Presentation by Stacey Corriveau from the BC Centre for Social Enterprise - delivered at the CISED Social Enterprise Learning Series on April 12th

1. Social Finance 101 This workshop is a project of SiG national / causeway, Generously supported by the ONTARIO Trillium foundation, And presented by the bc centre for social enterprise 1

2. What we’ll cover today: Introductions What is social finance? Is social finance a fit for your organization? What social finance tools are available in Canada? What’s next for the social finance sector in Canada? Where can you connect to social finance opportunities, today? Questions are welcomed at any time. Thanks to our local workshop host! 2

3. Who’s in the room? Charities? Non-profits? Co-operatives? Consultants? Others? Board members? Staff? Volunteers? How many are operating social enterprises? How many are considering the launch of one? How many have heard of ‘social finance’? 3

4. Drum roll... 4 Introducing the online Guide to Social Finance Created by Social Innovation Generation National Funded by the Ontario Trillium Foundation Bookmark www.socialfinance.ca Contains up-to-date resources including a social finance directory geared to Ontario audiences This workshop is based on the Guide’s content

5. What is social finance? 5 ‘an approach to managing money that delivers a social and/or environmental dividend as well as an economic return’ financing for social enterprises, social purpose businesses, and community-based organizations synonymous with ‘impact investing’

6. What is social finance? (con’t) 6 can be non-repayable (e.g. grants) in cases where the social finance element attracts additional finance or builds scale (i.e. rarer than repayable) the investor wants more than anything for the supported organization / venture to succeed

7. Why do we need social finance? 7 donations, grants, and contributions to non-profits are under duress demand for social services is increasing social / environmental problems are becoming more complex governments can’t afford to solve these problems alone

8. Supporting factors 8 community-based groups are interested in building greater self-reliance investor values are shifting other countries are establishing best practices in Canada, a groundswell of systems building is underway

9. An important note about grants 9 Although grants do not commonly form part of the social finance landscape per se, they are an essential component of the community-based sector. Social finance can complement grants. Some organizations may not be suited to repayable financing... ...more about this shortly.

10. How can social finance help? 10 launch a social enterprise grow a project, organization, or enterprise purchase real estate increase community impacts

11. Some quick examples... 11 Community bonds: The Centre for Social Innovation in Toronto raised $1.7M for the purchase and renovation of its new building. Toronto Community Housing Corporation raised a $450M bond for the revitalization of Regent Park.

12. Some quick examples... 12 Mission-related investment: A Canadian family foundation provided a loan from its endowment capital to help a local non-profit purchase a LEED certified office building in the area in which they provide services. The loan is for $3M over 10 years at an interest rate of 6.5%.

13. Some quick examples... 13 Loan: Vancity provided a $5M loan to the Tia-o-qui-aht First Nation to support the development of a local hydro plant, harnessing its local waterway off of Vancouver Island. The project will power 1,700 area homes and net $1.6M annually. Business proceeds will be used to construct a salmon hatchery and to rehabilitate local streams.

14. Some quick examples... 14 Patient capital: The business development arm of the City of Toronto provided a mortgage to the Riverside Immigrant Women’s Enterprise, an entrepreneurial hub for women. A repayment holiday was extended: payments were not due until 8 months after the tenants had moved in.

15. Who are the social finance ‘players’? 15 Supply Investors Grant makers Demand Social enterprises Social purpose businesses Community-based organizations (charities, non-profits, co-ops) Plus intermediaries (financial, capacity building, impact measurement)

16. A social approach to finance emerges Responsible Investing $609 billion in Canada (2009) Microfinance $6 billion global (2009) Community Investing $1.4 billion in Canada (2009) Mission Related Investing $32 million in Canada(2010) IMPACTINVESTING A range of investing approaches are influencing the growth of more proactive placement of capital called Impact Investing

17. The question of profitability... 17 Some organizations / enterprises may never be in a position to link to social finance. Examples are those whose social / environmental bottom lines eclipse their financial one. Training and employment businesses tend to incur 33% more expenses than ‘normal’. They may always be subsidized, and/or at breakeven. Such ventures would likely not be in a position to repay debt or investors.

18. The question of profitability... 18 Social Capital Partners’ ‘five critical factors of social enterprise sustainability’... Two business factors (in the venture’s control): Business acumen of the operators Business complexity ...plus...

19. The question of profitability... 19 Three trade-off factors (all conscious choices): Size / nature of the employment barriers of the employees Skills / training gap (between the people being hired and the skills required) Degree of emphasis on the social mission in the day-to-day decision making process

20. What is ‘sustainability’ 20 Toronto Enterprise Fund works with employment / training enterprises They posit a realistic definition of sustainability for these groups ‘Sustainability’ = covering business costs with business revenues + covering social costs with grants / subsidy Recognizes financial impacts on the income statements of others (e.g. government)

21. Moving on... 21 Assuming that social finance is a ‘fit’ for your organization’s needs, and the capacity exists for repayment...

22. The forms of social finance 22 Commonly includes: loans equity investment patient capital And in some cases: grants that attract new capital grants that enable a social enterprise to shift to financial sustainability

23. Social finance tools (Canada) 23 Example of a loan Atira Women’s Resource Society recognized that it had real estate management competencies and used these skills to set up a company whose profits subsidize the organization. AtiraProperty Management accessed loans to operate the social enterprise, from Vancity Community Capital and Social Capital Partners Toronto. A condition for both loans was that 50% of the enterprise’s employees had to be social hires.

24. Social finance tools (Canada) 24 Loans Financial return on investment (ROI) is a fixed rate, and generally runs at 5-18% Term of investment: fixed term Low involvement in the business / organization Exit of investment is through repayment of the loan Liquidation rights can be first priority No voting rights

25. Social finance tools (Canada) 25 Example of patient capital Kitchener’s The Working Centre facilitates community projects and operates enterprises that foster training and employment opportunities. They secured a $215K patient capital loan in the form of a flexible mortgage,from the Canadian Alternative Investment Co-operative, for new space for their St. John’s Kitchen project – the payments cover an asset (the building) rather than an expense (rent).

26. Social finance tools (Canada) 26 Patient capital Financial return on investment (ROI) can run from minus 50% to plus 10% Term of investment: repayment holidays Some involvement in the business / organization Exit of investment is through repayment of the loan Zero liquidation rights (i.e. can’t seize assets) No voting rights

27. Social finance tools (Canada) 27 Example of quasi equity finance A social enterprise is engaged in promoting car-sharing as a way to reduce emissions while providing affordable access to drivers. They receive a quasi equity loan from the Toronto Atmospheric Fund, and use it to purchase more vehicles to expand their reach and deepen their impacts.

28. Social finance tools (Canada) 28 Quasi-equity Still suitable for charities and non-profits Financial return on investment (ROI) is a variable rate, and can run to 30% Term of investment: 5-7 years High involvement in the business, through Board Exit of investment is through royalty or repayment Liquidation rights are generally subordinate Voting rights are structured in the finance agreement

29. Social finance tools (Canada) 29 Example of pure equity finance An Ottawa environmental organization whose venture will launch locally-owned wind power generators receives an equity investment from the Community Power Fund, which is dedicated to building community power sources: the investor now owns part of the venture through shares.

30. Social finance tools (Canada) 30 Pure equity Not suitable for charities and non-profits Financial return on investment has no limit Term of investment is undefined High involvement in the business, through Board Exit of investment is through royalty or repayment Liquidation rights are residual Voting rights are exercised through ownership

31. Who offers social finance? 31 Traditional financiers Banks (mostly through impact investing) Community development finance and credit unions (Caissespopulaires, Vancity) Foundations (mission-related investing) Governments (including grants and contributions, and Industry Canada, FedNor / Community Futures)

32. Who offers social finance? 32 Impact investors Community loan funds (e.g. Ottawa Community Loan Fund, Canadian Alternative Investment Co-op, new Community Forward Fund) Environmental and Cleantech funds (e.g. Community Power Fund, Toronto Atmospheric Fund) Social enterprise funds (e.g. Social Capital Partners, CAPE Fund)

33. Who offers social finance? 33 Grants as social finance Enterprising Non Profits Toronto Toronto Enterprise Fund Social Venture Partners (Toronto) BC Social Enterprise Fund

34. Next steps for Canadian social finance 34 The sector is nascent. We still need to: Unleash new sources of capital Build an enabling tax and regulatory environment Develop a robust investment pipeline

35. Canadian Task Force on Social Finance 35 Convened by Social Innovation Generation (SiG) to identify opportunities to mobilize private capital for public good. Members include Paul Martin, Tim Brodhead, Bill Young, Nancy Neamtan, Tamara Vrooman and other sectoral innovators and influencers. See www.socialfinancetaskforce.ca Released Mobilizing Private Capital for Public Good in December. The paper includes seven recommendations.

36. Task Force next steps 36 SiG is acting as a relationship broker The Task Force itself is not mandated to implement the recommendations Work is happening across the country with respect to the recommendations A follow-up report from the Task Force is expected by the end of the year.

37. Other important developments 37 ‘Federal and provincial-territorial governments should embrace the sustainability of Canada’s non-profit sector as an explicit policy goal and address problems in the current policy and regulatory frameworks governing the sector that are barriers to this.’ ‘The federal government should undertake changes to the Income Tax Act…to allow charities and non-profits more flexibility… to allow enterprising activity as long as all proceeds are directed to fulfillment of the organization’s mission.’

38. Other important developments 38 Launched by the Government of Ontario in April 2010 Project to seek advice and ideas on ways to renew, streamline, and modernize the relationship between the government and the not-for-profit sector Focused on: collaboration, policy and legislation, funding mechanisms, and information coordination Recommendations include ‘make a range of social financing tools available to Ontario’s not-for-profit sector’.

39. Connecting to social finance opportunities 39 At the online Guide to Social Finance, click on ‘Directory of Funds’ Offers an up-to-date listing of Canadian social finance opportunities More than 30 social finance sources are listed, with detailed information on program requirements, application procedures, and websites

40. Thank you... 40 Stacey Corriveau can be reached at: stacey@centreforsocialenterprise.com 604.859.4618

41. The social finance task force recommendations 41 Bonus material

42. Task Force Recommendations 42 Recommendation #1 To maximize their impact in fulfilling their mission, Canada’s public and private foundations should invest at least 10% of their capital in mission-related investments by 2020 and report annually to the public on their activity.

43. Task Force Recommendations 43 Recommendation #2 To mobilize new capital for impact investing in Canada, the federal government should partner with private, institutional, and philanthropic investors to establish the Canada Impact Investment Fund. This fund would support existing regional funds to reach scale, and catalyze the formation of new funds.

44. Task Force Recommendations 44 Recommendation #3 To channel private capital into effective social and environmental interventions, investors, intermediaries, social enterprise, and policy makers should work together to develop new bond and bond-like instruments.

45. Task Force Recommendations 45 Recommendation #4 To explore the opportunity of mobilizing the assets of pension funds in support of impact investing, Canada’s governments are encouraged to mandate pension funds to disclose responsible investing practices, clarify fiduciary duty in this respect, and provide incentives to mitigate perceived investment risk.

46. Task Force Recommendations 46 Recommendation #5 To ensure that charities and non-profits are positioned to undertake revenue generating activities in support of their missions, regulators and policy makers need to modernize their frameworks. Policy makers should also explore the need for new hybrid corporate forms for social enterprise.

47. Task Force Recommendations 47 Recommendation #6 To encourage private investors to provide the lower cost and patient capital that social enterprises need in order to maximize their social and environmental impact, a Tax Working Group should be established. This group should adapt proven tax-incentive models. This initiative should be accomplished for inclusion in 2012 federal and provincial budgets.

48. Task Force Recommendations 48 Recommendation #7 To strengthen the business capabilities of charities, non-profits, and other forms of social enterprises, the eligibility criteria of government-sponsored business development programs targeting SME’s should be expanded to explicitly include the range of social enterprises.