ethical option to include positive investments as well. Also, a lot of the main super funds are including impact as part of their core portfolio. So it's really coming across in both ways.

CHAIR: Why wouldn't I just let the market rip, if it's all clear and above board? Why don't we just let the market take its course?

Mr O'Connor : Because what we're lacking right now is that overarching framework that says: this is where we need to get to, these are some of the gaps in some of the SDG, and, as a nation, how do we work collaboratively to ensure capital is aligned with business and government to hit the targets we're aiming for? Without that overarching blueprint and plan, we're all shooting a little bit blind here. We're doing our best and we're trying to contribute, but we haven't identified that X billion dollars worth of assets are required in this time frame under SDG X, Y or Z. I think that's what's really missing and that's where we can really align and get the biggest bang for our buck with the finance sector, where we have that overarching plan.

CHAIR: What's in it for the federal government to get into this space and lead, as you say?

Mr O'Connor : Effectively, having the capital markets do the heavy lifting on delivering these social and environmental objectives so that we can really be supporting delivering on those. I think what this delivers is a more stable, equitable, fair and prosperous Australia. So it's really a missed opportunity not to be tapping the financial markets in this way.

CHAIR: Well said. Senator Moore.

Senator MOORE: Thank you very much for all your evidence. I know that this is an area that Senator Gallacher has been following up, so I rely on his advice in this space. I am interested, Ms McCutchan, to know about your proposed fund. Have you spoken with any of the departments, particularly DFAT or PM&C, about your proposal?

Ms McCutchan : We have. We've spoken to many departments, because it's a bit of a cross-departmental—

Senator MOORE: Absolutely. Those two are kind of leading our SDG response.

Ms McCutchan : We've definitely spoken to DFAT, and I mentioned the emerging markets' impact investment fund that they’ve put together. That is very similar to what we're trying to do with Impact Capital Australian but smaller and in a developing market context—

Senator MOORE: How much is that?

Ms McCutchan : It's $40 million.

Senator MOORE: And about $110 more million—

Ms McCutchan : We're going for a total of $300 million. The way that we are looking at—

Senator MOORE: That's how good I am at figures.

Ms McCutchan : That's all right. With Impact Capital Australia we're looking at $150 million from the government and $150 million from the major financial institutions. So the idea is that you bring government capital and private capital into the mix immediately.

Senator MOORE: It's a PP— public private.

Ms McCutchan : It's not really a PPP.

Senator MOORE: The white paper says we want to raise money from private enterprise to respond using that kind of—

Ms McCutchan : Yes.

Senator MOORE: So that's the kind of process you're wanting?

Ms McCutchan : The process is basically we raise from both the financial institutions and the government and then effectively we invest in funds—so it's a fund of funds model—across the different SDG and outcome areas. As for the other departments, we've talked to Treasury, we've talked to the Department of Social Services, we've talked to DFAT, we've talked to PM&C, we've talked to Aged Care, we've talked to many—Health, Education—I could go on.

Senator MOORE: To see whether there could be a cumulative response?

Ms McCutchan : The reason we've really landed on Treasury and PM&C—and also we talked to Finance—is because it goes across so many portfolios. This is what is complex about some of these things. We've thought the best thing to do is to go centrally. I should say that we did get something in the budget papers to say that the government would work with us, to try and build scale and impact investing in Australia. But that hasn't really come to fruition.

Senator MOORE: Okay. Was there any discussion—certainly there is the fund that the government has committed to, which is the $40 million, and that was the first time they acted in this space. Would that be an initial contribution, if you were looking at some way of building a process to see whether that would be a start—encouraging matching engagement from private investors?

Ms McCutchan : For Impact Capital Australia?

Senator MOORE: Yes.

Ms McCutchan : No. The theme is very much targeting essentially funds in the international development space that are trying to support social enterprise in that context, and that's—

Senator MOORE: It's a different focus.

Ms McCutchan : Yes. It's a different focus. We do believe that we could do some investment out of Impact Capital Australia into international development, but it would be very small. Most of it would be focused on domestic SDG-related issues.

Senator MOORE: Thank you.

Senator LINES: I have one quick question. I don't think you were here earlier but we heard from the NGO sector, and it seemed that in your opening statement the finance sector has come a long way further with their planning around the SDGs than what the NGO sectors have been able to achieve in the SDG space, if that makes sense. You were, in your opening statement, talking about what financial institutions are planning around the SDGs. I'm wondering why that is. Is it because private capital sees that there's money to be made, to put it in the crudest sense, or is it something else?

Mr O'Connor : I'm just thinking that through. I think maybe from the NGO perspective—I wasn't here and my apologies for not being here, but—

Senator LINES: It's not a criticism. They're trying to achieve the goals, whereas you're—

Mr O'Connor : No, I think you're right. I think, unfortunately, we're not yet achieving the progress against the goals, and capital is aligning to see how it can play a role to do that. But we've not seen that yet translate into improvements against the goals. So possibly that's a bit of a challenge to us to start ensuring that all that activity now moves from mapping these goals to understanding the role finance can play, to actually being accountable for delivering progress on those and then working with the NGOs to identify those. I think that might be just that time lag thing, where, although there's activity there, it hasn’t translated into improved measurement of the goals and performance against the goals.

Senator MOORE: We've had considerable evidence earlier today about the way that, across business and in investment, there has been major uptake and that, if it has been a really positive element in fact. There was some very hopeful evidence given earlier this morning about the private sector engagement and the willingness to move into this space. That's been based very much on the UK which has been moving ahead. There was evidence this morning from Dr Carol Adams about where she's working with the UK and trying to bring that in and finding response in Australia. So I think there is in fact—in certain elements of view—they're wanting to more quickly than our current infrastructure allows. I think that's something we need to keep in mind as well. I was quite impressed.

CHAIR: I think the caveat was, though, was what they referred to as 'greenwashing'.

Senator MOORE: Very much.

CHAIR: Where it looks like a nice sustainable investment but it actually has quite a different objective underneath, and the need to guard against that type of capital being deployed in a green space but not really going towards the goals.

Mr O'Connor : We are very cognisant of greenwashing or impact-washing. As a result we have a number of mechanisms and programs in place to verify the credibility and the true-to-label elements of investment products making claims around this. We run a certification program for investment products that aims to ensure and audits and verifies that products are true to label and delivering on their promise. We think this is critical, at a time like this where there is growing momentum and uptake, to ensure that it is credible. There are clearly market opportunities that will otherwise be exploited.

Senator MOORE: If you get a chance, have a look at the Hansard for Professor Thwaites evidence. He raised that point in particular; we need to have effective standards in place so that there is this common understanding and transparency. That's what you've been giving in your evidence as well.

Ms McCutchan : Yes. Exactly.

Senator MOORE: He made that point very clearly.

Ms McCutchan : Yes.

Mr O'Connor : Okay. I shall.

CHAIR: Excellent. Thanks for your submissions and appearances.

Mr O'Connor : We appreciate the opportunity. Thank you.