MaRS Centre for Impact Investing is now seeking a Senior Associate, Capital Advisory Services! From persistent poverty to climate change, we face entrenched social and environmental problems. Fortunately, a growing number of charities, non-profits, co-ops and for-profit companies are building business models to tackle these problems. They are turning to investors for the financing to […]Read More ›
Impact Investing in Canada: State of the Nation Report Released
The State of the Nation report on impact investing in Canada, jointly authored by Purpose Capital and the MaRS Centre for Impact Investing, was released this morning at Impact Ontario. Click here for the Executive Summary and Full Report.
As interest and activity around impact investing continues to grow in Canada, so does the demand for information around trends and opportunities. The State of the Nation Report provides updated information and analysis that can inform both new and existing actors in the impact investment sector.
The State of the Nation report 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. While there has been strong interest in and appetite for the Canadian impact investing market, it faces a significant information gap. As such, 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.
This report has several related objectives:
– To describe impact investing and how it is developing across the country
– To assess current impact investing activity across sectors, regions and asset classes
– To share examples of investments that integrate financial returns and social impact
– To identify trends, issues and challenges across market segments
– To prioritize recommendations to allow impact investing to fulfill its potential
Some of the key trends and opportunities we elaborate on in the report include:
Impact investing in Canada is characterized by a diversity of approaches and organizations:Unsurprisingly, given the size of the country, impact investing in Canada spans a wide range of motivations, forms and uses. The supply of capital describes asset owners and asset managers who are already engaged in impact investing. For example, we point to private and community foundations, but even within these segments impact investing awareness and activity varies widely. While we have relatively less data and fewer examples in other market segments (such as high net worth individuals and family offices), we note active interest and several prominent Canadian examples within these segments. Demand for impact capital is also significant, and we examine the key sectors that show promise, as well as relevant data and examples of existing activity. At the same time, there is a growing diversity of impact investing products available across asset classes, sectors, and regions, supported by an evolving set of tools and metrics to measure impact. As a result, new intermediaries are forming to facilitate links between supply- and demand-side actors and to help build the market. Each of these trends signals increased activity and sophistication, albeit in a fragmented manner across the country.
Overall activity continues to show signs of growth: Our scan of the marketplace has identified several types of investors who are seeking to deploy their capital through impact investing. In this report, we do not estimate a total market size, but instead describe the components that make up the “supply side” of impact investment (capital), as well as an analysis of existing products (funds and related financial vehicles).
Enabling infrastructure is being constructed: Our findings from across the country indicate that promising examples for enabling structures and conditions for impact investing exist. The social economy ecosystem in Quebec is an admirable example of how a network of organizations can work together toward shared objectives and leverage various forms of capital—including impact investments—to advance social progress. Our research highlights several regions (such as British Columbia and Ontario) and sectors (including affordable housing and renewable energy) with a relatively healthy base of support that encourage activity among investors, entrepreneurs and market enablers.
Challenges remain in several important areas: Looking beyond established sectors and regions, there is still much work to be done to create supportive infrastructure for impact investing. At a basic level, there is a misalignment between capital and opportunity; more often than not, entrepreneurs continue to identify finance as a key barrier to growth, and investors continue to rank deal-flow and investment readiness as a fundamental issue. The search and transaction costs of deals remain relatively high, even without accounting for issues such as impact measurement and a restrictive regulatory system. These and other issues require concerted and sustained effort in order to stimulate more activity.
Industry building will require coordinated action and leadership: Even if the practice of impact investing is not new—and there are certainly good examples of successful organizations—there is much work to be done to nurture and celebrate Canadian exemplars. Creating the conditions for all market actors to harness the potential of impact investing will require coordinated action within and across sectors and regions. In assessing the potential opportunities for leadership in Canada, we prioritize areas for action for each market segment in the concluding section of the report.
We see this report – including the data, examples, analysis and recommendations – as an important contribution towards a robust and integrated marketplace. As the first report of its kind, we hope that it can provide a solid foundation for future market research efforts.
We would like to thank those who have been involved in the formation, research, and review of this comprehensive report. Together, we look forward to building on our results and lessons to date, and to deepen our collective engagement and performance in order to realize the potential of impact investing to enable progress on social and environmental issues.
This post was co-authored with Karim Harji of Purpose Capital.