Thursday, June 17, 2010

Canadian Responsible Investment Conference Update: Impact Investing: Innovations for Social Finance in Canada

by Karim Harji, Manager for Partnership Development at Social Capital Partners, founder,

Attendees at the Canadian Responsible Investment Conference expect to hear about the hottest trending topics from the panel sessions, with well-known terms and issues Engaging with the Oilsands Sector, Innovations in Cleantech Investing, The G20 and Financial Re-Regulation, and Divestment and Engagement… and of course, (the obligatory) SRI: The View From Europe.

But a panel on impact investing and social finance? That’s probably new ground for many, given the relatively nascent stage of the discussions in Canada. An excellent panel was linked up to provide an introduction to impact investing to those who needed it, and as a reminder to the rest of us around the emerging links between the world of responsible investing and social finance.

First up was Betsy Martin, Senior Advisor with Community Foundations of Canada. Betsy began the discussion by highlighting recent work by the Community Foundations of Canada around social finance. The Responsible Investment pilot project with the seven largest community foundations is the most prominent initiative to spur mission-based investment across the network. Additionally, CFC recently commissioned a report on The State of Community/Mission Investment of Canadian Foundations, which details nine Canadian foundations and their PRI/MRI/MBI approaches. Finally, their website maintains a healthy repository of key resources around responsible investment.

Next was Alex Kjorven, Development Manager at the Access Community Capital Fund, who introduced the fund as a means of “building impact investing through entrepreneurship”. She further described microfinance as lending where character is as equally valued as the validity of business plans, and that personal credit rating is almost an afterthought. Structurally, Access is not a bank but a nonprofit, as well as a charity – and so investors can invest in the organization and receive a low financial return (up to 2%) but high social return, or choose to make a donation and receive a tax receipt. As their site describes, donations go towards operating and program expenses, including reaching out to new clients and new neighborhoods, and providing pre- and post-loan mentorship and support of our loan clients; while investments go towards the loan fund and can be withdrawn at the end of the term. Alterna Savings administers the loans, which are under $5000 and are payable within 18 months.

David Berge, Senior Vice-President, Social Finance at Vancity, provided a gem of an anecdote that I hadn’t heard before, where he talked about the beginnings of what is now one of the leading financial institutions in Canada with assets of over $14.5 billion. Vancity started with 12 members who pooled $22 in Vancouver’s Downtown Eastside, with less than $1 in returns at the time. They have clearly come a long way since then, with new loans of $2.4 billion, 30% of which is distributed each year to members and local communities.

David described some of the areas which Vancity prioritizes as it shifts its own business model, to focus on the women’s economy (twice the size of India’s and China’s economies combined), new programs in food security, social enterprise, energy efficiency, and other areas. He noted that their commitment to these emerging areas is that they are putting their best people on proof of concepts and execution, and are looking for impact and scale when taking multiple pools of capital across the organization and applying them to same set of missions. Another related example is Resilient Capital, which is seeking to build a $10-$15 million fund to lend to nonprofits engaging in social enterprise.

A number of themes around social finance emerged during a Q&A with the audience. David pointed out that even though there is an appetite for impact investing, the downside risks are not well understood. Foreshadowing the microfinance panel later that morning, David noted that people are investing in microfinance before incorporating screening into their portfolios. The bifurcation between philanthropy and investing still exists, and even between different financing vehicles that combine (both) market-rate and non-market-rate returns. He described how insured deposits place the principal risk on Vancity, and make it an easier sell to clients, and where they can see the impact of investing in social enterprise.

Audience members also wanted to know if impact investing is consistent with fiduciary responsibility, because institutional investors are potentially giving up financial returns? David remarked that the big money – pension funds, universities, etc. – are managing for multi-generational time horizons, and so they should also be including the financial and non-financial implications of their investment decisions within the fiduciary process itself. Betsy Martin noted that the Freshfields II report and the UNPRI are important reference points for institutional investors seeking clarification on these issues.

My final thought to recap this panel session: I think that the most exciting part of the entire discussion was the venue itself – at the responsible investment industry’s largest conference, with attendees spanning the spectrum of investors and intermediaries. Some of the boundaries between responsible and impact investing are beginning to blur, and perhaps even lead to some level of convergence in the short- to medium-term. Community investment is gaining more prominence as a pillar of RI, and global trends suggest that impact investing is also going to continue to become more popular. Impact investing may not be an asset class yet, but my sense is that we’ll be seeing more demand for similar panel discussions at next year’s conference sessions in Victoria, BC.

As a reference to those who are new to the conversation around impact investing and social finance, I'd recommend the following publications:

-- Investing for Social and Environmental Impact: A Design for Catalyzing an Emerging Industry (Monitor Institute)
-- Investing for Impact: Case Studies Across Asset Classes (Parthenon Group)
-- Solutions for Impact Investors: From Strategy to Implementation (Rockefeller Philanthropy Advisors)

Karim Harji is the Manager for Partnership Development at Social Capital Partners, a social finance organization which provides growth financing and advisory services to businesses that integrate a social mission into their operations. Karim founded, an online platform for the community of people and organizations that are actively trying to advance the development of a social finance marketspace in Canada.

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