A new report has revealed that Australian trusts and foundations have put an estimated $100 million into higher-risk, impact focused investments over the past three years. This use of catalytic capital highlights significant untapped potential across the nation’s $50 billion philanthropic endowment pool to unlock social and environmental returns.
The report by GoodWolf Partners, Unlocking catalytic capital in Australia, highlights that while a small group of philanthropic organisations have driven most of the catalytic investment so far, momentum and opportunity for growth is rapidly building and deployment of catalytic capital will help unlock wider activity in impact investing.
Catalytic capital is defined in this report as ‘as debt, equity, guarantees and other investments that accept disproportionate risk and/or concessionary returns relative to conventional investment in order to generate positive social and environmental impact and enable third-party investment that would not otherwise be possible’. It is critical to the impact investing market, doing what conventional capital often cannot do alone: taking early risk, offering flexibility, proving new models, building confidence and enabling other capital to follow.
The report, commissioned by the Paul Ramsay Foundation (PRF), draws on existing known figures, other market reviews, interviews with sector experts, and analysis of the Australian Charities and Not-for-profits Commission (ACNC) database. It also includes a survey of a purposeful sample of known and plausible sector participants, including philanthropic foundations, family offices, government funds, corporates, fund managers, intermediaries and advisors.
Among the key findings:
- Of the survey respondents, 75% said they plan to increase their use of catalytic capital in the next three years, each citing they expect to deploy between $5 million to $20 million of catalytic capital by 2029.
- Almost all (95%) said helping build a track record was the dominant role of their catalytic capital, reflecting its ability to de-risk early-stage investments and unlock follow-on capital from conventional investors. Leveraging additional investment and facilitating innovation were the other major roles identified.
- Internal policies and mandates are the most cited barrier to deploying more catalytic capital, ahead of a lack of suitable investment opportunities.
Lead authors Nina Yousefpour and Loretta Bolotin from GoodWolf said the report provided the most detailed picture yet of Australian philanthropy deploying catalytic capital.
“The opportunity now is to move from isolated examples to a more concerted market-building effort,” said Nina. “This will require clearer language, better data, greater intermediary capability and capacity, and more confident investors and investment committees. There is also an opportunity for active government leadership and market shaping through policy settings, risk-sharing, capacity building and infrastructure.
“It’s important to note that this research has only counted capital from philanthropic trusts and foundations. Catalytic capital deployed by government, institutional and corporate actors sits outside this estimate, so the true opportunity is considerably larger.”
The report shows how catalytic capital can unlock investment for opportunities that are early, more complex, small or uncertain for conventional finance. It may also include balance sheet support, guarantees or underwriting arrangements where capital does not necessarily follow immediately; catalytic roles are often played through confidence-building, underwriting, sequencing or risk-sharing rather than a direct concessional investment alone.
PRF’s Director, Investment and Impact Capital, Ben Smith, said the findings pointed to a clear opportunity to move the market beyond isolated examples.
“Many sectors such as those involving First Nations enterprise and services for other communities remain materially underserved, or even starved, by capital markets,” said Ben. “Access to grants and subsidies remains fundamental to many of the impact-driven organisations working in these spaces, but grants alone will not meet their capital requirements.”
Catalytic capital can be the 'first dollar in' that unlocks more external capital by being willing to take a disproportionate amount of risk or accept below-market financial returns in order to de-risk an investment for subsequent, more traditional investors. This is essential for tackling high-impact, systemic issues where traditional market capital is hesitant.
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Sign up to our webinar to hear more about the research, September 16 at 12pm – 1pm.
Register at https://events.humanitix.com/catalytic-capital-report-launch
View the full report here.
Contact details:
Pia - 0412 346 746