Impact investment to mobilise billions in Canadian capital
The Canadian National Advisory Board, set up by Sir Ronald Cohen's G8 Social Impact Investment Taskforce, has released its final report following 12 months of research and analysis of the social investment market in Canada.
Tim Jackson, senior advisor at the MaRS Discovery District, and Sarah Doyle, senior policy advisor at the MaRS Centre for Impact Investing, analyse the key elements of the report: Mobilizing Private Capital for Public Good: Priorities for Canada.
Last spring, British Prime Minister David Cameron announced the international Social Impact Investment Taskforce. A group of 24 Canadian experts from the private, non-profit and academic sectors came together to support this effort. Their report, Mobilizing Private Capital for Public Good: Priorities for Canada, has been released.
Impact investors place capital into enterprises and projects that aim to achieve a social impact, alongside a financial return – such as affordable housing projects, businesses that employ and train at-risk youth, and clean energy companies. Going further than many forms of socially responsible investment, which seek to avoid harm by using a minimum standards approach, impact investments deliberately target and measure social impact.
Social challenges – from youth unemployment to chronic disease – demand new approaches, cross-sector partnerships, and sources of capital, or they will increasingly represent a drag on the wellbeing of Canadian communities and government budgets.
Impact investment focuses attention on the investor, but the real win is at the community and individual level, if additional capital can be redirected towards solving the tough challenges we face, and if it can help those on the front-line to improve social, environmental and economic outcomes.
The good news is that impact investment in Canada is on the rise. Unfortunately, it is being stymied by an outdated legislative framework, transaction costs, and perceptions of risk.
With notable exceptions, there has been a prevailing sense that the charitable sector exists only to help those in need, that philanthropy is confined to the act of giving, that the primary job of governments is to provide services based on demand, and that investors should remain narrowly focused on profit. Without questioning the ongoing value of these roles, impact investment introduces a new set of expectations. It allows for a blending of social and financial motivations. And by emphasizing social impact, it increases the focus on addressing the root causes of social challenges, and on using measurement and data to determine what works.
Impact investment is vital to unlock innovation in the social sector. There are growing numbers of entrepreneurs who are mixing a social impact objective with a profit motive, and growing numbers of enterprising non-profits and charities. These innovators are looking for capital to launch their ideas, become financially sustainable, or grow to scale.
To realize the full potential of the Canadian impact investment market, government leadership is needed. Canada’s report recommends action in four key areas:
- Enable social enterprise activity in the charitable and non-profit sector. Current legal frameworks do not recognize the value of social entrepreneurship in this sector, even while expectations for greater efficiency and uneven donations in the wake of the 2008 financial crisis have put pressure on charities and non-profits to deliver more with less.
- Unlock foundation capital for impact investing. While there is significant potential for Canadian foundations to invest more of their $45.5 billion assets in ways that align with their charitable objectives, current legislation gets in the way of this blending of investment and philanthropy.
- Establish an impact investing matching program, paired with appropriate incentives. Initiatives designed to attract additional capital to a variety of markets in support of public policy priorities are not new. Measures such as capital matching, credit enhancements, guarantees and tax incentives should likewise be considered to catalyze impact investment.
- Establish an outcomes payment fund. Governments can test or expand promising approaches to social services without taking on financial risk by paying only if certain outcomes are achieved. Governments could specify maximum prices per outcome, as has been done in the United Kingdom, enabling the market to respond with innovative solutions. Service providers, in turn, can gain access to investment capital based on the government’s commitment to pay for outcomes.
It’s clear that innovation is needed to solve tough social problems. As in any sector, this requires capital. Governments are well placed to enable this activity, and to seize the potential of Canada’s impact investment market. We urgently need their engagement, to open the path for non-profits, social entrepreneurs and impact investors to achieve game-changing results for Canadian communities.
This piece was co-written by Tim Jackson and Sarah Doyle, it was originally published by the MaRS Centre for Impact Investing's programme Social Finance Canada – an online community and information hub for social finance and impact investing in Canada.
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