social finance: its promise and its challenges

Its Promise and Its Challenges

Tim Draimin !Executive Director!

Social Innovation Generation (SiG)

April 7th, 2011!

Social Finance Experts !Speaker Series @ Rotman!

 National initiative of four nodes across the country!–  Tim Draimin, National Executive Director!

•  Tim Brodhead, Stephen Huddart, McConnell Foundation - founder •  Frances Westley, University of Waterloo •  Al Etmanski, PLAN Institute •  Allyson Hewitt, MaRS

 The primary aim of SiG is to encourage effective methods of addressing persistent social + ecological problems on a national scale !

 SiG convened the Canadian Task Force on Social Finance recognizing social finance as a social innovation and an indispensable vehicle for scaling social innovation!

Social Innovation Generation!

Social Innovation!Problems!

Traditional problem solving!

Growing solutions delivery gap!

Getting Out in Front

Who is the non-profit sector?

161,000 registered

Chari0es and

not-‐for-‐profit

Organiza0ons

2M employees (7.2% of Canada’s labour force)

$146.6B (2005) in revenues; larger than the retail and automo0ve sectors

Cross-sector Partnerships

“There is growing understanding that many of our largest social and economic challenges cannot be addressed by government alone nor, for that matter, by business or community organizations by themselves.”!

Tim Brodhead!President, J.W.McConnell Family Foundation!

The need to !innovate!

The collaboration !imperative!

Building an innovative !mindset & culture!

 System doesnʼt value social innovation, actively discourages it! Non-profit (NP) income model broken! NP funders & regulators are risk averse, leaving little room for experimentation and failure! Proven social innovations struggle to be recognized and go to scale (NP & FP)! Corporates not yet embracing blended & shared value approach!

Barriers to Social Innovation

 Donations, Grants, Contributions (Gs&Cs) to non-profits under duress!

 Demand for social services is increasing!

 Social problems becoming more complex!

Traditional Funding for Not-For-Profits Under Pressure

IMAGINE CANADA reports that…”governments are

cutting spending to reduce their deficits. The March 22,

2011 federal budget proposed to reduce department spending by

at least $4 billion per year by 2014-15 and many provinces are

also anticipating or announcing cutbacks.”

“Charities and non-profits rely on three core sources of revenue: government funding, philanthropy, and earned income.

Of these, only earned income offers any prospect for growth over the long-term.”

Earned income up 17% from ’05 to ’08

11!

Social finance is an investment approach to solve social or environmental challenges while generating financial return. This includes investments that range from producing a return of principal capital to offering market-rate or even market-beating financial returns. Social finance encourages positive social or environmental solutions at a scale that neither purely philanthropic supports nor traditional investment can reach.

social finance [soh-shuhl fi-nans, fahy-nans], n.; synonym: impact investing

o Non-profits diversifying revenue!

o Government changing approach: commission outcomes vs. providing services !

o Shift from measuring outputs to outcomes; new focus on metrics!

The need to innovate: New models evolving

Peter Drucker, Management Seer

We know that social-sector organizations need management. But what precisely management means for the social-sector organization is just beginning to be studied. With respect to the management of the nonprofit organization we are in many ways pretty much where we were fifty or sixty years ago with respect to the management of the business enterprise: the work is only beginning. (Emphasis added)

The Atlantic Monthly; November, 1994; The Age of Social Transformation; Volume 274, No. 5; pages 53-80.

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Source: Adapted from Charities Aid Foundation (CAF) Venturesome, “Financing Big Society: Why social investment matters” (2010).

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Social finance approaches seek to support a spectrum of organizational business models !

Social & Financial Return Continuum

Shifting Values / Growing Awareness

People seeking profit and social purpose !Shareholders raising the bar !“Shared Value” gaining recognition!Philanthropic model fundamentally changing !

Only if business learns how to convert the major social challenges facing developed societies today into novel and profitable business opportunities can we hope to surmount these challenges in the future. Government, the agency looked to in recent decades to solve these problems, cannot be depended on. The demands on government are increasingly outrunning the resources it can realistically hope to raise through taxes. Social needs can be solved only if their solution in itself creates new capital, profits, that can then be tapped to initiate the solution for new social needs.

— The Frontiers of Management (1986)

Peter Drucker, Visionary

J.P. Morgan Releases First US Report on Impact Investing

November 2010 “…increasing numbers of investors rejecting the notion that they face a binary choice between investing for maximum risk-adjusted returns or donating for social purpose…” “…impact investments are emerging as an alternative asset class…”

10-year profit potential… $667bn*

Ronald Cohen’s Social Investment Task Force 2000-to-2010

UNITED KINGDOM

NEW UK ANNOUNCEMENT

BY PRIME MINISTER DAVID CAMERON

February 2011

Mobilizing Private Capital for Public Good!Canadian Task Force on Social Finance!

Social Finance !The Task Force on Social Finance was conceived by Social

Innovation Generation (SiG) to identify opportunities to mobilize private capital for public good, within either non-

profit or for-profit enterprises.

Canada’s ability to conceive, build and scale social innovations will require more capital than available through

philanthropy and government. Canada’s emerging social finance marketplace will allow public and philanthropic capital to leverage significantly more private capital to

achieve long-term benefits for Canadians.

Katherine Fulton, November 2010

Mobilizing Private Capital for Public Good

Canadian Task Force on Social Finance

“one of the great social innovations of the early 21st C” *

“Our Government will take steps to support communities in their efforts to tackle local

challenges. It will look to innovative charities and forward-thinking private-sector companies

to partner on new approaches to !many social challenges.”!

—2010 Federal Speech from the Throne!



“It is this notion of making it financially attractive to solve social issues... [that] is

intriguing a growing number of institutional investors globally.”!

An Overview of Impact Investing!Phillips, Hager & North!

Nov. 2010!



Task Force Members!

Ilse Treurnicht

Tim Brodhead

Sam Duboc

Stanley Hartt

Tim Jackson

Rt. Hon. Paul Martin

Nancy Neamtan

Reeta Roy

Tamara Vrooman

Bill Young

Definition: social finance !(or impact investing) !

Actively placing capital in businesses and funds that generate social and/or

environmental good and (at least) a nominal principal to the investor. !

Impact investors seek to harness market mechanisms to create social or

environmental impact.!



Task Force addressed 3 challenges !1. Capital Mobilization!

2.  Enabling tax & regulatory environment !

3.  Investment pipeline!



1!Mobilizing Private Capital for Public Good


Social Finance at work!

Mobilizing Private Capital for Public Good Canadian Task Force on Social Finance

What is an example of MRI?

The investment committee of a Canadian family foundation decided to provide a loan from its endowment capital to help a local non-profit purchase a LEED certified office building in the area in which they provide services. The loan is for $3M over 10 years at an interest rate of 6.5%.

1!



What do we mean by Social Investment Funds? Social Investment Funds channel capital to organizations and individuals that have historically struggled to access mainstream finance.

  Réseau d’investissement social du Québec was created in 1997 with matching contributions from the Quebec government and the private sector. It has since invested $11.6M in 292 social enterprises, leveraging over $147M in total investment.

 Renewal Partners, a Vancouver- based, private investment fund focused on social purpose businesses and real estate.

 The Cape Fund, a $50M private investment fund with a strong degree of Aboriginal involvement and connection to Aboriginal communities

2!

Investing with a Social Bonus How large can the Impact Investing market grow to be?!

Monitor Consulting Opportunity (2008)!

Hope Consulting US Market (2010)!

What is the opportunity in Canada? $30 B

Impact Investing!

Impact Investing in Canada & Abroad

Financial First Investments Impact First Investments

CANADA

INTERNATIONAL

Growing number of examples, but nascent; the total pool of capital is still small

Social Impact Bond



Some examples include:

  Community Bonds. The Centre for Social Innovation in Toronto raised $1.7M for the purchase and renovation of its new building. Toronto Community Housing raised a $450M bond for the revitalization of Regent Park

  Impact Investing Note. The Ottawa Community Loan Fund is developing a note aimed at raising $10M for investment in affordable housing and social enterprise

  Social Impact Bonds. A pilot underway in the UK and the US announced a $7M SIB project.

  Green Bonds. Similar to a Community Bond but for the renewable energy sector. $2.2B US Clean Renewable Energy Bond, $1B Work Bank Green Fund and $1.5 European Investment Bank Climate Awareness Bond

3!

Centre for Social Innovation (CSI): $1.8M bond issue for the acquisition and re-development of new facility.

Social Impact Bonds A promising new financing model to accelerate social innovation and improve government performance



PSAC Staff Pension Fund investment in Affordable Housing

In 2007 the Public Service Alliance of Canada (PSAC), Canada’s largest federal public service workers’ union, made a $2M investment in affordable housing in Ottawa. The first arrangement of its kind, the investment was made through an innovative partnership with Alterna Savings Credit Union, the Ottawa Community Loan Fund (OCLF),

4!



5!  BC   Ontario   Quebec   Nova Scotia

Are taking steps to explore ways to modernize regulatory frameworks that will encourage and streamline social enterprise activity.

Mowat Centre Recommendations:

“Federal and provincial-territorial governments should embrace the sustainability of Canada’s non-profit sector as an explicit policy goal and address problems in the current policy and regulatory frameworks governing the sector that are barriers to this.”

“The federal government should undertake changes to the Income Tax Act…to allow charities and non-profits more flexibility…to allow enterprising activity as long as all proceeds are directed to fulfillment of the organization’s mission.”



6!



6!The Nova Scotia Equity Tax Credit (ETC)

Designed for local small businesses, co-operatives, and Community Economic Development Investment Funds (CEDIFs), to address the fact that most RRSP investments were being made in out-of-province businesses. Ten years into the program, 48 CEDIFs are operating in Nova Scotia, with over 4,800 community investors providing $32M in 90 offerings. Nearly all investors are residents of the communities in which the businesses are operating and expanding local employment opportunities.



7!Technical and Advisory Supports in Canada:   Enterprising Non-profits   Capacity Waterloo Region   MaRS Discovery District   BC Centre for Social Enterprise   The Centre for Social Innovation   Academic support systems, plus

  Opening access to Canada’s SME support structures


Canadian Task Force on Social Finance Policy Updates

www.sigeneration.ca

www.socialfinance.ca/taskforce

social finance: its promise and its challenges

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