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Imagine Canada Report on Investment Readiness in Canada’s Charitable Sector Imagine Canada recently released its report entitled Are Charities Ready for Social Finance? Investment Readiness in Canada’s Charitable Sector (the “Report”). For purposes of the Report, “social finance” is defined as being “an investment that seeks a measurable social, cultural, and/or environmental impact as well as a financial return for the investor(s).” The Report was sponsored by the federal government’s Investment Readiness Program, a two-year pilot program to support social purpose organizations, consisting of charities, not-for-profits, and for-profit social enterprises (“SPOs”)”, in the context of the $755 million Social Finance Fund, which is expected to contribute to the availability of social finance capital to SPOs. For background information on the Social Finance Fund, see the April 2019 Charity & NFP Law Update. Based on a survey of over 1000 Canadian registered charities, the Report classifies the responses to the survey in five key themes regarding social finance: awareness and opinions, barriers, organizational capacity, debt experience, and demand. First, regarding awareness of social finance, the Report highlights that two-thirds of respondents stated either that they had never heard of social finance or knew little about it, suggesting that a large number of charities have a low awareness of social finance. Second, among the potential barriers to seeking a social finance loan, more than one in five respondents said their organization is not currently involved in earned income activities, they are uncertain about their ability to repay, or their board would not consider or approve of a social finance loan. Third, in terms of organizational capacity, about a third of respondents expressed concern about their ability to raise unrestricted funds when needed, draw on diverse range of revenue sources, collect evaluation data, assess full social/environmental impact of work, consistently and predictably generate an operating surplus, and draw on existing assets when needed. Fourth, regarding debt experience, the Report states that almost half of charities do not currently hold any debt, and those that do would not be considered social finance loans. Finally, the Report states that a majority of charities are not interested in taking out a social finance loan. However, the Report states that charities with larger annual revenues are more likely to report being aware of and holding positive opinions about social finance, report holding (or would consider taking) a social finance loan, and indicate having a stronger organizational capacity to access social finance. The Report concludes that many charities are likely not investment-ready. Among the various considerations supporting this conclusion, the Report states that charities are not participating in the social finance market due to the risk-averse position of boards of directors, in addition to lack of knowledge, experience, and expertise in social finance. The Report further states that in addition to investment readiness, the design of funds and financial instruments made available would also have an impact on whether social purpose organizations are able to access social finance. |
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