Thank you for the invitation to speak to you today.
Besides my hat as the the CEO for a private enterprise, I am also the chairman of the Trico Charitable Foundation. Established in 2008, the Trico Charitable Foundation seeks to promote innovation and capacity in social entrepreneurship.
We were honoured to participate in the 2014 Canadian National Advisory Board to the Social Impact Investment Taskforce established under the United Kingdom’s presidency of the G-8. Today we reiterate the suggestions we made there. There are two essential elements the federal government can do to encourage social entrepreneurship. These are to allow not-for-profits to earn profits, and to allow private foundations to fund not-for-profits. While these recommendations focus on our support for social entrepreneurship rather than social finance directly, we see them as opportunities to increase investment readiness for those organizations wishing to access social finance in the future.
Addressing social finance directly, we would like to applaud this committee’s efforts to determine how the government can effectively encourage the growth of social finance in Canada as it has begun to grow abroad. I take seriously the combination of the two phrases: “in Canada” and “as it has begun to grow abroad”. What is important is that we must make sure to learn from and not just copy the experiences that have been made abroad. We also must apply those learnings in a way that respects and builds on the uniquely Canadian way.
This sentiment echoes the conclusions of a new report I would like to recommend, and I thank the federal government for having the vision and leadership to fund it. The report is called “Social Impact Investment: Building the Evidence Base”, by the Organisation for Economic Co-operation and Development, the OECD. It said that “actions initiated in one country or region may not be appropriate for another—policy objectives, experience and local context must be taken into account”.
I would like to take this opportunity to support the recommendations and next steps outlined in the report. The report said that given that social impact investment is an emerging field, concrete evidence is needed in terms of its impact. In particular, further work is needed to demonstrate the gains from the social impact investment approach compared to existing models. The report recommendations focus on building the evidence base, including developing a common agreement on definitions, committing to building the necessary infrastructure for coordinating data collection processes, and furthering efforts on the measurement of social outcomes and evaluation of the policy.
Everything the Trico Charitable Foundation has observed tells us the key needs in developing social finance are building up demand, helping to nurture and build investment in social impact-ready endeavours, and building the evidence base as described by OECD.
When we look at building the demand, we have been honoured to work with Employment and Social Development Canada to help build capacity through enterprising non-profits Canada, a national network of regional affiliates supporting social entrepreneurs to develop strong and impactful enterprises. It is from national networks such as these that we have the opportunity to focus on developing investment-ready organizations. In our recent exchange from the U.K. we have learned that while social finance initiatives have gained in popularity, there is still work to be done in getting the pipeline ready to take on the social finance products in the future.
Private Equity Foundation, a pioneer of venture philanthropy in the U.K., prepared a report for the UK National Advisory Board to the Social Impact Investment Taskforce. The report identified two types of organizational capacity building required by the social sector. One is around building strong, resilient organizations that can grow sustainably. The other is around building organizations that can reliably and predictably produce meaningful social outcomes, eventually for large numbers of people.
Both are crucial for the social investment market to flourish, but the latter has been neglected in attempts to develop this market.
One interesting development following this report announced in October 2014 by the Cabinet Office in the U.K. is the development of a £1.5-million fund focused on ensuring that organizations are impact ready. Managed by the social investment business for the Cabinet Office, the money will allow ambitious social ventures to access grants to help them manage their performance and increase their social impact to attract more investors. Grants between £15,000 and £150,000 will be available until late January 2015 to help the organizations build their infrastructure and skills and showcase their impact. The fund states that, without the right systems and knowledge, many worthy social ventures struggle to show how their impact can be measured. This new fund aims to solve the problem by offering support from experts to help organizations show the impact they make.
To address our second point on building the evidence base, a recent review of the U.K.’s Social Value Act identified three barriers to realizing the potential of the act: awareness and take-up are mixed, there is a lack of definition of social value, and measurement of social value is not being developed.
All of those issues would be addressed by developing the evidence base recommended by the OECD. We often hear the call for large social finance funds—the field is promising—but there is little rigorous evidence of their social impact. Accordingly, our foundation and the Business Development Bank of Canada, the BDC, are to research the impact of what we call national funds. Trico and the BDC are interested in determining the success of national funds in meeting the financing needs of social enterprises at start-up and through their life cycle. National funds are understood to be large pools of money set up for the purpose of investing in social enterprises. The study will examine two to three national funds in the U.K. and one prominent national fund in the U.S. Within Canada, the study will examine four social enterprise-focused investment funds. We hope to have the report ready by April 21, 2015, and would be happy to share it with the committee once it is available.
It is in relation to building the evidence base that there is the greatest need, and here the government is uniquely positioned to drive progress. A significant advance in the field of social finance awaits us if government helps develop the evidence base as recommended by the OECD.
In conversations about social finance, we frequently hear a call for government funding, government incentives, or government de-risking to help attract money to social finance. We suspect that the money is there already and exists to serve current investment opportunities. What is truly needed to unlock more opportunity, even greater flows of funds, and greater opportunities for government to directly participate in social finance is to develop capacity and the evidence base. Without raising capacity and the evidence base either more money will not flow or it will flow in less than optimal ways.
Should the committee be tempted to engage in such activities, I again urge you to heed the advice of the OECD about when or if policies with the objective of supporting social impact investment are put in place:
It is important that the policy interventions are well targeted, transparent and well-coordinated with existing policies as well as with the market. Policies should also be consistent so that market players both understand the implications of the policies and have some visibility...to make sure that the policies are having the intended results.
We commend Canada’s federal government for their continued engagement and learning on social entrepreneurship and social finance. We appreciate the opportunity to contribute to the dialogue. We firmly believe that with increased attention to investment readiness and building an evidence base, Canada can become a global leader in this space.
Thank you, Mr. Chairman.