The Sector

The Landscape for Social Impact Investing – a White Paper

Excerpt taken from the full report, available here: https://thesectorinc.ca/wp-content/uploads/attachments/The-Landscape-for-Social-Impact-Investing-a-White-Paper-Links.pdf

Introduction:

“Opportunity for Impact Impact investing is a term that has recently been introduced into the investment community. It describes a range of finance and investment approaches that have the goal of generating both financial return and benefit to society. In the past five years, the impact investing industry has grown tremendously. In 2010, global assets under management in impact investing were estimated to be approximately $50 billion and are expected to reach at least $400 billion by 2020 (Source: Ibid).”

“The impact investing market in Canada is taking root and poised for significant growth in the coming years, with promising signs for new opportunities. In mid-2012, TD commissioned a team from Purpose Capital and the MaRS Centre for Impact Investing to develop a white paper on the subject to provide investors with a summary of the key trends, issues, and opportunities around impact investing (Source: Ibid).”

What is Impact Investing?

A relatively new term, “impact investing” has been applied to a broad range of activities. The most widely cited definition describes impact investing as “investments intended to create positive impact beyond financial returns”(2) for society. Impact investors put their investments to work to address pressing social and environmental challenges. Some of the impact investing sectors that have gained popularity include:

• Clean technology financing: green infrastructure, alternative energy and energy conservation;

• Community economic development investments: investments in community-based initiatives such as affordable housing, Aboriginal-led businesses, and social enterprises;

• Microfinance: the provision of financial services, such as micro-lending, to undeserved populations;

• Social impact bonds: financing tool for initiatives in the social sector that blend public and private investment.

However the parameters, and the terminology surrounding the concept, continue to evolve. Figure 1 shows TD’s perspective on where impact investing fits within the spectrum of investment approaches:

Source: https://thesectorinc.ca/wp-content/uploads/attachments/The-Landscape-for-Social-Impact-Investing-a-White-Paper-Links.pdf

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The Sector

Featured Social Financier: RBC Generator

The RBC Generator is a $10-million pool of capital for investment in businesses that tackle social and environmental challenges, while generating a financial return.

What They’re Investing In

The RBC Generator aims to generate market, or near-market, returns by investing in Canadian for-profit businesses and third-party funds tackling social or environmental challenges. Investment opportunities will be evaluated based on their potential to deliver long-term financial return, as well as benefits in at least one of our four strategic areas.

Global demand for energy continues to grow, while rising greenhouse gas emissions risk destabilizing our climate. Innovative, energy efficient solutions are needed to drive down costs and reduce environmental impacts.

How They Invest

The RBC Generator makes debt and equity investments from $100,000 to $1 million through a flexible range of structures. They will also consider follow-up investments for organizations with proven scalability that require additional financing.

RBC is looking for organizations with unique business models and third-party funds that drive economic growth while helping to create a more sustainable future. Our goal is to provide organizations with early-stage financing to help them to build success and attract commercial financing in the future.

Investee Support

They want our investees to reach their maximum potential, and will provide them with appropriate support to meet their business and community goals.

  • Legal support
  • We will help investees establish affordable relationships with external legal counsel.
  • Financial advice and mentoring
  • Investees have access to a network of RBC advisors offering expert financial advice. We will also invite investees and prospects to take part in networking opportunities with successful businesses and investors.
  • Skills for running a high-growth company
  • Investees will have the opportunity to participate in accelerator programs for social entrepreneurs.

Impact Metrics

The impact of an investee organization should be quantifiable and reportable. RBC will work with successful investees to measure community impact. In addition to regular financial reporting, all investees must report on the impact their business is making, or will make, in one or more of the following areas:

  • Reduction in energy use
  • Reduction in greenhouse gas or other emissions
  • Improvement in water quality
  • Reduction in water use
  • Change in number of people employed
  • Change in value of wages and benefits paid

Bring it to Scale

They value organizations committed to scaling their operations and taking their unique approach mainstream. To succeed, investee organizations must have:

  • A strong idea, product or service combined with a unique business model
  • The right management expertise
  • The ability to attract prospective clients
  • A foundation of strong governance
  • A track record of success
  • Revenue

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The Sector

Featured Social Financier: Rashi Foundation in Israel

The Rashi Foundation is an independent, private philanthropic foundation dedicated to assisting the underprivileged in Israel, particularly children and youth. They focus on the geographic and social periphery and on education and welfare solutions that create opportunities and advance social mobility.

The Foundation was established by Gustave Leven (1914-2008), a French-Jewish businessman who came from a family strongly ingrained in philanthropic tradition and culture, and whose experience during WW2 was a key factor in his focusing on Israel.

We have been working since 1984 to realize Gustave’s vision of a stable and prosperous Israel that draws its strength from a society in which every individual has an equal opportunity to realize his or her full potential.

After starting out as a typical grant-making foundation, Rashi has gradually evolved into a social entrepreneur that identifies needs and responds by initiating and building innovative education and welfare solutions.

In the next stage, they developed a unique form of venture philanthropy further by going into direct operation of programs through affiliate associations, and by creating an extensive network of partnerships with other philanthropies, as well as with government agencies. This approach allowed us to increase greatly the scope of our work while remaining highly attuned to the field and responsive to its needs.

SOCIAL IMPACT BONDS

Aiming to advance the field of impact investments in Israel, and social impact bonds in particular, a joint initiative with Social Finance Israel is carrying out feasibility studies to identify social issues that can be addressed through the SIB model. In addition to facilitating the development of innovative solutions, the initiative can pave the road for more players to join in. SFI will develop the bonds for issues that are found to be suitable and will manage their implementation.

In view of the alarming statistic regarding the high poverty rate among single-parent families in Israel, the first feasibility study deals with this issue. Specifically, the study focuses on the 17,000 families who get an alimony allowance from the National Insurance Institute, and represent the most deprived single-parent families. To improve their situation, the intervention will be designed to remove obstacles to gainful employment and improve the earning capacity of the mothers.

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The Sector

BLENDED FINANCING FOR IMPACT:TOOLKIT FOR SOCIAL FINANCE &SUPPORTIVE HOUSING –

A Report by MaRS Centre for Impact Investing

SOCIAL FINANCE AND SUPPORTIVE HOUSING

What is social finance?

Social finance, or impact investing, is an investment approach that focuses on achieving positive social and/or environmental impact alongside some form of financial return. This includes debt and equity investments that range from producing a return of principal capital to offering market-rate or even market-beating financial returns. Impact investing encourages positive social or environmental solutions at a scale that neither purely philanthropic supports nor traditional investment can reach.

Philanthropic grant making and program-related investments can also fall under the broad umbrella of social finance. However, a narrow definition of social finance would only include investments that could generate some form of return. Examples of impact investments could include:

  • A $5,000 equity investment in a local community solar power firm such as SolarShare
  • A $50,000 loan to a fair trade, organic coffee company such as Planet Bean Coffee
  • A $450 million bond issue for a social housing project such as Regent Park, in Toronto, ON

Impact investing is a large and growing asset class. In the United States, JP Morgan and the Rockefeller Foundation analyzed five key sectors—affordable urban housing, rural access to clean water, maternal health, primary education and microfinance—and predicted that over the next 10 years the impact investing market in just these five sectors will grow to between $400 billion–$1 trillion.

In Canada, the social finance marketplace is also expected to grow significantly. From persistent poverty to climate change, we are faced with pressing social and environmental problems at a local, provincial, and national level. Unfortunately, the ability of governments to tackle these challenges is constrained due to ongoing economic challenges and structural financial problems. Social housing providers are longstanding innovators and practitioners of social finance approaches in Canada and around the world.

In Canada, we have been experimenting with debt and equity financing approaches to purchase, build or improve housing with a positive social impact for decades. What is supportive housing? Supportive housing includes housing units or complexes funded specifically for persons living with mental illness and/or mental health problems, persons living with concurrent disorders (co-occurring mental health and substance use issues) or other persons who need support to live independently.

Individuals living in supportive housing could include older adults managing illness, persons who are chronically homeless, persons with disabilities, or other persons with mental health challenges.

“Housing First” is a variation of supportive housing that relies primarily upon private market apartments in scattered sites in the community. This is the approach that has been implemented in At Home/Chez Soi. Portable rent subsidies are key to this model, which enables tenants to rent apartments in locations they choose. The subsidies provide the difference between market rent and the amount available for rent through social assistance. Supportive housing providers have been using this approach to partner with private-sector landlords to increase the supply of rental housing where it is available.

In addition to ensuring affordability, supportive housing exists to provide supports to tenants. An affordable, secure home is essential to assisting individuals to realize their life goals. In Canada, affordability means that the market price or rent is affordable to low- and moderate-income households, measuring 30% or less of their gross household income, not including government supports.

Affordable housing includes what we commonly refer to as social housing: housing built with the financial assistance of governments to provide assistance to low- and moderate-income households. It includes supportive housing, non-profit housing, co-operative housing and housing supported by rent supplements. These monthly rent charges are usually geared to income.

Read the full report here: https://thesectorinc.ca/wp-content/uploads/attachments/BlendedFinancingforImpact_FullToolkit.pdf

The Sector

Social finance around the world

International developments

Although the concept of linking private capital to societal improvement has been around for decades in many jurisdictions, three countries are on the leading edge of social innovations and social finance models:

United Kingdom (UK)

The UK is the world leader in the development of social finance. Since introducing the world’s first social impact bond (SIB) in 2010 – a prevention program to reduce recidivism among Peterborough Prison inmates – the UK has launched 14 national and local SIB projects that target a range of societal issues including “chaotic” families and homelessness. With its “Future for Children” bond, the UK was also the first country to present a public offer for investment in a SIB.

The UK is home to “Big Society Capital,” a social investment bank started by the government to help grow the social investment marketplace, as well as a public company titled simply “Social Finance” that has a similar goal. It has supported the creation of several social investment funds including the Centre for Social Action’s Innovation Fund (£14 million), the Social Outcomes Fund (£20 million) and the Department of Work and Pensions Innovation Fund (£30 million).

The UK is also seeking to improve its legal and administrative environment for social innovation projects by reviewing its Charities Act and making amendments to financial services legislation. In June 2013, the UK will host a G8 Social Impact Investment event in London to discuss, among other issues, the role of social finance in the economic recovery at national and international levels.

United States

To lead the work on social finance, the White House established the Office of Social Innovation and Civic Participation, whose role includes working with the Social Innovation Fund, a grant program that helps non-profits expand effective programs. The 2014 Budget proposed by President Obama (Budget of the United States Government 2014) also included $495 million for “Pay for Success” pilot projects in areas such as job training, housing and education as well as an incentive fund for state and local governments.

A recidivism SIB is underway in New York City, and two other SIBs in the areas of chronic homelessness and juvenile justice are being negotiated in Massachusetts. In California, a demonstration project to test a health impact bond is being launched to address chronic asthma and reduce associated hospital visits by young children. The Harvard Kennedy School has created a SIB Technical Assistance Lab offering pro-bono assistance to states and local governments considering the Pay for Success model. A number of other states and municipalities (e.g., Philadelphia, Utah, Cook County) are also examining how Pay for Success approaches may work in those jurisdictions.

Australia

New South Wales recently signed a contract for its first “Social Benefit Bond” (SBB) which aims to improve services and lives through increased investment in the child protection system. Negotiations are underway for additional SBBs in the areas of family preservation and reoffending, and the region has also started a Social Investment Expert Advisory Group to provide advice on social investment and payment-by-outcomes options.

Canadian initiatives

Many social finance initiatives are already successfully operating in Canada. As social finance has been a bottom-up phenomenon to-date, these activities are largely in the private and NFP sectors. The following are only a few examples of the changing social finance landscape across the country:

  • The Youth Social Innovation Capital Fund (YSI-CF) was created in 2011 in Toronto to support young social innovators. The Fund provides finance (loans), resource support (networking and mentoring) and impact measurement support to help youth develop and launch their social innovations and social enterprises.
  • The MaRS Centre for Impact Investing was established in late 2011 to act as a hub and incubator, encouraging collaboration among private, NFP and government sectors. The Centre is working on a Social Venture Exchange, the certification of “B” corps in Canada (corporations that use the power of business to address social or environmental problems) and the annual Social Finance Awards.
  • The YMCA Toronto issued a “community bond” in December 2011 to fund 300 housing units for women and children. Worth $1 million, the bond was purchased by the Muttart Foundation and will pay a reasonable rate of return.
  • LIFT Philanthropy Partners uses venture philanthropy to strategically invest in Canada’s NFP sector to deliver social impact to tackle pressing societal challenges, including employment, literacy, skills training, health and wellness to improve the social well-being and economic prosperity of Canadians.
  • BC Social Ventures Partners (BCSVP) pools funding and expertise to donate money, time and advice to help targeted NFPs achieve their goals. BCSVP helps organizations build capacity and assists community organizations to grow and work effectively toward their missions. The group focuses on assistance to children, youth and families as well as local social enterprises.
  • RBC’s Impact Fund, created in January 2012, is investing $20 million to support the development of solutions for environmental and social problems. Priority areas include employment opportunities for newcomers and youth, environmental sustainability and water management projects.
  • In British Columbia, the Vancouver Foundation and credit union Vancity created the Vancity Resilient Capital Fund with a grant from the Government of British Columbia. The pool of $15 million dollars is earmarked for investment in social enterprises.
  • Quebec credit union Mouvement des Caisses Desjardins developed the “Placement à rendement social,” an investment fund focused on housing, environmental and cultural projects that allows the public to invest via their retirement vehicles (RRSPs) or tax-free savings accounts.

Governments of all levels have taken notice of these exciting developments in the NFP and financial communities, and many governments are exploring innovative ways to tackle intractable societal problems – including:

British Columbia

The British Columbia Social Innovation Council recommended in 2011 that the private and NFP sectors partner with the provincial government to create SIBs to fund prevention services, improve social outcomes and attract new sources of social investment capital. It further recommended that social enterprises gain access to government programs and supports typically provided to small and medium-sized enterprises, for which they are currently not eligible. In 2012, the provincial government co-sponsored “B.C. Ideas,” a province-wide innovation competition that generated 466 ideas with winners sharing over $270,000 in funding. The province’s Budget 2013 highlighted British Columbia Social Innovation Council’s recommendations, and echoed continued support for social innovation and entrepreneurship.

Alberta

Alberta’s Budget 2012 mandated results-based budgeting and reviews of all government programs and services, as well as support for spending based on outcomes. Budget 2013 committed to accelerating this process, including work to evolve Alberta’s Persons with Developmental Disabilities Program into a more outcomes-based service delivery orientation.

Ontario

Ontario’s Budget 2012 committed to exploring opportunities for new partnerships that encourage improved outcomes at a lower cost by transforming traditional approaches to the delivery of services. The 2012 Commission on the Reform of Ontario’s Public Services, also known as the Drummond Report, recommended pilot projects to test SIBs across a range of applications.

Quebec

The Minister for Industrial Policy and the Banque de développement économique du Québec planned to introduce a framework law in the National Assembly during the Spring 2013 Parliamentary session to recognize, promote and develop the social economy. To combine many economic development programs and simplify access to funding for NFPs, the Province will create the Banque de développement économique du Québec. Budget 2013 committed to increasing access to AccèsLogis Québec, a financial aid program that encourages pooling of public, community and private resources to produce social and community housing.

Newfoundland and Labrador

Newfoundland and Labrador’s 2012 Speech from the Throne signalled an interest in exploring innovative initiatives for tackling complex challenges.

Nova Scotia

Nova Scotia’s Budget Address 2012 committed $200,000 to develop a social enterprise strategy that will support communities and businesses. Innovative strategies have also been outlined through the JobsHere agenda, which includes implementing a Social Enterprise Loan Guarantee Program. The 2013 Speech from the Throne declared that Nova Scotia would be the first Canadian jurisdiction to offer SIBs.

Municipal

Social finance initiatives are also being developed within municipal governments. One example is the City of Toronto’s Toronto Atmospheric Fund (TAF), which seeks to address emissions from buildings and transportation. TAF’s three programs — Incubating Climate Solutions, Mobilizing Financial Capital and Mobilizing Social Capital — promote energy efficiency retrofits in buildings, electric vehicles for fleets, efficient transportation of goods, natural gas alternatives like geothermal, and social innovation to support emission reduction strategies.

Source Article: https://www.canada.ca/en/employment-social-development/programs/social-finance/consultations-report.html

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