Human Resources Committee on Feb. 24th, 2015

[The Chair, Conservative, Phil McColeman]

Good afternoon, ladies and gentlemen, and welcome.

This is meeting 44 of the Standing Committee on Human Resources, Skills and Social Development, and the Status of Persons with Disabilities. We are here to continue with our current study exploring the potential of social finance in Canada.

To provide testimony for our first hour, we are pleased to have with us Mr. Bruce Dewar, president and CEO of LIFT Philanthropy Partners. Welcome.

Also joining us by way of video conference from Montreal, we have Mr. Stephen Huddart, president and CEO of the J.W. McConnell Family Foundation.

Finally, by way of video conference from Calgary, we have Mr. Wayne Chiu, the CEO of the Trico Group. Welcome, sir.

Each of you will have up to 10 minutes to make your presentations, after which we will go by rounds of questioning to the members of the committee. We'll do five-minute rounds today, committee members, because we have two panels, one in the first hour, and another in the second hour.

Mr. Dewar, would you please start with your presentation?

[Bruce Dewar, President and Chief Executive Officer, LIFT Philanthropy Partners]

It's a pleasure to be here to speak to the committee.

Social finance has an enormous potential to encourage social innovation in our country, by creating new opportunities for investors and social purpose organizations, or SPOs, to partner in innovative projects and take their great ideas to scale at a new level across this country. It will improve our social and economic outcomes for Canadians, and most importantly the communities they live in.

As we are all aware, Canada is facing growing economic challenges and escalating complex social issues. Our population is aging, workforces are retiring, and we face a greater demand for educated, skilled workers. Federal unemployment data shows a skills gap in regions and under-represented groups, such as aboriginal Canadians, new immigrants and adults with low literacy.

Additionally, our population's health is at risk. Physical inactivity is leading to chronic disease, mounting health care costs, and production losses. Physical inactivity accounts for more than $2 billion in annual health care costs. Government can achieve different and better outcomes for Canadian taxpayers only if it looks at new models and new ways of doing business. Social innovation and social finance can be one of these tools.

Moving from accepting the possibilities of social finance to moving projects to an active stage is a challenge for all governments, not just the federal government. We see that in the provincial government, and we also see that in other governments around the world. When we examine social finance globally, it is evident that there is no cookie-cutter solution and that social finance tools take many forms. It is too early to make a definitive prediction or reach a conclusion on which models work best globally, as they have not all yet come to fruition.

Three or four years ago, people were talking about social impact bonds, impact investing, and pay for performance, all models that can be used in Canada. I believe we'll come up with a Canadian solution, one that incorporates the best of each of these principles, to make sure that social purpose organizations can deliver results for Canadians.

In the United Kingdom, it has been recognized that in order for investment to be successful, it must be directed at the SPOs at a certain level of readiness. Building a pipeline of organizations that are able to accept and use finance tools is essential to the long-term success of Canada. If they have the capability and can be self-sufficient, then when they get the investment tools, they can scale and make a bigger impact and make the tax dollars go further.

In determining the readiness of SPOs or not-for-profit organizations to be placed in a pipeline for the social finance approach, LIFT believes that the following elements are essential to success: a clear theory of change with demonstrated results, a strategic growth plan to achieve desired outcomes, a potential for scaling the impact outside of their jurisdiction and across the country, demonstrating efficiencies and effectiveness, a robust metrics and evaluation tool to make sure the investment is getting the returns that everyone is looking for, and being impact and investment ready.

Government needs to start working with intermediaries to identify organizations that have successful models or interventions. They then have to have these intermediaries work with the SPOs to build their capacities so the organization is strengthened, thereby making it more sustainable and effective at delivering measurable social impacts. LIFT also believes that a framework of coast-to-coast investment and impact-ready projects will help Canada show other jurisdictions how to match regional and community needs and government policy priorities to a social finance framework that is able to deliver measurable results. Successful outcomes need to be determined with the government, stakeholders, and all partners. It must be clear what the intervention will achieve and whether that intervention causes a result by itself or in combination with other projects.

Globally, venture philanthropy organizations are being recognized as key contributors in getting SPOs to be investment ready and impact ready. A G-8 report talks about global collaboration as the heart of social finance and social innovation. LIFT is proud to be part of the best-practice alliance with three other global venture philanthropy organizations: Impetus Private Equity Foundation, in the U.K.; Social Ventures Australia; and New Profit Inc., in the U.S., and we support Canada's efforts to build a global network. These three organizations have been involved either directly or indirectly with social impact bonds and social finance tools.

LIFT believes it is essential to establish benchmarks, performance metrics, and evaluation processes to measure our social impact in targeting populations and regions. Therefore we want to ensure that measurement is embedded in all projects and accountability is clear.

I thank the committee for the opportunity to speak. I'm open for questions later.

[The Chair, Conservative, Phil McColeman]

Thank you so much.

Now we'll move to Mr. Huddart.

[Stephen Huddart, President and Chief Executive Officer, The J.W. McConnell Family Foundation]

Thank you very much, Mr. Chair.

Just let me say how much I appreciate the opportunity to speak today. We really value this opportunity to work together with partners in government, the private sector, and the community sector to improve the lives of Canadians in our communities.

I'm the president and CEO of the J.W. McConnell Family Foundation, which was founded in Montreal in 1935, making it only the second private foundation to be established in this country. Today we're one of the three largest such foundations in Canada by asset size. Our mission is to engage Canadians in creating a society that is innovative, inclusive, sustainable, and resilient. If setting aside a substantial portion of one's fortune for philanthropic purposes was a new idea in 1935, it has certainly taken hold in this country. We've got about 10,000 private and public foundations in Canada now that manage assets of about $55 billion. And according to the regulatory requirements around those funds, about $2 billion to $3 billion is invested and disbursed each year to community purposes.

We would argue that if we're serious about addressing problems like those that the previous speaker, Mr. Dewar, highlighted—such as mounting and unsustainable health care costs, high and chronic youth unemployment, the viability of communities that are dependent on a resource base that's declining or whose manufacturing sector is going south—it's time to unlock more of those resources and those endowment assets and put them at the service of community and national priorities. I think that's what we're here to talk about.

Our foundation made it's first impact investment in 2007. This is a fairly new field in Canada. In line with our philanthropic goal to improve undergraduate education, we made a $10-million loan to a group that was going to create a university with a new model for undergraduate education, a cohort model. So today, Quest University, as it's now known, is the highest ranked undergraduate school in the country. Incidentally, our loan was paid back with interest in 2009, which made it the highest performing asset in our entire $600-million endowment that year. It was a very difficult financial year, as you recall. I mention this just because it's an important point that, when we talk about impact investments and social finance by foundations, we often assume that there is a less than market return involved; but because these investments are correlated to community needs and often supported by real people in our communities, they are not correlated with market performances and can often, particularly in downturns, exceed them.

So when we're talking to the trustees of foundations—and we're talking about fiduciary duty here—we have to be clear that it's important, yes, to consider social and economic outcomes as well as financial returns on investments; but we can also say that, while it's acceptable to take a lower than market financial return, it's not always necessary to do so.

As an early entrant into the social finance field, we can point to a couple other keystone initiatives in which we have participated, including the establishment of the Canadian Task Force on Social Finance whose report in 2010 laid out an agenda for the country that I think you and we are now following.

It was Minister Flaherty who distributed that report to the other provincial finance ministers, recommending that they take a look at it. Indeed, across Canada today we see considerable progress at the provincial level in implementing things like community interest corporations in British Columbia, a social enterprise purchasing portal, as is being done here in Quebec, and other initiatives. So I think we're on the way, but I think if we look around the world now, the growth of this sector is outpacing the growth of the sector in Canada.

I was looking at statistics the other day showing that between 2012 and the end of 2014 the global value of impact investments increased to $23 billion. In Canada they've increased from $2 billion to $5 billion over that period. We're being outstripped by the progress being made in the U.K., the United States, Australia, and other countries. We think it's important to catch up.

Today our impact portfolio consists of about $25 million that's invested in a range of funds and companies' initiatives. But due to a lack of available product in Canada, about half of that amount is actually invested outside the country.

That we're having this conversation at all in Canada and around the world is due in part to the fact that the public, and especially those people who volunteer and donate, are concerned that charities do more than address the symptoms of systemic problems, and that they actually get to the root causes and focus on outcomes. I think that's really the shift we're experiencing in the philanthropic and community sector, and to which, I think in partnership with governments and the private sector, we're now being encouraged to make some very significant changes.

As grantors, we provide funding for social R and D. We take on the early-stage risk in seeking better social outcomes, and create the conditions for further investments in community infrastructure and social programs using such things as patient capital investments, loan guarantees, and outcomes-based finance mechanisms like social impact bonds and others around health, justice, education, disability, and community economic development.

I would like to explore three areas in which I think there's considerable opportunity for us in Canada to increase our activity in partnership with governments and the private sector to produce better social outcomes.

Let's begin with investment in communities and integrating social, environmental, and economic goals. I'll give you three examples.

In Toronto, we're currently participating with Evergreen CityWorks. We made a grant to develop a business plan for something called tower renewal, which is basically a model of doing environmental retrofits of older residential towers in the north end of the city in such a way that the energy savings pay for the initial cost of that energy retrofit. But we're also talking about a social retrofit. There's research showing that people living in these towers are often lonely, and there are high levels of crime, mistrust of neighbours, and so on. In partnership with the city, we're looking at rezoning the land between those towers to create new low-rise developments, and to introduce other social innovations that will create out of those towers a more viable and vibrant local community.

The next one I'm going to mention is Winnipeg. We're working in partnership with the Winnipeg Poverty Reduction Council, a local business group; the United Way Winnipeg; The Winnipeg Foundation; and the provincial government to change social outcomes in the north end of the city. This is a very challenged urban neighbourhood with a high percentage of aboriginal residents, and some social statistics that are frankly just unacceptable in a country like Canada. There, almost 25% of children are placed into foster care before they are five years old.

We recognize that this is a generational-scale commitment we're making, and one in which the ability to prototype new solutions with the community and with our community partners is one we can support through granting, but also that eventually much larger investments are going to be needed to transform that system. One of the places we're looking for capital to do that is the Canada Learning Bond, $1.2 billion of which is currently unutilized and is actually designed to support low-income families by securing entry into post-secondary education for their children. We know there's research showing that for children as young as four years old, just knowing that funding is in place for their future has a measurable and positive impact on school attendance, on a lack of participation in vandalism and criminal activity, and so on. A tremendous boost is given to a young kid who knows there's something set aside for their future.

Why aren't we using those funds? Why don't we have a mechanism to transfer them into a community like Point Douglas? That's the challenge we face, and, frankly, with that kind of capital coming into the community, we also ought to be able to think about developing social enterprises to give young people employment opportunities rather than having them be unemployed or dropping out of school.

That notion of looking at our assets and reprofiling them in line with their original intent, I think, goes to the heart of some of the best thinking about social finance these days. This is not about creating new money. It's about using our existing funds and assets to greater and better purpose.

The next case I would like to cite is one here in Montreal, where we're currently in conversations with the city, philanthropic partners, the community sector, the high-tech sector, universities, and others about a community transformation we can see for Montreal's immediate future. Again, that requires everyone to come to the table—unions, business owners, and the financial sector. It's together that we can actually accomplish very significant and different outcomes.

My second area to emphasize is the aboriginal one. As Mr. Dewar said, it is one of our greatest social challenges. And it is, I would say, one of our greatest opportunities to make a difference.

I'll give you an example of something that we're currently involved in from an impact investing perspective. We entered into a partnership with the Huron of Wendake, Quebec, to strengthen and replicate their model for owned housing on reserves. The Huron have a different model. They created a mortgage fund for themselves with the federal funds that come into the community. They held a referendum and they no longer control those funds at the band council level, they have an independent governance system and a business model that makes mortgages to community members, of which they've done over 400 with a less than 2% default rate. All are linked, by the way, at 7.5% and are strong enough to attract outside investment. They are interested in sharing that model—

[The Chair, Conservative, Phil McColeman]

Mr. Huddart, I have to ask you to wrap up, sir, as you are over time already. These are great examples and I wish we had more time. Perhaps we can explore more of that through the questioning. Could you wrap it up within a minute, please?

[Stephen Huddart]

Certainly.

The last point is really the RECODE initiative, a $10-million initiative to introduce the opportunity for social enterprise development and social innovation to Canada's post-secondary sector. In this we are pleased to partner with the Trico Group, your next speaker, which is working on this with us. And I think the point here is just to open up the space for the next generation of young Canadians for whom there is a high level of interest in taking part.

Thank you.

[The Chair, Conservative, Phil McColeman]

Thank you very much. As I said, there are a lot of really interesting things there to explore with you.

Now we move on to Mr. Wayne Chiu.

[Wayne Chiu, Chief Executive Officer, The Trico Group]

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.

[The Chair, Conservative, Phil McColeman]

Thank you, Mr. Chiu.

Now we'll move on to questioning.

Our first round of questioning is five-minute rounds.

Madam Sims, you may begin.

[Jinny Sims, NDP, Newton—North Delta, BC]

Thank you very much.

I want to thank all three of you for coming and making a presentation to us.

This is an area that, when I was on a different committee, we looked at as well: social financing in the context of international development and projects. I have a great deal of interest in engagement of the target population and the creation, design, implementation, and evaluation of the projects because everything I've read says that, unless you have that kind of an engagement, your project has many barriers to overcome.

My first question is for Mr. Dewar.

Based on your own experience or international examples available to us, are target populations routinely involved in every aspect of the creation of social finance initiatives?

[Bruce Dewar]

Definitely, to go forward on social finance, and even to deal with these complex issues, you need to do it in collaboration. You need to have multiple stakeholders at the table. The target population, for sure, has to be involved. You need to build the grassroots and put the right resources around it. The ones that are really successful have true collaboration. People know what they're bringing to the table, where the value add is, and the measurement is designed before so everyone knows what they're measured on, but also, can they gather that data? So it has to be built from the beginning with the design of the projects.

Building on what Mr. Chiu said, that's where we need to find proven projects and then make them investment ready. There are great projects across this country that are dealing with a variety of issues and dealing with the root cause. We need to flush those out and make sure they're ready for investment and ready to make a bigger impact, but you're right, they're built off the collaboration that goes from the person receiving the service all the way through, and it has to be built that way.

[Jinny Sims, NDP, Newton—North Delta, BC]

Having spent the majority of my life in the school system as a teacher, I certainly recognize the importance of collaboration and cooperative learning, but I'm just wondering, with the current milieu that we have, what kind of challenges are faced out there when we talk about collaboration.

Building on that, I also heard from a few of you of the need for evidence-based decision-making, and yet it's no secret that we've had a government that's really allergic to data and does very little evidence-based policy-making, so for me the question for you is on whom should the onus rest in gathering data to measure the success of impact investment projects?

[Bruce Dewar]

Is that still for me, or do you want Mr. Chiu to respond?

[Jinny Sims, NDP, Newton—North Delta, BC]

I'm going to ask you and then I'm going to ask the other two gentlemen to give me a quick response as well. Because I have five minutes, keep it tight, please.

[Bruce Dewar]

A quick response, okay—it has to be designed by all the investors or partners who are involved in the project.

[Jinny Sims, NDP, Newton—North Delta, BC]

Thank you.

Do either of you want to add to that?

[Wayne Chiu]

The federal government has so much data. You should be able to collect a lot of data from different regions of the country to show some evidence that social finance is a need and is able to create an impact. There is a lot of storytelling across the country that the government is probably able to collect, and this is a situation where the government can show leadership that is not that expensive. With not a lot of money involved, you're probably able to tell stories with this evidence.

[Jinny Sims, NDP, Newton—North Delta, BC]

Thank you.

Could I have a quick response from our other guest?

[Stephen Huddart]

If we're talking about the impact measurement around an investment, it's pretty clear that we have to have some defined metrics by which that's going to be assessed. At the same time, it's important to highlight that when we're talking about social finance, we're also talking about social innovation, about doing things differently, and we have to be careful not to put in place measures that work against the iterative nature of community-driven social innovation. Sometimes you're halfway down the road and you realize there is a better opportunity, there's a better way to do things, and you're learning as you go. We have to be able to build in that kind of capacity. The emerging field of performance analysis is one that we want to pay more attention to in Canada as we build our own type of ecosystem for this sort of work.

[Jinny Sims, NDP, Newton—North Delta, BC]

Thanks.

[The Chair, Conservative, Phil McColeman]

You have 10 seconds.

[Jinny Sims, NDP, Newton—North Delta, BC]

Oh, 10 seconds—okay, I'll come back to my next question in another way.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

We'll move on to Mr. Mayes for five minutes.

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

Thank you, Chair.

Thank you to the witnesses for being here today.

What we're looking at here in this study, from what I can see, is the role of the federal government and how we can be a partner and support these initiatives.

One of the things we need to think about is a framework of best practices and—I hate to say it—a regulatory framework to ensure that if tax dollars are being used there is some sort of protection for that, but we're reluctant to build an administrative regime that defeats the purpose. We don't want to see that happen.

We need champions like you in doing this, and I see in partnering a great thing about our government is that we have always looked to let others set the priorities and then come along as a partner, but we do have to have that framework and that certainty concerning the finances because we are here to protect taxpayers' investments.

In saying that, I'd just like to hear from all three of our witnesses on how they see the federal government's role in doing all those things without getting in the way because it would be doomed if the government started getting in the way and being overly administrative in this initiative.

[Wayne Chiu]

Just speaking for ourselves, we are not encouraging the government to provide us with a huge amount of money. There are some in the country who are asking the federal government to look at a super fund or a national fund. To me, this is not the intent. Right now, the way I see it in this country, there's more money available to invest than there are deals. There are really not a lot of deals available in Calgary or in the country for us to invest in right now as far as social finance is concerned.

In terms of the government, as Mr. Huddart mentioned earlier, when we talk about the foundation money, how are we going to unlock the foundation money in a way that allows the foundation money to be put in the social finance space at all? There is a barrier in there regarding the use of that money. But if we were able to lower barriers to allow the foundation to invest in, let's say, a social enterprise or social finance, there would be a win for the government in allowing us to do that.