
A national blueprint for Australia’s not for profit (NFP) sector has been released for consultation by the Blueprint Expert Reference Group (BERG). It hopes to chart a better future for the Australian NFP and charities sector, including “a suite of sector-led workable and effective options for reform”.
Among the blueprint report’s themes for reform are outcomes-based funding and reporting for government programs and social impact investments. All this will, however, require new nonprofit skills and capabilities. And funding.
Government funding contributes over 51% of NFP revenue; yet, only 45% of the sector actually receives government funding.
Despite the crucial role NFPs play, the report says cost-shifting (government funding cuts) and underfunding (failing to fund both direct and indirect costs) remain a key issue. BERG notes that over 60% of sector respondents report insufficient coverage of their full costs, with some government agencies capping funding of indirect costs as low as 7%.
Short-term government contracts and grants also pose challenges for NFPs in maintaining continuity of services and support for staff development. Similarly, competitive tendering, intended to deliver cost efficiency, can undermine the long-term benefits of collaboration and the operational efficiencies created by shared knowledge and best practices.
According to the report, the NFP sector is experiencing a shift towards outcomes-based funding from government. Yet, only 38% of NFP organisations collect any kind of outcomes data (Institute of Community Directors Australia 2019).
Social impact investing (SII) is identified as a niche but interesting and evolving area. SII investments include social impact bonds, payment by outcomes-based contracts, and layered or ‘blended’ financial products, which combine grants, donations, loans and/or investments.
While the SII market in Australia is modest, BERG says the Australian Government is trying to stimulate the market through the $100 million Outcomes Fund. This includes paying for programs based on actual results in areas like homelessness, health, and unemployment. Or issuing low interest bonds, which forgo higher returns, to help NFPs scale their impact.
In the 2021 ACNC reporting period, (mostly large) charities reported over $422 billion in assets; a significant increase from the previous period. The rise is partly attributed to the property bubble, however BERG notes it is difficult to leverage the value of those assets effectively in pursuit of their mission.
Some nonprofits are exploring social impact investing models. For example, Save the Children’s Impact Investment Fund raises capital from investors and provides loans and equity investments to help grow start-ups and social enterprises that align with their mission.
Challenges identified for SII include mixed evidence of effectiveness and the need for new capabilities to measure and track impacts.
The Blueprint Issues Paper is available on DSS Engage and is open for public submissions and feedback until 20 December 2023. Responses received will shape the final NFP Blueprint before it is submitted to the Government. A copy of better charity’s brief submission is available here.
Outcomes-based funding for programs clearly has the potential to unlock innovation and scale social and environmental impact. Yet the outcome agenda associated with government funding and SII demands new capabilities, systems, resources and … funding to define, measure and track impacts. This is a shared responsibility in which government will need to play a real leadership role.