Foundations have a long history of enabling social change as they have been uniquely positioned outside the constraining structures of business and government to address the most pressing of issues facing society. These changes have been achieved through mission-driven programs and grant making, even though the majority of a foundation’s assets remain invested in traditional financial products without due consideration of their impacts on the world.
Increasingly, foundations are seeking to place a greater portion of their endowed assets in investments that will generate financial returns and enhance their positive social and/or environmental impact. At the same time, there is an ever-increasing number of organizations that generate precisely this kind of holistic return, examples of which can be found throughout this guidebook. Impact Investing is an approach to providing capital these types of organizations, companies and funds with the intention of generating positive social and environmental outcomes alongside a financial return.
Foundations have in turn become natural leaders in Impact Investing in Canada and across the globe, as it can serve as a strong complement and potentially transformative addition to grantmaking. With a history of 3 – 5% of their total assets conventionally being used for grant making, there is potential to unlock up to 20 times more resources for mission than before. Beyond an opportunity — some have gone so far as to suggest that Impact Investing is a moral imperative for the sector.
As the field has matured in recent years, impact investing has steadily gained more attention in the philanthropic community in Canada in particular. The Canadian Task Force on Social Finance has set a target for Canadian foundations to invest at least 10% of their capital in mission-related investments by 2020 — which would collectively redirect an estimated $7 billion in assets toward greater impact.
While dozens of Canadian foundations of all types and sizes took to action, including those featured in this guide, more and more time was dedicated to discussing the topic at conferences and board meetings. Yet many interested executive directors and board members were encountering a set of issues, both real and perceived, that could be easily resolved with a practical guide and dedicated suite of supports from experts and peers.
The Guidebook, this online hub and complimenting coaching service are intended to address that need. It was created through a partnership between Community Foundations of Canada, Philanthropic Foundations Canada and Purpose Capital as a trusted resource rooted in the practical, day-to-day realities of foundations and impact investors.
The end goal of this project is simple: to help a wide range of Canadian foundations take informed action to align their investments with their values. In doing so, they will be joining a community of hundreds of foundations from around the world who have already taken major strides to invest their capital in accordance with their mission.
It is our hope that, if equipped with 21st Century tools and approaches, the philanthropic sector will be able to build on its history and collaborate to tackle head-on the problems of the 21st Century in all of their complexity. If our collective efforts prove successful, we believe the potential is vast for Canadian Philanthropy to work across sectors and create a better future.
By Jonathan Glencross (Purpose Capital)
The Impact Investing Guidebook has been developed in partnership between Community Foundations of Canada, Philanthropic Foundations Canada, and leading impact advisory firm Purpose Capital. We would also like to acknowledge the generous support from Miller Thomson, Employment and Social Development Canada (ESDC), Edmonton Community Foundation, Fondation Lucie et André Chagnon, Genus Capital, and the input from many Canadian foundations from coast to coast.
We are at a tipping point for impact investing in Canada. A growing number of foundations are using impact investing to support organizations that share their mission. They are investing more capital to address issues such as sustainable food production, renewable energy and adjustment to climate change, affordable housing – to name a few – while also making a financial return.
Many pioneering community, family and independent foundations are well out of the gate with sophisticated strategies to build impact investing into their organizational practice. They have shared, learned, experimented and re-invested. This wave of early adopters has cleared new ground for others to participate.
Canada’s 10,000 public and private charitable foundations, with combined assets of close to $40 billion could be important investors when it comes to building needed social purpose ventures in Canada. More and more foundations are moving to set aside of anywhere between 5% and 10% of their portfolios for such investments. And the market is growing.
Why impact investing?
Impact investing complements the mission-related impact of grantmaking. Through impact investments, foundations can target positive social and environmental impact alongside a financial return. There are a range of benefits to this approach. For example, foundation endowments can, amongst other things:
- Support small scale social entrepreneurs;
- Grow the stock of green, urban, and social infrastructure like affordable housing that our cities and communities need;
- Help charities with capital needs and cash flow challenges;
Support the switch to sustainable energy;
- Bring mission-aligned capital into partnerships with government and the private sector;
- Aim capital towards gaps in financing, such as for newcomers to Canada, Indigenous communities, and women; and
- Work at bigger scales and over longer terms.
Canadian foundations already investing for impact
Impact investing practices for Canadian foundations have shown growth over the past 10 years. For example, starting with a 3% goal for its assets invested for impact, the Lawson Foundation has built a portfolio of investments, including a significant purchase of a community bond offered by Innovation Works in London, Ontario and a co-working space for a variety of charities and social enterprises.
The Ottawa Community Foundation is supporting affordable housing in Canadian cities through a $1 million equity investment in New Market Funds and an equal commitment to the Community Forward Fund, which makes loans to non-profits.
The Edmonton Community Foundation has collaborated with the City of Edmonton to create a Social Enterprise Fund that has made over 40 loans in Alberta. Very recently, it made $10 million in financing available through a new Community Development Corporation (that it also co-incubated and co-governs) to support new housing, employment and neighbourhood redevelopment in targeted areas of the city.
Closing the gap
Despite this activity and momentum, it’s clear that we still at the starting gate. A majority of Canadian foundations are not on track to meet a 2010 recommendation by the Canadian Task Force on Social Finance to direct 10% of capital towards impact investing. Some, however, are looking to begin their impact investing journey with the right tools and partners. Recent research by Community Foundations of Canada found that while most of the 191 community foundations in Canada do not currently have an impact investing strategy, one third of those organizations without a plan in place intend to change that in the next 24 months. There is pent up interest in practical steps and steady advice to help foundations manage innovation within their organizations. With the right energy, tools, and opportunities we can move ahead quickly and at scale.
Over the past year, Community Foundations of Canada, Philanthropic Foundations Canada, and Purpose Capital have been collaborating on a project to respond to what we see as a need for more dedicated resources rooted in the practical day-to-day realities of foundations and impact investors. This collaboration has resulted in a new Impact Investing Guidebook aimed at Canadian foundations that are ready to begin using their assets differently, learn more about impact investing, and develop strategies to engage with it.
As well, this partnership between our three organizations responds to a gap: the need for more customized support. The most successful foundations in the first wave have been working with experts and advisors to frame their investment strategies. For example, Purpose Capital has advised impact investing leaders such as Hamilton Community Foundation, McConnell Foundation, Inspirit Foundation and others.
As foundations take on impact investing, they are adjusting their staffing and governance, and creating new operational pathways inside their organizations. Many foundations cannot afford customized external support to make these transitions. Purpose Capital is making a good portion of the wisdom and experience it has accumulated over the last number of years publicly available to those who are interested in making use of the Guidebook. Together, the three lead partners have spent much of the last year conducting surveys, focus groups and interviews to create a helpful resource for the sector. In addition, customized advice will be available through a coaching service at preferential rates for member foundations.
This new guidebook will fill an information and action gap for many foundations. We hope that it will be of significant help to the next wave of foundation impact investors in Canada and add to the momentum that we are seeing develop in this field. Continuing to move forward, and “tipping over,” is critical since impact investing provides strength to key directions in Canadian philanthropy and the broader Canadian conversation about social change. Other ingredients are also needed, including continued collaboration with product developers and managers to connect supply and demand. This includes cooperation with governments at all levels to help shape the market and align incentives. The federal government’s current Social Innovation and Social Finance Steering Group is a great example of one opportunity to build and enable creative collaboration.
As we focus on larger and more complex goals, for example making progress towards the Sustainable Development Goals, we need to mobilize our resources to the fullest extent possible. Impact investing can become an important tool in our work on environmental and social priorities, in collaboration with other sectors. And finally, in a changing world where charities are increasingly earning revenue and taking on debt, and we see social enterprise and social purpose business taking off, foundations must shift their own cultures, practices, and capacities to align with new opportunities.
By Hilary Pearson (President, Philantropic Foundations Canada) and Sara Lyons (Vice President, Community Foundations of Canada).