What happens when social finance becomes the “new normal”?

It is easy to see that Canada is favoured by unprecedented wealth.  However, we all know that Canadians also face growing social challenges such as homelessness, poverty, rapidly shifting demography and environmental degradation.  In this stark contradiction it is clear our current economic models of social investment will not keep pace.

The challenges are obvious. What is more interesting are the opportunities for solutions.  I see this happening by investing in social entrepreneurs who take a market approach to addressing such problems.

Meet Charles Takawira who worked in a hospital in London and witnessed massive waste of unused medical supplies and equipment. He saw an opportunity to transfer the medical equipment to hospitals in Zimbabwe, Sierra Leone and Malawi. Charles started Green Healthcare Link, which works with local hospitals to divert surplus medical equipment from landfills to refurbishment centres that train and employ people in need of work to recover the medical equipment. He also started the Sponsor-a-Container program, to engage businesses to offset the cost of transporting the medical equipment by sponsoring a container. The equipment is then sold at a reduced cost to public health agencies that redistribute it to local hospitals throughout Africa. Charles attended the UK School for Social Entrepreneurs to help develop his business plan.

Social entrepreneurs like Charles notice a problem and then recognize an opportunity to address the issue with an innovative idea.  There are many brilliant social entrepreneurs in Canada and around the world to support.   You can get to know our Canadian social entrepreneurs through sites like:  ClearlySo, ENP, SiG@MaRS’ Social Venture Registry and CSI.

With this taste of the impact social entrepreneurs can make, you now want to know how you invest in this talent.  There are funds in Canada that support multiple bottom-line ventures, like The Cape Fund, Community Power Fund, Edmonton Social Enterprise Fund, Investeco and La Fiducie du Chantier de l’économie sociale Trust.

However, there is room for this market to grow for financial intermediaries who can source investments for both individual and institutional investors and who can develop accessible finance products for us to invest our money in.

Check out these emerging examples:

1. Social Venture Exchange

SiG@MaRS is currently supporting the development of a social venture exchange (also known as a social stock market or ethical stock market) in Ontario. This is an emerging global concept, best defined as a regulated financial market that provides a platform for the flow of capital from impact investors to social ventures in the form of shares, bonds and/or other financial products.

In order to be listed on the exchange, the financial products must meet established financial benchmarks in addition to social and/or environmental standards. For examples in rising impact measurements check out the B-Corp, GIIN and Impact Reporting and Investment Standards.

There are many social venture models under development in other countries, including:

2. Community Investment Note

The Calvert Social Investment Foundation is the originator of the Community Investment Note. This lending portfolio is approximately $175 million, with loans extended across multiple sectors, including microfinance, agriculture and community housing.

When an individual or organization invests in a Community Investment Note, the capital is pooled and placed in a professionally managed portfolio of affordable loans which are dispersed to more than 230 leading non-profit organizations and social enterprises working to alleviate poverty, create jobs and protect the environment.

Since Community Investment Notes are consistent with US guidelines for Program-Related Investing, many foundations have purchased them to support their own programs.

Additionally, the Calvert Foundation Giving Fund, a socially responsible donor-advised fund, provides private equity for social enterprises though a global portfolio of approximately $30 million.

The Ottawa Community Loan Fund is launching its own version, called the Impact Investment Note.

The challenge before us is to grow the social finance field to such a scale that this type of support becomes the “new normal”:

  • Finance levels are adequate
  • Community organizations and ventures have the capacity to demonstrate deep and durable social and environmental impacts
  • Systems exist that result in a streamlined connection of new money to worthy projects

It is not such a crazy idea.  Here is a quote from Judith Rodin, President of the Rockefeller Foundation in her speech: Innovative Philanthropy for the 21st Century: Harnessing the Power of Impact Investing.

“Although philanthropists can only muster billions of dollars against the trillions of dollars of social needs, private investors like you in this room manage more than $100 trillion in for-profit capital markets. So we no longer ask ourselves, ‘Why isn’t there enough money to solve social problems?’ Instead we ask, ‘How can we tap into these enormous private capital flows to create both financial profit and social return?'”

American estimates indicate that, with appropriate regulatory, tax and capacity building measures, social/environmental impact investment has the potential to reach 1% of all managed assets – making $619 billion in capital available to U.S. public benefit enterprises. (See this presentation from Katherine Fulton.)

There is every reason to believe that a comparable shift can take place in Canada, where 1% of total assets under management would amount to approximately $25.7 billion available for public benefit (see The Social Investment Organization, Canadian Socially Responsible Investment Review).

Through business advisory services and venture support, we can build the pipeline of strong investment ready enterprises who will tackle some of most pressing issues today.

Excerpts of this blog are  from the upcoming release of,  “Financing for Your Future: Open Guide to Social Finance”, 2011.