Social finance in Canada: the promise and pitfalls examined

A year after the C$755m Social Finance Fund’s launch, optimism about its transformative potential is tempered by concerns about the exclusion of underserved communities during discussions at the Social Finance Forum.

Hope about the long-term transformative potential of social finance was met with deep concerns about the exclusion of underserved and equity deserving groups from access to capital and power at last week’s Social Finance Forum in Canada.

Convened on 12-13 June by Future of Good, a digital media platform covering the impact sector, the hybrid event brought together over 1,000 social purpose professionals online and in person in five community hubs to take stock of the national state of social finance and impact investing.

A key topic of conversation was Canada’s C$755m Social Finance Fund, which was launched and funded by the Canadian federal government a little over one year ago, in May 2023, with the aims of accelerating the growth of the social finance market and providing flexible, mostly repayable finance to social purpose organisations that are addressing social and environmental challenges.

Paul Thompson deputy minister CanadaIn a plenary which was broadcast nationally, Paul Thompson (pictured), the deputy minister of employment and social development, announced that the government had to date deployed $200m in repayable investments to three social finance wholesalers – Boann Social Impact, Fonds de Finance Social - CAP Finance, and Realize Capital Partners – which in turn had invested more than $107m into 24 social finance intermediaries working to fund frontline organisations. Over the life of the fund, which is expected to run until 2039, the three wholesalers will receive a total of $400m from government in repayable investments and will leverage another $800m in private capital to develop the social finance market and enhance its long-term sustainability.

We needed to start where the market was

Joining Thompson in the plenary were leaders of the three wholesalers who outlined their strategies. Alicia Dubois, chief investment officer of Boann Social Impact, explained that Boann was taking a “staged approach” to investing, focusing initially on more established social finance intermediaries. “For us, investing in more mature entities in the early days will better position us to be self-sustaining as we shift our focus to investing in entities that…come with higher risk and lower returns,” she said.

Likewise, wholesaler Realize Capital Partners had made its first ten investments into more established intermediaries. “We knew we needed to start where the market was,” said Upkar Arora, CEO of Rally Assets, which manages Realize, and said that Realize would diversify by investing in new and emerging fund managers as well as in community-led organizations, and by making some direct investments into underserved communities.


Concerns and critiques

In an interview on the eve of the forum, Liberal MP and long-time social finance champion Ryan Turnbull, who helped develop the policies that guide the implementation of the Social Finance Fund, outlined a long-term vision of it as a mechanism to support a more diverse, robust and thriving social finance ecosystem. But, acknowledging some of the shortcomings to date, he also called for a “redistribution of power”, noting that, “We’ve heard for way too long that those who hold capital and decision-making power are too homogenous and it needs to be more diverse and inclusive and representative of the Canadian population – and that’s core to the mission of the Social Finance Fund.”

That critique was repeatedly echoed during the two-day conference. At the in-person event in Toronto, Susan Henry, director of community impact and financial inclusion at credit union Alterna Savings, was part of the Social Finance and Social Impact Panel. Speaking from her personal perspective, which includes sitting on the board of one of the wholesalers, she said, “It almost reminds me of traditional finance…I expected better from the fund.”  

There’s nothing being really designed for and by those who most need access to alternative forms of finance

She added that community loan funds, which provide affordable loans to people who struggle to access traditional finance, were starting to disappear in Canada “because they’re not getting the capital needed to do things for communities that have lower income, more vulnerability to economic shock and who have less assets”.

Serial social entrepreneur Tonya Surman, who is the CEO of the Centre for Social Innovation, a community hub, worried “that even though the Social Finance Fund and the work of the Social Finance Taskforce was led by nonprofits, right now the conversations that I’m hearing are largely focused on for-profit returns and high returns and tech investments.”

Heather Simpson, a consultant who advises mission-driven entities at Strategies for Good, said, “We’re bringing people into a room to be inclusive. And then when we move to implementation, it’s like, ‘oh, we can’t do that yet. We’re going to have to do that once we've made some money.’ …There’s nothing being really designed for and by those who most need access to alternative forms of finance.”

Béatrice Alain, executive director of Chantier de l'économie sociale, which promotes social economy initiatives, evoked the pervasive view in Canada that “finance is for experts, and that those experts know best”. Yet, as she noted, Canada had persuasive counter examples, notably in Quebec-based Desjardins, the largest cooperative financial group in North America that operates a cooperative labour fund managed by local people.

“This notion that we want to transform society, but we’re not really changing the structures of power and the returns to those who have the capital…is a fundamental flaw. And I think if social finance investors are serious about wanting to change the game, then they need to be putting the radical choice of sharing or seeking power for community.”


Room for growth and prescriptions for change

Panellists also outlined opportunities. “The Social Finance Fund will hopefully inject a lot more capital into the space,” said impact investor Ilse Treurnicht of TwinRiver Capital, “and now we have to mobilise more and really continue to build the case for social finance and impact investing.”

The Canadian impact investing market was estimated to be worth $14bn in 2023, up 56% from $9bn in 2015, and is projected to grow to around $46bn by 2030. In addition, Canada’s 10,000 philanthropic foundations collectively manage over $135bn in assets, according to Philanthropic Foundations of Canada, an umbrella group.

Yet as Treurnicht pointed out, more institutions such as pension funds, insurance companies and banks could get involved. “When you look at the global stage, we see that we’re still really lagging on institutional participation in impact investing as well as the engagement of the philanthropic endowments.”

She mused about the ripple effects. “Without the participation of mainstream actors, it’s not in the public consciousness and Canadians don’t even really understand what is possible through impact investing and social finance because it’s so difficult for them to access these types of products.”

Conversely, she said: “If we create a wider variety and credible impact investing opportunities, and we make them readily available to Canadians, not just the rich, Canadians will choose them and that’s how the narrative will shift.” 

Speaking of game-changing initiatives, Jory Cohen, a director at Inspirit Foundation, called on philanthropic foundations to make impact investments. He acknowledged the challenges in terms of fiduciary duty but argued that philanthropic investors should do what they can “in a responsible manner to align as much as your capital with your mission as possible, as tightly as possible” even when that meant lower financial returns.

Impact Investor Delphine Descamps noted that “more founders that have impact in their DNA and in their strategy, pushed also by employees and consumers who want more transparency, ESG and impact commitment so that gets me very excited”. One prescription she offered to accelerate the trend was changing the way companies were valued to factor in the positive or negative impacts that they generated. This suggestion was echoed by Tonya Surman who asked: “When are we going to start measuring the benefit of the social impact that is achieved as a part of that financial formula? That was the promise.”  


Much ado about impact measurement

The need for effective impact measurement came up repeatedly during the two-day forum as both an enabler of success for the social finance market and tangible evidence that impact is being created for Canadian society from the government’s investment.

In a fireside chat, Kate Ruff, executive director of the Common Approach to Impact Measurement, spoke of her organisation’s work to co-develop a demographic data collection plan that supported the Social Finance Fund.

It’s important that we in power receive from the bottom up what the impact ought to be

“Everyone that I talk to is 100% committed to collecting, analysing and disclosing high quality disaggregated data about the people, management teams and boards that receive funding through the Social Finance Fund and those who are targeted for the impact generated by social purpose organisations,” she said. “It’s important that we in power – investors, standard setters and foundations – receive from the bottom up what the impact ought to be, what it ought to look like, hearing from communities and reflecting the needs of those whose lives are most affected in ways they recognise.”

And although she was unable to share the full plan at the conference as she had hoped, she indicated that its release is imminent. “It’s going to happen. And it’s going to happen well.”


Header image: Delegates at the Toronto community hub during the Future of Good event


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