Question Period Note: SOCIAL INNOVATION AND SOCIAL FINANCE STRATEGY

What is the Government of Canada doing for non-profits, charities, social enterprises and other social purpose organizations under the Social Innovation and Social Finance Strategy?

• The Government of Canada recognizes the important role that social purpose organizations like charities and non-profits play in addressing complex social and environmental issues. The innovative work of these organizations is more important than ever, as many of these problems have been exacerbated by the COVID-19 pandemic.
• That is why the Government of Canada launched the renewed Investment Readiness Program in summer 2021, which will provide another $50 million in grants and contributions over two years to continue to support social purpose organizations in capacity-building activities to increase their investment readiness and to access social finance opportunities.
• This will also better position social purpose organizations take advantage of the $755 million Social Finance Fund, which launched in summer 2021.
• The Government of Canada deepened its financial commitment to the Social Finance Fund in Budget 2021, announcing that it would accelerate the deployment of the Fund by front-loading $220 million in the first two years of implementation, and that it would adopt a new, more flexible funding instrument for the Fund, to ensure that investments into underserved areas and populations can be made on more flexible and affordable terms.
• The Government of Canada is now working to identify professional investment managers to implement the Social Finance Fund through a merit-based, open, and competitive selection process, with the support and advice of external fund management experts.
• The Government of Canada continues to help social purpose organizations to participate in the social finance market, fostering an inclusive economic recovery.

Key Definitions

Social innovation is about developing new solutions to social or economic challenges. It can improve people’s quality of life through collaborating with new partners, testing creative ideas and measuring their impact. It often involves collaboration across different levels of government, charities, the not-for-profit and private sectors to act on a common social issue. Social innovation is particularly needed in times of crisis like the COVID-19 pandemic.

Social finance is a tool that seeks to mobilize private capital for the public good. It creates opportunities for investors to finance projects that benefit society as well as for charities, non-profits and other social purpose organizations to access new sources of funds.

Social Purpose Organizations (SPOs) play a key role in tackling socio-economic and environmental challenges. These challenges include addressing food insecurity, the lack of affordable housing, and the transition to a low-carbon economy. SPOs include charities, non-profits, social enterprises, co-operatives and businesses with a social mission. SPOs are important economic contributors. That is why the Government of Canada has established the Social Innovation and Social Finance (SI/SF) Strategy.

Examples of Social Purpose Organizations funded through the Investment Readiness Program

1. Iron & Earth is developing a social enterprise to generate revenue for their non-profit. The social enterprise will offer short term training in renewable energy for fossil fuel sector and Indigenous workers. To get to the point where they can generate steady revenue, Iron & Earth used IRP funds ($83,000) to conduct a viability study, market analysis, and to develop a business plan. These tools will allow them to reach the next stage of investment readiness.

2. Based in Nunavut, Kaapittiaq is the first earned income source of the Kitikmeot Heritage Society. “Kaapitiaq is a company dedicated to creating Inuit employment and training, and Indigenous-to-Indigenous business networks. It’s the first Inuit coffee.” The IRP allowed them $100,000 to build an online store, create advertising, and open a warehouse. They will use financing to expand into the wider Canadian market.

3. Elizabeth Fry Society Kamloops District received $50,000 from the IRP to conduct a social enterprise feasibility study and business development planning. The purpose of this initiative was to create a food-based social enterprise for women facing barriers to employment. This planning process identified viable business opportunities to pursue in the next phase of the initiative with a well-grounded approach for success.

Examples of Social Purpose Organizations that could be funded through the Social Finance Fund

1. Aki Energy is an Indigenous-led social enterprise working to develop and implement sustainable energy and food solutions in Manitoba First Nations. Using innovative financial models, Aki has made the installation of geothermal technology more affordable for communities, focusing on transitioning households to geothermal power systems and away from grid-electric systems. Aki secured social finance partnerships in 2016 and developed community-driven outcomes contracts that now help finance Aki’s operations. Aki has invested over $4M directly in Indigenous communities. Funding from the Social Finance Fund would help Aki grow and replicate their success in other Indigenous communities.

2. ÉAU Acquaponic Farms is a for-profit social enterprise with advanced technologies dedicated to developing innovative and efficient aquaponics food production systems to support community food autonomy. Aquapo farms help people living in regions without water and urban neighborhoods where fresh produce is not easily available. The Social Finance Fund could help ÉAU expand its research and development activities and also scale its impact in Canada and internationally.

3. Windmill Microlending is Canada’s largest and most successful microlending program for immigrants and refugees. These loans help skilled immigrants pay for professional exams, training, assessments, professional association fees, books and materials, living allowance and other expenses related to obtaining the required credentials or training. Given the higher annual number of newcomers to Canada, opportunities under the Social Finance Fund could help Windmill expand its reach and meet newcomers’ accreditation and training needs.

Recent History

The Government of Canada first committed to establish measures under the Social Innovation and Social Finance strategy in 2018, including the $50 million Investment Readiness Pilot Program, a $755 million Social Finance Fund, and a Social Innovation and Advisory Council in response to the recommendations of the Social Innovation and Social finance Strategy Co-Creation Steering Group.

Announced in Budget 2021, the renewed Investment Readiness Program (IRP) is a $50 million program over 2 years (2021 to 2023), designed to help advance social innovation and social finance (SI/SF) in Canada. The IRP officially launched on August 6, 2021 with a call for proposals. The program builds on the work already accomplished during its pilot phase. The IRP supports Social Purpose Organizations (SPOs) in building capacity to become investment-ready so that they can participate in Canada’s growing social finance market. This investment in the renewed IRP will be divided into two different streams of funding:

(1) Readiness Support Partners will launch application processes to distribute funding to diverse SPOs in urban, rural and remote communities, including those led by or serving: Indigenous Peoples; Black Canadians and other racialized communities; women; Official Language Minority Communities; people with disabilities; and other under-represented groups within social innovation and social finance. SPOs will use the funding to get help to do market analyses, develop new products and services, build business plans and acquire technical expertise;
(2) Ecosystem Builders will invest in projects that help strengthen the larger social innovation and social finance ecosystem that serves as another layer of support to SPOs.

There will be two rounds of calls for proposals using an open, solicited process. The first round opened on August 6th and closed on September 16th. The first call invited proposals from select organizations under both funding streams and also allowed for other organizations to come forward and express interest in applying. Proposals received are currently undergoing assessment and recommended projects will be submitted to the Minister for approval. Projects are anticipated to start in fall/winter 2021. The second call for proposals will be launched at a later date.

The Social Finance Fund is a $755 million initiative that seeks to accelerate the growth of Canada’s social finance market and provide greater access to flexible financing opportunities in order to help social purpose organizations grow, innovate, and enhance their social and environmental impacts. The COVID-19 pandemic delayed the planned 2020 launch of the Social Finance Fund.

Budget 2021 announced an accelerated Social Finance Fund which will provide for:
• A frontloading of up to $220 million to be invested in the program’s first two years (2021-22 and 2022-23) in order to support near-term economic and social recovery.
• The use of conditionally repayable contributions (CRCs) that will allow funds to flow to a range of diverse Social Purpose Organizations on flexible and affordable terms and on a long-term basis. The use of CRCs required the Government to commit an additional $559.6 million on an accrual accounting basis to the Social Finance Fund through Budget 2021.

Key design parameters for the Social Finance Fund, first announced in the 2018 Fall Economic Statement and Budget 2019, remain unchanged:
• Funding will be managed through professional investment managers with expertise in social impact reporting and a proven ability to promote inclusive growth and diversity in the social finance market.
• The fund manager(s) will invest in existing or emerging social finance intermediary organizations that have leveraged private or philanthropic capital for co-investment.
• The fund manager(s) will be required to leverage a minimum of two dollars of non-government capital for every dollar of federal investment, with the exception of investments for Indigenous-led or Indigenous-owned funds.
• A minimum of $100 million will be allocated towards projects that support greater gender equality—leveraging existing philanthropic and private sector funds towards this purpose in order to help them reduce the social and economic barriers faced by diverse groups of Canadians of all genders, and
• $50 million of the Social Finance Fund will be invested in the Indigenous Growth Fund administered by the National Aboriginal Capital Corporations Association.

The Social Finance Fund was designed through a lens of social equity and inclusion to support social purpose organizations. The social equity lens helps to ensure that investments reach and support underrepresented groups and diverse equity-deserving communities. The application of a social equity lens to the SFF aims to address systemic bias, encourage decisions that remove barriers, and ensure diversity analyses are incorporated throughout investment decision-making processes.

The Government of Canada launched an open, public, and competitive selection process for professional investment managers to become a wholesaler of the fund on August 13th 2021 and closed on September 30th. The proposals received are currently being assessed.

The Government also plans to establish a Social Innovation Advisory Council to provide technical and sectoral expertise to inform the implementation and further development of a federal Social Innovation and Social Finance strategy. The Council will also provide an important perspective from within the stakeholder community, as well as monitor progress and emerging issues in relation to the Social Innovation and Social Finance Strategy. A call for applications has been completed, and applications are being assessed for Ministerial decision on the composition of the Council.

• Social purpose organizations, including charities, non-profits, social enterprises, co-operatives, and businesses with a social mission, play a fundamental role in tackling socio-economic and environmental problems. There are an estimated 170,000 charities and non-profits and 25,000 social enterprises across the country.

• The Government of Canada continues to implement its Social Innovation and Social Finance Strategy to support social purpose organizations in accessing flexible financing opportunities that enable them to enhance their impacts. Key elements of the Strategy include the $50 million Investment Readiness Program, and the $755 million Social Finance Fund.

• The Investment Readiness Program launched as a 2-year pilot program in 2019 and supported over 660 social purpose organizations to build skills and capacities necessary to innovate and access social finance. Budget 2021 announced $50 million to renew the Investment Readiness Program for two years starting in 2021-2022 to continue to support diverse social purpose organizations and help strengthen the social innovation and social finance ecosystem.

• The renewed IRP launched on August 6th, 2021 with a Call for Proposals for organizations to deliver projects under the program, and closed on September 16th. A second round of Call for Proposals is expected to be launched later this year. Employment and Social Development Canada is currently reviewing the received proposals and anticipates projects will start in fall/winter 2021.

• Budget 2021 also announced the acceleration of the Social Finance Fund including deployment of up to $220M of the program’s funding in its first two years, and a change in funding instruments to allow the Social Finance Fund to promote greater investments into currently underserved segments of the social purpose sector. That funding instrument change required the Government to commit an additional $559.6 million on an accrual accounting basis to the Social Finance Fund.

• The Social Finance Fund launched on August 13th 2021 through an open, public and competitive Call for Expressions of Interest for professional investment managers to manage the Social Finance Fund as a wholesaler. This Call closed on September 30th and the Department of Employment and Social Development Canada is currently assessing the proposals. Funds are expected to be deployed starting in 2022.