Leveraging lessons learned: Canada’s Social Finance commitment takes a page out of everyone’s book
It’s no secret that I’m a proud Canadian. My double life – given an equally passionate connection to the US as a full-time resident – is the fodder for many a-Thanksgiving joke (whether that Thanksgiving is in October or November).
At the start of my career, I was deeply interested in studying the financial implications of development (and dare we say “market-based solutions”) to solving our most complex global challenges. It seemed near impossible that scaling Social Finance would be led by a country of 36 million people. And that this country could set the tone for an institutionalized nation-wide shift towards tri-sector leadership.
Times have changed.
The Government of Canada has diligently been working on developing a point of view in this growing space. In the recently released Fall Economic Statement, that exploration has finally manifested through the establishment of a national Social Finance Fund. The Fund is not the only proof point for the integration of profit and purpose (see the range of recommended commitments in the Fall Statement to build community equity and livelihood, and a down-right unapologetic stake in the ground on bridging the Gender Pay Gap.)
This didn’t happen overnight or in a government silo. Our friends at SVX – and so many other social sector champions across Canada – have been pushing for the creation of a comprehensive strategy for some time.
The resulting recommendations are a clear and simple example of Canada using history as a guide.
The role that government can play in building local Social Finance marketplaces was more systematically explored in 2013, through the establishment of the G8 Task Force on Impact Investing. The committee brought together G7/G8 countries (plus Australia and New Zealand) to discuss the standardization of policy, frameworks, and capital aggregation schemes that will create robust local markets. Today we have over 21 National Advisory Boards (national impact investing taskforces), seemingly networked together to create a systemic answer to “what does it take for social finance to grow across the globe?”
Some of these governments started exploring this work over 100 years ago. Others are still searching for a simple definition. But through these collective journeys we have a laundry list of wins and mis-steps. And that collection of lessons learned have clearly informed Canada’s approach towards a collaborative and comprehensive Social Finance solution.
Here are some of the elements of Canada’s Social Finance commitment that hit the mark:
1. Social Finance in service of an outcome – not the other way around.
The Government of Canada’s intention to explore this approach is clear – “build up communities where individuals still face persistent and complex social challenges.” We wrote about the dangers – and ensuing disappointment – in trying to fit outcomes into pre-selected investment tools (and not the other way around.)
As of 2016, 3.7 million Canadians live in poverty. And the severity of that impoverishment highly discriminates against “single parents, recent immigrants, First Nations living off reserve, and people with disabilities.” The Social Finance Fund, its strategies, and various other policies and activities must stay united in addressing the principle outcome in order for the fund to avoid the chaos of disparate, disjointed, and unrealistic expectations.
2. Celebrating – and learning from – the innovative leadership of the non-profit and social sector.
Far too often we idolize the role that the private sector plays. Though a critical and necessary part of creating a sustainable market, the private sector doesn’t have a monopoly on innovation. In the Canadian context, the social sector has been a leader in exploring Social Finance strategies. We’ve already mentioned SVX’s catalytic role in designing an investment marketplace and aggregating capital-raising and investment making efforts. Vancity – a “values-based” financial cooperative – has been around since the 1940s and one of the earliest Canadian financial entities that signed on to the Global Alliance for Banking Values (in 2010). Today, it has over 520 thousand members and $26.4bn assets under management.
The McConnell Foundation – a private foundation that “supports Canadians in building a more inclusive, innovative, sustainable and resilient society”- has been hard at work to make impact investing (a Social Finance strategy) the norm. By using Mission Related Investments (MRIs) and Program Related Investments (PRIs), McConnell actively deploys multiple types of assets towards their charitable mission – truly utilizing every tool in their toolbox. These investments are concentrated across multiple themes, with a dedicated internal target of allocating 10% of total assets into impact investing. Their leadership position has set the tone not just for private philanthropy, but a cadre of institutional investors and asset owners.
3 . Getting the definition right.
There’s no skirting this issue. A passive social finance definition, lack of definition, or a definition that includes everything and nothing, does us no favors. The Fall Commitment is explicit – “Social Finance refers to the practice of making investments intended to create social or environmental impact, in addition to financial returns.” It may seem like a simple and obvious step, but that dual intentionality – made explicitly – is a key part of what holds both investors and recipients of capital responsible for creating truly impactful market-based solutions.
“Social Finance refers to the practice of making investments intended to create social or environmental impact, in addition to financial returns.“
4. Starting with exploration and concretely moving towards activation.
In Canada, the Social Finance journey has been simmering in the background, finding dedicated footing in 2017 when the Government created the “Social Innovation and Social Finance Strategy Co-Creation Steering Group.” The group was a blend of actors across the social and non-profit sector, tasked with recommending exactly what they needed to increase the scale and scope of their work. Those recommendations were captured in an August 2018 report, “Inclusive innovation: New Ideas and New Partnerships for Stronger Communities.” The creation of the Social Finance Fund was one of the levers outlined in the report to help close the capital financing gap faced by organizations that deliver these impact outcomes.
Likewise, in the UK, US, and Australian contexts, targeted and tangible recommendations were a big part of national Social Finance adoption:
- In the U.S., the release of the 2014 report, “Private Capital, Public Good,” specifically detailed 5 urgent recommendations to scale Social Finance. They included policy and legislative updates, increased government effectiveness, incentives for private investors, demand-side entrepreneurial support and standardization of metrics. Since the report launch, at least 3 of these recommendations have been specifically addressed, through the passing of various ERISA-related legislative guidelines, Opportunity Zone tax benefits for accredited investors, and the ambitious impact management collaboration that is the Impact Management Project.
- In the UK, the 2017 report entitled “The Rise of Impact,” similarly focuses on 5 recommendations for Social Finance. Those recommendations focus on the ability of savers and borrowers to align their money with their values, imbed purpose into the public procurement process, align global assets with the Sustainable Development Goals (SDGs), help businesses articulate and program towards their social purpose, and strengthen the role that UK investors play in development finance. Again, many of these recommendations proved a critical starting point for national adoption, evidenced by a deeper discussion around impact investing at the CDC Group, a rise in values-based savings and investment platforms for non-accredited investors in the UK, and a new era of alertness and engagement by pensions across the region.
Recommendations help. They get the ball rolling and create accountability on the part of market-builders.
5. Go big or go home.
The Social Finance Fund commitment is no small adventure. The proposal is to make available $755M CAD over the next 10 years. In addition, the Government proposes another $50M CAD over two years to help scale up social impact intermediaries that need growth and operating capital to be a productive part of the system (through the Investment and Readiness Stream.) The hope is that over the course of the Fund, over $2B in ancillary economic activity can be generated, along with the creation and maintenance of as many as 100,000 new jobs.
Though in many other countries private sector funds have piled on top of government-allocated money to create sizable assets under management, Canada’s government commitment is one of the largest. In the US, a $300M incentive fund was proposed as a part of the FY2014 budget to help backstop state-based obligations to implement Pay for Success projects (though $2.5Bn in additional commitments were pledged by private companies, funds, and philanthropies in partnership with the White House Office of Social Innovation and Duke University.)
The private sector will come, but a strong government commitment has a strong signaling effect.
The Fall Economic statement certainly inspires confidence that a double bottom line approach to national growth is in the air. The Social Finance Fund is not the only effort in statement that reflects this.
The Statement also outlines other values-aligned overhauls, including:
- A 10-year, $13.2B National Housing Co-Investment Fund, which will provide low-cost loans and financial contributions to support and develop mixed-income, mixed-tenure and mixed-use affordable housing.
- A 2016 commitment of $14.4B in investments focused on the rehabilitation, repair and modernization of existing infrastructure (with a particular focus on addressing poor broadband and transportation access, two issues identified as massive contributors to economic disparity in the forthcoming century.)
- A Women’s Entrepreneurship Strategy designed to help women entrepreneurs grow their businesses with greater access to capital, training, networking and expertise (leading to a more productive workforce and the creation of jobs through the entrepreneurial ecosystem)
- And a $107.4M commitment to preserving and renewing fish stocks to sustain our oceans
No economic strategy, investment strategy, or nation-wide plan for equality and prosperity is ever perfect. And the Canadian experiment will inevitably face challenges. But by learning from the successes and failures of our neighbors to the South and the East, they will hopefully be new challenges. Different challenges. Challenges that illuminate more about the road ahead by expanding our own understanding of social finance market development and identifying new opportunities to collaborate.
Only with continued intentionality and transparency in do we have an opportunity to scale and grow Social Finance in a truly holistic and sustainable way.
Written by: Rehana Nathoo
Rehana Nathoo is the Founder and CEO of Spectrum Impact, a strategy consulting company that supports a range of organizations, funds, and families that are looking to expand their impact investing footprint. Prior to this, Rehana led the impact investing portfolio at the Case Foundation and worked with Bank of New York Mellon to create a pilot impact investment fund, while also working with their wealth management team on impact-related strategies. She led grantmaking at the Rockefeller Foundation related to impact investing and spent the 2 years prior to that focused on project finance in East Africa with the UN Capital Development Fund. Rehana currently serves an adjunct professor at Georgetown’s Walsh School on impact investing and global development.
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