Social Finance

Highlights

The Government of Canada has amended the mandatory security requirements in the Request for Proposals issued for the Social Finance Accelerator (100004371). The amendments are posted on Buy and Sell Canada.

Social finance is an approach to mobilizing private capital that delivers a social dividend and an economic return to achieve social and environmental goals. Mobilizing private capital for social good creates opportunities for investors to finance projects that benefit society and for community organizations to access new sources of funds.

Examples of social finance tools include:

social enterprises;

A social enterprise is an organization that uses a market-based approach to pursue social and/or environmental objectives, such as a café that employs youth at risk or a microfinance institution that provides affordable financial services and low-interest loans to Aboriginal communities.

social finance investment funds; and

Social finance investment funds provide investors with opportunities to direct their capital towards public good initiatives, such as affordable housing projects, community development projects, social enterprises or not-for-profits.

social impact bonds (SIBs).

There are several models of SIBs. In one model, a SIB is a contract between a government and an external organization, in which the government identifies desired social results and commits to pay the external organization an agreed-upon amount of money if these results are achieved. Typically, investors provide the money to finance an organization to deliver a service. If the agreed-to results are achieved, investors may receive up to 100 percent of the original investment as well as a financial return. If the results are not achieved, the government does not pay.

Social finance accelerator initiative

Economic Action Plan 2015 confirms the Government’s commitment to support social entrepreneurs with innovative solutions and announces the implementation of a social finance accelerator initiative to help develop promising social finance proposals.

Employment and Social Development Canada will implement a social finance accelerator initiative to help promising social finance proposals become investment-ready, attract private investment and turn social entrepreneurs’ proposals into action. Through this initiative, workshops, advisory services, mentorship, networking opportunities and investor introductions will help to fast-track promising social finance ventures to a greater stage of investment readiness. Learn more about the Social Finance Accelerator Initiative.

The Request for Proposals is posted on Buy and Sell Canada.

Government of Canada involvement

The Government supports social finance initiatives by committing to work with leaders in the not-for-profit and private sectors to explore the potential for social finance initiatives and examine whether there are barriers to their success.

The Government’s commitment to social finance approaches reflects a recognition that new thinking, methods, partnerships and approaches are required to make progress on social and economic challenges such as homelessness, youth crime, chronic poverty, skills shortages, and persistent unemployment.

Piloting innovative funding arrangements

Employment and Social Development Canada (ESDC) is changing how the department supports community organizations to improve economic and social outcomes for Canadians. ESDC is doing this through projects that are piloting innovative funding arrangements, such as:

  • rewarding organizations that deliver pay-for-performance agreements that bring new approaches to addressing social challenges;
  • matching taxpayer dollars with non-government contributions to extend the impact of not-for-profit organizations; and
  • simplifying access to government funding for community organizations.

In October 2013, ESDC launched a SIB-inspired pilot to test new ways of generating employer and private investments to improve labour market outcomes for Canadians through improved literacy and essential skills. The pilot will help determine if this type of approach can work to support skills development opportunities for low skilled workers or unemployed Canadians seeking work.

The pilot will test two models and include an independent testing organization to determine the skill gain of participants. The two models include:

  • Private investors provide the upfront capital to fund programs to support unemployed people to develop the literacy and essential skills needed to better connect to available jobs. Investors will be reimbursed based on an agreed-upon payment structure that allows for reimbursement of their initial investment plus a maximum 15% return for results achieved.
  • New incentives for employers to invest in literacy and essential skills training of workers and examining how a return-on-investment model could result in better outcomes for both. Using an agreed-upon payment structure, reimbursement to employers will be made for up to 50% of training related costs for results achieved.

In February 2012 ESDC launched the Foreign Credential Recognition (FCR) Loans Pilot project to test models of community-based partnerships that would help internationally trained individuals overcome financial barriers associated with the FCR process. The Pilot provided funding to nine community-based organizations to increase their capacity to support eligible professionals seeking to have their credentials recognized, making it easier for internationally trained individuals to find jobs that suit their skills while filling labour shortages in key sectors and strengthening the Canadian economy.

Social finance investment funds

Social finance investment funds (SFIFs) provide access to capital for not-for-profits, social enterprises and social purpose businesses. To support the many SFIFs in Canada, the Government commissioned a report Eight Tracks: Impact Investing in Canadian Communities exploring best practices through drawing on a selection of case studies, and prompted the setup of a network of fund managers to share learning and collaborate.

National Call for Concepts (closed)

Via the National Call for Concepts for Social Finance launched in 2012, Canadians were asked to submit ideas on how for-profit organizations, not-for-profits, charities, foundations and individuals can fund programs to help families, seniors, and at-risk individuals in Canada. The 154 responses to the Call showed that there are many innovative and collaborative solutions being developed by citizens, businesses, charities and other groups to resolve a wide range of societal difficulties.

For more information, visit the Consultation and Engagement section.

International collaboration on social finance

Along with its G7 partners, Canada contributes to international efforts to promote social impact investment globally through its participation in the Social Impact Investment Taskforce, established under the UK Presidency of the G8 in 2013. The Taskforce brings together officials from the public, private and non-profit sectors to discuss challenges and opportunities related to growing the impact investment market. Each member country has a national advisory board responsible for investigating these issues within their national context.

In September 2014, Canada’s National Advisory Board published its report, Mobilizing Private Capital for Public Good and the Social Impact Investment Taskforce published its report, Impact Investment: The Invisible Heart of Markets.

Reports on social finance