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On 10 April 1997, a movie filmed in 11 days with a budget of $750,000 was released – somewhat optimistically hoping section 51(xxxi) of the Australian Constitution could be the basis of a hit. Once the credits left the silver screen, such optimism was answered. The Castle (dir. Rob Sitch, Australia, 1997) had grossed over $10.3 million and, all the more memorably, enshrined compulsory acquisition into Australian lore.
Compulsory acquisition – or as referred to in other jurisdictions, eminent domain – refers to the process by which the government can acquire or expropriate private property by providing appropriate compensation. In simple terms, if the government wants your house, they can have it – for some price.
Symptomatically, compulsory acquisition often gets a bad rap. Governments are perceived as ‘bullies’ – looking to take advantage of the difference in bargaining power. Yet landowners are protected, at least on the surface, by statute. In NSW, section 54 of the Land Acquisition (Just Terms Compensation) Act 1991 entitles a person to ‘just compensation.’ Section 55 of the Act then contains mandatory considerations in calculating such compensation – including, but not limited to, the land’s market value, any special value to the occupier, any loss attributable to disturbance, and any disadvantage resulting from relocation.
With an appropriate price statutorily required, and governments often invoking compulsory acquisition for the purpose of public projects seeking to enrich citizens’ quality of life, it may be posed: can the government’s compulsory acquisition of land be considered impact investing?
Answering this question requires answering an anterior one – what is impact investing? While another SUIIS article addresses this very topic, its crux is simple. Impact investing involves turning a profit from an investment that simultaneously fosters a social good. It requires investors to look beyond the goal of maximising financial returns at all costs, seeking to incorporate socially responsible considerations into their capital decisions. Does the government’s practice of compulsorily acquiring land fit such a mould?
Let us take Sydney Metro as a case study. Sydney Metro is a NSW government agency tasked with, amongst other things, providing metropolitan rail services across Sydney. Reports from the Audit Office of NSW note that between early 2020 and mid-2022, Sydney Metro ‘spent’ over $2 billion in acquiring 511 private properties – 30% of which were zoned as residential dwellings. This expenditure, this investment, is – at least when analysed through a holistic lens – fostering the social good of maintaining and improving metropolitan rail services for Greater Sydney.
However, you may have already realised the problem with trying to fit the government within our loose definition of impact investing. Governments don’t exist to turn profits. They commonly embark on infrastructure developments through public-private partnerships (PPPs) – engaging private-sector companies to finance, build, and operate projects, and offering them various benefits as consideration. The Sydney Light Rail is evidence of such, where Spanish multinational Acciona formed the ALTRAC consortium with the NSW government.
But should the government’s lack of profit pursuance prevent categorising them as an ‘impact investor’? While the definition offered earlier in this article denotes an answer of yes, could looser formulations lead to a different answer?
For example, the Global Impact Investing Network (GIIN) – an organisation internationally recognised by the likes of USAID and Australia’s Department of Foreign Affairs and Trade – stipulates that a core element of impact investing is to “generate a financial return on capital, or, at a minimum, a return of capital.” This is both lexically and practically broader - including investments that break-even (that is, where no money is made or lost).
However, such width is still likely not enough to subsume the government as an entity - if we treat them as the sum of the projects they undertake. While there may be the rare scenario in which a government compulsory acquisition project does meet the aforementioned criterion, the vast majority simply won’t.
Ultimately, this means that despite their contribution to public utility, rendering the government’s compulsory acquisition as impact investing would be a fiction. A fiction that would require both a divergence from fundamental impact investing principles, and, much like The Castle, the massaging of many legal realities for the sake of audience appeal.
