Charities transform business models, raise capital through impact investment

Impact investing is gaining traction globally in the effort to finance solutions to intractable social and environmental problems, and the not for profit world is stepping into the mix.

Last year Save the Children launched the world’s first impact investment fund run by a charity, and this week the Minderoo Foundation announced its own $100 million female-led strategic impact fund.

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Charities are increasingly recognising the $2.5 trillion annual gap in capital to meet the UN’s Sustainable Development Goals and are looking to innovative finance solutions to meet this need.

Digital Nation Australia spoke to Paul Ronalds, CEO of Save the Children and global sponsor of the organisation’s transformation agenda about how the business model of charities is changing.

“We were increasingly frustrated about being held back from being able to really have a step up in impact because we couldn't access the capital that we needed. So we said, ‘Well, if I was back in the for-profit world where I started my career, we would have raised a large capital round. Let's see if we can do that as a charity’,” says Ronalds.

The fund was established to meet Save the Children’s three key pillars, being that no child under five dies of preventable causes, that every child gets access to quality education and that no child is subject to violence. According to Ronalds the fund is investing in digital and data led businesses that are focusing on addressing these particular goals.

“We're looking at things like impact investment funds where we can look for the latest digital start-ups that are focused around Save the Children's mission, education, health, fintech, whatever it might be. We’re looking at loan funds, that might, for example, allow us to respond much faster in a humanitarian crisis, and then backfill those funds once donors get around to providing us with financial support, looking at carbon and biodiversity credits, that's a really interesting space, I think, new insurance products,” says Ronalds.

The organisation is using not-for-profit charitable legal vehicles as well as for-profit legal vehicles says Ronalds, with more on the horizon.

“There's a whole raft of these innovative finance options that to date most not-for-profits, haven't really engaged with, but there is a wonderful opportunity.”

Minderoo’s Strategic Impact Fund, championed by co-chair Nicola Forrest has in the last month made six investments valued at more than $20 million, the organisation says, with focus areas including modern slavery, sustainable oceans and circular plastics solutions.

According to Felicity Gooding, Minderoo Foundation Deputy CEO, “The Strategic Impact Fund unlocks the power of Minderoo’s corpus to drive a measurable contribution to Minderoo Foundation’s goals while generating a sustainable risk-adjusted return. We invest in scalable, for-purpose businesses that are led by strong management teams who are committed to impact.”

“All investees are required to regularly report on impact metrics that align to the Foundations goals. In some instances, our returns are even contingent on social outcomes being delivered.”

According to a Minderoo spokesperson, the Australian impact investment market is projected to grow to $100 billion over the next five years.