Human Resources Committee on Feb. 26th, 2015

[The Chair, Conservative, Phil McColeman]

Good afternoon, ladies and gentlemen.

Welcome to the 45th meeting of the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities. We're here to continue with our current study entitled “Exploring the Potential of Social Finance in Canada”.

Here to provide testimony on our first witness panel, and we are pleased to have him with us, is Mr. François Vermette, director of development at the Social Economy Working Group. Also joining us, by way of video conference from Vancouver, is Mr. David LePage, chair of the Social Enterprise Council of Canada. Welcome, gentlemen, to our committee. Thank you for agreeing to be witnesses.

We have a 50-minute time slot for your testimony. Each of you will have up to 10 minutes to present.

Why don't we start with Mr. Vermette?

[François Vermette, Director of Development, Social Economy Working Group]

Good afternoon. I am pleased to be here today.

We came here to talk to you about what we do at Chantier de l'économie sociale en finance sociale.

Chantier de l'économie sociale is a network of social enterprises. To us, social enterprises are collective enterprises with a social mandate that use economic activities to achieve their end goals. There are several thousand in Quebec and even more across Canada.

After our creation in 1996, we realized rather quickly how difficult it was to find funding for this type of enterprise. Shortly thereafter, in 1997, we created a fund called the Réseau de l'investissement social du Québec—RISQ—which has $12 million in place. This fund provides risk loans to social enterprises, a bit like its acronym suggests, in other words, investments without any form of guarantee. Initially, this fund was built up through donations from private businesses and by a loan from the Government of Quebec. That loan has since been renewed once, but it has allowed us to build up capital and finance enterprises with a social mandate.

RISQ's loans are relatively small. There are seed money loans that start at $5,000 and can go as high as $200,000. These are loans that financial institutions, banks and caisses populaires have a hard time lending because even though they are small loans, they require an analysis that is almost as involved as for a larger loan. The profitability for such loans is harder to justify for regular banks.

We soon realized that the $200,000 limit was not high enough. We then created another investment tool called Fiducie du Chantier de l'économie sociale. It is a trust fund that can provide loans up to $3.5 million. The trust fund was capitalized in part by the federal government through a program that no longer exists, but allowed us to capitalize part of the fund. The rest came from contributions from labour-sponsored funds, or funds from Quebec unions, the largest being the FTQ labour-sponsored funds and the Fonds d'action de la CSN. Both groups combined put $20 million in the fund.

The trust fund finances the same type of enterprises, those with a social mandate, but differs in that it provides patient capital. In other words, the enterprises do not have to pay back the capital for the first 15 years. What is more, they pay only part of the interest and at year 15, they have to pay back the loan in full, usually by finding financing on the regular market. Since the trust fund has not existed for 15 years yet, this hasn't happened yet. The enterprises are paying back their loans over time.

The interesting thing about this is that those who contributed to the fund through an investment, through the labour-sponsored funds and the Government of Quebec, agreed not to get their interest or capital for 15 years. For the labour-sponsored funds especially, it is a type of investment in their investment portfolio. We understand that they couldn't invest all their money that way, but this still allows us to support enterprises. The fact that it is patient capital, makes more liquid assets available to the enterprises in the critical first years.

We created all these tools. We continue to be in tune with the needs of the enterprises. We are working on developing other fund to try to respond to other needs, when they are expressed. Obviously, we were able to do this thanks to the government's support, which allowed us to provide the initial cash injection.

This allowed us to raise rather significant private capital in a niche that is usually ignored by the big banks.

Soon the trust fund will have invested all its money. It will either have to recapitalize or wait for year 15 to get money again. Some $50 million was invested in enterprises and things are going very well. It is truly a success. This could apply elsewhere.

So ends my presentation. I am available to answer your questions.

[The Chair, Conservative, Phil McColeman]

Thank you very much, sir.

Now we'll move onto Mr. LePage by video conference from Vancouver.

Please proceed.

[David LePage, Chair, Social Enterprise Council of Canada]

Thank you very much, honourable Chair and members of the committee.

Thank you for the opportunity to address you on this timely and important issue of social finance and social enterprise.

In this room we all agree that we face a common challenge that was stated in the federal government's 2014 budget, which is that alone government cannot solve the social and economic issues we face. But we believe that social finance and social enterprise are two tools that can help us address the growing complex social issues, the challenges of changing demographics, and the shrinking government budgets.

First of all, I think congratulations to all of you are in order. In some meaningful ways in a matter of a few years the governments across Canada and across parties have moved from an observer of an emerging international social finance and social enterprise sector to a recognized partner and facilitator. In 2013, the Social Enterprise Council of Canada was pleased to partner with the government to host the Social Enterprise World Forum in Calgary and very pleased that at that conference then Minister of Employment and Social Development Canada, the Honourable Jason Kenny, stated government support for social finance and social enterprise. With your leadership and the hard work of dedicated public servants, we're seeing results and impact.

I'd like to give you a couple of minutes of background and then offer five suggestions for moving forward.

Social enterprises are community-based businesses that prioritize the social outcome rather than just a financial return to shareholders. Any profits generated are reinvested into further social impact. They actually seek a blended value return on investment, a social and a financial value. They're operated by non-profits, by charities, hybrid companies, and some non-profit co-ops. They cross every business sector, from manufacturing, retail stores, cleaning services, health care, arts, recycling, and more. They target an entire spectrum of social outcomes, including social inclusion, employment training, poverty reduction, youth at risk, homelessness, and employment for people with barriers and disabilities.

Here are a couple of examples. Starworks Packaging is operated by the Developmental Disabilities Association in Vancouver. Their customers include Finning International, Caterpillar, and BC Hydro. While delivering quality light manufacturing and assembly services on a commercial basis, they employ up to 45 persons with development disabilities.

BUILD, is a social enterprise construction company in Winnipeg and its target is to train and employ youth at risk. The majority of their participants are aboriginal youth. A major customer is Manitoba Housing. BUILD is recognized by the local chief of police as a significant intervention and model for addressing the real needs of youth at risk. While the courts and the police can offer another jail term for a youth with an existing record, BUILD can offer that youth an opportunity for training and future employment in the trades.

The Toronto Enterprise Fund supports up to 15 social enterprises addressing the training and employment needs of youth, adults, and new Canadians who are at risk of homelessness.

But as with any innovation, it's important that we measure and demonstrate the impact. With funding from ESDC, Dr. Peter Hall from Simon Fraser University and Dr. Peter Elson of the University of Victoria have been able to do surveys of social enterprises across Canada. In their latest survey of 757 social enterprises in six provinces and three territories they showed that those 750 social enterprises employed at least 20,000 people, with 75% or 15,000 of those employees targeted as part of the mission of the non-profit organization. The responding social enterprises raised $480 million or 75% of their total revenues from the sales of goods and services.

Now I'd like to offer you five potential solutions for the committee's considerations.

Some of these ideas will cost government nothing. Some will require extending or expanding current program access, some of these will require new or shifting priorities, and a couple involve some potential new investments.

First of all, many non-profits and potential impact investors are used to working in their separate, strictly social service or corporate arenas, but in a blended value business environment—social enterprise and social finance—we need to build the business acumen of the non-profit sector and we need to improve the social impact knowledge of the traditional investors. In other words, we need to create programs that will give social workers business skills and give potential investors social value perspectives.

We've discovered that many of the existing federal programs that support the activity of SMEs are not closed to non-profit-operated businesses by legislation or regulation. They just are not prepared or directed to engage with the social sector. It is very important to continue and expand the existing government initiatives to recognize social enterprise and non-profit ownerships as a business model. A minor budget item in supporting and continuing to support Industry Canada's Canada business network and other government programs will have huge returns.

Second, social enterprises are supply side and social value oriented. They need access to markets, the demand side, because with more customers, they grow their business and they increase their social impact. We recommend that the social procurement policies as outlined in a research paper exploring social procurement, prepared last year for ESDC, be adopted and implemented. Government can create significant social impact at no added cost, no loss of quality, and create a true value and dividend for Canadian taxpayers through social purchasing programs.

Third, as more social enterprises develop, grow, and expand in scale, the appropriate financing at the right stage is necessary. New models of grants, debt, and equity need to be developed.

Fourth, to support the marketplace, engagement of social enterprises and social finance, relevant government policies and programs across ministerial silos will need to be aligned. CRA and the charities division need to be seen as supportive and encouraging, not restricting the appropriate use of social enterprise within non-profits and charities.

Last, government is in a unique role to facilitate and encourage, to initiate, and to partner on cross-sector engagement. The participation and collaboration of government, the private sector, and the community sector are critically needed if we are going to move on any of these efforts.

Thank you very much for your time. I look forward to your questions and our continued work with government on these important issues.

[The Chair, Conservative, Phil McColeman]

Thank you very much for your testimony.

Now we will move to five-minute rounds of questioning.

Madame Morin.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

Thank you very much, Mr. Chair.

I would like to thank the witnesses, whose presentations were very interesting.

What type of social programs would benefit the most from social financing? Chantier de l'économie sociale works with social enterprises, but also a lot of community organizations. I would like you to elaborate on that.

Mr. Vermette, you may begin, then Mr. LePage could take a turn answering the question.

[François Vermette]

More and more community organizations are engaging in social economy activities, which is not to say that they are changing their orientation. They provide services of all kinds for a fee. For example, a community centre might decide to make money from the space it has by renting it out for other purposes. That income then allows it to fulfill its mandate better. This happens quite a bit. The enterprises Mr. LePage was describing are also aware of this practice. I could have made the same presentation as Mr. LePage. I think we are completely on the same wavelength.

Many enterprises in Canada, for example, what we call adapted enterprises in Quebec, provide work to people with disabilities. Social integration enterprises hire people who are nowhere near entering the labour market and provide them with training in a work setting that, although not very demanding, in most cases helps these people integrate into the labour market. This approach is working.

As Mr. LePage said, if we are talking about opening government procurement markets, then of course we are talking about a lot of money. The governments—not just the federal, but also city and provincial—spend a lot of money to buy goods and services, including a number that are already being provided by social enterprises.

The tendering process is designed in such a way that these enterprises cannot take part. On the other hand, certain efforts could be made to make this work at an equal or lesser cost. This would also allow these organizations to meet their social objectives.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

Okay. Thank you.

Mr. LePage, do you have anything to add?

[David LePage]

I don't think we have seen a limit to the role that social enterprise can play in supporting community needs. Being in Vancouver, we have a very, very strong social enterprise sector that is serving the very tough employment needs in the downtown eastside, one of Canada's poorest communities. We see groups like EMBERS, which is a day labour company, putting to work each day more than a hundred people with barriers. We see companies like The Cleaning Solution, where 70% of their employees are people with ongoing mental health issues.

As we go to rural communities like Haida Gwaii, we see things like the Haida Gwaii Higher Education Society, which is running North American-based university programs, in a very rural community, in a microenterprise. The students come there. They then have the capacity to bring in economic development to that community as well as employ the local elders and cultural leaders in the community.

So we see it in rural communities in economic development. We see it in employment. But we also see it in arts and culture. When you go to looking at how we involve the immigrant communities, and the francophone communities outside of Quebec, into a community, social enterprise is not looking at a business to return profits; they're looking at a business model to solve a problem or to create an opportunity. I don't think we've seen a limit to the types of businesses or the types of issues.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

Okay. Thank you.

Do I have any time left?

[The Chair, Conservative, Phil McColeman]

You have 15 seconds.

[Marie-Claude Morin, NDP, Saint-Hyacinthe—Bagot, QC]

I'll be very quick.

Could each one of you tell me what the federal government's main priority should be with regard to supporting social finance in Canada?

[François Vermette]

Many programs already exist—

[David LePage]

I would agree with François—

[The Chair, Conservative, Phil McColeman]

Actually, gentlemen, I'm going to hold you both off—

[David LePage]

—in that, for me, the biggest opportunity we hold is to adjust government procurement.

[The Chair, Conservative, Phil McColeman]

Thanks.

I'll hold you both off here, because we're over our time on that. I should perhaps have cut it off before the question, but I decided to be courteous to the questioner.

Mr. Armstrong, you have five minutes.

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

Thank you, Mr. Chair.

I want to thank both of our witnesses for being here this afternoon.

I'll start with a question that maybe each of you could answer. Perhaps you could choose one of the programs you're very familiar with and talk about the different roles that are fulfilled to actually meet the outcomes. For example, what's the role of a government? What's the role of the enterprise? What's the role of the client? Perhaps you could pick one specific project that you're each familiar with and just go through that so we can better wrap our heads around what we're trying to establish here.

Mr. LePage, maybe you could go first.

[David LePage]

I think I can give you an example of where there's great potential. The federal government just signed a single contract to have all of your building maintenance and cleaning done by one company across the entire country. This is a large international corporation and they are going to have to subcontract that work to people who actually do the cleaning and maintenance.

Now, if there were social policies built into that contract, they would look at opportunities to subcontract to social enterprises that are creating training opportunities in communities across Canada, because all of those government buildings, whether they're in Yellowknife, Quebec, or Toronto, have a lot of different opportunities to engage partners. You have the private sector contractor being able to unbundle and look at social clauses based on a government contract and then working with social enterprises to actually deliver the services, which would result in training. It becomes a government, private sector, and community sector partnership, using social enterprise to meet everyone's needs.

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

Mr. Vermette.

[François Vermette]

I really like the example Mr. LePage used, but we could look at in different ways.

Other countries, in Europe and the U.S. for example, are increasingly using what are called “social clauses”. This is a contract like the one Mr. LePage was talking about, in other words, providing cleaning and maintenance services for all the federal buildings, for example. We know there are costs, and clear cleaning and maintenance expectations, but we could also add that we want to integrate people who are far from the labour market or people with disabilities. Private enterprises can do this too, which would benefit society, but in many cases in Europe, they hire sub-contractors from social enterprises whose mandate falls in line with this. Either way, society benefits. This market remains open to everyone.

That was an example, but we might also say that for a Canada-wide contract, we are pretty sure that only multi-nationals will be capable of meeting the needs and that a limited number of enterprises will be able to bid. Often, if a contract is broken down and limited to a city, or even a building, then the price would not be as good and would allow local enterprises or social economy enterprises to bid, which they cannot do for contracts that are too big. That has to be kept in mind when the request for proposals is being written. The way requests for proposals are defined has an impact.

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

Madam Morin asked each of you to put forward one thing the government could do to try to forward social enterprise. Mr. LePage answered that question. You didn't get an opportunity, Mr. Vermette. Would you like to take that opportunity now?

[François Vermette]

Integrating social clauses in requests for proposals or opening research and development programs, for example, which are currently often done through tax credits and are not open to not-for-profit enterprises. These are two ways, if you will, to support this sector.

[The Chair, Conservative, Phil McColeman]

You have about 30 seconds.

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

Very quickly, in your presentation, you talked about how once you get to 15 years you're going to see a lot of return on the investment made by both the unions—I think it was $20 million that was sponsored—and the government itself. Do you expect a heavy return on that? Do you expect that these operations you funded are profitable enough such that they're going to be able to return those funds?