Free market strategy to solve societal problems

JC Impact InvestingPeople seem to have lost faith in both the free market and in government. Capitalism and investing are now pejorative terms, while the government is increasingly seen as unable to balance its budget — and as wasting taxpayer money on poorly-judged strategies.

However, in the post-GFC environment — with a strong focus on the risk-and-return matrix and corporate reputation threats — there is increasing interest in social impact investing. This is a strategy that could both restore faith in a capital free market economy and prevent excessive government waste on social programs and infrastructure.

Impact investing offers opportunities for investors with a commitment to social responsibility to invest in solutions to entrenched societal problems for both capital and social impact returns. It applies well-designed solutions to problems such as overcrowded social housing and employment programs for at-risk populations — and could revolutionise results for disadvantaged Aboriginal and Torres Strait Islander communities. It harnesses the speed and efficiency of capital markets and, at the same time, prevents wasteful government spending.

Governments appear to be inept at solving social problems — and waste a substantial amount of money in their failed attempts to do so. For those of us who do not want our taxpayer contributions to be wasted, this is a huge concern.

If a company ran a business like this, it would go bankrupt and find itself without investors or customers. In contrast with government funding, impact investing — by its very nature — must have a strong level of rigour and stability.

Spending without a clear plan and framework will always fail. It fails in both the corporate sector and the government sector. Welfare does not assist communities or individuals to propel them out of poverty. Rather, it creates a sense of lethargy and hopelessness.

But using the approach of the capital markets through impact investing, we can create the rapid change needed to build a better world.

Josephine Cashman is a Worimi entrepreneur, lawyer, businesswoman and social entrepreneur.  She is also the founder of the Big River Impact Foundation, Big River Impact Investments Pty Ltd and Riverview Global Partners Pty Ltd. She will deliver a speech on Impact Investing: Harnessing Capital Markets to Solve Societal Problems at CIS on October 25.