The Catalytic Event

Image by Rudzhan Nagiev

Written by Andrea Nemtin, CEO, SI Canada

The recent launch of the Social Finance Fund has me reflecting on how far the social finance sector has come, how far we have to go, and the potential for impact if we can get there. 

l began learning about Impact Investing in 2011 when I was at the Inspirit Foundation. I had been a social entrepreneur and worked in the private and non-profit sectors and was now responsible for investing just under 40 million dollars. I understood the power of capital, and believed that as an investor we were accountable for how our money made money. As shareholders, we were responsible for the impacts of those companies, good or bad. 

It simply made sense that as a social purpose organization we would use all of our resources to achieve our charitable goals, and at the very least, avoid actions that contradict them. As an organization working to increase inclusion, we believed that shifting how capital was invested was crucial for our vision to be realized. My board was supportive and we started to make a plan to align our investments with our values.

It turns out, however, that there is a long-standing regulated structure and systems in place for foundations and others to invest their assets. And they create a number of barriers to impact investing.

I began approaching our advisors; some found my questions about impact charming. Most dismissed them and assumed I didn’t understand their approach. The few who were aligned did not have the capacity to do what I was looking for. At best, Sustainalytics was considered a way of managing risk, but the general consensus was that any ESG would lower returns.  

Investment advisors were unable – or unwilling – to review deal flow in anything other than publicly listed equity or debt funds. They didn’t have the resources or expertise to do the required due diligence on investments into private funds, and definitely not enterprises.

As the CEO, I had absolutely no authority over individual investment decisions and could only work to influence at the policy level. Individual portfolio managers, who are chosen by investment advisors and overseen by a volunteer investment committee which meets quarterly and reports to the board, make those decisions. The whole process is operationalized according to the Investment Policy Statement that defines the return and risk profile.

And so our work around was to “carve off” a portion of our assets, a small amount considered immaterial that we could use for experimentation, and began looking for investment opportunities. Working with Purpose Capital, the only Canadian consultants in the field at the time, we created a framework and approach; however there was very little to invest in. We followed our colleagues into InvestEco, Renewal Partners, and the Community Forward Fund, and purchased a commercial condo from Artscape. We guaranteed a loan for Windmill (then called the Immigrant Access Fund), and watched as folks at New Market and Greenchip worked to get their funds off the ground. 

With our first investments made, in 2016 Inspirit publicly announced a commitment to an 100% impact investment strategy. At the time, there were no Canadian service providers to hire and so we built the capacity in-house with the incredible Jory Cohen, who incentivized and influenced the sector forward. In 2022 the strategy was complete.

It was this gap in the market that drove me to join the team at Purpose Capital. Upkar Arora, had purchased the consulting firm from the original founders, and I worked to support the transition to Rally Assets, which I believe was the first full-service impact investment firm in Canada.

Today, Kelly Gautier, an original employee of Purpose Capital, and Upkar continue to steadily guide the ship supporting the team as they learn and grow. I was pleased to see that they had taken on the role as one of the wholesalers in collaboration with their partners at Relay Ventures through the creation of  Realize Capital.

I used to say Impact Investing is a team sport. It was a collaborative environment nurtured by early adopters, forward-looking community foundations in Edmonton and Hamilton were blazing the trail, MaRS with its Center for Impact Investing and the Social Finance Forum, the McConnell Foundation convening. We watched as social purpose organizations and impact investment funds innovated and grew in spite of the structures that worked so avidly against them. Each new fund struggled to get enough assets under management to be viable. It turns out that $50 Million was the magic number.

Much of our learning came from colleagues in the US and the UK where a robust network of service providers, conscious investment advisors, asset managers and consultants were supported by a large community of foundations and philanthropists.  Both the US and the UK had experienced what Bill Young deemed a “Catalytic Event,” where the government infused a large amount of money into the social finance sector. In the US, it was through the Community Development Financial Institutions (CDFIs), and in the UK it came via lottery funds.

It was obvious that Canada needed its own Catalytic Event: a big chunk of money designed to attract matching capital to support Impact Investing funds across the country. 

In 2018, after years of work by more people than I could ever name, the Government announced the Social Finance Fund, $755 million dollars to support the growth of the social finance ecosystem. We finally had our Catalytic Event!  

The following five years saw thousands of social purpose organizations supported with millions of dollars worth of  Investment Readiness grants, activities and programs, with the goal of creating the demand to social finance.  In May, 2023 the Government announced the wholesalers for the investment portion for the Social Finance Fund

The hope is that they will bring private capital to funds that will invest in social purpose enterprises accross the country. It has the potential to be a crucial step in addressing the barriers faced by equity deserving groups and strengthen the economic stability of our community based organizations so that they can grow and thrive.

The question is … now what? How do we optimize this opportunity, what can we learn from others, and what’s next?

In my next instalment I reflect on lessons learned from the UK, from Big Society Capital and others, about ways we can optimize this catalytic moment for positive impact.

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