Human Resources Committee on Feb. 26th, 2015

[François Vermette]

Our loss ratio is very, very low. In fact, it is lower than similar venture capital investments for private enterprises. We are quite confident and pleased so far. We saw this in the case of other Quebec investment portfolios, a Government of Quebec investment company.

When we invest in social enterprises, the loss ratio is lower than it is for private enterprises because these enterprises are anchored in their field. They are supported by their community and they are not profit oriented—although they do have to end up with a surplus or die—their average survival rate is better than that of private enterprises.

We expect good results.

[The Chair, Conservative, Phil McColeman]

Thank you very much. That will end this round.

Mr. Cuzner, you have five minutes.

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

Thanks very much, Mr. Chair.

I thank the witnesses.

Mr. Vermette, for how long now has your organization has been operating?

[François Vermette]

We have been operating since 1996. Our organization was founded almost 20 years ago.

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

Nineteen years? Okay. So it's 15 years, and then the expectation of a payback. Were you able to vet out money in the first four years? Are you starting to see the return on that money now?

[François Vermette]

This fund was created in 2007, so it has been only eight years. In other words, we have not started to see a return on the investment yet.

It's patient capital. You have to be very patient.

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

Patient capital, we've heard that from presenter after presenter as well.

What sort of checks and balances do you have along the way? Is it like a partnership with the organization that you've funded, and then somebody from your organization continues to monitor the fund, the progress? Is that a normal operation or is it a situation of cut the cheque, and we'll see you in 15 years?

Mr. LePage, do you want to give an opinion on that as well, but Mr. Vermette first?

[François Vermette]

We do a follow-up, as any bank does on its loan. We get their statement every year.

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

Each year, and that's normal for the industry?

[François Vermette]

Yes.

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

Mr. LePage, you had mentioned social workers. I thought developing business skills was a neat insight. At some of our schools across the country, the social worker program at Dal and what have you, are we starting to see that emerge? Are we starting to see some of the curriculum tailored to identifying the possibilities, the potential, within social financing?

[David LePage]

We are starting to see some program R and D more at the college or university level. The University of Fredericton has an MBA program, with a specialty in social enterprise. The University of Manitoba, the University of Winnipeg, and the University of Toronto have incorporated social enterprise programs into their business schools, so we're seeing it at the college level. Where we really have the biggest challenge is how do we move it down to primary schools and high schools, so as people are coming up they're understanding that business is not separate from community and some social issues. We've kept these two issues so separate.

As we raise social workers, and then ask about social enterprise, they've never.... They're passionate and great at what they do, but we've been working through programs. We partnered with ESDC on expanding the enterprising non-profits program across Canada, which works with non-profit groups to give them business skills to help them with their business planning and their skill development, but it's very early. It's the same on the financial investors' side. They're trying to figure out how to take their traditional financial tools and apply a social lens to get a blended value.

I think we're learning. We're all working together. Investors are trying to figure it out. Academics are engaging in this. We're at the beginning, but we've taken important steps.

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

Sometimes we learn from our mistakes. Toronto Maple Leaf fans sometimes don't.

[Voices]

Oh, oh!

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

But you gentlemen have been in the sector for quite some time. Are there cases where programs, investments, have really gone awry? Are there cases out there that we can learn from to draw best practices? Are you aware of that? Most of the testimony that we've received to date has been around some very successful investments and very successful outcomes.

[David LePage]

I think we can go back, and you're absolutely correct, we can look at some of the enterprises that have attempted to launch that have tried, especially when they do not balance well the business side with the social side, and they get so engaged in trying to deliver a social program that the business doesn't have a market, and without a market the business cannot succeed. That's part of what we're learning; why it's so important to do business planning and preparation. A lot of social enterprises have launched without the prerequisite of a good business plan, and then in six months or two years they are closing their doors.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

We'll move on to the next round with our next questioner, Mr. Butt.

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

Thank you both, gentlemen, for being here.

I had the opportunity a couple of years ago to serve on the special committee that the House of Commons established to look into cooperatives in Canada. One of the main themes that came out in the testimony was that a lot of people, including a lot of government agencies and departments, didn't understand how cooperatives worked and what cooperatives were. I'm wondering if there is the same problem with social enterprise and social finance. I'm wondering if you have any suggestions of what we can be doing at the federal level to create a much higher awareness of what social finance is and what these social purpose enterprises do exactly, so that we can make sure that agencies like the Business Development Bank of Canada and perhaps some other departments and agencies can better understand this model and would be more receptive to finding ways to work with and support social finance in the country.

Mr. Vermette, perhaps you'd like to start and then I'd be interested in hearing Mr. LePage's thoughts on that.

[François Vermette]

Obviously, investing in social enterprises is not the same as investing in regular private enterprises.

We have been investing in this type of enterprise for more than 15 years. We have even developed a guide specifically for analyzing social economy projects. This guide is based on our experience and we share it with other banking institutions that are close to us, including a Mouvement Desjardins fund. We also share it with government officers who are tasked with analyzing projects. The guide already exists.

It is always possible to support us. This guide was developed for the Quebec context, but it can be reworked for the Canadian context, translated in both official languages and published. We are prepared to share this experience. What is more, part of the guide is online on our website.

Indeed, it is different. It is important for people tasked with analyzing this type of cooperative project and not-for-profit agencies to understand the difference between social enterprises and other enterprises. How come a project backed by a private enterprise has little chance of working, but a project backed by a cooperative supported by members has more chances of working? The analysis has to be approached differently.

[The Chair, Conservative, Phil McColeman]

Mr. LePage.

[David LePage]

Mr. Butt, I think you've hit on a very important topic and it's part of why our fifth recommendation is really about the potential role of government to facilitate and to lead this cross-sector discussion. If I invite corporations to a table, I might get a response. If the government convenes a meeting, we get a tremendous response. I think we saw that with Minister Kenney's comments in Calgary in 2013.

The very fact that a minister of ESDC took leadership and publicly said, “We support this”, gave a lot of support to the public servants who are focused on this. I think you heard last week from Siobhan Harty. Giving the public servants room to work in this while engaged with the public sector and the community sector, I think is a role in which the government.... It doesn't involve a big cost but it's the kind of thing that doesn't sound good to you—networking and conferences and learning. How do we couch that to make it more comfortable for government to continue to take that lead on facilitating and engaging cross-sector? We've seen in other countries how private sector and social enterprises and social finance sit down and work it out, but they have to come to the same table with the same purpose.

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

Thank you, gentlemen.

[The Chair, Conservative, Phil McColeman]

Now we start round two with Mr. Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you, Mr. Chair.

The first thing I'd like to do is congratulate both of you for promoting social enterprises in this country. We have a number of them in my riding and a number of them in the area, the Outaouais, and they do some pretty innovative stuff and some pretty impressive work. I think this is definitely part of the future fabric of social stability in the country, so I'm looking forward to it developing even greater wings.

I want to dig a little deeper with regard to procurement. I'm the Treasury Board critic for the official opposition, and I've been thinking about this question for a little bit. I would imagine that social enterprises face many challenges similar to those of small and medium-sized businesses. Am I right to say that most social enterprises are small and medium-sized businesses? The definition of a small and medium-sized business in the Government of Canada is part of the problem, no doubt, and the amount of diversity of corporations that actually get procurement contracts is also an issue.

What can we do specifically with procurement and procurement regulations at the Treasury Board level to ensure that social enterprises get a fairer whack at the proverbial bucket of federal cash?

[François Vermette]

As I was saying earlier, it is true that in many cases, small- and medium-sized enterprises face similar challenges to those of social enterprises, which, for the most part are small enterprises. That is something that could be put in the rules you set. We could provide officials with some flexibility in issuing requests for proposals, in other words issuing smaller RFPs or inserting social clauses.

Some provinces might be including environmental clauses, but I am unaware of any examples of social clauses in Canada. Nonetheless, this exists in other countries.

Those are some things you could do with regard to the general rules. This can help provide officials issuing RFPs with some flexibility in issuing RFPs on which other enterprises, smaller and social enterprises in particular, can bid.