The Canadian Landscape for Social Investing
Further to my blog post in February, in which I referred to some of the reasons why foundations are still being very cautious about social investing as part of their portfolio strategies, one of the reasons for this caution is almost certainly lack of information about the social investing landscape. To remedy this, we now have access to two new sources of information that will help foundation investors explore this unfamiliar terrain. The first is the more comprehensive one. Recognizing the information gap, the Centre for Impact Investing at MaRS in Ontario and Purpose Capital jointly authored a “state of the nation” report on what they call the “impact investing” landscape and posted it this spring.
The report according to its authors, “responds to a need to better understand the nature of impact investing activity in Canada, the ways in which it is evolving and maturing, and the areas in which it could grow or falter… a robust analysis of the state of impact investing in Canada provides decision makers with critical information to identify, assess and benchmark the impact-investing ecosystem and its constituent parts.” The full report is worth reading (rather than the executive summary). Foundations are reviewed as a distinct group among others on the “supply side” and the report suggests (based on a survey conducted by the Centre for Impact Investing in 2013) that foundations in 2012 had about $287 million allocated to impact investing (direct investment made for both financial returns and social benefit). Of this amount it estimates that about $80 million was allocated to program-related investing (typically loans to charities) and $200 million to mission-related investing (eg investments in funds such as VanCity’s Resilient Capital or Investeco’s Sustainable Food Trust). The report goes on to do a good high-level overview of the available impact investment products and the intermediaries that match supply and demand. A valuable read for interested investment committees!
Another new report in this area, focused on a specific investment product, the social impact bond, has been released by Deloitte and the Centre for Impact Investing. This report Paying for Outcomes describes the views of 80 potential investors – ranging from wealthy individuals to foundations to mainstream wealth management companies – on the social impact bond market in Canada. It does a good job of describing how a social impact bond functions and suggests that investors would be interested in putting capital into this type of social investment. But comments from the United Kingdom, where SIBs have been in pilot mode for at least five years, suggests some useful lessons and caveats about SIBs including the fact that elected governments may not have long enough time horizons to be patient and may not provide enough resources to projects to realize the results that allow investors to realize their returns. While the SIB is an interesting new social finance instrument in which the Canadian federal government has shown some particular interest, one might conclude from the United Kingdom experience that it may be appropriate only in relatively circumscribed areas of the community where projects and results can be well-defined, resourced and managed.