Social innovation through impact investing

What if right around now a solid hunk of global finance grew out of its devilishly anti-social phase and over the next few years got a social life, fell in love and got engaged?

I know. What are the chances that we'll ever see big money flowing into shapely investment pools that genuinely promote collective health, wealth and happiness?

But then again, maybe there's a way. A significant group of Canadian financial visionaries are part of a growing global movement that says it actually can happen. Together, they're scheming to introduce a player in the capital market that defies the traditional dichotomy between seeing investment as making money and donations as doing good.

Instead, they're intent on creating a financial instrument that merges both these compelling motivations. The goal is to make it as easy to sock money away in these new pro-social investment opportunities as it is to put it in mutual funds today.

They call it "impact investing," and the idea is that over the next decade the trickle of dollars now flowing toward entrepreneurial social innovation will turn into billions.

What's driving foundation leaders like the J.W. McConnell Family Foundation and others here in Canada and the Rockefeller Foundation in the U.S. is that no matter how you slice and dice, donations and tax dollars alone just don't add up to the scale of financing needed to address the world's mega-problems.

You can see they're an ambitious lot. In Canada, foundations alone manage close to $34 billion in capital assets. But most of their money is invested in traditional stocks and bonds. If just 10 per cent of those portfolios went to assets that supported their social missions, there's a $3.4 billion kitty to boost community development ventures.

And that's not counting what we citizens could cough up.

The full-spectrum vanguard pushing impact investing includes banks like J.P. Morgan in the U.S. and credit unions like VanCity and Alterna here, along with investment brokers, analysts and consultants. And most importantly, the whole plan rests on non-profit and charitable sector innovators and social entrepreneurs who are gearing up to grab the challenge.

Right now, the most developed arm of social entrepreneurship is micro-lending: community-based banks around the world lend small sums to low-income earners who make investments that generate income.

Lenders bundle their loans into funds that offer market rates of return to investors. Such funds, which offer both a return on investment and social value, successfully leverage hundreds of millions of dollars from large institutional investors. But micro-lending is just the tip of the social entrepreneur iceberg.

Tons of other activities, from low-cost housing to inclusive employment, local food and green energy, offer the same potential for socially attractive earning.

Momentum has been building, and last month saw a big leap. The Canadian Task Force on Social Finance outed itself with a seven-point plan called Mobilizing Private Capital For Public Good, launched by Social Innovation Generation (SiG). It's got its eye on the prize.

"Social finance has a long history in Canada," says SiG director Tim Draimin. "But it's been characterized by mostly small initiatives. This report offers the opportunity to construct a scaled-up impact investment industry," he says from the three-day "social innovation and finance" field trip he's leading in Vancouver.

According to the Social Investment Organization's Eugene Ellmen, "a lot of factors have come together." He's working toward another milestone, a Canadian fund of funds to launch next year for institutional investors. It aims to aggregate community projects that have launched their own small funds into a highly visible beacon for growth.

Unlike socially responsible funds that try to screen out the worst corporate practices, impact investing, says Ellmen, directly invests in positive impacts.

"The financial collapse of 2008 encouraged investors to look to alternatives," he says. You can see how losing 20 per cent or more of your charitable endowment supposedly invested "safely" in the market would get portfolio managers thinking.

Ellmen's guess is that it will take three or four years before you and I will have an easy in, but a few options are out there now.

The most notable new impact offering in this RRSP season is an RRSP- and tax-free-savings-eligible $2 million community bond offering from the appropriately named Centre for Social Innovation. CSI is a 23,000- square-foot shared workspace that contains 200 social mission organizations, businesses and individuals at its original home at 251 Spadina.

Last year, it expanded into an additional heritage building just south of Bloor on Bathurst, the new CSI Annex. (Disclosure: I am on the board).

The new building got a green retrofit and has been occupied since October. The CSI bonds have a steep minimum investment of $10,000. They pay 4 per cent interest until they mature in May 2015 and are selling well. CSI is also making its community bond experience public in hopes of inspiring replication.

Early last year, the Neighbourhood Unitarian Universalist Congregation near Gerrard and Coxwell created a debenture offering to raise some of the $220,000 required for a solar rooftop installation. It sold out in just a few months, and the new panels have been operating since August. The church is now happily sending out 5 per cent interest cheques out of the better-than-expected revenues the project is literally generating.

Those willing to look for their own fave enterprise to invest in can go to the clearlyso.ca website and choose from a list of social enterprises seeking funders.

But you might want to hold off until April, when Deb Doncaster of the Community Power Fund, who's working with six groups doing a variety of community renewable energy projects, plans to go public with an offering. They're all based on the Windshare co-op model that financed the CNE's turbine. She says the new shares will likely be sold in affordable $100 to $500 increments, and the return will be competitive with bonds and GICs.

They'll be RRSP-eligible for those with a self-directed RRSP. But what's really a sign that the sector is ramping up is that the cumulative retail value of the offerings will be $25 to $50 million.

These initiatives give new meaning to the term "capital gain." So money, honey, I know there's no rushing you. We like that you're into careful planning. But this love affair with your sweet social side is looking very promising. Keep going and, to be sure, there will be many happy returns ahead.

This article was originally published in NOW Magazine.

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