Public Safety Committee on May 15th, 2014

[The Chair, Conservative, Daryl Kramp]

Colleagues, welcome to meeting 24 of the Standing Committee on Public Safety and National Security. We are following up with our study on social finance as it relates to crime prevention in Canada. We have two series of witnesses, the first group from 3:30 to 4:30, and the second after that. One of them will be live; the other will be joining by video conference.

Right now we have with us Siobhan Harty, director general of the social policy directorate, strategic policy and research branch, Department of Employment and Social Development; and Blair McMurren, director of social innovation in that same branch.

Welcome, both of you here today. We certainly anticipate your comments, and I hope we'll be reasonably friendly in our questions as we move forward.

You're allowed up to 10 minutes per person for a statement.

Please carry on.

[Siobhan Harty, Director General, Social Policy Directorate, Strategic Policy and Research Branch, Department of Employment and Social Development]

Good afternoon. Thank you for the opportunity to address you today. I understand that you're interested in understanding social finance for your study and how it might be used in the area of crime prevention.

In my remarks, I will focus on explaining social finance through concrete examples and I will outline the government's approach to social finance.

Social finance is an approach to mobilizing multiple sources of capital to deliver a social dividend and an economic return in the achievement of social and environmental goals. It provides opportunities to leverage additional investments to increase the available dollars to scale up proven approaches. It also creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds.

Social finance includes a new approach to investing, impact investing, which has been described as actively placing capital in businesses and funds that generate social and/or environmental good, and at least a nominal principal to the investor. For government, social finance is an instrument to achieve more effective outcomes, mobilize private capital for public good, and leverage all community assets. In Canada the momentum toward social finance came largely from the not-for-profit sector with the launch of the non-governmental Canadian Task Force on Social Finance in 2010, which published reports in 2010 and 2011.

The emergence of social finance initiatives in Canada is being driven by demand from stakeholders within both the private and the non-profit sectors, where a growing number of organizations are seeking access to capital markets to build more sustainable organizations and scale up their work.

Social finance is an emerging field at the international level, but other countries have already implemented several initiatives, which provide the Government of Canada with lessons learned and best practices. Internationally, several tools are being used to advance social finance.

One such tool is social impact bonds or SIBs. These are instruments for funding projects where a pre-arranged amount of money is paid out if performance results are achieved. SIBs combine a pay-for-performance element with an investment-based approach. Private investors provide upfront capital to fund interventions, and they can expect to get back their principal investment and a financial return if the results are achieved. The presence of investors is the main difference between SIBs and pay for performance. The private investors take on the risk of identifying and funding the interventions. The risk is only rewarded if, as I said, success is achieved.

To date, the U.K. government has led the way in piloting SIBs, launching multiple projects in a variety of strategic sectors. And it currently has some 15 projects in place. The first SIB, as you may be aware, occurred in Peterborough, England, and was focused on supporting recently released inmates to prevent reoffending.

Several SIB projects are also under way or in development in the U.S., Australia, New Zealand and Belgium.

A second tool is social enterprises. A social enterprise is a company whose goal is to provide goods and services while also advancing a social mission. This emerging business model helps increase the financial strength of community organizations by providing an alternate source of revenue to tackle complex social problems. Social enterprises are commonly run by a charity or a not-for-profit organization. Revenues raised by the business operation are then reinvested into the charity to support its programs and operations, while the business itself can help at-risk populations develop labour market skills. Several jurisdictions have created specific supports for social enterprises, such as programs to develop business skills of social entrepreneurs and make social enterprises investment-ready, hybrid corporate forms, and tax incentives that encourage investment in social enterprises.

A third tool is social investment funds, which aim to create a pool of money that can be used to invest in social finance projects. Their investments can take the form of a debt or equity.

They play a key role as a market intermediary, connecting organizations looking for capital with investors, and reducing transaction costs in the market.

Several countries are supporting existing social investment funds with injections of capital, notably Ireland and Australia. The U.K., again the leader in this field, has set up a wholesale lender called Big Society Capital, which plays a role similar to a social finance bank, lending money to other funds that make social investments.

All of these tools share similar traits. They focus on innovative approaches, the leveraging of private sector resources and acumen in addressing those issues, and a focus on outcomes and results.

Let me turn to social finance in Canada. The Government of Canada has affirmed an interest in social finance in successive budgets since 2010, including the most recent one. Despite Canada's strong safety net and community specific programs, there continues to be pressing social challenges in our country. Budget 2014 emphasized that governments are not always best placed to solve the most pressing social or economic problems.There are Canadians who possess innovative solutions to these problems, and there are others who are willing to fund social entrepreneurs in meeting these challenges. So in the most recent Speech from the Throne, the government committed to act on the opportunities presented by social finance, and in budget 2014 to support Canadians' use of innovative approaches to addressing pressing social and economic needs.

As in other countries, the federal government is not the only actor interested in social finance; provinces are at times closer to the ground, possess unique policy levers and can more quickly enact innovative policies. Provinces and territories have introduced new measures and initiatives to advance social finance. Here are some examples.

B.C. created a new corporate forum for social enterprises; Alberta launched a $1 billion social innovation endowment fund that will in part fund the development of SIB projects; Saskatchewan, this week, launched Canada's first social impact bond focused on supportive housing for at-risk single mothers; Ontario launched a social enterprise strategy and a fund to provide grants and investments; it also launched a call for social-impact-bond ideas in the areas of housing, youth at risk, and barriers to employment.

Quebec has long supported the social economy, a concept that is similar, but not identical, to social finance. Some common features include the blending of revenue generation, investment and the pursuit of social good.

While these actions all speak to a growing interest in social finance across Canada, building an efficient marketplace will require coordinated action and leadership across the country. The federal government is well positioned to help create the conditions for all players to harness the potential of social finance, and has unique levers at its disposal.

In budget 2014, the government committed to working with leaders in the not-for-profit sector and private sector to explore the potential for social finance initiatives and examine whether there are barriers to their success.

Finally, I'd like to say a few words about the work on social innovation and social finance and Employment and Social Development Canada.

In recent years, ESDC has taken incremental steps toward social finance by testing the capacity of community based organizations to leverage federal grants and contributions to get matching dollars from the private sector. ESDC has also tested aspects of pay for performance, and in October 2013 we launched a literacy and essential skills initiative that is modelled on elements of a social impact bond.

In November 2012, we launched the national call for concepts for social finance. It was meant to test the level of awareness and interest in social finance in Canada. It was an open, web-based, crowd-sourcing initiative that solicited innovative and collaborative ideas from Canadians to address social challenges using social finance. We issued a report--I believe you have a copy--in May of last year, and it committed the government to four next steps.

The first was to further the conversation on social finance across the country. The second was to connect new partners across sectors. The third is to sharpen ideas by creating opportunities and venues to develop investment-ready pilot projects. The fourth one is to develop the tools of social finance by using existing program funds to test new approaches.

ESDC has completed the first two steps and is currently advancing the last two.

Finally, the government is participating actively on the International Social Impact Investment Taskforce established as part of the U.K.'s G8 presidency in June 2013. This international work will result in the publication of a report in September 2014 that will include policy recommendations for governments.

In closing, the government's current social finance work represents a cautious incremental approach, testing social finance to see where it works best in Canada, and making adjustments based on early lessons learned.

Exploring the potential of social finance does not prevent the government from also assessing other ideas or concepts that address social problems, nor does it necessitate stopping current approaches that are already working.

Social finance is potentially another tool in the toolbox. It's complementary to existing programs that tackle social problems, and it's not meant to completely replace them, nor would it be appropriate for all social issues.

Thank you.

[The Chair, Conservative, Daryl Kramp]

Thank you very much.

Mr. McMurren, do you have any comments?

[Blair McMurren, Director, Social Innovation, Strategic Policy and Research Branch, Department of Employment and Social Development]

No.

[The Chair, Conservative, Daryl Kramp]

Then we will go to our round of questioning.

We will start off with Ms. James, please.

[Roxanne James, Conservative, Scarborough Centre, ON]

Thank you, Mr. Chair, and thank you to both of our witnesses here today. I'm very pleased you could be here to give us more help on this particular issue.

I'm going to read something you said in your opening remarks. You indicated that “It provides opportunities to leverage additional investments to increase the available dollars to scale up proven approaches” that address social and environmental challenges.

How does it increase the available dollars? When we take a look at what we're spending now on crime prevention through a Public Safety NCPC program, we have a set amount of funds that we use. They go to several different areas. One is the youth gang prevention fund, and so on.

How would social finance help us to increase the available dollars and scale up proven approaches? I'm curious to know. Explain to the committee how that works.

[Siobhan Harty]

The idea is to unlock private capital. I'm assuming the amount of money available for crime prevention is money raised from taxpayers' dollars. Whatever money you have, the idea is to get additional sources from capital markets. That money would be commercial capital. The idea is that you would add it to whatever money you have in current programs. It has to be understood as a new source, an additional source of funds.

[Roxanne James, Conservative, Scarborough Centre, ON]

At some point a government or an organization would be responsible for providing the return on initial investment, plus in some cases, a bonus, and I don't know whether that is the proper term, but obviously if targets are met, you're going to receive something on top of what you initially invested. That's correct, right?

[Siobhan Harty]

That's one of the concepts. That would be applicable in a social impact bond case, but as you noted, I had outlined different tools. I think that's the one that's very much out there in the discourse, and one we're familiar with. Certainly you would be, because of the Peterborough pilot. You're probably looking at that. That would be the idea there.

The savings would potentially accrue over time. We don't know yet. This has to be proven; it's new. This is preventive. It's very much an investment model. In social policy, in my area, we often talk about the benefits of taking preventive approaches to social policy as opposed to remedial approaches, which can be far more costly. Preventive approaches demand that you make an investment up front to prevent something from happening later on. This is very much premised on that kind of model. You are making an investment.

The kinds of savings you accrue are not going to happen in your next fiscal year, presumably. You're trying to bring about change in an individual who, in the case of crime prevention or other complex social issues, requires multiple interventions, and that's embedded in doing impact investing and social finance. They require multiple interventions, often across government departments or across jurisdictions. That kind of attention to individuals and their challenges is going to occur over a period of years, and the savings you're going to see are going to be no further along.

[Roxanne James, Conservative, Scarborough Centre, ON]

I want to speak about multiple interventions. When we're talking about interventions and not seeing the fruits of the labour until years down the road, how is social finance with regard to crime prevention? How do we know we're meeting targets? How do you measure targets with regard to this type of initiative?

I think that's the key. Obviously in anything we do, we invest money, but we need to make sure we're getting results. The biggest bang for the buck, obviously, is the key result for taxpayers as well.

Perhaps you could answer that, please.

[Siobhan Harty]

There are different targets.

The targets you're probably referring to, if I'm understanding you correctly, are the targets that are built into the contractual arrangements. When I think about the social impact bonds in the UK, there's a contractual arrangement between different sets of players, and those targets are related to something around the individual who is receiving the intervention.

For instance—and I know this one a bit better—there's a rough sleeping social impact bond, a homelessness social impact bond, in London. Some of the targets are, for instance, the reduction in the use of emergency services in hospitals by people who are sleeping rough. The idea is that the intervention, the services that you're providing the individuals should, over time, eliminate their need to always go to emergency services. You're going to set them up presumably in a safe place, a home. You're going to get them access to regular medical care. Over time that will reduce the costs on public services. Emergency costs are high costs compared with those of going to your family doctor and getting the kind of attention you need.

Those are the kinds of targets that are set, and you can see they serve a dual purpose. On the one hand, they're in aid of individuals, trying to get them back on their feet. At the same time, they're trying to decrease some costs in the public sector, some areas where we know we have high costs and we could reduce them and at the same help individuals. Those are targets in contracts.

[Roxanne James, Conservative, Scarborough Centre, ON]

Do I have one more minute?

[The Chair, Conservative, Daryl Kramp]

Yes.

[Roxanne James, Conservative, Scarborough Centre, ON]

Thank you very much.

When we talked about stakeholders, you mentioned stakeholders within both the private and non-profit sectors. Are these stakeholders that the government in various departments might already be engaging with? Do we know who those stakeholders are? I mean, we heard about oil and gas companies in the last meeting—

[Siobhan Harty]

In the private sector?

[Roxanne James, Conservative, Scarborough Centre, ON]

We've heard about the Canadian Tires, the Tim Hortons, and so on. Is there a long list of organizations or corporations that would like to get involved in social finance in these types of programs?

[Siobhan Harty]

Let me answer it on two fronts. The first was the not-for-profit sector. Yes, we know that there is a long list of organizations interested in exploring this. We know that because we ran the call for concepts. We had over a 150 responses and we've been continually working with those people, and there are others.

On the private sector side, Canada's major banks are more than interested. RBC already has a fund on social finance. TD is doing some work in this area. In Quebec, as I said in my remarks, it looks a little different. There is a lot of money in the major banks and co-ops that are already looking at more of an impact investing model, so yes.

[Roxanne James, Conservative, Scarborough Centre, ON]

Thank you very much.

[The Chair, Conservative, Daryl Kramp]

Thank you very much.

Now, Madam Doré Lefebvre.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Thank you, Mr. Chair.

Ms. Harty and Mr. McMurren, thank you for being with us today to share your perspective on social finance.

Ms. Harty, at the end of your presentation, you say, and I quote:

Social finance is potentially another tool in the toolbox; it is complementary to existing programs that tackle social problems and is not meant to completely replace them, nor will it be appropriate for all social issues.

What are its limits? What kinds of social projects does it work for?

I know that's a rather broad question, so perhaps you could give us a general sense of where things stand.

[Siobhan Harty]

Thank you. That's an excellent question, but it's a bit difficult to answer, since we don't make much use of SIBs in Canada. We use other initiatives primarily.

Most of the programs that other countries have in place target the homeless, and some address recidivism, an issue you already study from a corrections standpoint.

I would say the transition of high school and university students to the job market is another challenge just about every country in Europe is facing. And to a lesser extent, that is the case in Canada and the U.S. as well. The U.K. is really exploring the potential SIBs have to help unemployed young people who are not in school. In the U.K., these young people are referred to as NEET, an acronym that stands for “not in education, employment or training”. These are young people seen as having no prospects, so the government is examining how SIBs can be leveraged to support them.

And some programs target even younger people. Saskatchewan has a program for young parents, single-parent families and young mothers at risk of being lost in the system. These are individuals who had children at a very young age, who dropped out of school and so forth.

In some cases, it's a matter of transitioning. They are trying to carve out a place for themselves in their community, make a home for their family or find decent employment, but they have trouble making that transition. That's why these kinds of problems are so complex.

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

I think everyone would agree that Canada has fewer problems related to homelessness, repeat offenders and young people's transition to the workplace. Nevertheless, could you tell us why it didn't work in the other countries you mentioned? Were companies opting for projects that were more appealing, or did they try unsuccessfully to make this type of investment?

[Siobhan Harty]

Do you mean in other countries?

[Rosane Doré Lefebvre, NDP, Alfred-Pellan, QC]

Yes.

[Siobhan Harty]

There aren't any other examples. These are the projects currently under way.