Human Resources Committee on March 10th, 2015

[Scott Armstrong, Conservative, Cumberland—Colchester—Musquodoboit Valley, NS]

Thank you all.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

Mr. Cuzner, for five minutes, please.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

Thanks very much, Mr. Chair, and thanks to the witnesses.

Let me start by saying that your presentation, Mrs. Odendahl, was every bit as good as George Wamala had.... You know, he set the table with that.

[Voices]

Oh, oh!

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

But I do want to ask another question. We have three members from Atlantic Canada here, and I know that Mr. Broderick commented that capital risk is different from investment in social programs, but when we hear banks talk about risk assessment I would point out that there has been zero appetite on the part of the big banks to assume any risk, even in capital projects in rural communities. That's pretty much the rationale for ACOA right now. I say this because when a guy like John Bragg can't secure bank financing for a project in Oxford, when he's one of the most successful entrepreneurs in eastern Canada and has gone on to make money with that particular investment....

You're saying that you'd like to see the government step up and backstop the investments. Are you seeing any more appetite on the part of the big banks to assume a greater degree of risk in social investment?

[Sandra Odendahl]

I think the banks basically apply, as you have alluded to, very rigorous, very well-established risk management protocols in evaluating any type of financing. One of the things that we, the social finance team, have been talking about to our commercial banking colleagues—in fact all the time, as we haven't figured out exactly where to do this yet—is the possibility of layering riskier money, which might be the money from our social impact fund, with conventional bank financing. As you now, banks are highly regulated and there are certain things that they just have to do in the way they evaluate risk. However, because we've set aside a pool of capital for social impact, we have a different risk tolerance with our fund, and we have been talking about how we can use it—and here I can't speak to the particular case you mention, of course—

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

No, no.

[Sandra Odendahl]

—to help start to solve that challenge of how to do high-risk things when you are a highly regulated, risk-averse Canadian bank.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

On the suggestion that Mr. Broderick made with regard to the reporting on social investment, would there be a problem with that with the banks, do you think?

[Sandra Odendahl]

As far as I know, the financial sector is—and Andy's smiling, so I'm interested in his response—to my knowledge, the only sector in Canada that is regulated to have to produce a public accountability statement every year. I'm not sure what type of information currently isn't in our public accountability statement that Andy's thinking about, but I don't actually see a problem. Until last year, in addition to our public accountability statement—I'm only speaking for RBC—we also had a 100-and-some page corporate responsibility report, plus an annual report. We report a lot of information about community stuff. For our organization, obviously depending on what the requirements are, I think it would be very interesting.

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

Great.

I'll ask if Mr. Broderick wanted to make an additional comment on that. But just to close off, my last question will be a follow-up to what Scott was asking about, namely taking off some of the shackles in the CRA between charitable status and having no relationship with private capital. I guess whatever you do, there's the risk of abuse or something like that. Do you see a big hole? Is there a reason that this hasn't been pursued to date? Is there a reason that we haven't gone there yet? If so, what is it? If you could comment on both, I'll wrap up.

[Andy Broderick]

Is this for me?

[Rodger Cuzner, Liberal, Cape Breton—Canso, NS]

Yes.

[Andy Broderick]

Yes, I think there is. I think the fact is that the government hasn't suffered the main cost of the extreme clarity that currently exists. In other words, it's hurting a sector that doesn't really have much of a voice and has generally not been well elevated. I do think it can be resolved in a way that will keep integrity, but allow for a great deal of innovation.

As to reporting, I think there's a great deal of information provided by Canadian banks. It's not provided in a form that would easily allow communities to understand, for instance, the level of their deposits by census tract or by postal code versus the level of lending. It would be really interesting to be able to compare where deposits are taken and where they are put back as loans. Again, it would just be instructive and it would probably just help the banks to focus more clearly on where their business should grow.

[The Chair, Conservative, Phil McColeman]

Okay, thank you very much.

Now we move on to Mr. Boughen. You have five minutes, sir.

[Ray Boughen, Conservative, Palliser, SK]

Thank you, Mr. Chair.

Let me add my voice to that of my colleagues in welcoming you here this afternoon.

A couple of things happened in your presentation, Andy. I'm just looking at my notes here. I see there's limited capacity for this; there's risk in private and governmental involvement; and the non-profits have to build a strong balance sheet. I'm wondering how you build that balance sheet given those variables.

[Andy Broderick]

The first thing is to make that a target of what the non-profit is trying to do. It's to build a culture that accepts non-profits as strong business actors, with a clear mission that wins out in balance against any sort of for-profit goal.

Again, what I've seen in Great Britain and also in the United States are very strong intermediaries that are non-profit or charitable in their focus but are active with private investment and private capital. It gets started by first allowing that relationship to begin to grow. Again, through tradition and through history, I think it's not been an area that's grown, probably because Canada has had a very active government that to many degrees has addressed a lot those issues more directly with straight government financing.

As new ways to try to innovate, it's difficult for government to figure out how to innovate with private capital just because they are from different worlds.

[Ray Boughen, Conservative, Palliser, SK]

Thank you.

Sandra, in your presentation you talked about financial gains. It's important that there is financial gain in the various projects that are being financed to help them get going as necessary.

Given how this operates compared to traditional investment, how do you ensure that you will achieve that financial gain?

[Sandra Odendahl]

I guess I would say that depending on the investor, financial gain may or may not be the important thing.

One of the things we see in this space, speaking from the side of the investor, is that you have finance-first investors, who are looking for the win-win situation where there's financial gain and a social or environmental impact from their investment. But you also have investors who might be impact-first, who may just be happy to get the money back in one form or another because they want to make sure there's a social benefit. They might even be able to tolerate a bit of a loss, but it's still not quite philanthropy; they are not giving it all away. Everyone is different.

In answer to your question, though, for our fund, we are looking for modest financial gain, partly because we would like to think we're going to recycle the money. If our portfolio is successful, we want to grow that $10 million. As we get exits from our investments and we get the money back with interest, we want to pour it into new investments and try new structures and new things.

I would say that like any investment ecosystem, there's going to be a range of different kinds of investors and a range of investments. The risk return profiles will be different. I actually think there is something for everyone, but you can't have it all at the same time. I don't think you can have extremely deep social impact, extremely high returns, and low risk at the same time in the social markets, any more than you can get that in the traditional markets.

[Ray Boughen, Conservative, Palliser, SK]

Are they kind of mutually exclusive events?

[Sandra Odendahl]

Well, the ideal, just like in traditional investing, is that you look at where you can optimize, where you get the most impact for the lowest risk and the best return. But it's really hard to get them all at the top. You look for that intersection of the best you can do on each of those fronts, if that's what you're looking for. It's hard.

[Ray Boughen, Conservative, Palliser, SK]

Thanks, Mr. Chair.

[The Chair, Conservative, Phil McColeman]

You have about 30 seconds left.

[Ray Boughen, Conservative, Palliser, SK]

Okay.

Sandra, what would you say is the risk between the private and government sides? How do you view that? It was an issue that Andy brought up.

What's your view on that?

[Sandra Odendahl]

Sorry, what is the what between...?