Ursula Stephens (NSW, Australian Labor Party) Share this | Link to this | Hansard source

I rise to take note of the Economics References Committee Report Investing for good: The development of a capital market for the not-for-profit sector in Australia. This is a long-awaited report and is the culmina­tion of a very important piece of work by the Economics References Committee. It builds on the work that the Senate and the Product­ivity Commission have been doing. The Productivity Commission, in its 2010 report, The contribution of the not-for-profit sector, observed that there is a need to develop a sustainable primary market for not-for-profit debt in Australia. The Productivity Commi­ssion considered that a lack of access to capital for not-for-profit organisations could be due to concerns that not-for-profits are unable to service debt, the high costs for specialist financial intermediaries to provide capital, and the 'still young market' for capital that accepts returns in social as well as financial benefits. In policy terms these days that is called the 'social return on investment' in understanding of that issue.

The Productivity Commission argued the need for change in all three areas but noted that the Australian government has limited experience in this area. Accordingly, the Productivity Commission recommended that the federal government should establish an advisory panel to consider options and assess progress in developing a sustainable market for not-for-profit organisation debt products. Whereas the Productivity Commission actua­lly considered these issues only in passing, this inquiry focused on the barriers and the options available to develop a mature capital market for the social economy sector in Australia.

The committee found that some of these constraints reflect on not-for-profits themsel­ves. They lack a steady revenue stream to attract investment and the collateral to guarantee loans, they remain grant focused and risk averse to debt and equity capital, and they often lack the capacity and the organisational structure to raise equity capital. Other constraints to not-for-profit organisations accessing debt and equity capital reflect the limitations of mainstream financial institutions. Many are unaware of the needs of not-for-profit organisations, while others are dissuaded by the large transaction costs relative to the capital required by these organisations. As well, the market has been stymied to some degree by the lack of an enabling regulatory environ­ment and, in particular, the lack of targeted incentives for financial intermediaries.

The committee's main recommendation was that there is a clear need for strategic direction to coordinate the opportunities for not-for-profit organisations to access capital in Australia. Currently, these needs are not coordinated and, as a result, many of the potential benefits for both not-for-profits organisations and investors are not realised. So the central recommendation of the report is that a social finance task force should be established; that the task force must have a high-level advisory role, similar to that which has operated successfully in the United Kingdom and Canada; and that the task force should identify and publicise opportunities for not-for-profit organisations and the investment community to collaborate and shape a policy framework to develop a capital market for the not-for-profit sector.

The committee recommended that the task force should be composed of high-profile and influential members from the mainstre­am finance sector and include some commu­nity development finance institutions—CDFIs, the superannuation industry, the philanthrpy, the not-for-profit sector itself, and academia. It should also have represent­atives from the departments of Treasury, Prime Minister and Cabinet, and Finance and Deregulation. The committee emphasised that the task force must be separate from the current arrangements that are in place to establish the Australian Charities and Not-for-Profits Commission, the ACNC, and the work of the Office for the Not-for-Profit Sector and the Not-for-Profit Sector Reform Council. The committee believed that only as a separate body will social finance issues receive the prominence and the attention that they have lacked in the past.

The committee was very encouraged that key stakeholders support the idea of a task force. Most notably, during the course of this inquiry, the Community Council for Austra­lia, the CCA, convened a roundtable of 15 social finance experts which commen­ded a task force. The CCA envisaged that the task force should build on the work of this inquiry and provide recommendations to the government on the capacity of the sector, its access to capital, enhancing the role of intermediaries and simplifying the sector's legislation and regulations.

Before I move on to some of the recommendations in the report, I want to express my thanks and appreciation to the secretariat and to those who were involved in what was a very long and protracted investi­gation. As well as those who made submiss­ions, there were many other people from within the sector and particularly from the finance sector who took the time to participate in roundtables, to make submiss­ions and to come back after our hearings and provide additional information. The genero­sity of the witnesses in doing that is to be commended. We really did appreciate it.

During the inquiry we saw very practical examples of the impact of lack of access to capital on very important areas that are challenging to us all—challenges in the aged-care sector, around social housing, the NRAS, around disability—and how this whole connection of social capital will actually intersect with what is envisaged under the National Disability Insurance Scheme. There are extraordinary crossovers in the challenges that are being confronted by us all, and we heard very important evidence about what we might be able to do in terms of improving access to capital and equity funds for not-for-profits.

One of the things that we understood from this inquiry is that not-for-profit organisa­tions reliant on grant capital and donations are often risk-averse to debt and equity capital. They often prioritise resources directly towards their social mission rather than developing the financial literacy and organisational capacity necessary for long-term sustainability. I think we saw very strong evidence of that during the global financial crisis, when the government had to step in and provide significant funds to major organisations around Australia because their long-term sustainability was desperately challenged.

So the recommendations of the report go to some key points. As I say, the central one is around creating a social finance task force. We initially recommended that the task force report to government by July 2012, so I think it is imperative that the government respond quickly to that recommendation and try to get this in place as soon as possible. Import­antly, we recommended that that social finance task force consider the potential for philanthropic trusts and foundations to invest a percentage of their corpus in social investment options, and particularly whether or not that could actually be a requirement, developing social investment vehicles for philanthropic intermediary organisations, and other kinds of mechanisms that could be put in place to enhance philanthropic enga­gement with the sector. We also recommend­ed educating financial and corporate stake­holders about investing in social organisa­tions in ways that they would not, perhaps, have understood before; promoting social investment products; and looking at what kinds of new debt instruments, equity-type investments and long-term patient finance could be put in place. The development of those kinds of products reflects a diversity among not-for-profit organisations and would allow them to access capital on a much more consistent and equitable basis.

We received quite a lot of information and submissions around the issue of social impact bonds, and we think that there is an opportunity to look closely at those as a mechanism. They are sometimes called 'pay for success' financial models and they are being trialled in New South Wales at the moment, so we will be following that closely. Strengthening social enterprises is a way in which we can foster a number of innovative approaches to targeting social issues, so that is another recommendation that is in the report. We commend the report to you all, and most importantly the recommendation around developing a measurement framework. I said at the beginning of my remarks that the issue of the social return on investment and how you can articulate and measure that is critically important. I seek leave to continue my remarks later.

Leave granted; debate adjourned.