A. INTRODUCTION
The Federal Government has released its report on social
financing, which aims to unlock new sources of capital and change the way
governments, business, not-for-profits, charities and foundations work together
to improve social and economic outcomes for Canadians. Released on May 6, 2013
by The Hon. Diane Finley, Minister of Human Resources and Skills Development, Harnessing
the Power of Social Finance (“the Report”) documents the responses that the Federal Government received
from its National Call for Concepts for Social Finance (“Call for Concepts”) in November, 2012. This Charity Law Bulletin summarizes the Report, including a definition of social financing, a
description of certain social financing tools, an overview of social financing
initiatives around the world and in Canada, details on the Call for Concepts and the response by Canadians, and the Federal Government’s plan moving
forward.
B. DEFINING SOCIAL FINANCING
Social financing uses multiple sources of capital in an
effort to achieve social goods in realms such as unemployment, poverty and
homelessness. It provides an opportunity to leverage government funds to access
private investment. This provides more capital to community organizations,
which then use these funds to scale up proven innovations and finance
preventative interventions. This increased financing comes at a time when
funding sources are becoming increasingly uncertain.
Social financing empowers citizens and communities to
accept a greater decision-making role and provides investors with the
opportunity to make a social impact and earn financial returns. The Report
stipulates that social financing leads to “real-world” solutions, with private
sector investments being accompanied by private sector best practices.
C. TYPES OF SOCIAL FINANCING
Social financing can involve a number of different tools
and structures. These include social impact bonds (SIBs), social investment
funds (SIFs), social enterprises and sector capacity-building organisations.
1. Social Impact Bonds
SIBs share similar characteristics with traditional bonds.
With a traditional bond, the issuer promises to repay the investor, plus a
financial return (interest), at a specified time. An SIB is similar in that the
investor’s intention is to obtain repayment of the principal as well as a
financial return. However, with an SIB, the investor only receives repayment
and the financial return if the project achieves its specified objectives. In
this sense, SIBs combine the investment characteristic of a financial return
with elements of a pay-for-performance contract.
In order for an initiative to receive funding from an
SIB, the Federal Government requires that the initiative be proven, more
beneficial than the existing program and both scalable and replicable.
Implementing an SIB often requires involvement from a government, a service
delivery organization and an investor. It may also involve intermediaries,
evaluation advisers and independent assessors.
2. Social investment funds
SIFs use capital from multiple investors to provide
loans, mortgages and venture capital to not-for-profits, social enterprises and
social purpose businesses. SIFs often feature low interest rates or no interest
and involve a longer-term repayment schedule than traditional loans. The Report
describes how SIFs are commonly redistributed through microcredit loans to
individuals that are typically excluded from traditional credit markets, such
as single parents, singles under retirement age, Aboriginal people living off
reserve, new Canadians and individuals with activity limitations.
3. Social enterprises
Social enterprises are organizations or businesses that
produce or sell goods or services with the aim of achieving a public good. The
label “social enterprise” can apply to a wide variety of entities, including
enterprising charities, not-for-profits, co-operatives and social purpose
businesses.
4. Sector capacity-building organizations
Many entities involved in social financing have
recommended the creation of sector capacity-building organizations to help those
involved with social financing to navigate the sector. The objective of these
organizations would be to lower the transaction costs of commencing and
executing social financing initiatives. Sector capacity-building organizations
would prepare social enterprises for investment, help investors find suitable
initiatives, simplify social impact measurements, package social investment
opportunities for larger investors and help governments negotiate SIBs.
D. SOCIAL FINANCE AROUND THE WORLD
The Report highlights the social finance initiatives of
the United Kingdom (UK), the United States and Australia, as these countries
are leaders in the social finance field. The UK introduced the world’s first
SIB in 2010 and is currently reviewing its Charities Act and financial
services legislation to improve its legal and administrative environment for
social innovation projects.
In the US, the White House has established an Office of
Social Innovation and Civic Participation and proposed allocating $495-million
of the 2014 Budget to “Pay for Success” pilot projects in areas such as job
training, housing and education. The Report cites New York, Massachusetts and
Californian as states that already have social finance projects underway.
The Report notes that Australia is moving forward on a
number of “Social Benefit Bonds,” in areas such as child protection, family
preservation and reoffending. Australia also has a new Social Investment
Expert Advisory Group to advise on social investment and
payment-by-outcomes initiatives.
E. SOCIAL FINANCE IN CANADA
According to the Report, there are many social finance
initiatives already operating in Canada’s private and not-for-profit sectors
and governments of all levels are taking notice and exploring how they might
use these methods to tackle certain societal problems. The Report describes
eight examples of current social finance initiatives that are taking place
across the country and summarizes the efforts being made in many provinces.
In British Columbia, the provincial government
co-sponsored an innovation competition in 2012 called “B.C. Ideas” that
generated 466 ideas and mentioned continued support for social innovation in
its 2013 budget. The Alberta Government is shifting towards more outcomes-based
service delivery, having taken steps in its 2012 and 2013 budgets to implement
results-based budgeting and reviews of government programs and services.
In Ontario, the Provincial Government’s Budget 2012
committed to exploring partnerships that would improve service delivery
outcomes while lowering costs. Meanwhile, the 2012 Commission on the Reform of
Ontario’s Public Services recommended testing SIBs across various applications.
In Québec, the Provincial Government
is attempting to create the Banque de développement économique du Québec, which will combine various economic development programs to
make funds more accessible to not-for-profits. Québec’s Budget 2013 committed
to improving access to Accèslogis Québec, a financial aid program that facilitates pooling of public, community and private resources for social and community housing projects.
The 2012 Speech from the Throne in Newfoundland and
Labrador mentioned interest in innovative initiatives for tackling complex
challenges and Nova Scotia’s 2013 Speech from the Throne stated that the
province would be the first Canadian jurisdiction to offer SIBs. Nova Scotia’s
2012 Budget Address had committed $200,000 to developing a social enterprise
strategy.
The Report states that municipal governments are also
developing social finance initiatives, highlighting a City of Toronto
initiative to reduce emissions as one example.
F. CALL FOR CONCEPTS
The Report explains that the Federal Government called for
concepts on social financing because the world is facing increasingly complex
challenges and governments no longer have a monopoly on defining and providing
solutions. The Federal Government considers the traditional approach to
addressing societal problems to be falling short, while “social innovation” is
emerging.
The objective of the Call for Concepts was to
obtain ideas from Canadians and sectors of society on how the Federal
Government could harness the potential benefits of social finance to address
social and economic issues in new ways.
The questionnaire circulated in the Call for Concepts asked submitters to outline:
· The social problem being addressed (e.g., homelessness,
unemployment)
· A description of the population being targeted (e.g., at-risk
youth, Aboriginal people)
· The elements of the social innovation or project and the social
finance idea being proposed
· How money would flow to the innovation project and through the
proposed social finance initiative (e.g., via a SIB, investment fund or social enterprise)
· The types of measurements needed to demonstrate success of the
idea and whether there is any existing evidence showing that this type of
project has promise.
G. RESPONSE TO THE CALL FOR CONCEPTS
The Call for Concepts received more than 150
submissions between November 2012 and January 2013. The Report states that the
submitters’ awareness of societal difficulties and the scope of the ideas
proposed were “impressive and encouraging.” Submitters supported their
proposals with empirical evidence, anecdotes and third-party research.
Most submitters were from the not-for-profit or charitable
sector, with the remaining identifying themselves as representing the private
sector, expert/academic, government or think tanks. There were submissions from
most regions of the country, with people from Ontario and British Columbia making
the most submissions.
The Call for Concepts asked submitters to identify
the “Concept Area” of their proposal. Most submitters identified their proposal
as relating to “multiple domains,” followed in descending order by youth,
health, aboriginal people, housing/homelessness, people with disabilities,
public safety, unemployed seniors, new Canadians and other.
H. PROPOSALS HIGHLIGHTED IN THE REPORT
The Report profiles fifteen proposals in an effort to
illustrate the range of ideas submitted and the various social finance tools
described.
· Boys and Girls Clubs of Canada’s Skilled4Success, a
concept for introducing young people to career options in the skilled trades
· Ottawa Regional Cancer Foundation’s Cancer Coaching
concept that seeks to improve the quality of life for cancer patients
· Pathways to Education Canada’s Northern Graduation
Network, a concept to increase high school graduation rates in northern
communities
· Aboriginal Savings Corporation of Canada/J.W. McConnell Family
Foundation’s proposed First Nations Housing and Infrastructure Fund, a
concept for accelerating investment in these areas
· Social Finance for Supportive Housing Working Group’s concept to fund 10,000 housing units for people living with mental illness
· JVS Toronto’s Youth Reach Program, a concept targeting
marginalized youth who are at risk of conflict with the law
· Valuenomics’ Avanti Program, a concept for addressing
skills shortages in northern British Columbia’s resources sector
· Ottawa Community Loan Fund’s Seniors’ Housing Project, a
concept that would develop small-scale, independent community-based living
units
· Maytree Foundation’s Immigrant Mentoring Program, a
proposed support system concept that pairs new Canadians with experienced
professionals in their occupations
· Omega Foundation’s SmartSAVER, a concept to boost participation
of lower income families in the Canada Learning Bond and Registered Education
Savings Plan
· Mouvement des Caisses Desjardins’ microcredit program, a
concept that provides interest-free loans, longer payback periods and business
training to underserved entrepreneurs
· The Toronto Enterprise Fund, a concept that provides
business coaching and financing to social enterprises staffed by marginalized
people
· Carleton Centre for Community Innovation’s Canadian Impact
Infrastructure Exchange, a concept describing a proposed method of building
capacity for large-scale public/private investment
· SEA Change Nation’s LEARN-LAUNCH-SHARE Program, a concept
to scale up a social enterprise that introduces at-risk youth to business and
provides support for their new business ideas
· YMCA Canada’s Single-window Solution for Youth Employment
Support, a concept proposing a national service delivery model for streamlining
access to internships and job opportunities
I. WHAT HAPPENS NEXT
In the short term, the Federal Government intends to take
four concrete steps to push-forward on social financing. First, the Federal Government
will continue the conversation on social finance by reaching out via social
media, webinars and seminars to inform Canadians about social financing and
continue soliciting ideas. The Federal Government commits to connecting
potential partners through policy tables and targeted outreach, to incentivise,
leverage and encourage new relationships between investors and investees. The Federal
Government also intends to create opportunities for the ideas submitted to be
“sharpened” and to develop pilot-projects that are “investment-ready.” Finally,
the Federal Government will use existing program funds to test the social
finance tools discussed in the Report. The Report states that the quality of
submissions received from the Call for Concepts has led the Federal
Government to conclude that the time is ripe to turn some of these ideas into
action. It will be interesting to see what the Federal Government decides to do
in response.