Futurescape: Building a robust social finance marketplace in Canada

Looking into my crystal ball: The future of social finance

Social finance is an approach to managing money that delivers a social and/or environmental dividend and an economic return. It aims to leverage existing capital to attract new investment for public benefit. These approaches to investment and funding share the focus of stimulating positive social and environmental returns for investors and the larger world. Social finance includes: community investing, micro-lending, social enterprise lending, venture philanthropy and program-related investments.

The accompanying video, entitled “The Case for Social Finance in Canada,” is an interview with Tim Draimin, Executive Director, Social Innovation Generation, describing the value of this approach. Below are visionary examples of what I see occuring in the robust social finance marketplace in Canada-of-the-future.

  • I am sitting across from my investment manager who presents options I can invest in. She knows that I want a financial return combined with a social or environmental impact when I make my investments. A Social Impact Bond, a Calvert Investment Note, or in the Social Venture Exchange are some of the options available from my retail investment firm. I am confident that my money is making a positive impact.
  • As a member of an investment board with a Canadian foundation, I know our foundation’s mission is making a greater impact and I am secure that our fiduciary duty is not compromised. Mission-Related Investing has allowed our foundation to allocate 10% of its total assets toward investments that achieve a financial return and ensure that we are not compromising the social or environmental purpose of our work.
  • My business partners and I are starting a hybrid company that will improve the pipeline of fresh farm produce to Ontario food banks. Our company has a blended return on investment that provides a social and environment value while providing a financial return to our investors. The new hybrid business structure meets the needs of our company to make a difference beyond purely philanthropic or traditional business methods.
  • As the Executive Director of a charitable non-profit I am pleased to report that a combination of business methods and entrepreneurship has attracted new investment capital enabling us to expand our social enterprise across the province. The profits are channeled back into our charity to compliment our other revenue sources and support our charitable purposes.
  • As a policy maker within government I can see how the tools of social finance bring together innovation from government, business and social/environmental sectors. Our government has made smart investments in social entrepreneurship skills development and has incentivized private investment capital into funds that develop social enterprises which create jobs and address critical community needs. We have saved money and demonstrated how social finance can be used to address social and environmental challenges in our communities.
  • I am inspired. As part of a new breed of impact investors, I have used what I learned in my MBA to develop solutions to entrenched social and environmental problems. I am now part of a global movement that connects me with talented people who are making a big difference.

In our future, the above examples will be commonplace and well integrated into the Canadian landscape. If you are tuned into the MaRS blog and the MaRS social innovation program, you will have encountered the global development of social finance and impact investing through blogs, events and discussions.

The question for all who are interested in making the above vision a reality is: “What do we need to have in place to create the right kind of opportunities for a market to grow?”

The Monitor Institute has a well-referenced illustration of the “Phases of Industry Evolution” in their report, Investing for Impact: A Design for Catalyzing an Emerging Industry. The MaRS white paper, “Social Entrepreneurship: Social Venture Finance” cites the Monitor report and suggests that Canada has moved from an uncoordinated innovation where disparate entrepreneurial activities spring up in response to market need toward the marketplace building phase. This phase includes the development of centres of activity and an infrastructure that supports a higher volume of activity. I’m hoping the social finance marketplace continues to move toward capturing the value of the marketplace as it grows to maturity. The MaRS white paper reminds us that “investors and entrepreneurs who take an early risk in an emerging marketplace will come out the winners, as evidenced by the success stories in the technology and life sciences field.”

In Canada, the sector is developing a social finance market that includes:

  • Financial products and funds tailored to the social enterprise sector providing investment opportunities
  • An intermediary to do due diligence on risk and return that will lower barriers for prospective investors
  • A regulatory environment and “public benefit” entity appropriate to the capital, operating and governance needs of social enterprise
  • A social enterprise sector equipped with the practical knowledge to benefit from investment opportunities

My past experience working with the non-profit community sector and my current work with MaRS on social finance has illustrated to me that talent and motivation exist within the business, social/environmental and government sectors. When thoughtfully applied, together we can create a innovative and effective response to some of the critical issues of our time.

The case for social finance in Canada from MaRS Discovery District on Vimeo.