It’s time for a Social Innovation and Social Finance Strategy for Canada
Canada needs more social innovation and social finance.
Wild fires are raging in BC and Ontario driven by climate change. Tens of thousands of new Canadians with remarkable skills and education are woefully underemployed. Many First Nations individuals lack access to employment opportunities, higher education, and basics from clean drinking water to a bank account.
We cannot tackle these intractable social and environmental challenges by traditional approaches alone. Although charity and good government policy are fundamentally necessary to achieve positive and progressive change, they are insufficient to comprehensively address the problems we face. We must transform business and mobilize capital so that it is aligned towards the public good. We must also transform how government and nonprofit organizations leverage new capital tools, policies, incentives, and approaches to tackling our most pressing problems.
Social innovation (or inclusive innovation) and social finance (or impact investing) offers a clear path to advance this transformation. Innovative organizations and enterprises are already leveraging these approaches by building business models to tackle our most pressing challenges, and by seeking investors and capital to start, grow or scale their impact.
There are many great examples of the thousands of high impact enterprises in Canada:
- Institutions like the First Nations Bank of Canada (FNBC) provide critical financial services to the Aboriginal marketplace in Canada, with 12,700 individuals having accounts and over $300 million in individual loans, mortgages and commercial loans across Canada;
- Organizations like Immigrant Access Fund (now called Windmill Microlending) provide small loans for internationally trained new Canadians to gain employment; and
- Enterprises like CoPower and SolarShare are tackling climate change by mobilizing tens of millions towards renewable energy projects.
There are also a growing number of impact-focused intermediaries, support organizations and institutions that are helping to grow and finance these organizations, from CSI in Toronto and Esplanade in Montréal to VERGE in London and New Market Funds in BC. Although there has been significant traction, the underlying infrastructure is still relatively fragile and fragmented. This system infrastructure needs to be better resourced and coordinated in order to achieve scale.
In order to allow social innovation and social finance to scale, there needs to be a political, public policy, and funding commitment at a federal level.
It’s time for a Social Innovation and Social Finance Strategy for Canada.
Let’s look at the opportunity for this strategy, what it may include, and what we can do to support it.
There is a tremendous opportunity for a national strategy to take advantage of significant market momentum in impact investing
There is a large and growing pool of capital that is seeking positive social and/or environmental impact alongside financial return. The global market for impact investing just among the largest investors is $228 billion and growing. The Canadian market is $9.2 billion, with significant growth and interest, particularly amongst high net worth individuals.
Canada has all of the assets to lead in impact investing:
- A stable, world leading financial services sector;
- An incredible reservoir of talent and interest in the community, financial services, and social innovation sectors;
- Significant interest amongst investors including high net worth individuals, foundations, and the general public;
- There are great managers including Renewal Funds, New Market and New Commons, Investeco, Sarona, Cycle Capital, Fondaction, and Genus Capital Management;
- Our national pension board (CPPIB) did just issue $1.5 billion in green bonds last month with, “…plans to invest more than $3 billion in renewable energy as it prepares for an expected global transition to a lower-carbon economy.”
- The credit union movement in Canada has a longstanding commitment to impact investing, led by folks like Desjardins, Vancity, and Libro Financial.
Despite these assets, we are standing still and falling behind the rest of the world while our social and environmental problems become messier and more intractable.
Major governments from the United Kingdom to Europe to Australia are making big moves in impact investing. Canada is being outplayed and outmatched by the Americans and Europeans (including the British). This isn’t a humble or modest assessment. Canada needs to play catch-up in this field, particularly through our federal government, our major financial institutions, and our big financial services firms.
It has been nearly a decade since the release of the Report of the Canadian Task Force on Social Finance. Canada should be a global market leader. We still can be.
What would a federal strategy include?
There is a solid framework for a federal strategy. A Co-Creation Steering Group, appointed by the Government of Canada, engaged stakeholders from across sectors and regions to provide recommendations for a pan-Canadian Social Innovation and Social Finance Strategy. The Co-Creation Steering group identified a number of key action areas including:
- Skills and Capacity to equip social purpose organizations with the knowledge, capacity, and skills to innovate;
- Funding and Capital to accelerate the growth of existing and emerging social finance investment approaches, including funds;
- Market Access to generate ongoing demand for the goods and services provided by social enterprises, particularly by leveraging the federal government’s procurement power; and
- Policy and Regulatory Environment to create enabling conditions for organizations, particularly with regards to the Income Tax Act. This may include a review of potential federal tax incentives to encourage impact investing, such as local investment tax credits (like BC or Nova Scotia) or the Social Investment Tax Relief (SITR) in the UK.
Beyond these areas, there was also a clear need for evidence and knowledge sharing, awareness and mobilization, new forms of governance and public service infrastructure, and that any government strategy must ensure that indigenous social innovation and social finance initiatives are indigenous led.
Beyond the above, the federal government’s strategy would also:
- represent a whole-of-government approach at a public service and political level, cutting across government Ministries, Departments and Crown Corporations, particularly the Ministry of Economic and Social Development Canada (ESDC) to the Ministry of Innovation, Science and Economic Development (ISED);
- include a commitment of new financial resources for operating and capital support (which may come from a variety of sources including unclaimed assets); and
- have senior political leadership with a Minister dedicated to advancing the strategy and a dedicated representative in the Privy Council Office (PCO).
The strategy would not be a mechanism to replace grants and contributions with loans, or to transform every charity into a social enterprise. Social finance should create additionality, mobilizing new resources and creating greater impact.
The impact would be multi-faceted, from driving enterprise and job creation to attracting local and global and investment capital to measurably moving the yardsticks on social and environmental problems, such as greenhouse gas emission reductions and new units of affordable housing.
It’s time. So what’s next on the clock?
It’s clearly time for the federal government to act on social innovation and social finance. But that’s not all that’s on the clock.
It’s also time for financial institutions, advisors, and investors across the country to assume leadership by making impact investing a priority through investments, options, and public action.
It’s also time for all Canadians to make a commitment to impact. We can all review our investment portfolios to see how we can make investments that have a positive social and/or environmental impact.
This represents an interesting path for collective action from Bay Street to Main Street that also aligns with a federal government strategy.
So it’s also time for us to take our message to our representatives. In order to support the movement towards a new strategy, Imagine Canada has launched iMPact Day, a Canada-wide Social Impact Challenge in which all MPs are encouraged to spend a day observing and learning about a social good organization in their constituency.
Take the time to contact your local MP to let them know what you do as an impact organization, and/or why you think Canada needs a Social Innovation and Social Finance Strategy.
It’s still summer. So we should all have a little bit of time.
Author: Adam Spence
The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of SVX.