Investing for Impact - Supply-Side Perspectives


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Presentation at a session titled "Investing for Impact: New Ways Capital is Flowing to Social Good". Describes the Canadian social capital market, the role of intermediaries, and the opportunities in place for social investors.

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Investing for Impact - Supply-Side Perspectives

  1. 1. Investing for Impact: Supply-Side Perspectives<br />Karim Harji<br />Manager, Partnership Development – Social Capital Partners<br />Co-founder –<br />Investing for Impact: New Ways Capital is Flowing to Social Good<br />Cambridge, ON<br />29 March, 2010<br />1<br />
  2. 2. Agenda<br /><ul><li>What is social finance?</li></ul>Social finance in practice across Canada<br />An overview of the social capital market<br />Aligning demand and supply<br />Supply-side opportunities<br /><ul><li>Why does it matter?</li></ul>2<br />
  3. 3. An Introduction to Social Finance<br /><ul><li>Social finance is the deliberate, intentional application of tools, instruments, and strategies to enable capital to achieve a blended value return. (Harji and Hebb, 2009)
  4. 4. Social finance is an approach to managing money that delivers a social dividend and an economic return. (Wikipedia)
  5. 5. Also known as… social investing , responsible investing, ethical investing, double or triple bottom line investing, impact investing, targeted investing , etc etc.  there are important differences!
  6. 6. Goes beyond simply capital for non-profit social enterprises</li></ul>3<br />See: Karim Harji and Tessa Hebb (2009) “The Quest for Blended Value Returns: Investor Perspectives on Social Finance in Canada”,<br />
  7. 7. Social Finance in Practice across Canada<br /><ul><li>Social Capital Partners – arranges for growth financing and provides advisory services to successful businesses that integrate a social mission into their HR model
  8. 8. Vancity – Canada’s largest Credit Union : 400,000 members, $14.5 billion in assets
  9. 9. Meritas – mutual fund committed to SRI: screening guidelines, shareholder activism and community development investments (up to 2% for microfinance)
  10. 10. Registered Disability Savings Plan (RDSP) – tax-deferred savings vehicle to assist families in planning for long-term financial security of their relatives with disabilities
  11. 11. Great Bear Rainforest Fund – public-private-philanthropic partnership structured to allow investments in ecologically-sustainable ventures within First Nations’ communities
  12. 12. Social Venture Partners (3 Canadian chapters) – network of engaged philanthropists that provide money and expertise for capacity building of nonprofits
  13. 13. CAPE Fund – $50 million fund launched by Paul Martin to provide equity and quasi-equity investment in the range of $1 million and $7.5 million to Aboriginal businesses
  14. 14. Enterprising Non Profits (BC/ON) – provides matching grants to non-profit organizations that are interested in starting or expanding a business
  15. 15. Ottawa Community Loan Fund (OCLF) – loans of up to $15,000 to small business owners, internationally-trained professionals, social enterprises, community groups.</li></ul>4<br />
  16. 16. Elements of a Social Capital Market<br />5<br />
  17. 17. The Social Finance Continuum<br />6<br />Sources: F.B. Heron Foundation and Jessica Shortall (2009) “Introduction to Understanding and Accessing Social Investment”<br />
  18. 18. Supply Side<br />Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”<br />Banks / Credit Unions <br /><ul><li>Vancity
  19. 19. Alterna Savings
  20. 20. Canadian Co-operative Association
  21. 21. Citizens Bank
  22. 22. Desjardins
  23. 23. Royal Bank</li></ul>Specialized Funds<br /><ul><li>Canadian Alternative Investment Co-op
  24. 24. Community Loan Funds (various: Ottawa, Montreal, Toronto, St. John)
  25. 25. Social Enterprise Fund (Edmonton)</li></ul>Institutional Capital<br /><ul><li>UNPRI Signatories: CPPIB, etc.</li></ul>Retail Investors<br /><ul><li>Mutual Funds: Meritas, Acuity
  26. 26. Registered Disability Savings Plan (RDSP)</li></ul>Investment Management Firms <br /><ul><li>CAPE Fund
  27. 27. Ecotrust Canada Capital
  28. 28. Fonds de solidarité
  29. 29. Investeco
  30. 30. Renewal2 Investment Fund
  31. 31. Resilient Capital
  32. 32. Social Capital Partners </li></ul>Foundations<br /><ul><li>Edmonton Community Foundation
  33. 33. J.W. McConnell Family Foundation
  34. 34. Maytree Foundation
  35. 35. Ontario Trillium Foundation
  36. 36. Tides Canada </li></ul>Grantors<br /><ul><li>Enterprising Non-Profits
  37. 37. Toronto Enterprise Fund </li></ul>7<br />
  38. 38. Demand Side<br /><ul><li>Canada’s nonprofit and voluntary sector is the second largest in the world
  39. 39. CRA: over 161,000 nonprofit and voluntary organizations, of which approximately 83,000 are registered charities. (Pearson 2008)
  40. 40. Excluding hospitals, universities and colleges, the dominant revenue source (48%) of nonprofit and voluntary sector revenue is fees, compared to 39% for government support and 12% from philanthropy (Imagine Canada 2005)</li></ul>Reflects the importance of alternative revenue streams<br />This does not discount the importance of grants<br /><ul><li>Brouard et al. (2008) have developed a dataset of eight hundred social enterprises in Canada
  41. 41. Québec has over 6,200 social economy enterprises employing more than 65,000 people and generating over $4 billion in revenues (Pearson 2008)</li></ul>8<br />Source: Karim Harji and Tessa Hebb (2009) “The Quest for Blended Value Returns: Investor Perspectives on Social Finance in Canada”,<br />
  42. 42. Aligning Demand and Supply<br />9<br />Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”,<br />
  43. 43. Intermediaries<br />Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”<br />Academic<br /><ul><li>University of Toronto (OISE, Rotman)
  44. 44. Carleton Centre for Community Innovation
  45. 45. Sauder School of Business
  46. 46. Schulich School of Business</li></ul>Capacity Builders <br /><ul><li>Causeway Social Finance
  47. 47. Social Innovation Generation
  48. 48. Community Futures Development Corporations
  49. 49. Ontario Nonprofit Network
  50. 50. Chantierl’EconomieSociale
  51. 51. BC Centre for Social Enterprise</li></ul>Associations<br /><ul><li>Social Investment Organization
  52. 52. Canadian Community Investment Network
  53. 53. Community Foundations of Canada
  54. 54. Philanthropic Foundations of Canada</li></ul>Credit Unions<br />Community Development Financial Institutions<br />Federal Government<br /><ul><li>Human Resources and Skills Development Canada
  55. 55. Canada Revenue Agency
  56. 56. Department of Finance</li></ul>Ontario Provincial Government<br /><ul><li>Community Economic Development Funds
  57. 57. First Nations Finance Authority
  58. 58. Ministry of Finance </li></ul>ESG Information<br /><ul><li>Jantzi-Sustainalytics</li></ul>Web Platforms<br /><ul><li>CommunityLend</li></ul>10<br />
  59. 59. Mission Investing via Intermediaries<br />11<br />Source: FSG Social Impact Advisors (2007) “Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries“<br />
  60. 60. Alterna Community Alliance Housing Fund<br /><ul><li>Created to address Ottawa’s affordable housing shortage
  61. 61. Provides low-cost financing for second-mortgage financing, and as necessary, primary-mortgage financing
  62. 62. Structured as investment grade instrument offering a five-year GIC rate of return</li></ul> It took 7 years before PSAC was able to find a “risk-free vehicle” to be able to do this!<br />12<br />Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”<br />
  63. 63. Building the Social Capital Market<br />13<br />Source: Monitor Institute (2008) “Investing for Social & Environmental Impact, A Design for Catalyzing an Emerging Industry”<br />
  64. 64. New Capital on the Horizon<br />Loan and Investment Fund (Nora Sobolov)<br /><ul><li>Modeled similar to the Nonprofit Finance Fund in the US
  65. 65. Provide working capital and bridge loans to non-profit and charitable organizations</li></ul> <br />Community Investment Vehicle (Social Investment Organization)<br /><ul><li>A product to channel investment dollars from individuals and institutional investors
  66. 66. Invested in revenue-generating social enterprise owned + operated by non-profits</li></ul> <br />Fund of Fund Product (Mercer Consulting)<br /><ul><li>The Fund of Funds would allow investors to get access to socially responsible investment opportunities in a cost efficient manner (multi asset class, global diversification)</li></ul> <br />Social Venture Fund (MaRS Capital Services and Edgestone Capital)<br /><ul><li>Primarily for early stage social ventures with strong potential to scale
  67. 67. Demonstration vehicle that can be leveraged to larger size with government participation</li></ul> <br />PRI Fund (Community Foundations of Canada, Philanthropic Foundations of Canda)<br /><ul><li>Align more than 3.5% of foundation assets (i.e. endowments) with mission</li></ul>14<br />Source: Adam Jagelewski (2010) “New Capital on the Horizon”,<br />
  68. 68. Why Does It Matter?<br />15<br /><ul><li>It’s already here</li></ul>Growing interest among institutional capital to incorporate ESG<br />Moving from theory to practice across the country<br /><ul><li>It’s going to allow us to do things we’ve always wanted to do</li></ul>Greater recognition for the need for more effective solutions to our greatest challenges<br />Leveraging capital through innovative, tiered deal structures e.g. “first loss capital”<br /><ul><li>It’s what we need</li></ul>Address the bifurcation between philanthropy (for impact) and investment (for returns)<br />New generation of talent seeking to align their work with their values<br />
  69. 69. The Opportunity<br /><ul><li>Creating new impact-related processes AND operating within strict investment policy discipline;
  70. 70. Optimizing for environmental & social impact AND applying the rigor of investment management tools;
  71. 71. Investing in new markets & asset classes AND maintaining exposure to traditional investment strategies;
  72. 72. Embracing new business models AND adhering to recognized financial theory;
  73. 73. Evaluating impact performance AND subjecting investments to recognized financial benchmarks; and
  74. 74. Expanding the scope and scale of philanthropic capital AND maintaining adherence to fiduciary responsibilities.</li></ul>16<br />Source: Rockefeller Philanthropy Advisors (2009) “Solutions for Impact Investors: From Strategy to Implementation”<br />
  75. 75. Thank You!<br />Karim Harji<br /><br />416-646-1871 x.108<br /><br /><br /> Presentation available at:<br />17<br />