Human Resources Committee on Feb. 24th, 2015

[Stephen Huddart]

Perhaps I could follow up. I appreciate the question very much.

I think the first thing is that it would be very helpful to clarify the regulatory environment here. This field is moving very slowly, because a lot of obstacles are there. I'll mention one, which is the limited partnership rule. That, I can tell you, has prevented us from getting involved in or seeing develop a number of very promising initiatives because people just don't understand, and they can't afford the necessity of building a trust structure to allow an impact investment to be made. I'm sure you're hearing that from other people.

If there was one thing you could do, it would be to get rid of the LP rule but look more broadly at our charities regulation around ownership and the profits that come out of social enterprise. We see potential there to really clear the way for a lot more activity to happen. Government can also realistically be a co-investor. Government can look across its portfolios at where social outcomes are being financed but not being delivered. Let's open them up. Let's open them up to impact investors to propose different and better solutions for Canadians. I think that's another area to look at.

Finally, around demand development, this sector needs capacity building. We have a partnership with the federal government with the Innoweave program, but I think that's something we could extend further.

[Bruce Dewar]

Building off the last two speakers, I think the government can help most around some of the policy issues, especially what Mr. Huddart just talked about in terms of limited partnerships, the not-for-profits, and what they can and can't do around the assets they own. They're sitting on some major assets that they could use as part of an investment strategy. The government can definitely play on co-investing.

I think the other part is to look at the grants you're giving out now that you could actually be treating as investments. Start treating them more like investments rather than just pure grants. Have the mechanism in place but also trust that.... If you look globally, organizations and governments are really using intermediaries a lot more. So have the government understand the role of an intermediary, that it's okay to use them to do certain things outside of government.

[The Chair, Conservative, Phil McColeman]

Thank you very much. That round is finished.

Mr. Cuzner.

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

Thanks very much to the witnesses.

I apologize that we were late arriving, Mr. Dewar.

Five minutes can blow by pretty quickly here, and I want to build on Colin's line of questioning. I'll ask the questions and then sort of get out the way myself.

Witnesses last week indicated that in no way do they see social financing as a replacement for government support. You guys are terming it now as government “co-investing”. You still expect the federal government to be a partner going forward. I would like your comments on that.

As well, Mr. Chiu, you mentioned the barriers. The one that has been referred to is the fence that's been built around the limited partnership rules. What other barriers do you see besides that? Perhaps you could comment on that.

[Bruce Dewar]

I'll go first.

I think when governments first come to the table to look at social finance, they think it will be a reduction of investment of government dollars. It can lead to a reduction in government dollars on certain projects, because you have new partners coming in co-investing, or new sources of capital. But I think the other reality is that it allows government now to pick organizations that are really making an impact in terms of the outcomes. You may have an organization that you were giving $100,000 to, let's say, that was doing certain outcomes. You now might see, proven by other investors coming to the table, that by your investing more money in them, you're going to get more outcomes, because the issue is bigger than what they're doing right now.

So while I believe in government investing more in outcomes that are proven results, it might not mean you're having a reduction of spending; it's just that you're being more strategic and making more of an impact.

[The Chair, Conservative, Phil McColeman]

Mr. Huddart, do you want to go next, please?

[Stephen Huddart]

Sure, I'm happy to follow up there.

One of the key aspects to this relationship with governments is that impact investors are able to de-risk situations. Our previous questioner mentioned the need to protect taxpayers' money. By putting the risk over on the impact investment side with foundations that, after all, give money away as granters and don't expect to see any of it back, I think we have a situation where we can create capital stacks, if you will, where situations are de-risked in the public interest, and where public and private investment can come in afterwards. That's a really operable methodology that we use to test new approaches.

The other thing is that the private sector is a key player in this discussion. They're not here today exactly, but pension funds, not to mention other endowments—universities, hospitals, and so on—do have an interest in improved social outcomes. I think the government's policy is to create the enabling environment—the language, some models, and some encouragement—to allow this field to grow.

[The Chair, Conservative, Phil McColeman]

Mr. Chiu.

[Wayne Chiu]

I think as far as the government is concerned, when I look at a case in which the government co-invested with our foundation on a program called enterprising non-profits Canada, it basically encourages capacity building with social entrepreneurs.

With the government money involved we are able to create a national affiliation that is going to show examples to Canada that social enterprise and social entrepreneurship can be real and can be achievable. The government money involved is really not a lot, but at the same time it's able to kick-start the program across the country to bring an awareness that capacity building is so important in the social finance field as well.

[The Chair, Conservative, Phil McColeman]

One minute.

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

Okay, I have just a quick one, then.

On the measurement of social value and the metrics around what data is necessary. Mr. Chiu, I think you mentioned they seemed to do a good job of this in the U.K. Are there examples? I think it would be a great challenge, but are there areas that are doing this well now?

[Wayne Chiu]

The U.K. is not doing as well. The U.K. is still in the process of trying to find a way of doing well. They have tried to create how they are going to measure the social value and the social impact. I think they're still learning, and we are waiting for the U.K. to come up with a report on it.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

We move on to our next questioner, and I believe that is Mr. Butt.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Thank you very much, Mr. Chair.

Gentlemen, thank you for joining us today.

I think I'll start with Mr. Huddart.

Before I was elected to this fine place, my background was in the housing sector—housing development, housing management, etc.—for both for-profit and not-for-profit co-operative housing. You mentioned a housing development in which you were involved. Could you comment a little bit more on how you see social finance working in affordable housing development?

I know we're spending a lot of time talking about what the federal government can do in supporting social finance. What are things the provincial and municipal governments can do because I know for a fact that in housing, if you don't have the municipality on board, if you perhaps don't have the province on board insofar as providing rent supplements or these kinds of things to make these project viable, and if you don't have all three levels of government on board as partners, these projects don't work.

Maybe you could share a bit of your insight on the housing file, sir.

[Stephen Huddart]

Thank you very much, Mr. Butt.

Just to refer back to the aboriginal issue we began to talk about, we're going to start building houses this spring in four communities that want to take on that new model that I referred to. They're going to build their own houses, they're going to own them, they're going to make mortgages to themselves, and we're setting up the financial infrastructure in those communities so as to be able to manage responsibly a mortgage fund. That's a $2-million fund we put together. As we did so we discovered that there is a federal first nations mortgage guarantee fund valued at $300 million, which has built a total of 65 houses in five years.

The point is, when we get a proven model we want to be able to take it to scale and we need governments to work with us to identify those opportunities.

Municipally, we're currently looking at a couple of projects. One is here in Montreal around low-income housing, co-investing with some other foundations. We're invested in a Vancouver initiative called the new market fund that is going to be building across Canada. This is a great area for social finance to participate in.

I think you're touching on something—one of the key, easy, early wins for this sector—which is to invest in low-income housing.

[Brad Butt, Conservative, Mississauga—Streetsville, ON]

Would each of you agree that the real goal of social finance, social enterprise, is the social outcome at the end of the day, not the monetary return on investment? The reason why these programs work, the reason why these models have been established, is the social outcome, perhaps even projects that maybe lose a bit of money from time to time, or simply break even, but have more of a social purpose. Who wants to comment on that? That seems to me the most important goal at the end of the day, that the social purpose has been achieved, rather than, necessarily, a bottom-line-driven organization?

[Bruce Dewar]

I'll go first.

The social outcome is definitely the number one priority, but as Mr. Huddart said, you can now layer on the risk, so you can bring other dollars to the table, if there is a potential return on investment from the private sector or individuals. Again, you can now layer different levels of risk on that so you can get more dollars in place and allow them to make those returns, and you can get more outcomes as well. I think it's harnessing that business ability to bring new dollars because of the return, but we are really looking at those social outcomes, to try to make the pot bigger or the pie bigger to deal with these issues.

[The Chair, Conservative, Phil McColeman]

Mr. Chiu, do you want to comment?

[Wayne Chiu]

I'm a builder by trade. Trico Homes is my company. We have two programs being initiated. One program is the affordable rental program that we are working on with the provincial government. On top of that, we have a program called accessible housing that's providing a 5% no-interest down payment for the buyer to be able to purchase a home. We work with CMHC to get it to approve the program.

With that in mind, I think the affordable housing program, the one with accessible housing, is a lot easier to handle compared to housing on a reserve. Basically, the way we are doing it, we have to look at this and create a share value, to make sure that we are able to take this as a private sector initiative to provide 5% interest-free loan to the buyer to come and buy a house. What we did was set up a non-profit. This non-profit is an arm's-length organization from us based on the public's ability to provide that down payment. We try to work on this with CMHC, with the bank, and with the community foundation. Hopefully, we can make these programs move forward. At the end of the day, you're looking at the return. I don't think the funders are interested in a return; they're interested in an impact. At the same time, on this particular program, the funders hope that they can reserve their money, make sure that their money can be recycled a long, long time into the future.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

Now we move on to round two and Madam Groguhé.

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

Thank you, Mr. Chair.

Thank you to our witnesses for joining us.

I would like to address two aspects: the regulations and the measurement of results. I will start with the questions about the regulations.

Mr. Dewar, what regulatory framework applies today to social finance products in Canada?

[The Chair, Conservative, Phil McColeman]

Mr. Dewar did not have his earpiece in for interpretation. Does either of the other two witnesses, Mr. Huddart or Mr. Chiu, wish to respond to Madam Groguhé's question?

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

Perhaps Mr. Chiu would like to answer this question.

[Stephen Huddart]

I would be happy to step in. I would just say that we operate under the charitable regulations of Canada, the Charities Act. While in many respects it is quite restrictive, in terms of ownership of assets, the ability to participate in limited partnerships, and the ability to own social enterprises—there are barriers in all of those areas—one thing we can highlight that is helpful is that the government has identified the program-related investment as a place where foundations can actually lose money but declare the loss as a charitable contribution, as a grant, in effect. That has, in effect, opened up our ability to almost get our money back, and to declare that loss as a grant in meeting our required disbursement quota on the granting side. We appreciate that very much. It has been very helpful, but I think we would look for further progress on the regulatory front, it being really important to the growth of this sector.

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

My understanding is that a lot of work still needs to be done to simplify the regulations. Is that actually the case?