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Private Capital for Collective Benefit: Realizing Social Change through Impact Investing

ImpactInvesting Feature Pic
August 9, 2016

Community empowerment and mobilization are crucial for connectedness and positive social change. Yet there are structural and systemic barriers that make it difficult for the changes necessary to enable this community empowerment, and funding can be the difference between empowerment initiatives returning value to the community or being inaccessible and ineffective.

Impact investments target social and environmentally-responsible projects with financial return as well. These types of investments are gaining momentum and helping to deliver much-needed capital to a number of causes, including social development projects that foster community resilience. What’s more, investors around the world are hoping that in this economic climate, they can “do good while doing well.”  Impact investing can transform and eliminate barriers, propelling community-driven change forward where it was otherwise impossible. By 2021, the impact investing market in Canada is projected to be $30 billion.

Venture capitalism used to be the best option for large-scale investors: financing emerging firms with high growth potential. Financiers and investors alike spent billions to support start-ups while hoping to earn massive returns. The world economic crash in 2008 delivered a devastating blow to these capitalist endeavors. Yet, one positive outcome emerged: “the need to ensure that finance contributes to a healthy society, rather than endanger it.” Enter Impact Investors, a new breed of investors who are bringing a whole new, responsible angle to financing ventures, and whose influence is vital to the growth of many community initiatives and social innovation programs.

For example, Toronto has its own impact  investing centre. The MaRS Centre for Impact Investing is a project incubator and social finance hub that works to foster a collaborative space for the government, public, private and community sectors. The Centre is designed to help connect Canadian investors with financing opportunities for organizations to tackle many issues from poverty to climate change. Charities and for-profit companies who aim to their communities  a better place are “turning to investors for financing to launch and grow innovative new programs, become sustainable and scale their impact.” Impact investing really took off in 2013, when former UK Prime Minister David Cameron declared at the G8 Summit the formation of the Social Impact Investment Taskforce that would report on “‘catalysing a global market in impact investment’ in order to improve society.” Since then, impact investment groups have emerged all over the world. The Global Social Impact Investment Steering Group – successor to the G8 taskforce – is helping to lead the way by providing advice to the world’s investors, facilitating exchange of knowledge, and encouraging national market policy improvements.

There are a few different ways impact investments happen: banks, wealth managers and pension funds can provide their clients with investment opportunities targeting a specific cause; institutions or foundations can leverage greater assets to help advance specific causes while they grow their endowments; and government investors can “provide proof of financial viability for private sector investors” while they, too, take aim at a social or environmental project. The Toronto Atmospheric Fund (TAF) is a great example of an organization whose endowment is nearly 70% invested into community impact funding. The fund, which invests in solutions for reducing air pollution and greenhouse gas emissions in the city, is “at the forefront of low-carbon impact-investing” and offers positive financial returns for investors. TAF demonstrates “the value of investing in community projects” that can both address current environmental concerns and turn a profit.  

Canada is now also involved in social impact bonds. In 2014, the country’s first social impact bond launched with a $1 million financial institution investment for the Saskatoon Downtown Youth Centre. The investment aimed to help single mothers who were deemed to be at-risk. Financial Post writer Barry Critchley explains the investment return in this situation, stating that if the objectives of the project are achieved, then “the government funds the provider, which in turn repays the investors.” The program is now known as the Sweet Dreams project, and it’s success to date has led to the construction a brand new child-care facility, ultimately strengthening the downtown community and creating a social support network for young mothers. The MaRS Centre for Impacting Investing is also moving forward with social impact bonds for socially responsible programs in Ontario.

The MaRS Centre for Impact Investing believes that social financing helps to build resilient communities, as these investments provide strong foundations for community development and social connectedness. Impact Investment is what Ronald Cohan and Tim Jackson, two social finance leaders, refer to as “a kinder, gentler” type of investing.

Impact investing can help  to initiate a positive relationship between people, private capital and vital social, environmental and medical causes. With impact investors reversing the trend of harmful investment practices which prioritize the accumulation of money at the cost of community wellness, a new path to tackling complex societal issues at a financial and economic level is possible. Furthermore, the return value that communities give back once invested in could not only change a community for the better, but also empower community members to be a further catalyst for change.