Human Resources Committee on April 28th, 2015

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

How does transparency work in social finance?

[Andy Broderick]

Yes. Again, I don't want to sound like too much of a private market guy because that's not my background, but it works in the same way that a private market, when it's working well, works.

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

It works in the same way.

[Andy Broderick]

There's good transparency. If people don't get their money back, they say, “Why did you hire that person? Why did this happen? This business failed.” Again, there are repercussions that allow the capital to gravitate where it can be more effective.

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

Okay. Thank you.

Mr. Spence, in terms of evaluation and measurement, what indicators seem useful for you in getting a valid measurement of social finance? Can you give us a few examples, please?

[Adam Spence]

Great question, thank you for the question.

When we look at impact, we look at it in three different ways. First, can you meet a standard of impact? There are a number of third-party standards that exist. One is the decorporation assessment, which is developed by a non-profit organization based in the U.S. looking at the GRI, or global reporting index. There were 600 different experts who worked on that and now it's been applied to thousands of different enterprises. There's also the Imagine Canada standard, which is a great one.

I think, secondly, beyond the standard there's also having metrics, reportable metrics, or data points that are going to be able to demonstrate the change that exists among the enterprises and organizations that you're working with. There are taxonomy or translation devices, including the impact reporting and investment standards of the global impact investing network, which can be used in this regard. There are many local examples that have been generated by Canadian enterprises and non-profit organizations.

I think the third way to look at impact is whether people have the right kind of performance improvement plan to be able to change or improve their impact over time. My father was in quality assurance for 25 years in the steel business and he taught me, or said, that the best way for you to be able to improve your impact is to talk about it, think about it, and plan to improve it. When we think about how to measure or get a sense of impact, that's how we would bucket it: meeting a standard, having verifiable metrics, and then having a plan for improvement.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

We'll move on to Mr. Boughen for five minutes, sir.

[Ray Boughen, Conservative, Palliser, SK]

Thank you, Chair, and thanks to the resource people we have with us this afternoon.

I'll ask a couple of questions and either Andy or Adam can answer. In fact, I'd like to hear both of your answers.

First of all, we have social bonds. You folks didn't mention that, but we heard about social bonds from earlier witnesses. Can you share with us whether they have a place in your operation? If so, what is that place? Are they well accepted by investors?

Maybe we could start with you, Adam.

[Adam Spence]

Certainly, and thank you for your question.

At MaRS we are in the process of developing social impact bonds. We believe that they're a great financing mechanism for an intervention that has proven to have a positive social impact on a particular outcome or challenge area, and that needs to be able to scale. In order to scale it needs the right kind of capital to do so. That scaling of that intervention would subsequently improve the outcome and reduce overall government costs for a particular area. It could be homelessness, it could be a disease, it could be children in care, or it could be recidivism.

We believe that there are many successful interventions and successful models of social impact bonds. There are currently roughly 50 to 60 that are in operation around the world in countries from Australia to the U.K., and beyond. They have a particular and focused area of work where they can be successful. I think they're also a part of a broader movement towards outcomes-based financing focused on prevention and focused on better outcomes as delivered by government funds.

[Ray Boughen, Conservative, Palliser, SK]

Andy, what's your experience with them?

[Andy Broderick]

I have a little less patience, given where the social finance sector is. That's not to say that there aren't good proposals around social impact bonds, but they're not really bonds. The framework of thinking about them in the way of bonds is, I think, confusing. While they may scale one operation, how translatable they are to another is unclear to me.

I think pay-for-performance is a good concept, but at this point in the development of social finance, and the role the government can play around the role of social finance, social impact bonds can be somewhat distracting.

I'll say that Vancity is looking at one now in partnership with MaRS and federal health authorities.

[Ray Boughen, Conservative, Palliser, SK]

In your presentation, Adam, you talked about success and the approach to groups for help. What barriers are in your way when you're trying to approach groups for their involvement in the projects? What kinds of projects would the $15 million fund?

[Andy Broderick]

I'll speak to that. Just to give you some specific examples, Corporate Knights was doing an expansion in Toronto. They are a group that works around corporate accountability and helping develop a more dynamic culture of corporations working to bring change. They needed some equity for an expansion and we supported them.

There was Salish Soils, which was to produce essentially soil for growth out of the results of a fish factory. It was a joint venture with a first nation and a private corporation. There was the Elizabeth Fry Society that needed a new facility, which they couldn't arrange for financing without us. It ranges over a big gamut and part of the goal was to show how many different elements of a community can be touched that people are familiar with and that might generally not be viewed as needing capital.

[The Chair, Conservative, Phil McColeman]

That ends that round.

[Ray Boughen, Conservative, Palliser, SK]

Thanks a lot, Chair.

[The Chair, Conservative, Phil McColeman]

Mr. Cuzner, you have the floor.

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

Thank you, Chair, and I thank the two witnesses.

The witnesses that have been before the committee that have raised either flags or at least cautionary notes with regard to social investment. To generalize, it's been....

How do you build a fence around to make sure the importance of financial success doesn't trump the social outcomes, the social impacts that you're...? I think what we sense from those witnesses is that you pick a particular area of interest and they deal with it in this fashion. Then the organizations that have taken it on will take some of the low-hanging fruit, but maybe not some of the more complex and complicated issues within the realm of the issue. Then the government says, “No, we're looking after that, that's being handled.” How do we guard against that idea if we want to make good recommendations going forward?

[Andy Broderick]

The suspicion around social impact bonds sometimes is that it's an offloading strategy—

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

Yes.

[Andy Broderick]

—and that you will have private sector actors who will pick the low-hanging fruit.

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

Yes.

[Andy Broderick]

It could be home nursing or any number of things that had been.... I think it really focuses on who your partners are and how you build those partnerships and those intermediaries.

Just to give one concrete example, there is a group I'm working with called New Market Funds, which is run by a guy who came out of Bay Street, was very successful, and wants to move into this impact investing. New Market Funds is a financial management company. Its first fund is an affordable housing fund that only works in partnership with non-profit sponsors. That's one way.

In other words the clarity of which is that the value of the investment is in the control of a community-based actor who has a local board of directors and a long-term mission obligation, not just to capital but to performance in community. Those are the kinds of ways I think you lock in the value and I would encourage that. As investments move forward, and as the government looks for ways to have bright lights, they look to make sure it gets set up in a way that the partnership itself, or what's being facilitated, will lock the value into the community long term.

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

Would you like to comment?

[Adam Spence]

Sure, I'll pick up on that as well. I think Andy said it well in terms of having the right kind of intermediaries and the right kind of partnerships in community to be able to address or tackle these particular problems, and the right kind of data and right kind of problems identified by government and community actors.

It's all going back to the point that if we're trying to focus on social impact bonds, as has been delivered for example in Peterborough, they are one flavour or one example. If we're thinking about this in the context of focusing on prevention and focusing on outcomes, there's an array of different options and solutions that can get you to tackle the problems that you're facing. I think that as much as social impact bonds is an important part of the ecosystem, to think about social finance within the context of what Andy had talked about in terms of resilient fund cuts across a whole variety of different areas: housing, food, and health and wellness.

There's a range and an array of opportunities. If there's a means by which you can integrate social finance or bring it into the different ministries and parts of government, then I think you could really identify a great opportunity to get these different players excited and activated about how they can actually move money towards more good purposes and move business towards more good purposes.

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

You might want to elaborate just a little on the catalytic capital, just some specific.... You made reference to the Nova Scotia community economic development investment funds, I believe. Where are some of the areas you're seeing success?