Human Resources Committee on Feb. 19th, 2015

[The Vice-Chair, Liberal, Rodger Cuzner]

Madame Crowder.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

Thank you, Mr. Chair.

Mr. Hartt and Mr. Jackson, both of you, in your presentations, identified barriers to moving forward with social impact investments. I wonder if the task force identified any challenges or downsides to actually even looking at going into social impact investment.

Mr. Jackson.

[Tim Jackson]

I think the biggest challenge or the biggest concern is the one that Sarah addressed, which is that there needs to be a recognition that this has to be incremental. This is not to take away from the organizations that still, and will continue to, need grants. Government has a role to play around social activities. That's the biggest barrier, that a government or someone else says, “Great, we're going to move this stuff into social finance, and we're going to eliminate any of our underlying social supports”.

That ties in to the last couple of questions. What we're talking about here, in many ways, is freeing up new capital. If you take a foundation, like some of the ones Ian's members would have, and if they have $100 million a year—

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

I'm sorry, Mr. Jackson, but I'm actually going to cut you off. I have only five minutes, and there are a couple of other points I wanted to cover.

[Tim Jackson]

Fair enough.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

Mr. Hartt, do you have anything to add to that in regard to actual downsides or challenges to even moving forward, not in terms of actually implementing a program but in terms of barriers to going forward with a program?

[Stanley Hartt]

We were asked, when we went to visit some ministers, whether there was actually a market for these bonds. They seemed to be wondering why anybody would invest at a below-market rate.

The answer is that the best businesses in our country already have elaborate and generous programs devoted to what's called “corporate social responsibility”. They're justly proud of directing part of their profits toward helping the needy in communities. Why wouldn't they embrace a concept that sees them doing as much or even more good while earning a return? Then they could know both that the return arises out of the basic business principles of the efficient use of resources and the achievement of planned and predictable outcomes and that it leaves more resources to be allocated to even more good works.

We don't see the availability of funding as a problem. We think that, in fact, once we get past the barriers that are in the law, both the taxation and the securities laws, there will be a market for these financial instruments.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

I don't know if the task force would have dealt with this, and it may be too far into the weeds in terms of details, but did a conversation happen with regard to life cycles of governments?

I've been here since 2004. And this isn't partisan; it's Liberal or Conservative. We've seen governments come in and, because they don't like what the previous government has done, pitch a program out because they couldn't attach their name to it. That's one question, regarding the life cycle of government.

The other issue is around contingent liabilities and whether you see any problems with governments booking the repayment of these bonds into what could conceivably be future governments.

I wonder if either one of you could address that.

[Tim Jackson]

I'll get to it very quickly.

I think the U.K. has the example to look at. This issue has gone through both Labour and Conservative governments. It's gone from one to the other and, I think, back again consistently.

To deal with the contingent liabilities, I'll defer to Mr. Hartt, who is much more of an expert than I am on how the government runs its books.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

Thank you, Mr. Jackson.

Mr. Hartt.

[Stanley Hartt]

I would argue that in our wildest dreams the liability that might arise from the potential to actually pay for a successful outcome under the entire aggregate mass of issued social impact bonds would be a rounding error in terms of the federal government budget. We're not talking about billions and billions of dollars of issued bonds, let alone the revenue that would accrue to them.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

You don't see a risk with that then? You don't see a risk with that particular issue around the contingent liability?

[Stanley Hartt]

I don't see a successive government asking, “What have they burdened us with here?” by having committed to, but not booked, the liability to pay for a successful outcome. In fact, they could solve the problem easily enough by creating the outcomes fund and disbursing the money into the outcomes fund so that it wasn't a contingent liability; it was in the outcome fund.

[Jean Crowder, NDP, Nanaimo—Cowichan, BC]

That would be a good idea, actually.

Thank you very much for your time. I've run out of time.

[The Vice-Chair, Liberal, Rodger Cuzner]

Thanks.

Mr. Eglinski, welcome, and you have five minutes.

[Jim Eglinski, Conservative, Yellowhead, AB]

This question will be for Mr. Hartt. There seems to be renewed interest in social finance among those in the not-for-profit sector, and even in the investment community. I was very fortunate; I sat for several years on a provincially funded social finance trust. We also know that, in this era of fiscal restraint, governments are looking at how social finance can benefit taxpayers. I wonder if you could just comment on that a bit.

But I'd like you to expand more on the broad range of potential benefits that could come from greater government investment in social funding, such as using it for educational purposes in communities, helping aboriginal communities maybe invest in some type of a business, or something like that. I wonder if you could just quickly answer that.

That'll give you about four minutes, because I think I took a minute, sir.

[Stanley Hartt]

I think the answer is that the range of potential uses of this technique is limited only by human imagination. As Sarah has been pointing out, the vast variety of things that this could be made applicable to, which have social impact, is really not something you could start with A and end up at Z and think that you've covered the waterfront, because the next morning somebody would think of some other potential use for it.

The way I see it benefiting government is precisely that funds, which now are either given away as charity by private sector institutions or paid by governments as grants, would be turned into a delivery mechanism where the payment only happened if you got the result. That has to be a principle that every government's going to like. When a government makes a grant in the best of faith, I assume that every government assumes that it's going to get the outcome it's paying for and it's disappointed if it doesn't get it. Well, how about an arrangement where it only pays if it gets it? Indeed, it pays alongside the private sector.

The Royal Bank has established an RBC generator fund of $10 million, which is a pool of capital for investment in businesses that tackle social and environmental challenges. You replicate that over all the large corporations that have corporate social responsibility budgets and you get a lot of private capital doing things that government is now being asked to do. More than that, you get it in a form where the structure requires that the outcomes be both measurable and favourable.

[Jim Eglinski, Conservative, Yellowhead, AB]

Thank you very much for that answer. I think you hit the nail on the head that there's an expected result for the money you're investing. I think you would find that not only in government, but you'd find that in the private sector or with private investors, because people aren't just going to give money for no reason at all.

Thank you.

[The Vice-Chair, Liberal, Rodger Cuzner]

Okay, we're going to wrap up here with one final round.

Madame Groguhé, would you like to start?

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Thank you, Mr. Chair.

I'm not sure whether it was Mr. Hartt or Mr. Jackson who mentioned that philanthropists would be willing to accept riskier investments. Just to be clear, I would call these modern-day philanthropists, given that, originally, philanthropists were people who gave money without the expectation of anything in return.

When we talk about social finance, we are still talking about markets, in general, and action research. This model is being advanced to see if it works, but not enough time has passed to gather any meaningful results and decide whether we should continue using the model or not.

Are there any results or examples you could share to say whether or not we're on the right track?

[Stanley Hartt]

I'd like to be the first to answer that, if I may.

As I just mentioned, philanthropists in today's society are proud to contribute towards the achievement of charitable goals. But it would be wrong to assume that these people wouldn't be willing to invest in a context that is developing.

The market hasn't yet developed in Canada because of the gaps in our tax and securities laws. We believe that a philanthropist who donates money in order to get an official tax receipt would be more inclined to put that same money towards achieving a specific outcome with a social impact. That philanthropist would do that even if the dividend was less than the market rate but still better than a donation made for income tax purposes.

This instrument should encourage the philanthropist because the basic principles governing the investment are the very market principles that allowed that person to acquire the money to donate in the first place.

We believe that if the appropriate tools are provided and right legislative amendments made, the market will grow and the results will follow. At a future meeting with the committee, we could share all kinds of success stories with you.

[Sadia Groguhé, NDP, Saint-Lambert, QC]

Very well.

In order to make that happen, should we consider implementing multi-year strategic plans that include requirement X or Y, plans we could possibly work on? Is that something we should consider?

[Stanley Hartt]

Naturally, because the instrument we're recommending to the committee is based on market principles. From that perspective, then, routine planning and performance measurement considerations would be normal and necessary components of the instrument. It wouldn't necessarily be on an annual basis given the nature of the project. Before investing in a given project, investors will certainly require conditions and standards around performance measurement to be in place.

[The Vice-Chair, Liberal, Rodger Cuzner]

Thank you very much for that.

I had been informed that the Conservatives were finished but I've since been told that Mr. Mayes would like to get in one final question. They do have another round here.

If you'd like to take us home with an encore, please do.

[Colin Mayes, Conservative, Okanagan—Shuswap, BC]

Thank you for that opportunity, Mr. Chair.

I wanted to get my head around this a little. Our government initiated the Canada job grant. I see that connecting with the private sector. They have an interest because they need people with certain training and they partner with the provinces that are obligated to provide skills training. We see the outcomes.

Social finance is not just wrapped around helping people in poverty or in need of housing. It could be enterprising too when it also provides educational opportunities and those types of things.

Is that true? Could that be part of an initiative? I think of that as a social finance initiative taken by the Government of Canada. What do you think?