Diamonds In The Rough

Diamonds in the Rough The opportunity of a marketplace for social finance in Canada

"Only when the last tree has died and the last river been poisoned and the last fish been caught will we realize we cannot eat money."
- Cree proverb
“ Money plays the largest part in determining the course of history." - Karl Marx

‘Finance’ is about: managing risk… for financial return
From wikipedia:
The study of money and other assets;
The management and control of those assets;
Profiling and managing project risks; or
The science of managing money.

Risk management = beware of uncharted waters.
Motivates selecting the known, familiar, direct
Creates rigid and specific investment terms
Legal structure
For-profit
Not-for-profit
Charity
Use of proceeds
Operations
Assets
Projects
Investment structure
Grant
Loan
Equity

Which invites a game… of financial ‘Twister’

"Money is a stupid measure of achievement, but unfortunately it is the only universal measure we have."
- Charles Steinmetz

“ Social finance” is…
A sustainable approach to managing money that delivers social, environmental dividends and economic return.
HIGH INVOLVEMENT LOW INVOLVEMENT CHARITABLE COMMERCIAL Venture philanthropy Traditional grant making Venture capital Bank lending Adapted from Margaret Bolton, 2003

… happens at many levels…
Investment
A financial investment that delivers a ‘blended return’
E.g. a loan issued to a social enterprise
Product
Investment vehicles such as bond issues or private equity funds that combines investors with a variety of objectives around an investment area that will deliver a ‘blended return’
E.g. the $20 M EYE Fund
Catalytic
(Re)application of financial capital to a specific issue with a comprehensive perspective that encourages a the (re)creation of new system for addressing a social or environmental issue
E.g. the Great Bear Rainforest

… and is rooted in:
A change in conversation
Control » Potential
Blended value return
Conflicted » Collaborative
Cross-silos
A change in flow
Linear top-down » Complex
Government Business Charity & non-profit Hybrid Space Source: Aquillan Investments

"Money.
It's a gas."
- Pink Floyd

It begins with a conversation…
Aligning interests to create innovative solutions
Requirements Return Source Perspective Use Perspective Constructive Dynamic Constrictive Dynamic Risk Restrictions

… results in specific products
Venture capital
Capital regional et coopérative Desjardins (CRCD ) is a $500 million venture capital fund created in 2001 by the Desjardins Movement with the help of a provincial tax credit. Individual investors can invest up to $3500 a year in shares with a 50% tax credit. Shares must be kept for a minimum of seven years. M ission : to provide capital, expertise and access to networks for businesses and cooperatives in all Québec’s regions
Local community development
The Columbus Foundation used $2 million to seed an $18 million low-cost housing fund to build 1,600 new units of affordable housing.
Startup or expansion capital in underserved communities
Deutsche Bank announced it will create an innovative $20 million investment fund to finance the expansion of eye care hospitals in developing countries. The Eye Fund I will provide loans and guarantees to support the development of affordable, sustainable and accessible eye care for the world's poor while providing a near-market return for investors
Debt mechanisms
Milestone achievement of $100m in loans to community finance institutions and social enterprises by Calvert Foundation’s Community Investment Note
Acquisition of assets
BC Pension Funds – 21 BC-based union and management pension funds pooled $27 M to form Concert Properties in 1989 (originally named VLC) with the objective of financing affordable rental housing in BC, and creating jobs in the unionized construction industry. Today the 100% pension plan owned real estate corporation has $800 million in assets , with a track record of creating 10 million hours of on-site employment for unionized construction workers.

… and can change whole systems.
Coming together of the great catalysts
capital + community
Great Bear Rainforest (2 million hectares)
Start: environmentalists + lumber companies get together
2001: private foundations + BC premier’s office -> 1st nat.
2002/3: determination of ecological value and economic pot.
2007 Outcomes:
$120 M across 2 funds: $30 M fed, $30 M prov., $60 M private
Provincial government actions
New ‘ecosystem based’ land management regime (3x PEI)
New park designation for ecological protection
Collaborations
Collective land-use agreement among prov. gov’t and first nations
North coast first nations collaborating (e.g. joint marketing and distribution of fish)
Shared governance between private, first nations, government

P roposed Vancouver Homelessness LP
from Vancouver Homelessness Funding Model Report

“ Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.”
- Ayn Rand

The social finance ‘diamond craft’
The potential value of any social finance undertaking is strongly influenced by:
Understanding (clarity)
Depth of understanding
What’s the issue?
What’s involved in addressing it?
Value (carat)
Amount of capital involved in the issue?
Assets, income, expenditures, etc. ?
Engagement (shape and facets)
Comprehensiveness of input into discovery and design
Participation (cut)
Variety of participants and perspectives in envisioned solution

You can do a lot with diplomacy, but with diplomacy backed up by force you can get a lot more done.
- Kofi Annan

On the precipice of unprecedented challenges + systemic failure
Growing social and environmental pressures
+ government and market failure
= the conditions for innovation.

The U.S. and UK have responded
US - New Market Tax Credits
$37 B in economic infusion
Introduced in 2001 to provide tax credits to investors in Community Development Entities
88% of investors would not have made the investment in low- income communities without it
UK - Community Interest Companies (CICs)
1164 CICs registered
Hybrid legal structure
Capped dividend payable to shareholders
Asset lock retains assets within the company or other CICs
Source: US Dept. of the Treasury, Insights, New Markets Tax Credits

encouraging an entire marketplace U.S. Source: GoodCaptial Story Index Presentation and Jay Coen Gilbert, Don Shaffer and John Katovich

encouraging an entire marketplace UK

And in certain areas… Source: GoodCapital and Mark Beam?

… structured financial products.
20 deals | 21 orgs | $6.5B
(affordable housing, microfinance, global ngo’s)

The Canadian diamond field
Limiting regulatory framework
Income Tax Act and charity law significantly constrain flow of capital
Strong non-profit sector
$120 B annual expenditures
>7% of Canada’s GDP
Above average growth
1.5 M workers + 0.5 M volunteers
2nd largest in world per capita
Internationally significant
Resources
Water, energy, forests
Examples
Great Bear Rainforest

Preparing for a diamond harvest
Changing the conversation
Developing the craft
Financial structuring research, demonstration, and dissemination
Enabling the marketplace
Policy (tax incentives and supporting hybridization)
Opening systems to restructuring

CAUSEWAY a national collaboration A national collaboration working on new pathways for financial investment in public benefit .

CAUSEWAY a national collaboration Michael Lewkowitz Start-up Coordinator Phone: (416) 607-5643 (778) 329-0021 Email: [email_address] Tim Draimin Chair, Steering Committee Phone: (604) 647-6611 x244 (416) 481-8652 Email: [email_address] CONTACT

Diamonds In The Rough

by Michael Lewkowitz on Aug 29, 2007

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Diamonds In The Rough — Presentation Transcript