Social Finance and Nonprofits: Working towards sustainability

A sustainable approach to managing money that delivers social, environmental and economic benefits, social finance has achieved the status of buzzword in the nonprofit sector of late. And we all know what that means: confusion. Okay, it means more than that, but ask a nonprofit today how social finance can help achieve its mission and responses will range from a Google search to praising it as a panacea, neither of which are helpful when trying to engage in practical dialogue.

One of the fastest growing sectors in North America, there are close to 150,000 registered charities and nonprofits currently operating in Canada and their impact is undeniable.

For far too many organizations, however, social finance remains out of reach – whether due to lack of information or other obstacles. Not that social finance is the answer for all; far from it. But take a growing nonprofit sector, add an ever-competitive marketplace and mix it with the shrinking capacity of government to meet social needs and fund providers trying to do the same, and you’ve got yourself a good argument for why it may be worth a shot.

But some question whether the pursuit of social finance could inhibit the very raison d’être of a nonprofit. By shaking hands with the private sector, an organization undermines its value-based proposition, they argue. I couldn’t disagree more. Have you ever tried to get work done while worrying about paying your rent or bills on time? Financial strain hinders any last ounce of creativity, usurps motivation and brings well-intentioned individuals to their knees, creating a class of desperate souls searching aimlessly for one more drop. It’s not pretty. And it certainly doesn’t bode well for a sector striving for sustainability and the respect they deserve.

Take a look at the U.S-based Calvert Foundation. For over 10 years it’s been changing the financial landscape of traditional philanthropy and investment. With a mission of helping end poverty and creating a new asset class for community investing in the financial services industry, the foundation has enabled 240 nonprofits and social enterprises in over 100 countries pursue their objectives. Calvert achieves its goal through business partnerships with nonprofit borrowing organizations, empowering them to take risks and expand their impact in communities. “As a business partner, the group is not indebted to the whims of donors,” they explain, “but able to properly manage their own resources. This gives them the confidence and resources to know they can succeed on their own and transform communities.” Poverty alleviation, transformation, empowerment: would that facilitate or hinder one’s value-infused mission? You tell me.

Of course, pursuing this alternative financial model is not an easy proposition. For the moment, let’s put public policy and tax issues aside and focus on something else: perception. I had the pleasure of listening to Paul Cheng, investment manager of Venturesome, at a recent event sponsored by Causeway and the Ontario Trillium Foundation. A UK-based social investment fund, Venturesome has the unique challenge of operating in that oft-lonely space between those who dish out grants on the one end of the spectrum and suppliers of bank loans at the other. Since its inception in 2002, Venturesome has offered £15 million to 250 organizations.

It’s an impressive feat for a company operating in this grey zone. But, as Cheng related, it will take some time before social finance takes its rightful seat at the investment buffet, before it can be seen as a viable option for those searching for sustainability (an especially troubling sentiment considering it was offered by someone in the UK, which, like the U.S., is miles ahead of Canada on these matters. But I digress). He zeroed in on the perception problem upfront. Banks, for example, are incredibly reticent to talk to charities, viewing them as overly risky. They’re seen as beggars, he adds, as opposed to clients, a prominent position only achievable with the adoption of a social investment model.

Eradicating that antiquated outlook isn’t easy. But perception works both ways and any paradigm shift needs to occur on the part of nonprofits too. Though a significant number of courageous organizations are open to new financial models and willing to adopt a different lens from which to pursue their mission, many remain reticent, unsure. Instead of banging their heads against the same scuffed up wall, it would behove other nonprofits to embrace change, not run from it, to learn all they can about this alternative approach to sustainability. They need to ask questions, join advisory committees. They need to open their eyes and their minds to the possibilities. There still may be a long way to go and many obstacles in their way. But at least they’ll be along for the ride—part of the conversation—instead of sitting in the cold with their hands out looking for more of the same.

 

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