Investing for Impact - Supply-Side Perspectives

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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

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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.

Transcript of Investing for Impact - Supply-Side Perspectives

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Investing for Impact: Supply-Side Perspectives

Karim HarjiManager, Partnership Development – Social Capital Partners

Co-founder – socialfinance.ca

Investing for Impact: New Ways Capital is Flowing to Social GoodCambridge, ON29 March, 2010

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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?

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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

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

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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.

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Elements of a Social Capital Market

Demand•Nonprofits•Social enterprises•Social purpose businesses•Entrepreneurs•Co-ops•Social economy enterprises

Intermediaries

•Credit unions•Social stock exchanges•Community loan funds•Local economic development agencies•Associations

Supply•Socially-responsible investors•Commercial investors•Venture philanthropists•Foundations•Taxpayers

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The Social Finance Continuum

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

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Supply SideBanks / 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

Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”

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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)

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

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Aligning Demand and Supply

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

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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• Chantier l’Economie Sociale• 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

Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”

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Mission Investing via Intermediaries

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

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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!

Adapted from: Causeway, SiG, Volans (2009) “Building The Case for Social Finance in Canada”

Public Service Alliance of Canada

• Invested $2m to create the fund

• Committed to responsible investing

• Market rate of return in a “vehicle” that fulfilled fiduciary responsibility

Alterna Savings Credit Union

• Structured an investment vehicle to provide market rate of return as well as direct social impact

• Provides operational / admin. support

Ottawa Community Loan Fund

• Non-profit responsible for screening projects that are• Affordable to

those most in need

• Affordable in the long-term

• Constructed by unionized workers

Carleton Centre for Community Innovation

• Suggested alternative models drawing on research and experience from the US and UK

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Building the Social Capital Market

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

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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

Source: Adam Jagelewski (2010) “New Capital on the Horizon”, http://www.socialfinance.ca/blog/post/new_capital_on_the_horizon

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Why Does It Matter?

• 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

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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.

Source: Rockefeller Philanthropy Advisors (2009) “Solutions for Impact Investors: From Strategy to Implementation”

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Thank You!

Karim [email protected] x.108

www.socialfinance.cawww.socialcapitalpartners.ca

Presentation available at: www.slideshare.net/kharji