social finance « Social innovation meets business revolution

By Rebecca Byers, Community Manager of SocialBusiness.org

In November I attended the 2012 Social Finance Forum at the MaRS Centre, which focused on impact investing and social return on investment. The conference was very well attended, with over 400 guests and only standing room in many of the sessions. It offered a variety of engaging and informative speakers and workshops, conveniently organized with a legend that signifies who a workshop is targeted toward, like not-for-profits and charities, investors and asset managers, market builders and financial service professionals, and social ventures and coops, as well as several targeted toward everyone.

The conference began with opening remarks from Royal Bank of Canada president and CEO Gordon Nixon, who spoke adamantly of the opportunity of social finance and announced RBC’s investment of $1 million over five years in support of the MaRS Centre for Impact Investing.

The conference’s opening panel featured Andy Broderick, Arlene Dickinson, and Antony Bugg-Levine, and focused on an investor insight into defining impact. The prominent investors discussed what they look for when they invest in social ventures, with the panel agreeing that the business does need to have a promise of investment before they can think of investing.

I attended SiMPACT Strategy Group’s workshop session ‘Social return on investment 101,’ an Albertan firm whose community investment measurement and evaluation methodology has been used by ventures in the public, private, and third sector in the province since 1993. SiMPACT employs outcome-based evaluation measures, includes stakeholder perspectives, links program reach and implementation, and reflects intention within the program’s logic model, and maintains that SROI is “a story, not a number.”

Overall I felt the workshops were well organized, specific, and highly informative. There was a consistent energy in the room, and I particularly enjoyed seeing the pitches from the students of the Ontario School for Social Entrepreneurship.

The conference’s first day featured another announcement in addition to Gordon Nixon’s, as Federal Minister of Human Resources and Skills Development the Honourable Diane Finley spoke during lunch and announced the Canadian government first social finance initiative, a two-month (recently extended to January 31, 2013) call for plans on social finance, for which a website was created.

I was uncertain at first as to whether or not Minister Finley’s announcement would be well-received – while some have in fact lobbied to Ottawa for recognition and support, like the MaRS Centre for Impact Investing itself, through its Canadian Task Force on Social Finance – however, as pointed out by Toronto Star columnist Carol Goar, they were seeking changes to tax code in order to allow “self-financing social organizations to qualify for tax credits,” and rewarding those who invest in social enterprise. It would seem then, that the general opinion is that the government is trying to alleviate some of the weight of providing basic help to those in need of it most, or, even more general, to private public services. It’s also obvious that some, as Carol Goar alludes, believe the call for concepts is asking those in the social finance realm to steer their time and efforts away from their own efforts, which could use support from the government instead of the other way around.

I can’t say I entirely disagree with this view, but I also think it’s long overdue that the national government recognized the social finance at all, as this was the first official time. I think that it would be easy for this to be frustrating for social entrepreneurs who have been pushing social finance for years, and then to all of a sudden have it kind of thrown in with the government’s austerity measures.

By Editor of SocialBusiness.org

Social Business has attended two of SocialFinance.ca’s major conferences, the Social Finance Forum. In 2011, when I attended, the theme was significantly centered around impact investing. One piece of literature that was given out in conjunction with the conference was called “A New Tool for Scaling Impact: How Social Impact Bonds Can Mobilize Private Capital to Advance Social Good,” created by Social Finance, Inc. The summary stated:

Today nonprofits have a new source of capital to scale evidence-based interventions: Social Impact Bonds (SIBs). Aligning the interests of nonprofit service providers, private investors, and governments, SIBs raise private investment capital to fund prevention and early intervention programs that reduce the need for expensive crisis responses and safety-net services. The government repays investors only if the interventions improve social outcomes, such as reducing homelessness or the number of repeat offenders in the criminal justice system. If improved outcomes are not achieved, the government is not required to repay the investors, thereby transferring the risk of funding prevention services to the private sector and ensuring accountability for taxpayer money.

While SIBs are not a panacea, they might provide a unique way to make effective interventions available to far more people in need than the number that can be reached through traditional state contracts and philanthropy. The best candidates for SIB funding are nonprofits with strong track records of improving outcomes for a well-defined target population. These outcomes translate into government savings that can be achieved within a relatively short time frame and are large enough to cover the program’s cost and a reasonable return to investors.

Social impact bonds (SIBs) are also known as “pay-for-success” bonds and contain characteristics similar to equity and debt, despite the name bond. The problem to be solved, if you will, is that charities and registered non-profits don’t receive the necessary long-term funding in order to be able to increase and innovate their services. In the Winter 2013 issue, Sasha Dichter, Robert Katz, Harvey Koh and Ashish Karamchandani wrote a piece for the Stanford Social Innovation Review (SSIR) on impact investing called “Closing the Pioneer Gap.” Here, the problem is the following: “More money than ever is flowing into impact investing, yet many entrepreneurs creating companies that serve the poor still find it difficult to raise capital, particularly at the early stages of their company’s growth.” Money from philanthropy and prizes can only get most social entrepreneurs so far, maybe through the seed stage of business development but the long-term and ongoing part is left by the wayside. “A broad definition of impact investing is in many ways appropriate because nearly all of this capital has the potential to create positive impacts on society,” Dichter, Katz, Koh and Karamchandani wrote. “But a broad definition also masks the fact that most funds—even those that talk about fighting poverty—bypass the more difficult, longer-term, and less financially lucrative investments that directly benefit the poor, and instead gravitate toward the easier, quicker, and more financially lucrative opportunities that target broader segments of society.” According to the article, only a few impact investing funds actually invest in “high risks and low- to mid-single digit annual returns,” which is essentially what defines these types of markets. Amidst it all, however, there seems to be a notion that as long as we recognize that there’s a long way to go, then we can develop impact investing, and thus, the strength of social businesses, through focusing on talent, infrastructure and solid business models. Dichter, Katz, Koh and Karamchandani close with a touch of optimism:

Impact investing has come far as a sector. Just a decade ago, the notion that philanthropy could be used for investment was unheard of. The idea that direct grants to a for-profit company could be a mainstream strategy to fight poverty would have seemed absurd. The idea that pursuing social impact could be incorporated in an investing strategy—whether in public or private markets—was seen as a fringe notion. So much has become mainstream, so much more is possible, but only if we realize that we are just at the beginning.