Canada draws on UK experience to scale up social investment
Social investment in Ontario is burgeoning and offers rich insights for other countries, reports the City of London’s social investment advisor
On an unusually cold day in late March, over 400 people gathered for the MaRS Centre for Impact Investing’s ImpactOntario conference in the impressive, new tech building of MaRS, a large scale, Toronto-based, mission driven innovation centre focused on building Canada’s next generation of growth companies.
On the agenda were informed fireside chats, well moderated discussion panels and pacey, interactive and polished investment pitches to social investors. My colleague from the UK, Geoff Burnand, from Investing for Good, and I had been invited by the British Council to share our experiences on social investment with Canadian entrepreneurs, foundations and policy makers.
Dr. Eric Hoskins, Minister of Economic Development, Trade and Employment for the Government of Ontario is a man with a mission. In September 2013, this paper ran an article describing his strategy for building the social enterprise sector in Canada’s most populous province, which included housing a dedicated social enterprise office within his ministry.
The location of this function is interesting: in the UK, social enterprise and investment strategy has been something of an adopted child. The Office of Civil Society left its previous home and name within the business ministry and is now housed within the Cabinet Office. This position provides a commanding central viewpoint from which to determine policy for social enterprise and investment but it lacks the deep roots into key ministries which are delivering the policies.
The Minister gave the keynote speech, which started with a clear overview of the issues facing the sector he seeks to develop: 70% of the estimated 10,000 social enterprises in Ontario, which generate 160,000 jobs, cite access to finance as a significant barrier to growth. Check: yes, that sounds extremely familiar to the UK.
Building on the strategy for social enterprise in Ontario, the Minister announced that he was creating a $4m demonstration fund to help close this financing gap and to encourage private sector finance to complement public capital. Check: yes, this match funding approach has been adopted in the UK.
The UK experience to date suggests that this paired approach might work better for a demonstration fund than for the creation of separate investment funds. The UK’s wholesale social investment bank, Big Society Capital, seeks to leverage private match funding on a ratio of at least 1:1 when dispersing its capital. However, to date, experience suggests that those institutional investors with an active interest in social investment tend to be establishing their own funds with Big Society Capital finance, rather than co-investing into others’ funds. This has resulted in a series of partially-financed funds: it is a bit like playing trumps with a pack of cards which only contains the black suits – you end up with a series of incomplete pairs as you need the red equivalent to make up the duo, but it isn’t in the deck.
Minister Hoskins also referred to the UK experience when he announced a call for proposals for Social Impact Bonds under three priority themes. The emphasis in the Ontario government is to try new ways of working; build different types of partnerships between government, corporates and social organisations; and test the appetite of investors for financial products that deliver social and financial returns. Check: yes, the UK government’s strategy has also been to build a market for social outcomes, in part through the use of Social Impact Bonds. The UK experience suggests there is a clear need for pilot finance to develop Social Impact Bonds. It is far better to learn what works and doesn’t work through a trial scheme than to experiment after the finance is raised and investors’ capital is put at risk of loss if the project fails.
There were some interesting differences between the UK and Canadian experiences that emerged in our discussions over four days. One was the apparent lack of focus on corporate form of the social enterprise. Although two new corporate forms were launched in Canada in 2012 (the Community Contribution Company in British Columbia, and the Community Interest Company, based on the UK model, in Nova Scotia), legal form did not appear to be a hot topic at the conference. By contrast, the UK’s social investment community wrestles with the challenges of financing organisations which adopt a corporate form that, by law, protects the social mission as its primary purpose. In Canada tax regulations restrict charities, and forbid non-profits, from intentionally making profits. So most social enterprises adopt one of the ‘for profit’ business models.
Another difference is the drivers of social finance in the UK and Ontario. In Ontario, demand for capital appears to have driven the market to date, whereas in the UK the starting point for building this sector was focused more on the supply of capital. Neither approach is right or wrong, but they produce slightly different results. The high quality of the investment pitches at the ImpactOntario conference suggests that, alongside the training and incubator support offered by MaRS, the demand focus was generating investible propositions.
I was in Canada representing the City of London Corporation, which has created a £20 million social investment fund in order to put ‘its money where its mouth is’ by testing out the social investment concept. If my corporate cheque book had been in Canadian dollars, I could have considered investing in, for example, Jump Math, a programme which seems to have revolutionised the way children learn maths, Grantbook which has unravelled many of the administrative back office challenges of running a large grants programme, or KOMODO which has developed smart phones and tablets for highly physically disabled wheelchair users, among other social businesses.
The British Council has created a flexible approach to supporting connections between the UK and other countries’ growing social enterprise sectors. In China, it has established a social investment platform. In Hungary it is supporting young leaders in developing social enterprises. In Canada, it is working closely with the J.W. McConnell Family Foundation, a leader in the foundation world for using its range of financial tools to seek out innovative solutions to tangled problems.
There are real opportunities to share more experiences: for example, the UK’s experience of implementing the Social Value Act into government procurement is of interest to politicians and practitioners in Canada and around the world. The UK would benefit from understanding others’ experiences in creating an appetite among social enterprises to take on repayable capital. Social businesses across the globe too could start to look beyond their borders for market opportunities. Eventually, we can envisage that social investment becomes less ‘sticky’, more mobile, and that social enterprise brands become more international. Global organisations such as the British Council are key players in making this become a reality.
There is one further common area between the UK and Canada: the race against time to embed this approach to social business. Our societies’ growing deep needs require urgent attention now, and philanthropy is way too overstretched to tackle it alone.
This piece was originally posted on theGuardian.com. It has been posted here with the author’s permission.
While ImpactOntario is complete, our coverage of it is not! We’ll be continuing the conversations started there by covering ventures, talking with financial organizations and more! Stay tuned!