OPINION: Canada needs a government-backed social finance fund

The time is right for social finance to flourish in Canada.

This is because an evolving world needs evolving solutions. In Canada, the range of issues that the government must respond to and invest in has heightened, from safe drinking water on Indigenous reserves to the development of products that support a low carbon economy, to affordable housing, to name a few. It is not only timely, but, in fact, urgent that we consider new solutions and new streams of revenue. Social finance provides a way forward.

Think of it as profit with social purpose. Social finance uses private investment to raise capital for projects that serve a social purpose, such as affordable housing or infrastructure projects in poorer communities. Social finance funds are similar traditional investment vehicles in that there is a return on investment. Where they differ is that rather than maximizing those profits for profits’ sake, investors in social finance are also investing in their communities by supporting projects that address our most challenging and pressing needs. Affordable housing, employment for new immigrants and marginalized people, and the lack of adequate infrastructure in Indigenous and remote communities are all critical areas that can be addressed with the help of these investors.

Our report, The Federal Role in a Social Finance Fund, made six recommendations that would bring social finance from the margins into the mainstream to support and scale solutions put forward by charities, non-profits and others.

Social finance isn’t new in Canada. Successive governments have been experimenting with social finance for the last decade. Our committee heard about the Huron-Wendat nation in Quebec that used an innovative solution for the public good. The Huron-Wendat put federal government transfer payments intended for housing projects into a community loan fund instead of spending them directly. A First Nations non-profit agency raised more than $35-million (a combination of government funding and private investments) for a housing loan fund, money that was used to finance the construction of 400 homes.

They identified a problem within their community and addressed it. Instead of just spending money from the federal government, they used that capital to raise even more money. It became a sustainable fund that can continuously support affordable housing in their community, but it cannot scale up.

Unfortunately, the necessary supports to take social finance to new heights simply don’t exist in Canada because there isn’t enough capital to scale up projects. With limited capital available, many projects never get large enough to have a far-reaching impact.

To create these necessary supports, the federal government must create and capitalize a pan-Canadian social finance fund. Run at arm’s length from the government, it would leverage private capital from across the country to be used for socially-beneficial projects. This type of fund will bring together Canada’s private and institutional investors with proven solutions led by charities, not-for-profits, and others to amplify their reach and impact.

In his testimony to our committee in February, Duncan Farthing-Nichol, manager from MaRS Centre for Impact Investing, said, “We think a government-backed social finance fund could help lift Canada’s social organizations to a size and scale that matches the problems they seek to solve.”

We know that resources are scarce. The fund could provide a much-needed infusion of capital into the giving sector. The federal government’s participation in this type of investing would signal to investors, such as banks, credit unions, and pension funds that a fund’s social objective is deserving of support and that social finance is financially stable.

There are countless social challenges facing Canadians. In most cases, money is a key part of overcoming them. Canada is a rich country with great reserves of capital that, if harnessed, could be used to address these social issues.

We need to become more imaginative in the ways we find the money to tackle social issues. A federally-backed social finance fund could be an effective way of connecting untapped private capital with solutions for important social issues.