Investing for Impact - Supply-Side Perspectives

Investing for Impact: Supply-Side Perspectives
Karim Harji
Manager, Partnership Development – Social Capital Partners
Co-founder – socialfinance.ca
Investing for Impact: New Ways Capital is Flowing to Social Good
Cambridge, ON
29 March, 2010
1

Agenda
What is social finance?
Social finance in practice across Canada
An overview of the social capital market
Aligning demand and supply
Supply-side opportunities
Why does it matter?
2

An Introduction to Social Finance
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)
Social finance is an approach to managing money that delivers a social dividend and an economic return. (Wikipedia)
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!
Goes beyond simply capital for non-profit social enterprises
3
See: Karim Harji and Tessa Hebb (2009) “The Quest for Blended Value Returns: Investor Perspectives on Social Finance in Canada”, http://www.carleton.ca/3ci

Social Finance in Practice across Canada
Social Capital Partners – arranges for growth financing and provides advisory services to successful businesses that integrate a social mission into their HR model
Vancity – Canada’s largest Credit Union : 400,000 members, $14.5 billion in assets
Meritas – mutual fund committed to SRI: screening guidelines, shareholder activism and community development investments (up to 2% for microfinance)
Registered Disability Savings Plan (RDSP) – tax-deferred savings vehicle to assist families in planning for long-term financial security of their relatives with disabilities
Great Bear Rainforest Fund – public-private-philanthropic partnership structured to allow investments in ecologically-sustainable ventures within First Nations’ communities
Social Venture Partners (3 Canadian chapters) – network of engaged philanthropists that provide money and expertise for capacity building of nonprofits
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
Enterprising Non Profits (BC/ON) – provides matching grants to non-profit organizations that are interested in starting or expanding a business
Ottawa Community Loan Fund (OCLF) – loans of up to $15,000 to small business owners, internationally-trained professionals, social enterprises, community groups.
4

Elements of a Social Capital Market
5

The Social Finance Continuum
6
Sources: F.B. Heron Foundation and Jessica Shortall (2009) “Introduction to Understanding and Accessing Social Investment”

Supply Side
Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”
Banks / Credit Unions
Vancity
Alterna Savings
Canadian Co-operative Association
Citizens Bank
Desjardins
Royal Bank
Specialized Funds
Canadian Alternative Investment Co-op
Community Loan Funds (various: Ottawa, Montreal, Toronto, St. John)
Social Enterprise Fund (Edmonton)
Institutional Capital
UNPRI Signatories: CPPIB, etc.
Retail Investors
Mutual Funds: Meritas, Acuity
Registered Disability Savings Plan (RDSP)
Investment Management Firms
CAPE Fund
Ecotrust Canada Capital
Fonds de solidarité
Investeco
Renewal2 Investment Fund
Resilient Capital
Social Capital Partners
Foundations
Edmonton Community Foundation
J.W. McConnell Family Foundation
Maytree Foundation
Ontario Trillium Foundation
Tides Canada
Grantors
Enterprising Non-Profits
Toronto Enterprise Fund
7

Demand Side
Canada’s nonprofit and voluntary sector is the second largest in the world
CRA: over 161,000 nonprofit and voluntary organizations, of which approximately 83,000 are registered charities. (Pearson 2008)
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)
Reflects the importance of alternative revenue streams
This does not discount the importance of grants
Brouard et al. (2008) have developed a dataset of eight hundred social enterprises in Canada
Québec has over 6,200 social economy enterprises employing more than 65,000 people and generating over $4 billion in revenues (Pearson 2008)
8
Source: Karim Harji and Tessa Hebb (2009) “The Quest for Blended Value Returns: Investor Perspectives on Social Finance in Canada”, http://www.carleton.ca/3ci

Aligning Demand and Supply
9
Source: Alex Nicholls and Cathy Pharoah (2008) “The Landscape of Social Investment”, http://www.sbs.ox.ac.uk/centres/skoll/research/Pages/landscapeofsocialinvestment.aspx

Intermediaries
Academic
University of Toronto (OISE, Rotman)
Carleton Centre for Community Innovation
Sauder School of Business
Schulich School of Business
Capacity Builders
Causeway Social Finance
Social Innovation Generation
Community Futures Development Corporations
Ontario Nonprofit Network
Chantierl’EconomieSociale
BC Centre for Social Enterprise
Associations
Social Investment Organization
Canadian Community Investment Network
Community Foundations of Canada
Philanthropic Foundations of Canada
Credit Unions
Community Development Financial Institutions
Federal Government
Human Resources and Skills Development Canada
Canada Revenue Agency
Department of Finance
Ontario Provincial Government
Community Economic Development Funds
First Nations Finance Authority
Ministry of Finance
ESG Information
Jantzi-Sustainalytics
Web Platforms
CommunityLend
10

Mission Investing via Intermediaries
11
Source: FSG Social Impact Advisors (2007) “Aggregating Impact: A Funder’s Guide to Mission Investment Intermediaries“

Alterna Community Alliance Housing Fund
Created to address Ottawa’s affordable housing shortage
Provides low-cost financing for second-mortgage financing, and as necessary, primary-mortgage financing
Structured as investment grade instrument offering a five-year GIC rate of return
 It took 7 years before PSAC was able to find a “risk-free vehicle” to be able to do this!
12

Building the Social Capital Market
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Source: Monitor Institute (2008) “Investing for Social & Environmental Impact, A Design for Catalyzing an Emerging Industry”

New Capital on the Horizon
Loan and Investment Fund (Nora Sobolov)
Modeled similar to the Nonprofit Finance Fund in the US
Provide working capital and bridge loans to non-profit and charitable organizations

Community Investment Vehicle (Social Investment Organization)
A product to channel investment dollars from individuals and institutional investors
Invested in revenue-generating social enterprise owned + operated by non-profits

Fund of Fund Product (Mercer Consulting)
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)

Social Venture Fund (MaRS Capital Services and Edgestone Capital)
Primarily for early stage social ventures with strong potential to scale
Demonstration vehicle that can be leveraged to larger size with government participation

PRI Fund (Community Foundations of Canada, Philanthropic Foundations of Canda)
Align more than 3.5% of foundation assets (i.e. endowments) with mission
14
Source: Adam Jagelewski (2010) “New Capital on the Horizon”, http://www.socialfinance.ca/blog/post/new_capital_on_the_horizon

Why Does It Matter?
15
It’s already here
Growing interest among institutional capital to incorporate ESG
Moving from theory to practice across the country
It’s going to allow us to do things we’ve always wanted to do
Greater recognition for the need for more effective solutions to our greatest challenges
Leveraging capital through innovative, tiered deal structures e.g. “first loss capital”
It’s what we need
Address the bifurcation between philanthropy (for impact) and investment (for returns)
New generation of talent seeking to align their work with their values

The Opportunity
Creating new impact-related processes AND operating within strict investment policy discipline;
Optimizing for environmental & social impact AND applying the rigor of investment management tools;
Investing in new markets & asset classes AND maintaining exposure to traditional investment strategies;
Embracing new business models AND adhering to recognized financial theory;
Evaluating impact performance AND subjecting investments to recognized financial benchmarks; and
Expanding the scope and scale of philanthropic capital AND maintaining adherence to fiduciary responsibilities.
16
Source: Rockefeller Philanthropy Advisors (2009) “Solutions for Impact Investors: From Strategy to Implementation”

Thank You!
Karim Harji
karim@socialfinance.ca
416-646-1871 x.108
www.socialfinance.ca
www.socialcapitalpartners.ca
Presentation available at: www.slideshare.net/kharji
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Investing for Impact - Supply-Side Perspectives

by Karim Harji on Mar 30, 2010

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