:
Good afternoon, ladies and gentlemen, and welcome.
This is meeting 44 of the Standing Committee on Human Resources, Skills and Social Development, and the Status of Persons with Disabilities. We are here to continue with our current study exploring the potential of social finance in Canada.
To provide testimony for our first hour, we are pleased to have with us Mr. Bruce Dewar, president and CEO of LIFT Philanthropy Partners. Welcome.
Also joining us by way of video conference from Montreal, we have Mr. Stephen Huddart, president and CEO of the J.W. McConnell Family Foundation.
Finally, by way of video conference from Calgary, we have Mr. Wayne Chiu, the CEO of the Trico Group. Welcome, sir.
Each of you will have up to 10 minutes to make your presentations, after which we will go by rounds of questioning to the members of the committee. We'll do five-minute rounds today, committee members, because we have two panels, one in the first hour, and another in the second hour.
Mr. Dewar, would you please start with your presentation?
:
It's a pleasure to be here to speak to the committee.
Social finance has an enormous potential to encourage social innovation in our country, by creating new opportunities for investors and social purpose organizations, or SPOs, to partner in innovative projects and take their great ideas to scale at a new level across this country. It will improve our social and economic outcomes for Canadians, and most importantly the communities they live in.
As we are all aware, Canada is facing growing economic challenges and escalating complex social issues. Our population is aging, workforces are retiring, and we face a greater demand for educated, skilled workers. Federal unemployment data shows a skills gap in regions and under-represented groups, such as aboriginal Canadians, new immigrants and adults with low literacy.
Additionally, our population's health is at risk. Physical inactivity is leading to chronic disease, mounting health care costs, and production losses. Physical inactivity accounts for more than $2 billion in annual health care costs. Government can achieve different and better outcomes for Canadian taxpayers only if it looks at new models and new ways of doing business. Social innovation and social finance can be one of these tools.
Moving from accepting the possibilities of social finance to moving projects to an active stage is a challenge for all governments, not just the federal government. We see that in the provincial government, and we also see that in other governments around the world. When we examine social finance globally, it is evident that there is no cookie-cutter solution and that social finance tools take many forms. It is too early to make a definitive prediction or reach a conclusion on which models work best globally, as they have not all yet come to fruition.
Three or four years ago, people were talking about social impact bonds, impact investing, and pay for performance, all models that can be used in Canada. I believe we'll come up with a Canadian solution, one that incorporates the best of each of these principles, to make sure that social purpose organizations can deliver results for Canadians.
In the United Kingdom, it has been recognized that in order for investment to be successful, it must be directed at the SPOs at a certain level of readiness. Building a pipeline of organizations that are able to accept and use finance tools is essential to the long-term success of Canada. If they have the capability and can be self-sufficient, then when they get the investment tools, they can scale and make a bigger impact and make the tax dollars go further.
In determining the readiness of SPOs or not-for-profit organizations to be placed in a pipeline for the social finance approach, LIFT believes that the following elements are essential to success: a clear theory of change with demonstrated results, a strategic growth plan to achieve desired outcomes, a potential for scaling the impact outside of their jurisdiction and across the country, demonstrating efficiencies and effectiveness, a robust metrics and evaluation tool to make sure the investment is getting the returns that everyone is looking for, and being impact and investment ready.
Government needs to start working with intermediaries to identify organizations that have successful models or interventions. They then have to have these intermediaries work with the SPOs to build their capacities so the organization is strengthened, thereby making it more sustainable and effective at delivering measurable social impacts. LIFT also believes that a framework of coast-to-coast investment and impact-ready projects will help Canada show other jurisdictions how to match regional and community needs and government policy priorities to a social finance framework that is able to deliver measurable results. Successful outcomes need to be determined with the government, stakeholders, and all partners. It must be clear what the intervention will achieve and whether that intervention causes a result by itself or in combination with other projects.
Globally, venture philanthropy organizations are being recognized as key contributors in getting SPOs to be investment ready and impact ready. A G-8 report talks about global collaboration as the heart of social finance and social innovation. LIFT is proud to be part of the best-practice alliance with three other global venture philanthropy organizations: Impetus Private Equity Foundation, in the U.K.; Social Ventures Australia; and New Profit Inc., in the U.S., and we support Canada's efforts to build a global network. These three organizations have been involved either directly or indirectly with social impact bonds and social finance tools.
LIFT believes it is essential to establish benchmarks, performance metrics, and evaluation processes to measure our social impact in targeting populations and regions. Therefore we want to ensure that measurement is embedded in all projects and accountability is clear.
I thank the committee for the opportunity to speak. I'm open for questions later.
:
Thank you very much, Mr. Chair.
Just let me say how much I appreciate the opportunity to speak today. We really value this opportunity to work together with partners in government, the private sector, and the community sector to improve the lives of Canadians in our communities.
I'm the president and CEO of the J.W. McConnell Family Foundation, which was founded in Montreal in 1935, making it only the second private foundation to be established in this country. Today we're one of the three largest such foundations in Canada by asset size. Our mission is to engage Canadians in creating a society that is innovative, inclusive, sustainable, and resilient. If setting aside a substantial portion of one's fortune for philanthropic purposes was a new idea in 1935, it has certainly taken hold in this country. We've got about 10,000 private and public foundations in Canada now that manage assets of about $55 billion. And according to the regulatory requirements around those funds, about $2 billion to $3 billion is invested and disbursed each year to community purposes.
We would argue that if we're serious about addressing problems like those that the previous speaker, Mr. Dewar, highlighted—such as mounting and unsustainable health care costs, high and chronic youth unemployment, the viability of communities that are dependent on a resource base that's declining or whose manufacturing sector is going south—it's time to unlock more of those resources and those endowment assets and put them at the service of community and national priorities. I think that's what we're here to talk about.
Our foundation made it's first impact investment in 2007. This is a fairly new field in Canada. In line with our philanthropic goal to improve undergraduate education, we made a $10-million loan to a group that was going to create a university with a new model for undergraduate education, a cohort model. So today, Quest University, as it's now known, is the highest ranked undergraduate school in the country. Incidentally, our loan was paid back with interest in 2009, which made it the highest performing asset in our entire $600-million endowment that year. It was a very difficult financial year, as you recall. I mention this just because it's an important point that, when we talk about impact investments and social finance by foundations, we often assume that there is a less than market return involved; but because these investments are correlated to community needs and often supported by real people in our communities, they are not correlated with market performances and can often, particularly in downturns, exceed them.
So when we're talking to the trustees of foundations—and we're talking about fiduciary duty here—we have to be clear that it's important, yes, to consider social and economic outcomes as well as financial returns on investments; but we can also say that, while it's acceptable to take a lower than market financial return, it's not always necessary to do so.
As an early entrant into the social finance field, we can point to a couple other keystone initiatives in which we have participated, including the establishment of the Canadian Task Force on Social Finance whose report in 2010 laid out an agenda for the country that I think you and we are now following.
It was Minister Flaherty who distributed that report to the other provincial finance ministers, recommending that they take a look at it. Indeed, across Canada today we see considerable progress at the provincial level in implementing things like community interest corporations in British Columbia, a social enterprise purchasing portal, as is being done here in Quebec, and other initiatives. So I think we're on the way, but I think if we look around the world now, the growth of this sector is outpacing the growth of the sector in Canada.
I was looking at statistics the other day showing that between 2012 and the end of 2014 the global value of impact investments increased to $23 billion. In Canada they've increased from $2 billion to $5 billion over that period. We're being outstripped by the progress being made in the U.K., the United States, Australia, and other countries. We think it's important to catch up.
Today our impact portfolio consists of about $25 million that's invested in a range of funds and companies' initiatives. But due to a lack of available product in Canada, about half of that amount is actually invested outside the country.
That we're having this conversation at all in Canada and around the world is due in part to the fact that the public, and especially those people who volunteer and donate, are concerned that charities do more than address the symptoms of systemic problems, and that they actually get to the root causes and focus on outcomes. I think that's really the shift we're experiencing in the philanthropic and community sector, and to which, I think in partnership with governments and the private sector, we're now being encouraged to make some very significant changes.
As grantors, we provide funding for social R and D. We take on the early-stage risk in seeking better social outcomes, and create the conditions for further investments in community infrastructure and social programs using such things as patient capital investments, loan guarantees, and outcomes-based finance mechanisms like social impact bonds and others around health, justice, education, disability, and community economic development.
I would like to explore three areas in which I think there's considerable opportunity for us in Canada to increase our activity in partnership with governments and the private sector to produce better social outcomes.
Let's begin with investment in communities and integrating social, environmental, and economic goals. I'll give you three examples.
In Toronto, we're currently participating with Evergreen CityWorks. We made a grant to develop a business plan for something called tower renewal, which is basically a model of doing environmental retrofits of older residential towers in the north end of the city in such a way that the energy savings pay for the initial cost of that energy retrofit. But we're also talking about a social retrofit. There's research showing that people living in these towers are often lonely, and there are high levels of crime, mistrust of neighbours, and so on. In partnership with the city, we're looking at rezoning the land between those towers to create new low-rise developments, and to introduce other social innovations that will create out of those towers a more viable and vibrant local community.
The next one I'm going to mention is Winnipeg. We're working in partnership with the Winnipeg Poverty Reduction Council, a local business group; the United Way Winnipeg; The Winnipeg Foundation; and the provincial government to change social outcomes in the north end of the city. This is a very challenged urban neighbourhood with a high percentage of aboriginal residents, and some social statistics that are frankly just unacceptable in a country like Canada. There, almost 25% of children are placed into foster care before they are five years old.
We recognize that this is a generational-scale commitment we're making, and one in which the ability to prototype new solutions with the community and with our community partners is one we can support through granting, but also that eventually much larger investments are going to be needed to transform that system. One of the places we're looking for capital to do that is the Canada Learning Bond, $1.2 billion of which is currently unutilized and is actually designed to support low-income families by securing entry into post-secondary education for their children. We know there's research showing that for children as young as four years old, just knowing that funding is in place for their future has a measurable and positive impact on school attendance, on a lack of participation in vandalism and criminal activity, and so on. A tremendous boost is given to a young kid who knows there's something set aside for their future.
Why aren't we using those funds? Why don't we have a mechanism to transfer them into a community like Point Douglas? That's the challenge we face, and, frankly, with that kind of capital coming into the community, we also ought to be able to think about developing social enterprises to give young people employment opportunities rather than having them be unemployed or dropping out of school.
That notion of looking at our assets and reprofiling them in line with their original intent, I think, goes to the heart of some of the best thinking about social finance these days. This is not about creating new money. It's about using our existing funds and assets to greater and better purpose.
The next case I would like to cite is one here in Montreal, where we're currently in conversations with the city, philanthropic partners, the community sector, the high-tech sector, universities, and others about a community transformation we can see for Montreal's immediate future. Again, that requires everyone to come to the table—unions, business owners, and the financial sector. It's together that we can actually accomplish very significant and different outcomes.
My second area to emphasize is the aboriginal one. As Mr. Dewar said, it is one of our greatest social challenges. And it is, I would say, one of our greatest opportunities to make a difference.
I'll give you an example of something that we're currently involved in from an impact investing perspective. We entered into a partnership with the Huron of Wendake, Quebec, to strengthen and replicate their model for owned housing on reserves. The Huron have a different model. They created a mortgage fund for themselves with the federal funds that come into the community. They held a referendum and they no longer control those funds at the band council level, they have an independent governance system and a business model that makes mortgages to community members, of which they've done over 400 with a less than 2% default rate. All are linked, by the way, at 7.5% and are strong enough to attract outside investment. They are interested in sharing that model—
:
Thank you for the invitation to speak to you today.
Besides my hat as the the CEO for a private enterprise, I am also the chairman of the Trico Charitable Foundation. Established in 2008, the Trico Charitable Foundation seeks to promote innovation and capacity in social entrepreneurship.
We were honoured to participate in the 2014 Canadian National Advisory Board to the Social Impact Investment Taskforce established under the United Kingdom’s presidency of the G-8. Today we reiterate the suggestions we made there. There are two essential elements the federal government can do to encourage social entrepreneurship. These are to allow not-for-profits to earn profits, and to allow private foundations to fund not-for-profits. While these recommendations focus on our support for social entrepreneurship rather than social finance directly, we see them as opportunities to increase investment readiness for those organizations wishing to access social finance in the future.
Addressing social finance directly, we would like to applaud this committee’s efforts to determine how the government can effectively encourage the growth of social finance in Canada as it has begun to grow abroad. I take seriously the combination of the two phrases: “in Canada” and “as it has begun to grow abroad”. What is important is that we must make sure to learn from and not just copy the experiences that have been made abroad. We also must apply those learnings in a way that respects and builds on the uniquely Canadian way.
This sentiment echoes the conclusions of a new report I would like to recommend, and I thank the federal government for having the vision and leadership to fund it. The report is called “Social Impact Investment: Building the Evidence Base”, by the Organisation for Economic Co-operation and Development, the OECD. It said that “actions initiated in one country or region may not be appropriate for another—policy objectives, experience and local context must be taken into account”.
I would like to take this opportunity to support the recommendations and next steps outlined in the report. The report said that given that social impact investment is an emerging field, concrete evidence is needed in terms of its impact. In particular, further work is needed to demonstrate the gains from the social impact investment approach compared to existing models. The report recommendations focus on building the evidence base, including developing a common agreement on definitions, committing to building the necessary infrastructure for coordinating data collection processes, and furthering efforts on the measurement of social outcomes and evaluation of the policy.
Everything the Trico Charitable Foundation has observed tells us the key needs in developing social finance are building up demand, helping to nurture and build investment in social impact-ready endeavours, and building the evidence base as described by OECD.
When we look at building the demand, we have been honoured to work with Employment and Social Development Canada to help build capacity through enterprising non-profits Canada, a national network of regional affiliates supporting social entrepreneurs to develop strong and impactful enterprises. It is from national networks such as these that we have the opportunity to focus on developing investment-ready organizations. In our recent exchange from the U.K. we have learned that while social finance initiatives have gained in popularity, there is still work to be done in getting the pipeline ready to take on the social finance products in the future.
Private Equity Foundation, a pioneer of venture philanthropy in the U.K., prepared a report for the UK National Advisory Board to the Social Impact Investment Taskforce. The report identified two types of organizational capacity building required by the social sector. One is around building strong, resilient organizations that can grow sustainably. The other is around building organizations that can reliably and predictably produce meaningful social outcomes, eventually for large numbers of people.
Both are crucial for the social investment market to flourish, but the latter has been neglected in attempts to develop this market.
One interesting development following this report announced in October 2014 by the Cabinet Office in the U.K. is the development of a £1.5-million fund focused on ensuring that organizations are impact ready. Managed by the social investment business for the Cabinet Office, the money will allow ambitious social ventures to access grants to help them manage their performance and increase their social impact to attract more investors. Grants between £15,000 and £150,000 will be available until late January 2015 to help the organizations build their infrastructure and skills and showcase their impact. The fund states that, without the right systems and knowledge, many worthy social ventures struggle to show how their impact can be measured. This new fund aims to solve the problem by offering support from experts to help organizations show the impact they make.
To address our second point on building the evidence base, a recent review of the U.K.’s Social Value Act identified three barriers to realizing the potential of the act: awareness and take-up are mixed, there is a lack of definition of social value, and measurement of social value is not being developed.
All of those issues would be addressed by developing the evidence base recommended by the OECD. We often hear the call for large social finance funds—the field is promising—but there is little rigorous evidence of their social impact. Accordingly, our foundation and the Business Development Bank of Canada, the BDC, are to research the impact of what we call national funds. Trico and the BDC are interested in determining the success of national funds in meeting the financing needs of social enterprises at start-up and through their life cycle. National funds are understood to be large pools of money set up for the purpose of investing in social enterprises. The study will examine two to three national funds in the U.K. and one prominent national fund in the U.S. Within Canada, the study will examine four social enterprise-focused investment funds. We hope to have the report ready by April 21, 2015, and would be happy to share it with the committee once it is available.
It is in relation to building the evidence base that there is the greatest need, and here the government is uniquely positioned to drive progress. A significant advance in the field of social finance awaits us if government helps develop the evidence base as recommended by the OECD.
In conversations about social finance, we frequently hear a call for government funding, government incentives, or government de-risking to help attract money to social finance. We suspect that the money is there already and exists to serve current investment opportunities. What is truly needed to unlock more opportunity, even greater flows of funds, and greater opportunities for government to directly participate in social finance is to develop capacity and the evidence base. Without raising capacity and the evidence base either more money will not flow or it will flow in less than optimal ways.
Should the committee be tempted to engage in such activities, I again urge you to heed the advice of the OECD about when or if policies with the objective of supporting social impact investment are put in place:
It is important that the policy interventions are well targeted, transparent and well-coordinated with existing policies as well as with the market. Policies should also be consistent so that market players both understand the implications of the policies and have some visibility...to make sure that the policies are having the intended results.
We commend Canada’s federal government for their continued engagement and learning on social entrepreneurship and social finance. We appreciate the opportunity to contribute to the dialogue. We firmly believe that with increased attention to investment readiness and building an evidence base, Canada can become a global leader in this space.
Thank you, Mr. Chairman.
:
Welcome back, ladies and gentlemen.
We have just been informed that we have votes to get to at 5:30. We're arranging for the transportation to be in front of the building right at 5:15 so we can get to it immediately and it won't be an issue for us to get to the House of Commons. That being said, the timing of these presentations will obviously be affected and questioning will be even more so.
Unless the committee objects, I'm going to give the presenters their time to present, because they've come to present. We'll get in as many rounds of questions as we can, and maybe even shorten those to three minutes or one question per member in order to get through them most effectively.
Just before I do that, I was hoping to do this at the end. Colleagues, as you probably know, our parliamentary secretary, Scott Armstrong, lost his father last week. That's why Scott isn't here and Mr. Goguen is here on his behalf. I'd like to say to you that obviously our sympathies are with Scott and his family at this time. If you choose to send him a note and you need his coordinates, please get them through me so you can express your feelings to him.
Welcome back, ladies and gentlemen.
We're here to continue our study on exploring the potential of social finance.
Joining us now we have Ms. Cathy Taylor, the executive director of the Ontario Nonprofit Network.
We also have Mr. Michael Toye, the executive director of the Canadian Community Economic Development Network.
Splitting his time with Mr. Toye we have Mr. Michael Oster, the president of the Ottawa Community Loan Fund.
Finally, we have Mr. Jacques Charest, the president of CAP Finance.
Ms. Taylor, why don't you start? You have up to ten minutes.
:
Thank you so much for inviting me to speak with you today.
My name is Cathy Taylor. I'm the executive director of the Ontario Nonprofit Network, based in Toronto. We're a network of 55,000 non-profits and charities in the province of Ontario, which are in everything from faith communities, sports and recreation, theatre groups, arts and culture, social services, health, and across the spectrum of the non-profit sector.
My remarks today will be from the lens of the not-for-profit sector, not from the investment perspective.
You may know that across Canada we have what we call the core non-profit sector—that excludes municipalities, universities, school boards, and hospitals. We're really big business. We generate $35.6 billion, or 2.6% of Canada's GDP, and are one of the fastest growing sectors of the economy, with an annual growth rate of 7%. In fact, since 2008 we were one of the only industries in Canada that was growing at that rate.
Contrary to common perception, 61.5% of the core non-profit sector's revenue comes from earned income and the sale of goods and services, not from government and not from other charitable activities; of that, 15% is through membership fees. Transfers from all three levels of government comprise only 19.7% of the revenue of non-profits and charities. I think that's an important distinction when we talk about social finance and social enterprise.
The public benefits sector in Canada—we often speak of non-profits as providing a public benefit—is not waiting for a handout from government or from philanthropy. In fact, it's just the opposite: the non-profit sector comprises independent organizations that make a significant economic contribution while pursuing their social missions. In a recent survey in Ontario, 88% of social enterprises were operating as non-profit organizations, and an additional 4% were for-profit corporations wholly owned by their non-profit. So when we talk about social enterprise and social finance, we're primarily talking about the corporate structure of the non-profit sector.
Social enterprises heavily reinvest back into their communities because they employ people, often with vulnerabilities and disabilities, and they create public services within their communities. The focus of the non-profit and charitable sector is this commitment to building strong, resilient, and inclusive communities that provide a social good, as opposed to increasing private wealth.
Social enterprise is a powerful force that can be used in local communities. We feel very strongly that the federal government has a role in creating an enabling environment for social finance and social enterprise, which have the potential to address growing inequality in communities and to play a major role in building community assets and resilience. We certainly applaud you for taking this opportunity to discuss this.
We'd like to make the following recommendations for you to consider today.
First would be to focus your work and effort on creating that enabling environment for social finance, and specifically social enterprise that builds on the trust the public has for the non-profit sector, which is one of the highest trust levels of any sector in Canada. To that end we believe that all social enterprises, regardless of their corporate form or source of revenue, should have a public purpose and a mission, should be operated for the public good not personal gain, should reinvest their excess revenue in their public mission, and retain their assets in the public domain for the public good.
Part of that enabling framework that we think the federal government has a role and responsibility to play is determining what that definition of social enterprise is. And there's an opportunity to align with our provincial governments.
Second, we would encourage you to wait and see, around the concept of a dual purpose or hybrid corporate legislation at this time. There's so much else that will provide more return for the time invested. We have new corporate legislation for the non-profit sector at the federal level. Many provincial governments are adopting new legislation for their non-profit sector at the provincial level. Quite frankly, the last thing we need right now is another piece of legislation to try to figure out what that dual purpose or hybrid piece looks like.
We know that B.C. and Nova Scotia have developed dual purpose legislation. We have only a few examples of organizations that have used it, and we need to see how it's working and not be the first to put another piece of legislation in place. We already have fairly flexible business corporate legislation; we need to see how it will evolve.
Third, we urge you to reform and reinterpret the Income Tax Act as it relates to non-profit corporations, especially those providing a public benefit, to allow them to be sustainable and grow their revenue. Current interpretation of the Income Tax Act prevents non-profit organizations from generating revenue—not creating profit, but generating revenue that they can put back into their mission as part of their organization—as well as maintaining cash reserves.
As you know, any business needs to have cash reserves if it is operating an organization. It is impossible to operate an organization with this kind of limitation, and even more impossible to operate a social enterprise with the goal of being accessible and inclusive without these tools in place. Revenue that is reinvested in the mission of the organization is not profit. Non-profit and charitable regulation is out of step with what is happening on the ground and desperately needs modernization.
Fourth, don't exclude non-profit organizations from business support programs, and treat social enterprises operating as non-profit and charitable organizations as small and medium-sized enterprises in the programs you have already available. They need access to the same funding and business supports as are available to the private sector. There are many government programs that offer supports and capital to small and medium-sized businesses. Free those up to also be accessible by non-profit organizations that are operating a social enterprise. This is a fairly straightforward thing that can happen in a very short period of time and that doesn't involve any new resources.
Currently, non-profits are often actively excluded and ineligible for research and development funding or start-up funding in business planning supports that are available to small and medium-sized enterprises. Often, what we're hearing on the ground is that they start as for-profit corporations to get those start-up resources, and then they transition to a non-profit once they are established.
Fifth, social enterprises need debt financing that is creative and responsive to their needs. Some of the earlier speakers spoke of certain tools out there, such as “slow money”, wherein a grace period between loan interest and repayment is expected, or long-term low interest rates for things such as social housing and capital projects and unsecured operating funding for social enterprises, such as lines of credit for cash flows.
I don't think we're necessarily always talking about complex social finance tools that need to be in place. On some level, the majority of the non-profit and charitable sector are small to medium-sized organizations, and they require some of the basic financial tools that are not currently available to our sector. Lenders are typically not familiar with the non-profit or social enterprise model and shy away, even though it's a much less risky investment for them. Government can play a role with respect to freeing up those institutions to provide these types of supports.
Social enterprises often take considerable time to become profitable, as they are filling a void that has typically not been filled by private business because there hasn't been a profit margin. For the sector to be able to provide that service with the expectation that there should suddenly be a profit margin isn't the right expectation. Help us figure out how we can provide the service at cost, which is what our role is.
The final recommendation is to develop a social procurement action plan for the government that encourages companies obtaining government contracts to engage social enterprises as part of their work. Leverage the purchasing power that government has to strengthen communities. Scotland, we know, is a leader in this regard, and there are many other examples of how this has been done around the world.
Thank you very much for receiving our ideas on strengthening social finance and social enterprise. We have a blueprint for supporting social enterprise in Ontario, which we're happy to share, and we're looking forward to your questions.
Honourable members, thanks for the opportunity to present to you today.
I can appreciate that we're in the second week of your study. Social finance is a very big term. It can be hard, perhaps, to wrap your head around it, so I wanted to share my time with one of our members, the Ottawa Community Loan Fund, who are some of the front-line people doing the work on the ground and having a real impact on people's lives. I'm going to talk about some high-level recommendations, and then I'll pass things over to Michael Oster.
My organization, the Canadian Community Economic Development Network, is a national association of community groups like the Ottawa Community Loan Fund working on integrated approaches to economic and social development in their communities. We have several hundred members in every province and territory.
We, like I think everyone on the panel here today, represent the demand side of social finance, not the investors or the suppliers or the intermediaries. We've come on the demand side in your study. We represent the community groups, social enterprises, cooperatives, and others delivering programs and services to improve socio-economic conditions in their communities. We try to cross sectors because we see that economic and social problems are connected and that addressing the symptoms alone isn't sufficient.
Mr. Butt mentioned earlier that we need to focus on the social goal, and we would agree entirely that this is the point.
[Translation]
Our members face many challenges in their daily work, but access to sources of capital tailored to their needs is one of the major obstacles to having more proven practices. Social finance emerged partly as a solution to this demand.
However, outside Quebec, Canada is lagging behind the U.K. and the U.S. We have five recommendations to help us catch up. They are included in the documents we circulated. As Mr. Mayes said earlier, the focus is on the federal government's role. I will also say a few words about each one of them.
First, in terms of stimulating investment, as we have seen with the Government of Ontario and as the experience of the Chantier de l'économie sociale Trust has shown us, if the government is ready to invest venture capital, that could be a lever for private investors, institutions and foundations.
[English]
In terms of the regulatory or programmatic changes to support social enterprise, we would urge you to build on what is already working.
As Cathy just said, there are many smaller examples and models that have demonstrated success. One of those is Nova Scotia's Community Economic Development Investment Funds. Over just the last 15 years, 48 CEDIFs have mobilized 7,500 investors—local individuals in their communities who want to put their savings into something of local benefit—and have generated more than $56 million in investments. Numerous other funds could be scaled to extend investment and development opportunities to communities across Canada.
Some of our members would suggest that the new pay-for-success models and performance-based contracts have received some disproportionate attention in the social finance debate to date. You've already heard from witnesses that they can't replace government funding, and that they have somewhat limited application in the broad spectrum of community services. In situations where they're appropriate, they have some tremendous advantages. But they are not a panacea, so in your report I would encourage you to keep them in perspective with respect to the broad range of tools that are available for social finance.
As the supply of social finance capital grows, the capacity of non-profits, charities, and blended value businesses will also need to be bolstered to grow the demand. Stephen Huddart earlier mentioned the lack of available product for investment. Wayne Chiu also mentioned the need to develop the capacity of the social sector.
In particular, non-profit social enterprises and cooperatives should have equal access to existing government-supported business development tools—here, I'm repeating Cathy's very good advice—including business-skilled capacity development opportunities. These are existing programs; they wouldn't cost any more money and would provide very powerful capacity-building supports.
Finally, as my final recommendation with respect to Ms. Sims' earlier question, whatever government undertakes, I would emphasize that the most important element is the way that it's done. It needs to be a collaborative model in partnership with private sector institutions and community groups, because a social finance approach recognizes that no one sector can tackle these challenges on its own.
We would commend Employment and Social Development Canada for having created a round table of stakeholders to do just that and we encourage its continuation as the social finance landscape evolves.
I'll now pass things over to Michael.
Mr. Chairman,
Thank you for the opportunity to offer my perspective to the standing committee. I'm very pleased to support CCEDNet, ONN, and other witnesses from the social services sector.
Mike has asked me to spend a few minutes providing successful examples of social finance and to update you on Ontario's social enterprise demonstration fund.
I anticipate that this committee is already familiar with the Canadian task force on social finance hosted at MaRS and their reports from December 2010 and December 2011. I'll merely state my broad support for their recommendations such as: dealing with mission-related investments by foundations; that the federal government, with partners including provinces, should establish the Canada impact investment fund; recommendations dealing with the establishment of a tax working group; and that social enterprise, as Mike has already stated, be made eligible for government-sponsored business development programs for small and medium enterprises.
Using Wikipedia:
Social finance is an approach to managing money which delivers a social dividend and an economic return.... Social finance includes community investing, microfinance—
such as what my organization has done for 15 years,
and we provided submissions to the Ontario Securities Commission, to HRSDC, and others.
It also deals with “sustainable business, and social enterprise lending” that we're about to become leaders in.
Social finance also includes:
Outcome-based philanthropic grantmaking and program-related investments, sometimes referred to as venture philanthropy....
My first example of social finance is the dozen or more community loan funds across Canada, including OCLF-FECO, Fonds d'emprunt communautaire d'Ottawa, which I have led since fall 2011 after I retired from the private sector. Established in 2000, OCLF has arranged almost 300 loans and almost $3 million in accessible loan capital to borrowers who cannot secure bank financing but have the character and aspiration that merits our support. With our help, our borrowers have improved their lives, reduced their dependence on social services and the public purse, are employing themselves and others, or have secured improved employment.
These social benefits and others have been measured by the Carleton Centre for Community Innovation, among others.
As a second example, OCLF received an impact investment of $57,000 in 2012 through Community Foundation Ottawa. With leveraged funding from Citizenship and Immigration Canada and the Ontario Trillium Foundation, we launched a new program called immigrant partner programs. We created new credit in Canada workshops, thus contributing to financial literacy in Ottawa. We have delivered the workshop in 13 months to over 700 immigrants. Of those surveyed, 45% have taken one or more tangible steps to improve their credit score and credit behaviour such as paying credit card bills on time, avoiding payday loans, reducing the number of credit cards, and in some cases starting to use a credit card which, when properly used, will establish a credit score to enable a bank loan in the future for an apartment or a home or a car or a business investment.
Already, 26 immigrants have taken loans from OCLF in the last year, and we forecast another 50 such loans in 2015. That $57,000 impact investment is bringing significant social benefits and more and better jobs. It is liberating immigrant talent to address skills shortages, and is improving service levels for our community while reducing the strain on social services. And all of that can be measured.
My third example is one that we're developing under the working title of social finance sustainable capital fund. We envision impact and other investments to build a capital pool of $1 million, with annual injections of $100,000 to fund operations, including occasional loan losses. We have already attracted community investment from Community Foundation of Ottawa, United Way Ottawa and others, matched by the Ontario Office for Social Enterprise, to provide services and financing to startup and early-stage social enterprise.
Due to the success of our immigrant partner programs, we forecast needing additional capital by mid-2015, which a new task force of our board is actively pursuing. One option is a community bond that would reward training partners for enhanced levels of job creation for immigrants and other marginalized residents of Canada and of Ottawa, and federal support would be most welcomed.
The other topic I was asked to speak on is the social enterprise demonstration fund, hosted by the Ontario government's office for social enterprise in the Ministry of Economic Development, Employment and Infrastructure.
Thank you for inviting me to testify before the committee.
I am Jacques Charest, president of CAP Finance, the Réseau de la finance solidaire et responsable. This network seeks to promote solidarity finance and development capital in Quebec. In my day job, I am the executive director of the Chantier de l'économie sociale Trust, which is an investment fund created specifically for social economy enterprises. I will tell you about that briefly at the end of my presentation. However, I will try to be as quick as possible so that the members of the committee have time to ask me questions.
What is CAP Finance? CAP Finance was created a few years ago, around 2010. It includes the vast majority of financial institutions and funding agencies providing responsible finance in Quebec.
What is responsible finance? The first thing is to determine what we are talking about when we say social finance, responsible finance, development capital, and so on. For our part, we distinguish between development capital and social finance.
Development capital is when financial institutions provide pure venture capital, but with specific socio-economic goals. They clearly want a return on the investment, but they also want to create jobs and contribute to regional and local development. It is governed by associations. The job creation we are talking about is local.
Let's now talk about solidarity finance, which is the focus of our discussion. Solidarity finance attracts financial institutions, non-profit organizations, financial cooperatives and credit unions that invest almost exclusively in social economy enterprises and in local or community development. Their mandate is to provide, among other things, funding and new investment tools to social economy enterprises.
Our organization includes almost all the players. I will not list them here because it would take too much time, but you can see them in our document.
In 2013, together with Professor Margie Mendell and her team, CAP Finance commissioned a study on the subject because the data were insufficient. We wanted to know what the situation was in Quebec and what all the stakeholders in Quebec had invested in development capital and responsible finance.
Let's look at what we call responsible placement. I am not talking about direct business investment, but the purchase of responsible financial products, responsible funds, ethical funds, and so on. In 2010, responsible placement was at $161 billion. In 2013, it was at $274 billion. Responsible investing was at $13 billion in 2010 and $18 billion in 2013.
Let's now look at the assets of the responsible investment component. In Quebec, development capital investment is $17 billion. In 2013, investment in solidarity-based finance, meaning in social economy enterprises and in local development, was $1.4 billion, which is a 40% increase over 2010.
The market is there and there are investments. However, they must be done right. Work needs to be done on both the supply side and the demand side. Being able to invest to such an extent is the result of working on both supply and demand. You need intermediaries for investment funds. We will later talk about possible solutions for the government in this area. It is important to have stakeholders on the ground to work on the supply side just as much as on the demand side of the financing in order to avoid having very good products but no businesses, or the other way around.
So the situation has really gone from placement to investment in businesses. In terms of social finance, it is important to distinguish between what we could refer to as private businesses and non-profit organizations, or collective businesses. One is not better than the other; it is a choice people make. We chose the collective businesses, social economy enterprises, but it is important to make that distinction because not all of them need the same financial tools.
Those in the private sector are quite present. When we want to connect with social economy enterprises, we need to keep a few differences in mind. We need to see what type of financing is possible. We need to see it as a big picture. This is not about meeting the needs of one or the other, but to consider the needs that are specific to each clientele.
How could the Government of Canada contribute to this? I will talk about its contribution to the trust later.
As was mentioned before, it is important to support the intermediaries in the market, either through specialized or central funds, through a fund that could sustain other funds or through credit enhancement funds. The question is whether we need those subsidies. That is the case in some instances. Are we talking about first losses or loan guarantees? That might be the case, but these are solutions that we need to consider to figure out how to facilitate the development of social finance in Quebec.
In addition, we need to make development capital accessible to our stakeholders, meaning the institutional funds, workers' funds, retirement funds, pension funds or foundations and reduce barriers to investment. Mr. Huddart actually referred to that. On our end, we are working with businesses and funds. However, there are problems and barriers, simply because people cannot invest in a limited partnership. So we must try to get around that.
As Cathy Taylor mentioned earlier, the easiest way is if we consider ourselves businesses and cover all the products and investment support measures intended for private businesses. We often see programs that are for businesses in category 1. Why are they not for NPOs or cooperatives? It's because that's the way things are. There are also programs for the capital and the shares of a company, but since there are none for social economy enterprises, we must find an equivalent.
As I mentioned earlier, in some cases, we should establish mixed structures. We should determine how laws can be amended to include joint ventures. We are talking about either type B businesses or fixed assets. We need to see how a third or a fourth type of business can be included and make sure that we are really talking about social finance and social enterprise. Whether they are for-profit or incorporated, fixed assets must remain with the companies.
There are some solutions I would like to mention. I can share two projects with you accepting that I may be talking about my own businesses. The fact remains that they are a fine example.
The Chantier de l'économie sociale Trust was founded at the beginning of 2007 with the help of a government subsidy. Its capital is at $53 million. Initially, the federal government granted a subsidy of about $20 million, which enabled us to obtain $30 million in investments and loans from workers' funds and the Government of Quebec. With that, since 2007, we have been able to invest $45 million in 127 businesses in Quebec. That has generated nearly 2,500 jobs, 400 entry-level jobs and $265 million in investments. In addition, based on our plan, those numbers will double over 15 years. So we are talking about one subsidy that helped get the movement off the ground and added a great deal to the trust. We have made investments across Quebec.
Finally, as one last example, I will tell you about one of our current projects. We have created a fund for NPOs involved in housing to help with renovations. That is under the federal program. Our project is geared toward those who need help to make it to the end of the first mortgage, but who don't have enough money to afford the cost increases. So we have worked with our partners, private investors and tax-advantaged funds. The goal was to raise $31 million and to loan the money to those people, based on the formula that worked for them.
In this case, the arrangements with CMHC work very well. We need to make sure that these new types of financial products are valid as programs and allow us to invest.
With a $31-million project, we will be able to renovate 1,200 housing units. In this case, one program just needed to be changed. In terms of housing, mortgage is not always the best financing option.