Another Run at the Social Finance Fund
The 2019 Budget confirms the creation of a Social Finance Fund, which will make investments of federal capital into organizations that are working to remedy Canada’s social challenges.
This project has been in the works for a while, beginning with the 2017 creation of a Social Innovation and Social Finance Strategy Co-Creation Steering Group. This Group, mainly comprised of charitable and non-profit sector experts, delivered a final report in 2018. Among its key proposals was the Social Finance Fund. Accordingly, the Fund was included in the 2018 Fall Economic Statement and has now been confirmed in the Budget.
The government is providing $755 million of investment funding over ten years, and additional $50 million over 2019 and 2020. The additional funding will be invested with the goal of improving the ability of “social purpose organizations” to participate in social finance themselves. The Budget suggests this may include assisting these organizations with business planning, technological support, and the development of impact measurement tools.
Social finance means making investments intended to generate social impact, as well as profit. The Fund will be managed by professional investment managers with relevant expertise, selected through a competitive process in fall 2019. The managers will invest in new or existing ‘social finance intermediary organizations’ that work with charitable, non-profit, and other social purpose organizations to address social challenges like poverty reduction, employment for people with disabilities, and affordable housing.
At least $100 million of the Fund is earmarked for projects that support gender equality. A further $50 million will go to the Indigenous Growth Fund, on which we can expect more details later this year, including the anticipated participation of private investors. The Fund managers will be required to leverage at least twice as much non-government capital as federal capital, except for investments in Indigenous-led or -owned funds.
According to the Fall Economic Statement, “it is expected that a Social Finance Fund like the one the Government is proposing could generate up to $2 billion in economic activity, and help create and maintain as many as 100,000 jobs over the next decade.” We can perhaps forgive the deeply non-committal tone of this speculation, given how novel this project is.
‘Impact investing’ by governments is on the rise in various forms across the country, but not in this form and scale. For example, in January 2019 the government of Manitoba announced that it had entered into its first “social impact bond”, in which it will structure a $3 million bond that is funded solely by private investors. The government will only be on the hook if the project fails and the private investors need to be repaid. This is quite different to the Social Finance Fund, which will be funded directly by federal capital. In truth, the Fund is really a huge experiment. Time will tell how efficient, and how effective, it will be.