Human Resources Committee on May 26th, 2015

[The Chair, Conservative, Phil McColeman]

Members, I'd like to call the meeting to order. Thank you so much.

This is meeting number 56 of the Standing Committee on Human Resources, Skills and Social Development and the Status of Persons with Disabilities. We're here for our final meeting with witnesses today to wrap up our study on exploring the potential of social finance in Canada.

First of all, I'd like to introduce you to Andrew Lauzon. He is substituting today for Jessica, who has a family matter to deal with.

I'd also like to welcome our witnesses. Good afternoon. I know we had a previous engagement with you. We didn't keep our end of the bargain, but proceedings in the House of Commons prevented our being here with you.

Joining us today, representing Finance for Good, we have Mr. Lars Boggild, the vice-president for eastern Canada, and Justin Bertagnolli, a partner in that enterprise. Also, we have with us live—I have you listed as video conference, but actually you're here—Sally Guy, the policy and communications coordinator for the Canadian Association of Social Workers. We have by video conference, Mr. James Mulvale, dean and associate professor from the faculty of social work at the University of Manitoba.

Again, welcome to you all.

Each of your organizations has up to 10 minutes of presentation time, and you can split that between witnesses if you wish or use it however you choose. I will give you a warning at about the nine-minute mark to start to wrap up. You will have about a minute left at that time. Then we'll move to our questioning by the members assembled.

Why don't we proceed, starting with Finance for Good. I'm not sure if it's going to be you, Mr. Boggild or Mr. Bertagnolli, but please proceed.

[Lars Boggild, Vice-President, Eastern Canada, Finance for Good]

Thank you very much, Mr. Chair, for welcoming us back. Let me first say how much I appreciate the opportunity to speak to you today. We really value opportunities to work together with partners in government, the community sector, and the private sector to improve the lives of Canadians in our communities. I mean that quite truthfully.

We will explore two areas in our testimony today regarding how we can leverage the best of all sectors in social finance, and a road map for this market, but first we will provide some context as to how we arrived at our perspective. We submitted a brief to the committee on March 11, which I believe has been circulated. It addresses some of the more tactical and specific recommendations we have, which we would be pleased to discuss during the question period.

I'll begin with context about our organization, Finance for Good. We are a non-profit with a vision of a Canada in which investments in prevention and early intervention are a strong priority and appropriately valued for the impact they can create. We believe there is tremendous social and economic value in finding mechanisms through which we can identify, resource, and grow effective programming that is targeted upstream on social issues so that we don't have to deal with negative health, social, and environmental ramifications later.

With this focus we are foremost a pay-for-performance and social finance intermediary. We have advised provincial governments, foundations, and social sector delivery organizations across Canada since our founding in 2012 as they pursue innovative approaches to financing the implementation of new or growing preventative and early intervention programming. ln particular, we are a leading Canadian organization on the use of social impact bonds, SIBs, and outcomes-based financing, which is what our testimony will focus on today. We have worked and are working actively with partners to overcome the hurdles that have actually limited SIB development in the past, such as issue selection, intervention design, and impact valuation.

We provide this technical assistance as partners to organizations so that they can have the strategic clarity on the social and economic dimensions of the outcomes they produce, and they can measure what matters and have performance management systems to support effective execution.

With that in mind, we have worked with clients in the public sector, such as the Edmonton Police Service, and the social sector, such as the Mennonite Central Committee, to build the impact analysis, evaluative strategy, and economic modelling to have confidence about the feasibility of social impact bond initiatives so we can move forward as partners together in implementation.

With that context of the practitioner perspective we'll bring, I'll focus on what we see as a best-of-all-sectors approach and a road map for the potential for outcomes-based finance as a part of social finance in Canada.

First, we believe a best-of-all-sectors approach to accomplishing needed social change is necessary. We have seen first-hand that social finance initiatives such as SIBs are collaborative. This isn't purely about the social sector getting more business-like, but rather about leveraging the best of what each sector brings and designing these partnerships to work best for all stakeholders.

For example, we can learn from the best of the private sector when we move away from a status quo where funding is often provided with little data to support a program's ultimate effectiveness. This has been validated by our work conducting assessments on dozens of organizations through workshops where we've seen the relative scarcity of useful outcomes-based information.

I would contrast this with approaches where programs that are effective receive additional resources to grow in scale to reach more people perhaps becoming policy. Those that aren't effective should adapt, or, we believe, they should attract fewer limited resources over time. As a result, data-driven evaluation is a core functional area of these projects, providing increasing levels of confidence as to what works for specific populations and what does not on a more continuous basis.

We can also tap the best of the social sector when there is space created by these tools for local leaders across sectors to assess programs and choose what they can support as best for their beneficiaries. Because government is buying outcomes, not processes, it leaves the sector to innovate freely in that pursuit. For example, engagement levels by ex-offenders in the first SIB supported program in the U.K. which focused on recidivism rose from 37% to 71% between its first two years and second two years of operation. That's obviously remarkable process improvement, which those service providers credit to the outcomes focus and analytical capacity of partners that the Peterborough SIB brought to bear.

We can also see the best of the public sector where it focuses on public accountability to articulate social priorities and focus on addressing long-standing social challenges with a value-for-money lens. This can be addressed by moving from a status quo where data is sometimes gathered but often not linked across departments or associated with service providers, to an approach where we leverage this institutional opportunity to collect and track data on acute systems use, and work wherever possible to understand the value created for the expenditure in those services delivered.

Additionally, we have been told in many conversations with public servants that substantial funding decisions are made for service providers based on their processes. Providers will often be asked to come forward with logic models and theories of change, and are held accountable to their adherence to that initial idea. We contrast that with an approach where government can act as an outcomes buyer—paying for successful outcomes, not adherence to process—in areas where additional experimentation is needed.

These benefits are not exclusive to social finance—we know that—but these initiatives do bring about the partnerships and resourcing necessary to focus all parties on these shared, positive improvements, in our opinion.

Second, regarding a road map for this market, we highly recommend taking a long-term view in knowing that you are supporting a market's creation. I think it's appropriate to keep sight of what is possible as the market matures and all market players learn to collaborate more efficiently. Our work focuses on a more effective use of public dollars that can overcome some of the risks and challenges of channelling more resources to early interventions when our systems of acute care, such as prisons and emergency rooms, are often already strained, and there's uncertainty about whether upstream investments will yield the outcomes desired. This is also about a more socially impactful use of private dollars. For example, I know you've heard from Mr. Stephen Huddart of the J.W. McConnell Family Foundation, and others, that there is an interest in more socially impactful investments that align capital with organizational missions. Intergenerationally, this is also true. Accenture has estimated that over the next two decades, an estimated $30 trillion will be transferred intergenerationally in North America. This transition comes with emerging investor values that are willing to accept a higher risk profile or lower return for social and environmental impact. There's real value placed on those concerns.

Despite that capital supply side, in Canada there is only one SIB so far, the Sweet Dreams project in Saskatchewan, which I know you've heard about. It's a positive enough experience by their public sector that MLA June Draude has been named their legislative secretary for SIBs.

Global growth trajectory for this innovative policy is remarkable, with the first pilot SIB launched in the U.K. in 2010. There are now 44 SIBs actually live globally, with $245 million Canadian of private capital deployed. Meanwhile, in the United States there are at least 40 initiatives that are getting serious developmental support, leading to a next generation of these tools that we can actively learn from as we draw their road map here in Canada to address many of the concerns of critics.

We strongly recommend considering the more mature contracting approaches that have emerged in the U.K., in particular the fair chance fund and the youth engagement fund. Both of these public funds created a dedicated pool of outcomes payments with a defined measurement approach and defined payment cap for particular outcomes. Providers were invited to bid on that pool, defining how many individuals they intended to serve and what they'd require as payment for particular outcomes up to that cap, if successfully achieved.

This lets the market work where it can best do so, allowing organizations to articulate what is a fair payment for outcomes, given their risk of producing those outcomes, which helps drive better public sector value. Equally, by spreading out the internal burden of data teams and public servant time, it makes these approaches lower cost as a commissioner. We believe this approach can meaningfully address concerns about transparency.

Sector readiness is essential for these tools to be usefully deployed. This readiness is valuable beyond simply outcomes finance by driving the strategic clarity and performance management that will lead to better social spending overall. We strongly believe that the recently announced social finance accelerator initiative should build from positive examples, such as the U.K.'s investment and contract readiness fund that has been used in a variety of social finance transactions, from non-profit social enterprises to social impact bonds as well.

ln summary, following are a few recommendations we draw from our ongoing work in this field as to how the Government of Canada can best achieve the potential of social finance in Canada.

These collaborative partnerships are about bringing the best of all sectors forward, so governance should enable that. Public accountability is essential, but that accountability needs to have focus on ensuring the responsiveness of systems such as public data as well.

Contracting can learn from the positive experiences of our peer jurisdictions. Focusing on what the public sector has a willingness to pay for, with a strong focus on value for money, is extremely important.

An enabling ecosystem for social impact bonds is also an enabling ecosystem for more evidence-driven decision-making in the social sector. Contract and investment readiness is a temporary issue that can and should be addressed now.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Phil McColeman]

Now we will move to the Canadian Association of Social Workers. I'm not sure whether Mr. Mulvale or Ms. Guy wishes to proceed.

[Sally Guy, Policy and Communications Coordinator, Canadian Association of Social Workers]

I'll be starting. Good afternoon.

On behalf of the board of the Canadian Association of Social Workers and our provincial and territorial partner organizations, I'd like to thank the HUMA committee for hearing the perspective of social workers in this dialogue on the potential of social finance in Canada.

Today, I will be sharing my time with Dr. James Mulvale, who is joining us from Winnipeg.

I will present a few fairly general principles, while Dr. Mulvale will speak a little more specifically about our recommendations.

To begin, the Canadian Association of Social Workers, or CASW, is deeply concerned about growing inequity in Canada and has focused it advocacy efforts in recent years to highlighting very realistic ways that all levels of government can work together to support a more equitable Canada.

CASW has often reaffirmed the importance of a pan-Canadian vision of social policy based upon a concept of coordinated federalism in which the federal government negotiates with the provinces and territories and helps to finance social programs under certain guiding principles. It's a vision that would ensure that all Canadians' basic rights were met and that there would be a common minimum standard of service across the country.

CASW appreciates that the intention behind social investments is to hold those investments accountable to benchmarks of achievement, in other words, a return on investment. To this end, CASW is advocating that the federal government ask of itself what it's expecting from others.

As you know, the Canada social transfer is a primary source of federal funding in Canada that supports the provincial and territorial social programs. The CST funds many programs that are very important to maintaining a good quality of life for all of us. At present, the CST is largely an unconditional transfer, meaning it lacks agreed-upon principles of accountability to ensure equity of social programs across Canada or, again, in other words, a common return on investment.

As this committee deliberates on the potential of social finance in Canada, CASW asks that it entertain principles of accountability that can be applied to all investments by government, whether it is the CST or the financial backstopping of other different forms of social investment.

The Government of Alberta has adopted a social policy framework complete with principles that guide decisions and program delivery. We suggest that Canada adopt a similar vision when it comes to the Canada social transfer as well as to social enterprise.

As you know, the Canada Health Act guides the delivery of healthcare in Canada. Similarly, a Social Services Act, with broad principles including need, comprehensiveness, accessibility, fairness, portability, universality, and public or non-profit administration—if adopted—would guide all investments in social services in Canada.

I now will pass my time to Dr. Mulvale.

[Dr. James Mulvale, Dean and Associate Professor, Faculty of Social Work, University of Manitoba, Canadian Association of Social Workers]

Thanks, Sally, and thanks to the committee once again for hosting our presentation.

I think it's good to start by mentioning that the spectrum of social finance being reviewed by this committee is very broad. In thinking about this broad spectrum, CASW is fully in support of social enterprise as a model in which not-for-profit organizations and foundations can play a vital role in service innovation and partnering with governments and other funders to address social needs and problems in innovative ways. All the solutions to our social problems are not one-size-fits-all or bureaucratic.

As this committee has heard from other presenters, social enterprise offers opportunities for individuals, communities and organizations to leverage social and financial support to meet identified needs. We think a key principle in this process is accountability for the success of social enterprise, with the end being a social good.

With that being said, the Canadian Association of Social Workers does have deep reservations about the overall stated profit motivations behind social investments or finance, including social impact bonds. CASW understands that the intention of these types of social investment is to move forward with pay-for-performance agreements, which would see public dollars cover premiums to businesses that invest in social services, which provide, if you will, a return on investment. The CASW notes that the experiences and results in jurisdictions that have adopted for-profit models of human service delivery in areas such as health care, corrections and delivery of social assistance are not encouraging.

One problem that has arisen in for-profit health care, for instance, is what's sometimes referred to as cream skimming. Profit seekers will address the needs that promise the quickest and largest return on investment, thereby diverting financial and human resources, as well as policy-makers' attention away from the needs that don't have such readily available solutions.

The great moral and ethical challenges that we face as a country—and these include health for all, the elimination of poverty, the full inclusion of our indigenous peoples—are public policy questions in which governments and elected officials must take the lead. It is our view that business has an important but subsidiary role to play in addressing these challenges. The responsibility of the business sector includes paying their fair share of taxes to underwrite the cost of necessary public services provided in public and not-for-profit ways.

We have mountains of research now that indicate that highly unequal societies are not healthy ones. They have a lower quality of life. The social determinants of health literature indicates this as well. We know there are negative social outcomes for high levels of economic and social inequality. One of the best-known sources in this regard is the work of Wilkinson and Pickett, The Spirit Level: Why Equality is Better for Everyone.

Measuring the impact of long-term public investment can be done in our quest for a more equal society in which tax burdens and responsibility for service delivery is shared broadly. We worry that social impact bonds that have a three- or four-year investment cycle may not always get us where we want to go. Our association, the Canadian Association of Social Workers, contends that longer-term public investment in addressing the root causes of social distress might ultimately have more impact in addressing social problems and creating opportunities for individuals and a better quality of life for all.

In conclusion, I'd like to make three recommendations, and maybe we can get into some more discussion later. First, the Government of Canada should pool financial resources to fund projects that show promise as innovative and more effective ways of meeting social needs. Second, the Government of Canada should make a binding commitment that existing public services provided by community organizations and not-for-profit organizations will not be reduced in order to engage in social investment bonds or other social finance initiatives. Third, the Government of Canada, working cooperatively with the provinces and territories, should develop a social care act with broad principles that include need, comprehensiveness, accessibility, fairness, portability, universality, and public and not-for-profit administrations.

We feel these principles would be good guides to ensure transparency and accountability for all our investments, both public and private, in securing a better future for people in Canada.

I think I must be at the end of my time, so I'll wind up there.

[The Chair, Conservative, Phil McColeman]

There is one minute left, if you want to carry on for that final minute, sir.

[James Mulvale]

Okay. It's not exactly worded in our presentation here, but we do worry about what sometimes is referred to as perverse incentives. This has come to light recently, for instance, in the United States, where there's a large presence of for-profit providers in the prison system. Some advocates for more community-based restorative justice approaches worry that the private sector involved in delivery of correctional services is trying to move public policy in the other direction, toward more punitive approaches. That doesn't necessarily always happen. We feel there's a definite role for the business in the private sector to be involved in philanthropy, targeted philanthropy, and providing funds for research. With the public good in mind, it's important to engage in evidence-based provision of services in fields such as social care, health, and other public services.

I'll leave it at that and answer some questions.

[The Chair, Conservative, Phil McColeman]

Thank you very much.

Thank you for your presentations.

Now we'll move on to questioning from members, beginning with Madam Morin, for five minutes.

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

Thank you very much, Mr. Chair.

My question is for all the witnesses who are with us. I would like to thank them for their testimony. It's always very interesting and allows us to learn a little more.

In a financial context where social impact bonds are a kind of contact between a business and an organization, aren't you concerned that some organizations with fewer human and legal resources might be in some way subject to large companies and lose their independence? I'm curious to know whether there is a danger in that regard.

[Sally Guy]

I would answer that is exactly what CASW was worried about. We are very worried about small not-for-profit or other social services organizations losing their autonomy and feeling co-opted, or that there are benchmarking systems breathing down the necks of front-line workers and getting in the way of them doing their good work.

To answer your question very simply, yes, that's one of our major concerns.

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

Thank you.

[Lars Boggild]

To address that from our perspective, what we've found—and not theoretically, but in our experience designing these tools—is governance is a critical factor. It's a critical element of that work. A big aspect of that is a recognition that organizations that are relevant or applicable to tools such as social impact bonds, shouldn't be invested in if we don't think they know how to do that service better than we do, or anyone else does.

With that in mind, when we think about these governance structures, it's critical that we intentionally create degrees of removal between investors and the programmatic delivery. There's a commitment of capital, based on due diligence of how the program is meant to operate, and then there's an arm's-length role from there. There's very little direct day-to-day.... Explicitly, there's that removal.

The other side of it is, with that in mind, what we intentionally design is a recognition these are meant to be flexible pools of capital. We're not buying into a specific process. We know that social issues are not static and they're not unchanging. A lot of these tools are designed to operate over the course of five to seven years, or more. There's a lot of flexibility to change course based on the front line. Ultimately, if that's the feedback we're getting, they need to shift investment toward different areas in order to produce better outcomes. This aligns everyone's interests toward those goals.

[Justin Bertagnolli, Partner, Finance for Good]

I'll just add quickly to that.

It largely speaks to the point of strength-based assets in our community. I think that's one of the contributions that many small organizations have to contribute to some of these projects. For example, in the U.K., when they originally started with one of their social impact funds, they started with four key areas of service delivery that they looked at. By the end of the program, they had 11 services that were key services that were being offered. Over the course of that service you bring in strength-based assets. There's an opportunity to do that because of the flexible model for funding. I think that's an important way to ensure that the organizations are actually included rather than excluded. It comes down to fundamentally the policy structures and intentional design to ensure that those issues that CASW has concerns with are mitigated. I think those are valid concerns but they can be mitigated through intentional design.

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

Thank you.

There's one minute left. Do you have anything to add, Dr. Mulvale?

[James Mulvale]

Just around the issue of involving community-based organizations and NGOs, many of the most innovative and nimble ones are very small.

One worry I have is that if there's some kind of competition, so to speak, among people who might want to get involved in a social impact bond mechanism, maybe the most innovative programs that have the most to contribute and have the most original thinking may be disadvantaged if they're small and not very well resourced, whereas some of the big organizations that are well resourced but do things in conventional ways will have a competitive advantage, so to speak.

If government was interested in encouraging community innovation, I think there would be ways to do it where there was a not a profit motive involved but where small organizations would have a key opportunity to innovate and prove something.

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

Thank you.

[The Chair, Conservative, Phil McColeman]

We'll move to Mr. Armstrong.

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

I want to thank our witnesses for being here.

We all apologize for making you wait a week ago when we were supposed to have you here.

Sally, in your testimony, you talked about concerns around the Canada social transfer. Can you elaborate on what your concerns are on social finance? We haven't had that brought to our attention before.

[Sally Guy]

Including the CST aspect in the speech was more about talking about broad principles that we would like to see govern all forms of social investments or social finance in Canada. We were putting it slightly tongue-in-cheek to say that the Government of Canada federally transfers money to the provinces and territories without those agreed-upon principles of accountability. It's transferred into general revenue, as far as I'm aware, and used from there without any benchmarks from the federal government trickling down to the provinces and territories, or there are very few. It's almost like, why take on this new form of social service provision or of social impact bonds, which would very much require benchmarking systems, and I think the building of a fairly costly architecture around supervising the implementation of those bonds, when we're not actually doing that in our own relationships with each other in terms of the provinces and territories right now.

Does that answer the question?

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

I understand.

You were more doing a comparison on the actual process of delivering the funds at the federal level to the provinces knowing that we've increased the funding in the CST from about $8.5 billion to almost $13 billion this year. As a government we continuously supported the provinces in delivering these very valuable social programs, particularly education, which is my background. The way we do it is we distribute these funds to the provinces. We've increased that amount of money, but we don't tie a lot of strings to it from the federal level to allow the provinces to conduct their own business, whereas, conversely, you're concerned about the government having tied too much accountability or too many strings when we actually look at social impact bonds or other processes for social finance.

Am I accurate in saying that?

[Sally Guy]

Yes.

We would just not have social impact bonds. We would have some forms of this. Certainly, we believe in social enterprise or in social investments that don't require or look to turn a profit other than the social good. We are just not for, we are totally opposed to, essentially any form of private profit being garnered off the provision of social services and essentially off the needs of those in Canada who are vulnerable.

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

You don't see this as a threat to the social transfer at all. You don't see that.

[Sally Guy]

I don't think so, no. I think we understand that different forms of social investments, so those that don't necessarily look to create a profit, can exist happily in a blended model of service delivery with public services.

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

Great, thank you.

Lars, you were the first SIB, basically, in western Canada, so you're a trailblazer. Am I accurate in saying that you were the first one to be established?

[Lars Boggild]

The first social impact bond to be established in Canada was in Saskatchewan. We as an organization didn't have a hand in designing that, but we are developing a multiple of these projects all across Canada and actually coast to coast.